Decoding the General Excise Tax: A Deep Dive for Businesses and Consumers

The General Excise Tax (GET) is a unique type of tax levied by the state of Hawai’i. Unlike a sales tax, which is charged only at the point of sale to the end consumer, the GET is a tax on gross income that applies to almost all business activities, regardless of whether a profit is made. It’s assessed on every stage of production and distribution, creating a cascading effect.

Understanding the GET: The Hawai’i Tax Landscape

The GET is the backbone of Hawai’i’s tax system. It’s a broad-based tax, meaning it applies to a wide range of industries and activities. Understanding its nuances is crucial for anyone doing business in the state, or even for consumers who ultimately bear the indirect burden of the tax.

How the GET Works: More Than Just a Sales Tax Alternative

The key difference between the GET and a sales tax is its application. A sales tax is a single-point tax collected from the consumer at the final sale. The GET, on the other hand, is applied at every stage of the business process. This means that a product or service can be taxed multiple times as it moves from producer to wholesaler to retailer, eventually reaching the consumer.

The GET rates are also specific to the type of business activity.

• Most businesses are subject to a rate of 4%.
• Wholesaling activities are generally taxed at a lower rate of 0.5%.
• O’ahu has an additional surcharge of 0.5% which increase the General Excise Tax on O’ahu to 4.5%.

Who Pays the GET?

Legally, the GET is paid by the business generating the gross income. However, the economic reality is that businesses often pass the cost of the GET on to consumers through higher prices. This indirect impact makes the GET a factor in almost every transaction within Hawai’i. Because of this tax cascading effect, this means that the overall tax impact is effectively higher than the nominal rate.

Frequently Asked Questions (FAQs) About the GET

1. What types of income are subject to the GET?

Virtually all income derived from business activities in Hawai’i is subject to the GET. This includes sales of goods, services, rentals, and even interest and royalties. Certain limited exceptions exist, such as specific types of income earned by non-profit organizations.

2. How is the GET calculated?

The GET is calculated as a percentage of your gross income. For most businesses, this is simply 4% of the total revenue generated. For example, if a business has $100,000 in gross income, the GET would be $4,000. However, the total amount of GET can be significantly increased based on the cascading application of the tax.

3. What is the difference between the GET and the Use Tax?

The Use Tax is a complementary tax designed to prevent businesses from avoiding the GET by purchasing goods or services from outside of Hawai’i for use within the state. It’s essentially a tax on goods or services that would have been subject to the GET had they been purchased in Hawai’i.

4. Are there any GET exemptions?

Yes, there are some exemptions, although they are relatively limited. Common exemptions include certain sales to the federal government, income of certain non-profit organizations, and specific types of agricultural activities. It’s crucial to consult with a tax professional or the Department of Taxation to determine if your business qualifies for any exemptions.

5. How do I register for a GET license?

To conduct business in Hawai’i, you must obtain a GET license from the Department of Taxation. This involves completing an application, providing business information, and paying a small fee. The license allows you to legally collect and remit the GET. You can register through the state’s website.

6. How often do I need to file and pay the GET?

The filing frequency for the GET depends on your annual gross income. Businesses with higher incomes typically file and pay monthly, while smaller businesses may be eligible to file quarterly or semi-annually. The Department of Taxation provides detailed guidelines on filing schedules.

7. Can I pass the GET on to my customers?

Yes, it is legal and common practice to pass the GET on to customers. However, it’s crucial to clearly disclose the GET as a separate line item on invoices or receipts. You cannot simply include it within the base price without proper disclosure.

8. What are the penalties for failing to pay the GET?

Failing to pay the GET on time can result in significant penalties, including interest charges and fines. In severe cases, the Department of Taxation may even pursue legal action. It’s crucial to comply with all filing and payment deadlines to avoid these penalties.

9. How does the GET affect online businesses selling to Hawai’i residents?

If your online business has substantial nexus with Hawai’i, you are likely required to collect and remit the GET on sales to Hawai’i residents. Nexus is generally established by having a physical presence in the state, such as an office, warehouse, or employees. Even without a physical presence, significant sales volume can also create nexus.

10. How is the GET used by the State of Hawai’i?

The revenue generated from the GET is a primary source of funding for state government operations. It supports various public services, including education, healthcare, infrastructure, and social programs. The GET essentially funds many critical government services across the state.

11. Is there any effort to reform or replace the GET?

The GET has been a subject of ongoing debate and discussion in Hawai’i. Many advocate for reform or replacement, citing its cascading effect and potential impact on low-income residents. Proposals have included shifting to a traditional sales tax system or modifying the GET to reduce its burden on consumers. However, such proposals often face significant challenges due to the GET’s importance as a revenue source.

12. Where can I find more information about the GET?

The best source of information is the Hawai’i Department of Taxation. Their website provides detailed information on the GET, including regulations, forms, and publications. You can also consult with a qualified tax professional who specializes in Hawai’i taxes for personalized advice.

Conclusion: Navigating the GET Landscape

The General Excise Tax is a fundamental aspect of doing business in Hawai’i. While it can seem complex, understanding its principles and implications is essential for businesses and consumers alike. By familiarizing yourself with the GET, its calculation, and its potential impact, you can navigate the Hawai’i tax landscape with greater confidence. Keeping up-to-date on any changes to the GET regulations is also important.