RATE OF GENERAL EXCISE TAX:
4.00%
LOCAL & COUNTY MAXIMUM RATES:
0.50%
What Are the Taxable Goods and Services?
The first step in tax compliance is determining if the items or services your firm offers are taxable in Hawaii.
Traditional Products and Services
Hawaii does not have a sales tax, but rather a General Excise Tax (GET). A sales tax is a tax levied on customers, while a general excise tax is levied on enterprises. Businesses are obligated to collect sales tax, but not general excise tax.
Businesses in Hawaii often pass on their excise tax to their consumers, although this is not mandatory. Businesses must pay excise tax whether or not they charge it to their consumers.
Physical property, such as furniture, household appliances, and motor vehicles, is subject to excise tax in Hawaii.
In Hawaii, prescription medications are tax-free.
In Hawaii, several services are subject to an excise tax. View this PDF from the Hawaii Department of Taxation website for a complete list of taxable services.
Digital Products and Services
A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.
Businesses in Hawaii are required to collect excise tax on the sale of digital products or services.
How to Apply for the Hawaii General Excise Tax
If you have concluded that you must charge an excise tax on any or all of the products and services that your company sells, the next step is to apply for a seller’s licence.
This enables your company to collect excise taxes on behalf of municipal and state governments.
You will need the following information to register:
ITIN or SSN number
Identification information for a business
Type of business entity
Your company’s nature
All firms must have a North American Industrial Classification System (NAICS) designation. You may do an NAICS Code Lookup to locate the NAICS Code for LLC that corresponds to your industry.
A Resale Certificate might help you save money.
When acquiring items for resale, your firm does not have to pay excise tax if you obtain a resale certificate, also known as a reseller’s permission.
Taking General Excise Tax
After obtaining your seller’s licence and starting your firm, you’ll need to figure out how much excise tax to charge various consumers. It is critical for company owners to collect the right rate of excise tax to prevent penalties and the possibility of expensive audits.
When computing general excise tax, three types of sales must be considered:
Store Sales Across the State
Sales in-state and out-of-state shipping
Furthermore, businesses may charge consumers more than the normal excise tax rate, up to a maximum of 4.166% or 4.712% if they are located in the City and County of Honolulu (Oahu).
Because firms are taxed on their gross receipts, which include GET charged to consumers, the maximum rate is higher than the tax rate. This rate enables companies to pay their total GET expenditure.
Retail Sales
Calculating general excise tax for conventional company owners selling products or services on-site is simple: all sales are taxed at the rate determined by the store’s location.
Here’s an illustration of how this situation may look:
Mary is the owner and manager of a bookshop in Kapolei, Hawaii. Because books are taxed in the state of Hawaii, Mary charges a flat 4.5% excise tax on all purchases. This includes the 4.0% state excise tax and the 0.5% county excise tax in Hawaii. To assist pay the whole GET fee, Mary might charge up to 4.712%.
Sales inside the state
The state of Hawaii has a policy known as a destination-based excise tax. This implies that long-distance transactions inside Hawaii are taxed based on the buyer’s address. This regulation applies to excise taxes levied by the state, county, and city.
Consider the following scenario:
Steve operates his own eBay electronics company from his house in Kaneohe, Hawaii. A buyer from Mililani, Hawaii discovers Steve’s eBay website and buys a $350 set of headphones. Steve uses the 4.0% state tax rate for Hawaii + 0.5% for Honolulu county when computing the sales tax for this transaction. The entire cost is $365.75 ($15.75 excise tax) at a total sales tax rate of 4.5%.
Out-of-State Purchases
Businesses in Hawaii must only pay sales tax on out-of-state sales if they have a presence in other states.
Nexus indicates that the company has a physical presence in another state.
Common nexus types include:
A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.
Fill up and submit your General Excise Tax Return
You’re ready to submit your sales tax return now that you’ve registered for your Hawaii seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.
How to File a Claim
Businesses in Hawaii are required to file general excise tax forms and make excise tax payments online.
How Frequently Should You File?
The frequency with which you must submit is determined by the total amount of general excise tax collected by your firm.
Semiannual filing: If your company collects less than $166.66 in sales tax each month, you should submit returns semiannually.
Quarterly filing: If your company receives between $166.67 and $333.33 in sales tax each month, you need submit quarterly reports.
Monthly filing: If your company receives more than $333.33 in sales tax each month, you must submit monthly returns.
Deadlines for Filing
The deadline for all Hawaii excise tax returns is the 20th of the month, unless it is a weekend or federal holiday, in which case the due is postponed to the following working day. The following are the filing deadlines for this year:
Penalties for Filing Late
Hawaii has a late filing penalty of 5% every month or partial month, with a maximum penalty of 25% of the tax stated on the tax return.
Hawaii additionally levies a late payment/underpayment penalty equivalent to 20% of the unpaid tax. After 60 days of nonpayment, the state will collect the unpaid tax with a 1% per month or partial month interest rate for any unpaid tax or penalty.
According to the state of Hawaii, any payment made after a penalty or charge has been created will be applied to the fee first, followed by the interest and penalty. After you’ve paid off everything else, you may finally pay off the tax.