Hawaii – Updated Tax Guide

SALT Report 1948 – The Hawaii Department of Taxes updated their publication regarding general excise tax, use tax, tax clearances, interest, and penalties. The publication provides a general overview of the taxes paid by businesses that are located in Hawaii and by businesses that are not located in Hawaii but conduct business in Hawaii.

General Excise Tax

The publication discusses the differences between Hawaii’s general excise tax and sales tax. The general excise tax is not a sales tax and differs from sales tax in a number of ways.  First, general excise tax is levied on the person conducting the business and sales tax is levied on the customer. Second, a common practice in Hawaii is to separately state and pass on to the customer the business’ general excise tax liability.  This is done in a manner similar to sales tax in which the tax is separately charged and collected from the purchaser.  If a business adopts this practice, the amount passed on to the customer as a tax must be included in the business’ gross income that is subject to tax.  Unlike a sales tax, the amount passed on as tax cannot be excluded from the gross income subject to the tax.

Taxable transactions include the sale or lease of tangible personal property, the rental of real property, or the provision of services if the seller has a presence in Hawaii.  Presence in Hawaii is established if the business has an office, inventory, property, employees, or representatives in the state, or if services such as training, installation, or repairs are provided in the state.

Use Tax

Use tax is levied on the landed value of tangible personal property and on the value of services and contracting imported into Hawaii for use in the state. The landed value is the value of the property at the time it arrives in Hawaii and includes the invoiced or manufactured cost of the property, plus freight, insurance, and any other costs incurred prior to its arrival in Hawaii.

Tax Clearances

Any business entity entering into, or bidding on, a contract with a state or county agency must obtain a tax clearance certificate from the Hawaii Department of Taxes and the IRS before entering into the contract, and again once the contract has been completed.  Other situations in which a tax clearance certificate may be required include the acquisition or renewal of a state contractor’s license or a county liquor license.  Tax clearance certificates can be obtained through Hawaii Compliance Express.

Penalties and Interest

Penalties and interest are assessed at the same rates for all Hawaii taxes. The penalty for failing to file a return by the due date is assessed at the rate of 5% of the unpaid tax due for each month or part of a month that the return is late up to a maximum of 25%.  Penalties will also be assessed when a return is filed on time but the tax due is not paid in full.  This penalty will be assessed at 20% of the tax not paid.  A penalty of up to 25% may be imposed if an underpayment is due to negligence or the intentional disregard of rules.

Interest will be charged on any unpaid tax or penalty at the rate of 2/3 of 1% for each month the amounts remain unpaid.  Any funds received from a payment will be applied first to interest and then to penalty.  The remaining balance of a payment is then applied to the tax due.

For Further Information:

Hawaii Department of Taxation – Publication 1