Understanding Hawaii’s General Excise Tax: A Deep Dive for Residents and Businesses

The Hawaii General Excise Tax (GET) is a tax levied on gross income from all business activities in the state. Unlike a sales tax, which is charged to the end consumer at the point of sale, the GET is assessed on businesses at every stage of production and distribution, creating a cascading effect. This means that even if you’re not a resident, if you’re doing business in Hawaii, you are likely subject to this unique tax.

Delving into the Details: How the GET Works

The GET, currently at 4% for most islands and 4.5% for Oahu, applies to virtually all businesses, regardless of their size or structure. This includes everything from selling goods and services to renting property. Think of it as a tax on the privilege of doing business in Hawaii.

The key aspect to remember is that it is levied on the gross income, meaning before any deductions for expenses, cost of goods sold, or other operational costs. This is where it starkly differs from a net income tax like the federal income tax. Even non-profit organizations are generally subject to the GET on their gross income from activities that generate revenue.

The cascading effect occurs because each business in the supply chain pays the GET on its gross income, and then passes that cost on to the next business in the chain, ultimately affecting the final price paid by the consumer. It is a feature that impacts pricing across the board, from a cup of coffee to a construction project.

Who Pays the GET?

Essentially, any person or entity engaged in business activities within Hawaii is subject to the GET. This includes:

• Sole Proprietorships
• Partnerships
• Corporations
• Limited Liability Companies (LLCs)
• Non-profit Organizations
• Independent Contractors
• Landlords

If you’re selling a product or providing a service in Hawaii, even if you’re based elsewhere, you likely need to register for a GET license and pay the tax.

The GET vs. Sales Tax: A Crucial Distinction

While the GET is often passed on to consumers, it’s not a sales tax. The critical difference lies in who is legally responsible for paying the tax. In a sales tax system, the consumer pays the tax to the retailer, who then remits it to the government. With the GET, the business is directly liable for the tax on its gross income, irrespective of whether it passes that cost on to the consumer. The business remits the GET directly to the State of Hawaii Department of Taxation. Businesses in Hawaii will frequently pass the GET onto consumers by adding the tax at the point of sale. The practice of passing on the GET to customers is legal and commonly done in Hawaii.

Navigating the Nuances: Important Considerations

Understanding the GET involves more than just knowing the rate. Here are some important aspects to consider:

• Registration: You need to obtain a GET license (also known as a tax I.D.) from the Department of Taxation before conducting business in Hawaii.
• Reporting: Businesses must file periodic GET returns (usually monthly or quarterly) and remit the tax due.
• Exemptions: While the GET is broadly applied, there are certain exemptions, such as sales to the federal government or certain types of agricultural activities. Understanding these exemptions is crucial for accurate tax compliance.
• Interstate Commerce: Determining whether your business activities constitute “doing business” in Hawaii can be complex, especially for businesses with a presence both inside and outside the state.
• Record Keeping: Maintaining accurate records of all gross income is essential for calculating and reporting the GET correctly.

Frequently Asked Questions (FAQs) about the Hawaii General Excise Tax

Here are answers to some of the most common questions regarding the Hawaii GET:

1. What is the current GET rate in Hawaii?

The GET rate is generally 4% for all islands except Oahu, where it’s 4.5%.

2. How do I register for a GET license?

You can register for a GET license online through the Hawaii Tax Online (HTO) portal or by submitting a paper application to the Department of Taxation.

3. How often do I need to file GET returns?

The filing frequency (monthly or quarterly) depends on your estimated annual GET liability. The Department of Taxation will notify you of your assigned filing frequency.

4. What happens if I don’t file my GET returns on time?

Late filing and payment can result in penalties and interest charges.

5. Are there any deductions allowed under the GET?

No, the GET is assessed on gross income, so there are generally no deductions for expenses. This is a key difference from income taxes.

6. Is the GET the same as a sales tax?

No. While the GET is often passed on to consumers like a sales tax, it is technically a tax on businesses for the privilege of doing business in Hawaii. The business is directly liable for the tax, not the consumer.

7. Do I need to pay GET if I’m an online retailer selling to customers in Hawaii?

Yes, if you have sufficient nexus (connection) with Hawaii. Nexus can be established through physical presence, economic activity, or other factors. The rules regarding online sales are ever-changing and it is important to determine if you have nexus within Hawaii.

8. How does the GET affect non-profit organizations?

Non-profit organizations are generally subject to the GET on their gross income from activities that generate revenue, such as sales of goods or services.

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

Yes, it is common and legal practice to pass the GET on to customers. Many businesses will explicitly state this on invoices and receipts (e.g., “Price excludes GET”).

10. Are there any exemptions to the GET?

Yes, certain exemptions exist, such as sales to the federal government, certain agricultural activities, and specific types of healthcare services. Consult with a tax professional or the Department of Taxation for a comprehensive list.

11. What records do I need to keep for GET purposes?

You should keep detailed records of all gross income received, including invoices, receipts, bank statements, and any other documentation supporting your reported figures.

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

The official website of the Hawaii Department of Taxation (https://tax.hawaii.gov/) is the best source of information on the GET. You can also consult with a qualified tax professional specializing in Hawaii taxes.

Final Thoughts

Navigating the Hawaii GET can be challenging, but understanding the basics is essential for both residents and businesses operating in the state. By understanding how the tax works, knowing your obligations, and staying informed about any changes in the law, you can ensure compliance and minimize your tax burden. Always seek professional advice from a qualified tax advisor to ensure accurate and complete compliance.