WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Hawaii is the first step in tax compliance.
Traditional Goods or Services
Hawaii has no sales tax but instead has a General Excise Tax (GET). Sales tax is a tax on consumers were as a general excise tax is a tax on businesses themselves. Sales tax is required to be collected by businesses while the general excise tax is not.
It is common for businesses in Hawaii to pass their excise tax onto their customers, but it is not required. Businesses must pay their excise tax whether or not they charge their customers for it.
Goods that are subject to excise tax in Hawaii include physical property, like furniture, home appliances, and motor vehicles.
Prescription medicine is tax-exempt in Hawaii.
Some services in Hawaii are subject to excise tax. For a detailed list of taxable services view this PDF from the Hawaii Department of Taxation website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Hawaii State requires businesses to collect excise tax on the sale of digital goods or services.
HOW TO REGISTER FOR HAWAII GENERAL EXCISE TAX
If you determined that you need to charge an excise tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect an excise tax on behalf of your local and state governments.
In order to register, you will need the following information:
- SSN or ITIN number
- Business identification information
- Business entity type
- Nature of your business
- North American Industrial Classification System (NAICS) code required for all businesses. Lookup NAICS code.
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay excise tax when purchasing goods for resale.
COLLECTING GENERAL EXCISE TAX
After getting your seller's permit and launching your business, you will need to determine how much excise tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of excise tax.
When calculating general excise tax there are three kinds of sales you'll need to consider:
- Store Sales
- In-State Sales
- Shipping In-State
- Out-of-State Sales
Additionally business may charge customers more than the general excise tax rate up to a maximum of 4.166% or 4.712% if your business is in the City & County of Honolulu (Oahu).
The maximum rate is greater than the tax rate because businesses are taxed on their gross receipts including GET that is charged to customers. This rate allows businesses to cover their entire GET expense.
For traditional business owners selling goods or services on-site, calculating general excise tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Kapolei, Hawaii. Since books are taxable in the state of Hawaii, Mary charges her customers a flat-rate excise tax of 4.5% on all sales. This includes Hawaii’s state excise tax rate of 4.0% and Honolulu county’s excise tax rate of 0.5%. Mary could charge up to 4.712% to help cover her entire GET expense.
The state of Hawaii follows what is known as a destination-based excise tax policy. This means that long-distance sales within Hawaii are taxed according to the address of the buyer. This policy applies to state, county, and city excise taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Kaneohe, Hawaii. A customer living in Mililani, Hawaii finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 4.0% state tax rate for Hawaii plus 0.5% for Honolulu county. At a total sales tax rate of 4.5%, the total cost is $365.75 ($15.75 excise tax).
Hawaii businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR GENERAL EXCISE TAX RETURN
Now that you’ve registered for your Hawaii seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Hawaii requires businesses to file general excise tax returns and submit excise tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of general excise tax your business collects.
- Semiannual filing: If your business collects less than $166.66 in sales tax per month then your business should file returns on a semi-annual basis.
- Quarterly filing: If your business collects between $166.67 and $333.33 in sales tax per month then your business should file returns on a quarterly basis.
- Monthly filing: If your business collects more than $333.33 in sales tax per month then your business should file returns on a monthly basis.
**Note: Hawaii requires you to file a general excise tax return even if you have no excise tax to report.
All Hawaii excise tax return deadlines fall on the 20th day of the month unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines:
- First Half (Jan. - June): Due by July 20, 2018
- Second Half (July - Dec.): Due by Jan. 22, 2019
- Q1 (Jan. - Mar.): Due by April 20
- Q2 (April - June): Due by July 20
- Q3 (July - Sept.): Due by October 20
- Q4 (Oct. - Dec.): Due by Jan 22
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
Hawaii charges a late filing penalty of 5% per month or partial month up to a maximum of 25% of the tax that is reported on the tax return.
Hawaii also charges a late payment/underpayment penalty that is equal to 20% of the tax that is unpaid. After 60 days of non-payment, the state will assess the unpaid tax with an interest rate of 1% per month or partial month for any unpaid tax or penalty.
The state of Hawaii has noted that any payment made after a penalty or fee has been established will go towards the fee first, then the interest and penalty. After everything else is paid off, a payment can finally be made towards the tax itself.