Looking for information about the General Excise Tax? Use these links to find what you need.
Disclaimer: I am not a CPA or affiliated with the Hawaii State Department of Tax. If you have questions about taxes, call them at 808-587-4242 or contact them. Do not ask me for tax advice — everything I know about the GET is right here in this article .
Have you ever wondered where states get their money from? Each state has their own methods (sales taxes, lottery, gambling), but for Hawaii, the biggest source of income is the General Excise Tax (GET). The tax is on gross income by businesses, meaning that part of every single business transaction goes to the state, whether it’s you buying a pack of gum at the 7-Eleven, or you constructing an office for someone.
Who has to pay the General Excise Tax?
Most businesses that have business transactions occur in Hawaii have to pay the GET. This applies to business that sell goods or provide services.
If you are an independent contractor, a small business owner, a freelancer, a self-employed person, or do “side gigs,” you will need to pay the excise tax, since you are considered a business. Businesses located in another state with a physical presence in Hawaii also have to pay the GET.
There are some business types who are exempt and there are some business types who have a different rate. More on this later.
Is the General Excise Tax a sales tax?
No, it is not. Although both have the same purpose (give money to the state), the two are a bit different. The main difference is who pays the tax. In states that have a sales tax, the tax is on consumers who buy retail goods. In those situations, business help the state by collecting the sales tax for the state. With the GET, the tax is on businesses. Furthermore, it’s not just goods getting taxed — services, wholesale goods, and rents are also taxed.
How much is the General Excise Tax?
The base rate for the GET is currently 4% of gross sales (as of 4/11/2013). In the City and County of Honolulu aka Oahu, the rate is 4.5%. The extra .5% for Oahu is to help pay for the mass-transit rail project on Oahu. Also, anyone conducting business on Oahu or has a “physical presence” on Oahu has to pay the extra .5%.
For example, if you’re renting out apartments in Oahu and Maui, you’ll be paying 4% GET on the Maui apartments and 4.5% on the Oahu apartments.
But why do I see 4.712% tax on my receipt on Oahu?
The answer is a bit complicated, so pay attention to this example:
You own a lunch truck. Jerry Maguire comes one day and buys a loco moco plate from you. The loco moco plate has a price of $10.
As a lunch truck business, you have 2 choices regarding the GET:
Choice 1: You pay the GET. If you choose to pay the GET, Jerry Maguire will be billed $10 and you will collect only $10 from him. When the time comes to pay your GET to the state tax department, you will pay 4.5% multiplied by your gross sales (on Oahu), which will mean you pay 45 cents of that $10 you collected.
Choice 2: You make the customer pay the GET (the common method). If you want to have Jerry Maguire pay the GET instead, you will add 4.5% to the total bill. So, the $10 loco moco should become $10.45, after tax. But you’ll still have to pay taxes out of your pocket. Why? Because the state considers the 45 cents tax you collected to be income too, so you will pay a tax on that tax you collect (confusing right?). Paying 4.5% tax on the 4.5% tax actually equals 4.7025%, but the state allows you to round up a bit and you end up with a GET rate of 4.712% of the sale amount of that plate lunch. Most businesses force customers to pay the excise tax and then the excise tax on the excise tax, so you’ll see 4.712% on your bill, not 4.5%. On outer islands (no .5% Oahu surcharge), this means a GET rate of 4.166%. Most businesses do this because it’s common and it means that they won’t have to pay GET out of their pocket, as the customers paid it already.
Should I make my customers pay the excise tax?
People in Hawaii are accustomed to the tax. Furthermore, it is a surcharge, so it’s added onto the bill, but doesn’t make your sticker price higher, meaning people only see if when it comes time to pay. Furthermore, your competitors probably pass the excise tax onto customers, so if you decide to absorb the excise tax yourself, that means you’re at a financial disadvantage compared to them.
For my business, I don’t pass the GET onto my clients because it makes my accounting easier. Also, I think giving a client an invoice of $800 is much more presentable than a bill of $622.83. Round numbers also make it easier for clients to pay me with cash, which is my preferred method of payment. But really, it’s up to you.
Exception: certain industries are not allowed to charge their customers for GET, such as travel agents (see this article for more info).
Is it okay to pass the General Excise Tax onto my customers? How about for quotes?
As a business, you can tack on the GET onto your client or customer’s bill or invoice. This is also known as “visibly passing the tax onto the customer.” This method makes your customer pay it instead of you paying it out of the money you collect from the sale. You can also have the tax show up as a surcharge, meaning it shows up on a separate line on the bill/receipt/invoice.
