Brad Konishi, CPA
Am I a Hawaii Resident or Not?
Updated: May 15, 2020
Are you a Hawaii resident or not? Sometimes the answer is clear and obvious. If you've lived in Hawaii for a while, you work here, you've paid taxes here, and you plan on continuing to live here in the foreseeable future, you're clearly a resident. If you own Hawaii real estate, and you live, work, and pay taxes to another state, then you are clearly not a Hawaii resident.
However, sometimes the answer isn't so clear. What if you own a home and have lived in Hawaii, but are currently on a 1 year work assignment somewhere else? What if you have lived in Hawaii for many years, but you are currently in the process of selling your home because you are moving to the mainland, where you've already accepted a job and have found a new place to live?
First of all, a Hawaii nonresident is considered to be anyone who is not a Hawaii resident. Essentially, everyone is either one or the other. And a resident is defined as everyone who is "domiciled" in Hawaii, or anyone who resides in Hawaii for something other than "temporary or transitory purposes". See Tax Information Release 97-1 for some great information (http://files.hawaii.gov/tax/legal/tir/1990_09/tir97-1.pdf)
TIR 97-1 says establishing residency by domicile requires that the taxpayer believes the following: "Domicile is the place of the individual's true, fixed, permanent home and principal establishment, and to which place the individual has the intention of returning whenever the individual is absent." Some people have tried to claim that as long as they think of Hawaii as their "true, fixed, permanent home", they are perfectly allowed to declare themselves Hawaii residents. But that contention can, and has been overruled if the taxpayer cannot show evidence that this is their belief. If a taxpayer undergoes a HARPTA audit and tried to claim residency by domicile, one of the questions that might be asked is "If you consider Hawaii to be your true, fixed, permanent home, why would you sell the only home you own here?"
A claim of residency by residing in the state can also be problematic for someone who is moving. The statutes read there is a 200 day "safe harbor". Essentially, if a taxpayer was physically present in the state for 200 days in the current tax year, they are "presumed" to be a resident. However, the state has every right to overrule this presumption if it is determined that the taxpayer is here for "temporary or transitory purposes". And if someone is going to move after a home sale, their stay isn't "permanent", it's "temporary".
Yes, HARPTA is a lot of money. And yes, I understand that it really doesn't seem fair. There is a temptation to try to massage the facts to point in your favor - to get you an immediate waiver of HARPTA withholdings. Don't do it. First of all, the state takes HARPTA compliance very seriously, and for good reason. The amounts are in the tens, sometimes in the hundreds of thousands of dollars. With dollar amounts that large, the state takes violations extremely seriously.
Give us a call and we will take the time to ensure that you understand all of your options. We're here to help you with all issues related to HARPTA and FIRPTA.