Taxation and Regulatory Compliance

How to Calculate Hawaii Sales Tax (General Excise Tax)

Navigate Hawaii's General Excise Tax (GET) with clarity. Learn to accurately calculate this unique business privilege tax for your operations.

Hawaii’s General Excise Tax (GET) operates as a business privilege tax, applying broadly to nearly all business activities conducted within the state. Distinct from a conventional sales tax, the GET is imposed directly on the seller’s gross income rather than being a tax collected from the consumer at the point of sale. This tax structure means businesses owe the GET irrespective of whether they explicitly charge it to their customers.

Understanding the General Excise Tax

The General Excise Tax (GET) is levied on the privilege of doing business in Hawaii. Unlike a sales tax, which is imposed on the consumer and collected by the seller, GET is a tax on the gross income received by the business itself. The legal incidence of the tax falls on the business, not the customer, though businesses often pass on this cost.

Any individual or entity receiving gross income from business activities within Hawaii is subject to GET. This broad application includes sole proprietors, corporations, self-employed individuals, and those earning rental income. GET has a “pyramiding” or “cascading” effect, applying at multiple stages of production and distribution. For example, a manufacturer pays GET on their sale to a wholesaler, who then pays GET on their sale to a retailer, and the retailer pays GET on their sale to the final consumer. Each tax is levied on the gross receipts at that transaction stage.

Identifying Taxable Activities and Rates

Various business activities in Hawaii are subject to GET, each at a different rate. The statewide base GET rate is 4% for most retail sales of tangible goods and services. This also applies to construction contracting, rental of real or personal property, and business interest income.

Wholesale sales, defined as sales for resale, are subject to a lower rate of 0.5%. This reduced rate also applies to manufacturing, producing, and providing wholesale services. A specific rate of 0.15% applies to insurance commissions. Beyond state rates, counties may impose a surcharge of up to 0.5%, increasing the total GET rate to 4.5% for activities taxed at the 4% state rate. This county surcharge does not apply to activities taxed at the lower 0.5% or 0.15% rates.

While GET has broad application, exemptions and exclusions exist. For example, income from certain agricultural products or specific non-profit activities might be exempt. Sales of goods shipped directly out of state by a Hawaii business can also be exempt. However, sales to tax-exempt organizations, such as non-profits or government agencies, are still subject to GET, as the tax is on the business, not the customer.

Determining the Taxable Gross Income

For GET purposes, “gross income” encompasses all income received by a business from its activities in Hawaii before deducting business expenses. This includes revenue from sales of goods, services, contracting work, rentals, royalties, and commissions. The GET itself, when passed on to customers, is considered part of the gross income subject to the tax.

Adjustments or deductions may reduce the gross income to arrive at the taxable amount. For instance, returns and allowances for returned merchandise or canceled services can reduce gross income. Income from interstate and foreign commerce may also be excluded or subject to different rules to avoid taxing income earned outside the state.

Unlike income tax, ordinary business expenses are not deductible when determining the GET base. The tax applies to gross receipts, meaning expenses such as salaries, rent, or utilities do not reduce the amount on which GET is calculated. This distinction means a business could owe GET even if it operates at a net loss for income tax purposes.

Performing the GET Calculation

Calculating the General Excise Tax involves applying the correct tax rate to the taxable gross income for each business activity. For a business primarily engaged in retail sales, the statewide base rate is 4%, with an additional county surcharge of 0.5% in some areas, bringing the total to 4.5%. For example, if a business has $10,000 in taxable retail sales in a county with a 4.5% combined rate, the GET due would be $450 ($10,000 x 0.045).

If a business also engages in wholesale activities, income from those sales would be subject to a 0.5% rate. So, $5,000 in wholesale income would incur $25 in GET ($5,000 x 0.005). Businesses pass on the GET to their customers, usually as a separate line item on the receipt, even though the legal obligation to pay the tax remains with the seller. This practice involves using an “effective pass-on rate” that is slightly higher than the stated GET rate, accounting for the GET collected becoming part of the gross income subject to the tax. For a 4% state rate, the pass-on rate is 4.166%, and for a 4.5% combined state and county rate, it is 4.712%.

When a business engages in multiple taxable activities, such as retail sales and services, the GET from each category is calculated separately based on its specific rate. These amounts are then aggregated to determine the total tax liability, requiring careful classification of income streams. The final aggregated tax is reported and remitted to the Hawaii Department of Taxation monthly, quarterly, or semi-annually, depending on the business’s total tax liability.

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