Quoting: If you give quotes in your line of business like me, you can pass the GET to your customer only if you tell them or write that there is a certain % tax in addition to the quote.
If I say, “I want to make you an awesome website! Your quote: $50,000!”
>> I cannot tack on GET — my bill must be for $50,000 flat.
If I say, “I want to make you an awesome website! Your quote: $50,000 plus tax!”
>> I still cannot tack on GET because I need to be specific about the rate (4%? 4.1666%? 4.5%? 4.712%?).
If I say “I want to make you an awesome website! Your quote: $50,000! (Plus 4.712% tax)”
>> Now I can tack on GET, because it is clear to the customer that they will have to pay tax in addition to the quoted amount.
How often do I pay the General Excise Tax? What’s a filing period?
Anywhere from every month to every 6 months – it depends on how much GET you expect to pay. The higher your expected GET, the more frequently you should pay.
|If you pay this much in General Excise Taxes per year…||You pay this often|
|less than or equal to $2000||every 6 months|
|more than $2000, but less than or equal to $4000||every 3 months|
|more than $4000||every month|
Basically, the more money you make, the more often you pay, cause the state wants that tax money!
The filing period depends on when your tax year begins. Most of us use a calendar year, meaning our tax year starts on January 1st and ends on December 31st. If you pay quarterly, then that means your 4 filing periods will be January to March, April to June, July to September, and October to December.
Note: You need to also file an annual reconciliation. The G-45 is for periodic payments, as mentioned above. However, you will also need to file a G-49, an annual return and reconciliation. It’s basically a form that checks to make sure the GET you paid is accurate at the end of the year. You need to file this to let the state mark you as filed for the year.
Why do you need a reconciliation? Let’s say you sell hula skirts and had $10,000 gross sales in January. You pay your GET that quarter. But then in October, that same customer returns all the hula skirts. You then refund his money. Those $10,000 of hula skirts are no longer a sale, so you should not have to pay GET on them. However, because you already paid GET on those hula skirts, you’ve overpaid GET. So, you then can use the reconciliation to get a refund. Or you can use the reconciliation to find out that you owe more than you’ve paid for the year.
Basically, it works the same way as regular taxes: you or your employer pay taxes periodically, and then at the end of the tax year, you check to see if you owe or if you’ll get a refund.
When are General Excise Taxes due?
For period GET (form G-45), your taxes are due 20 days after your filing period ends (as I said before, your filing period depends on how much you make). So if your tax year starts on January 1st, your quarters end on March 31, June 30, September 30, December 31. And then your GET is due on April 20, July 20, October 20, and January 20 respectively.
Here is an example of someone who pays quarterly GET:
|Tax year starts||January 1, 2013|
|Quarter 1 ends||March 31, 2013|
|Quarter 1 GET due||April 20, 2013|
|Quarter 2 ends||June 30, 2013|
|Quarter 2 GET due||July 20, 2013|
|Quarter 3 ends||September 30, 2013|
|Quarter 3 GET due||October 20, 2013|
|Quarter 4 ends||December 31, 2013|
|Quarter 4 GET due||January 20, 2014|
* this is only an example, you might pay monthly or only 2x a year, depending on your gross income.
For annual reconciliation (form G-49), your taxes are due on the 3 months and 20 days after your tax year ends. So if your tax year started on January 1, 2013, it ended December 31, 2013, and so your G-49 will be due on April 20, 2014.
|2013 Tax year started||January 1, 2013|
|2013 Tax year ended||December 31, 2013|
|2013 G.E.T. G-49 due date||April 20, 2014|
How do I get a General Excise license and how do I pay my GE taxes?
The business and GET registration process is very easy, thanks to the state making the entire process available online. You can also do it in person or mail in your forms, but it’s much easier to do it all online.
Note: there is a $20 application + $2.50 online charge. You can pay during the online process with a credit card.
Here’s how to get your General Excise Tax license:
- Register your business with the state of Hawaii (link here) and you will also apply for a State Tax ID (aka your General Excise Tax License Number) along the way. You need to consider what type of business you want to register as. Sole-Proprietor and Limited Liability Corporation are common choices, but you should talk with a CPA if you want to know the pros and cons of the different choices (scroll to the bottom for my CPA recommendation). If you’re a sole proprietor, you can also apply for a trade name (aka a business alias). Make the one-time registration payment and wait for your license to come in the mail. The registration process is for the purpose of getting your tax license. If your business is already registered with the State of Hawaii but you don’t have a General Excise Tax License Number or State Tax ID, then you can simply go here, search for your business name and then apply for a license number.
