Foreign Company Liability for Hawaii Corporation Income Tax

I run a small consulting business and have worked in many countries and several USA states. We are registered as a limited company in the UK and pay the required corporation tax on our worldwide earnings in the UK. We are not registered as a corporation in any USA state or other country apart from the UK and have no employees, assets or offices outside the UK.

Having done some consulting work in Hawaii, to my surprise, the State of Hawaii wants us to file Corporation Income tax returns? Surely we are not liable for this double taxation - we have never been asked for this from any other country or US state.

Looking at the State of Hawaii corporation tax rules doesn't help much

- they depend on your corporate status (eg LLC) - but we are a UK limited company.

Reply to
philip_b_taylor
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How did you do consulting business in Hawaii? Did you physically meet with clients in Hawaii? Did you use your hotel room as office space if necessary? Did you do everything over the internet?

Reply to
removeps-groups

If you earned the income while present in Hawaii, you may be subject to their taxes. You need a Chartered Accountant in the UK who specializes in foreign taxation to sort this out for you unless Katie Jaques chimes in on this thread.

Wait until you do consulting work in California. They want to tax you on anything and everything.

Dick

Reply to
Dick Adams

I just belatedly discovered this question, because Dick took my name in vain ... I don't suppose the OP is still hanging out here, but for the benefit of others, I will chime in.

In general, no US federal income tax liability arises for a non-US corporation organized in a treaty country like the UK unless the corporation has a permanent establishment in the US. States, however, are not bound by the treaties. So a UK corporation that is actually performing services in a US state, or has other connections with the state that would be sufficient to create nexus for a US corporation, is subject to state income taxation.

If the OP, through his corporation, actually performed services, met with the client, etc in Hawaii, then the corporation is subject to the Hawaii corporate income tax, unless protected by a de minimis rule. Many other states would take the same position. Probably the only reason the OP has not heard from any other state is because the states are unaware that he was ever there.

Hawaii taxable income would be computed by apportioning the corporation's worldwide net income, as adjusted for US and Hawaii income tax purposes, by an equally-weighted three-factor formula of property, payroll and sales. (Hawaii is one of 13 or 14 states that still use the standard UDITPA equally-weighted three-factor formula, i.e., it does not put heavier weight on the sales factor.) The mechanics of the formula are such that it is likely the Hawaii tax liability would not be substantial.

Katie in San Diego

Reply to
Katie

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