Does Hawaii Have a Sales Tax? A Deep Dive into the Aloha State’s Unique Tax System

No, Hawaii does not have a traditional “sales tax” like most other states in the United States. Instead, Hawaii operates under a unique General Excise Tax (GET) system. While it functionally resembles a sales tax in some ways, it’s fundamentally different and impacts businesses and consumers in ways that a standard sales tax doesn’t.

Understanding the General Excise Tax (GET)

The GET is a privilege tax levied on businesses for the privilege of doing business in Hawaii. This means the tax is applied to the gross income of nearly all businesses, regardless of whether they make a profit. It’s a multi-stage tax, applied at each stage of production and distribution, unlike a sales tax which is typically collected only at the final point of sale to the consumer.

How the GET Works

Think of a loaf of bread. A baker buys flour from a miller, paying GET on that purchase. The baker then sells the bread to a grocery store, again paying GET on that sale. Finally, you, the consumer, buy the bread from the grocery store, and the store pays GET on that final transaction. While the consumer ultimately feels the effect of the GET through increased prices, the tax isn’t directly collected from the consumer at the point of sale like a typical sales tax.

GET Rates

The standard GET rate in Hawaii is 4%. However, on Oahu, the most populous island, there is an additional 0.5% surcharge, bringing the total rate to 4.5%. Certain activities, such as wholesaling, are taxed at a lower rate of 0.5%. Keep in mind these rates are subject to change, so always verify with the Hawaii Department of Taxation for the most up-to-date information.

The “Pass-Through” Effect

Because the GET is levied on businesses at multiple stages, many businesses choose to “pass through” the cost to the consumer. This is often displayed as a separate line item on receipts, but legally, they are not collecting a “sales tax” from you. They are simply recouping the cost of the GET they had to pay on their gross income. This pass-through is common, but not legally required.

Why Hawaii Uses the GET Instead of a Sales Tax

The decision to implement a GET instead of a sales tax is rooted in Hawaii’s unique economic history and structure. The GET was established long before Hawaii became a state, designed to capture revenue from all sectors of the economy, including those that might not be subject to a traditional sales tax. The GET system is also considered to provide a more stable revenue stream for the state, as it is less susceptible to fluctuations in consumer spending.

Advantages and Disadvantages of the GET

Like any tax system, the GET has its pros and cons:

• Advantages:
  • Stable revenue stream for the state.
  • Broad base, capturing revenue from most businesses.
  • Simpler administration for the state compared to managing numerous exemptions in a sales tax system.
• Disadvantages:
  • Multi-stage taxation can lead to price inflation (“tax pyramiding”).
  • Can disproportionately affect lower-income individuals, as the GET is applied to essential goods and services.
  • Less transparent to consumers than a traditional sales tax.

Frequently Asked Questions (FAQs) about Hawaii’s GET

Here are some frequently asked questions to help you better understand the intricacies of Hawaii’s GET system.

1. Is the GET the Same as a Sales Tax?

No, the GET is not the same as a sales tax. It is a tax on gross income levied on businesses, while a sales tax is typically a tax levied directly on consumers at the point of sale.

2. Do I Have to Pay GET on Everything I Buy in Hawaii?

While you don’t directly pay the GET as a separate tax on your purchase, the prices of goods and services typically reflect the GET that businesses have paid throughout the production and distribution chain.

3. Are There Any Exemptions from the GET?

Yes, there are some exemptions from the GET, although they are relatively limited. Common exemptions include certain sales to the federal government, sales of goods for export, and some non-profit organizations.

4. How Does the GET Affect Tourists?

Tourists indirectly pay the GET through higher prices for goods and services, including accommodations, dining, and activities. The GET is a significant source of revenue for the state, contributing to the funding of tourism-related infrastructure and services.

5. Are Online Purchases Subject to the GET?

Yes, businesses selling goods and services online to customers in Hawaii are generally subject to the GET, even if the business is not physically located in Hawaii. This is similar to the “economic nexus” rules for sales taxes in other states.

6. How Do Businesses Register for the GET?

Businesses operating in Hawaii must register with the Hawaii Department of Taxation to obtain a GET license. This license allows them to collect and remit the GET.

7. What Are the Penalties for Not Paying the GET?

Failure to pay the GET can result in penalties, including fines and interest charges. In severe cases, businesses may face legal action.

8. Can I Deduct the GET on My Federal Income Taxes?

The GET is generally considered a business expense and can be deducted on federal income taxes for businesses that are subject to the tax.

9. How Often Do Businesses File and Pay the GET?

Businesses typically file and pay the GET on a monthly, quarterly, or semi-annual basis, depending on their gross income.

10. Is the GET Included in the Price of Hotel Rooms?

Yes, the GET is typically included in the price of hotel rooms and other accommodations in Hawaii. You may see a breakdown of the charges on your bill, but the quoted price generally includes the GET.

11. What is the Difference Between the GET and the Transient Accommodations Tax (TAT)?

The GET applies to all businesses, while the Transient Accommodations Tax (TAT) is specifically for short-term rentals and lodging. The TAT is in addition to the GET and is levied on the gross rental proceeds from transient accommodations.

12. Is There Any Talk of Replacing the GET with a Traditional Sales Tax?

There have been ongoing discussions and debates about the possibility of replacing the GET with a traditional sales tax in Hawaii. Proponents argue that a sales tax would be more transparent and less burdensome on businesses, while opponents raise concerns about potential revenue shortfalls and the impact on the state’s unique economy. However, as of now, the GET remains the primary tax system in Hawaii.