Hawaii General Excise Tax Guide: Rates, Filing & Use Tax Explained

General Excise Tax and Use Tax Basics in Hawaii

General Excise Tax (GET)

Hawaii does not have a sales tax. Instead, Hawaii implemented a General Excise Tax (GET). The GET is rather opposite to sales tax, as the sales tax is a tax on customers, whereas the GET is a tax on businesses. Additionally, companies are typically required to collect sales tax from their customers, whereas businesses are not required to collect GET from their customers.

However, businesses typically charge GST to their customers, although it is not required by law. The reason companies decide to charge GET is to recover their GET expenses. Regardless of whether they charge GET to their customers, companies must pay it to the Department of Taxation.

Use Tax

Although Hawaii does not impose sales tax on goods and services, it does impose use tax on imported tangible personal property, that is, tangible goods, services, contracting, and intangibles bought from out-of-state or remote sellers.

Hawaii State General Excise Tax and Use Tax Rates

Most of the businesses' activities are taxed at 0.5%, 4%, or 4.5% GET rate. The statewide GET rate is 4%, and it applies to the sale of retail goods and services, the renting and leasing of real property, construction contracting, and the earning of commissions, except for insurance commissions, which are taxed at 0.15%. However, a 4.5% GET rate applies to these activities in counties where the tax rate includes a 0.5% county surcharge.

A 0.5% GET rate applies to the wholesale of goods, manufacturing, production, and the provision of wholesale services, as well as to business activities of individuals with disabilities. 

Regarding the use tax rates, they are 4% for the County of Maui, and 4.5% for the City and County of Honolulu, and the Counties of Kauai and Hawaii on imports for personal use or consumption. A 0.5% use tax rate applies to imports for resale at retail, and a 0% rate applies to imports for resale at wholesale.

Tax-Exempt Transactions

Under the Hawaii Revised Statutes, gross income earned by non-profit organizations, such as charitable, religious, educational, public utilities, hospitals, and government entities, provided the income is directly related to their exempt purposes and no private benefit is involved, is exempt from the General Excise Tax.

The exemption is also provided for intercompany services and interest payments between related entities, as well as for common paymaster payroll arrangements, ensuring that internal transactions within corporate groups are not taxed as regular business income.

Nexus Rules in Hawaii

Although Hawaii does not impose sales tax on businesses operating there, in addition to subjecting businesses that are physically located there, remote or out-of-state sellers may also be subject to general excise tax and use tax if they exceed economic or marketplace nexus requirements.

Physical Nexus

Similar to other US states, Hawaii defines that having any employee, warehouse, or property there is sufficient to establish a physical presence in the state. Therefore, businesses that meet these requirements must register for and pay the general exercise tax.

Economic Nexus

Businesses that are not physically located in Hawaii may still be liable for GET if their gross income exceeds USD 100,000, or they have 200 or more separate transactions from sales into the state in the current or immediately preceding calendar year. The gross income refers to income generated from the sale of tangible goods delivered, services used or consumed, or intangible property used in Hawaii.

Marketplace Nexus

Two years after introducing economic nexus rules for remote or out-of-state sellers, in 2020, Hawaii introduced marketplace facilitator rules, thus expanding the imposition of general excise tax (GET) on sales made through marketplace facilitators. Therefore, if a marketplace does not have a physical presence in Hawaii, but its gross income exceeds USD 100,000 or it has 200 or more transactions, it becomes subject to GET.

Taxable Goods and Services in Hawaii

The sale of tangible goods, such as souvenirs, gift items, macadamia nut candies, fruits, t-shirts, liquor, and other sundry items, is subject to general excise tax. Unlike in some other US states, where services are typically exempt from sales tax, and only strictly listed services are subject to it, in Hawaii, services are subject to GET and use tax. The only exception applies to those services that are listed as exempt.

E-Commerce Framework

Since 2018, remote or out-of-state sellers that are not physically present in Hawaii must register for and pay GET if they exceed the threshold set at USD 100,00 in gross income or 200 or more separate transactions from the sale of tangible goods delivered, services used or consumed, or intangible property used there.

However, remote or out-of-state sellers may offer and sell their goods and services through an online marketplace. In that case, different rules may apply to them compared to out-of-state sellers who only sell goods and services through their websites, online stores, or other similar channels.

Marketplace Rules

Marketplace sellers who offer and sell goods and services to consumers in Hawaii, both through online marketplaces and other channels, and are not physically present in the state, must separately register and pay GET at the retail rate on their direct retail sales into the state. Additionally, they must pay GET at the wholesale rate for sales of goods or services delivered into Hawaii through a facilitator, or when goods are first transferred to a facilitator in the state before the sale.

In a situation where neither the marketplace facilitator nor the seller established nexus in Hawaii, the consumer is liable for the use tax. However, facilitators and sellers may voluntarily register to handle collection and remittance.

Digital Goods and Services

The sale of the prewritten or canned software is treated the same way as the sale of tangible goods, regardless of whether the software is delivered on a tangible medium, such as a disc, or transferred electronically. Additionally, the sale of a licence to use this software is also subject to general excise tax. Regarding the taxation of custom software, the same rules that apply to the provision of services also apply to the development of custom software.

Therefore, Software-as-a-Service (SaaS), subscription-based services, e-books, streaming media, downloadable files, and other electronically delivered content are all taxable in Hawaii.

Digital Marketplace

As of January 1, 2020, marketplace facilitators are liable for general excise tax in Hawaii if they exceed the marketplace nexus threshold. Marketplace facilitators are defined as any person who sells or assists in the sale of tangible goods, intangible personal property, or services on behalf of third-party sellers, commonly referred to as marketplace sellers. This involves providing a space for listing or advertising items and collecting payment from the purchaser, either directly or indirectly.

The list of marketplace facilitators includes educational service websites or applications, food delivery service marketplaces, peer-to-peer (P2P) car sharing or rental marketplaces, transportation network companies, remote service, intangible property, or data access marketplaces.

Digital Platform Operator

If they exceed USD 100,000 in gross income or have 200 or more separate transactions relating to the sale of tangible goods, services, or intangible personal property to consumers in Hawaii, marketplace facilitators are subject to GER for their sales made through their marketplaces.

In addition to being subject to general excise tax, marketplace facilitators must pay use tax at the wholesale rate in some instances, even when they are not the final seller. Therefore, they are liable for use tax when they sell goods or services on behalf of sellers who are not engaged in business in Hawaii, meaning they did not establish any nexus there.

Filing and Payment Requirements in Hawaii

Taxable persons with an annual estimated tax liability exceeding USD 4,000 are required to file monthly tax returns electronically. Taxable persons whose annual estimated tax liability is between USD 2,000 and USD 4,000 may request to file and pay quarterly. Those with an estimated tax liability of less than USD 2,000 may request to file and pay their due taxes semiannually. Additionally, taxpayers with annual tax liabilities of USD 100 or less may be exempt from filing under certain conditions.

Penalties for Non-Compliance with General Excise Tax and Use Tax Requirements

Those who are required to file a tax return electronically but fail to do so will face a penalty of 2% of the total tax. The late return filing is penalized with a rate of 5% per month of the due tax, up to a maximum of 25%. Failure to pay the due tax after filing a tax return on time will result in a penalty of 20% of the unpaid tax within 60 days of the prescribed due date.

In addition to these penalties, at the rate of 2/3 of 1% per month, or part of a month, shall be assessed on unpaid taxes.