- Register for e-filing with eHawaii.gov. This will create an online account for you to pay your General Excise taxes online with a credit card.
- When it comes time to pay your GET, go to eHawaii.gov’s eFile, select form G-45 (General Excise Payments), fill in the fields, your tax liability should be calculated automatically, and pay with your credit card.
- The business registration directory is public. To view your listing, go to Hawaii’s Business Registration Division or Department of Taxation – Tax Licenses.
What if I need to make changes to my business or to my payments?
There are a lot of things that can happen to your business. Here are some forms that might be helpful.
|Name of Form||Why Do We Need This Form?|
|GEW-TA-RV1||Cancel your GET license|
|GEW-TA-RV5||Make changes to your license (your name, officers, filing frequency)|
|ITPS-COA||Change of address|
|amended G-45||Amend/change a previous G-45 filing|
|amended G-49||Amend/change a previous G-49 filing|
Who doesn’t have to pay? Are there exceptions?
In general, if you have to ask this question, then you probably aren’t exempt from the GET. Entities like Non Profits, utility companies, and some selling securities/commodities are exempt from the GET. See this long document for details (Hawaii Revised Statute 237-23, 12/31/2012).
Organizations looking for GET exempt status would file G-6 (Application for Exempt Status for General Excise Taxes).
Reimbursements: if you paying for something on behalf of a client and there is no mark-up (meaning that you’re not profiting), then the amount is exempt from GET.
Example: I build a website for a client and it requires a special plugin software for $50. I buy it on behalf of my client then I tack the cost onto his final invoice along with the fee for the website. I don’t pay GET on that $50 reimbursement I get from the client. If I pay $50 for the plugin and charge my client $150, then it’s not a reimbursement and I have to pay GET on the $150.
Out of state sales: if you’re selling tangible personal property out of the state, like, selling hula skirts to someone in Minnesota, the money you get from the sale is exempt from the GET (section 237-29.5(1), thanks Eva for mentioning this). The purchaser needs to fill out form G-61, “EXPORT EXEMPTION CERTIFICATE FOR GENERAL EXCISE AND LIQUOR TAXES” to cerify that they are out of state.
Wholesalers pay a special rate of .5%.
Insurance commissions (Chapter 431, HRS) pay .15%
Nonprofits don’t pay on donations received, but must on goods and services sold through fundraising.
Do Nonprofits pay no General Excise Tax?
Yes for donations received, but businesses can still pass their GET onto a nonprofit. Also, update: nonprofits still pay general excise tax on monies received from fundraising events because they are selling goods and services.
Registered nonprofits are exempt from paying GET on their business income. However, if that nonprofit contracts a business, then the nonprofit may be paying that business’ GET.
A church receives a $10,000 donation (that’s business income for them). The church is a registered nonprofit, meaning it’s GET-exempt, so they don’t pay any GET to the state for that donation.
Then the church hires me to build an online store for them for $10,000. I am for-profit and need to pay GET on my business income. I decide to pass the 4.712% GET onto the church as a surcharge. So, in the end, the church ends up paying me $10,471.20 ($10,000 base + GET surcharge). Then I put aside the $471.20 to pay to the state when time comes to pay my GET.
What is a wholesaler?
Wholesalers get a special GET rate of .5%.
What’s a wholesaler? Someone who sells goods in bulk to other businesses to sell for retail. An example would be a beer company, who sell and deliver beer to bars, grocery stores, and restaurants. Wholesalers usually have smaller margins than retailers because they make money on large quantities of transactions, which is why the tax rate is lower for them.
If you’re selling to customers or end users, you are not a wholesaler.
Big article right? If you have more questions, you might want to look at these articles:
Passing On Hawaii’s General Excise Tax Not Possible for Some by Lowell Kapala, Hawaii Reporter
Oahu County Surcharge FAQs by Hawaii Department of Taxation
FAQs by Hawaii Department of Taxation
General Excise Tax License Required for Business Activity by Fred Pablo, Hawaii Tax Director
Tax Facts 96-1: General Excise Tax vs Sales Tax by Hawaii Department of Taxation
Tax Facts 97-3: Starting a Business, Licenses and Taxes by Hawaii Department of Taxation
O’ahu stores can tax up to 4.712% by Greg Wiles
Disclaimer / Last Note: I am not a tax professional nor do I work for the Hawaii tax department. If you have more questions, look through the comments or call the State Tax Department.