Everything You Need to Know About The Hawaii General Excise Tax

QUICK LINKS

Looking for information about the General Excise Tax? Use these links to find what you need.

  • Hawaii Tax Forms. Printable tax forms: G-45 (periodic) or G-49 (annual reconciliation).
  • Pay Hawaii taxes online. Pay your state taxes or general excise taxes online. There is a $1 electronic check fee or a variable fee for paying with a credit card.
  • Register with eHawaii. Register your business in Hawaii online.

general-excise-tax
What is that additional charge on our receipts? It’s none other than our good friend, the General Excise Tax (GET).

Updated 2/28/2019: Sorry for the issues with this page info going missing and comments not being available  — I was recently hacked and had to deal with it along with a backdoor that would reset the issue until solved.

Updated 1/28/2019: To increase site speed, I’ve had to limit the comments loaded per page to 15 comments (replies don’t count) — click “OLDER COMMENTS” to view older comments.

Updated 5/30/2018: I am slowly making updates to the article. If you post 2 or more links, your comment will be auto-marked as spam by the system. Thanks to DAVID W RISTAU CPA for helping to answer some of the questions in the comments section. There are now over 300 questions and answers — you might find your answer in the comments.

Updated 10/18/2014: 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. Please do not contact me for detailed tax advice — everything I know about the GET is right here in this article .

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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?

Probably.

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.

Examples:

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!

View original article

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:

Event Date
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.

Event Date
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:

  1. 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.
  2. 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.
  3. 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.
  4. The business registration directory is public. To view your listing, go to Hawaii’s Business Registration Division or Department of Taxation – Tax Licenses.
This is the tax license the state gives you. Make it visible to show your clients that you are a law-abiding and responsible business owner.
This is the tax license the state gives you. Make it visible to show your clients that you are a law-abiding and responsible business owner.

 

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

Hawaii Tax Form List

 

Who doesn’t have to pay? Are there exceptions?

Here is a screenshot of the exemptions if you file online:

ge-exceptions
snapshot of exemptions during online filing of g45

As you can see, most of these exemptions make a lot of sense. For example, if you have bad debts (aka non payment) that means you never received the income, yet it was included in gross billings, so you need to exclude them. Or reimbursements, which if you buy something for your client at no markup as a matter of convenience, then you should not be paying GE tax on that. Non profit organizations is in there as well.

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.

Wholesale customers 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.

 

Example:

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 an electronics company, who sell and deliver mass electronics to places like Best Buy, Radioshack, or Walmart. 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.

Do rates change if you’re a sub-contractor?

If there are subcontractors involved, no there is not an endless tax on every subcontractor in the chain. Rather, the the sub-contractor working directly with the end customer(s) will be charged the full rate, while the transaction between the sub-contractor and contractor is at a lower rate of .5%.

Answer from DAVID W RISTAU CPA‘s conversation:

Roland: “I am a contractor. I use subcontractors.The build in their 4.5% GET on their invoices to me. I do the same with my invoice to my client, including paying 4.5% GET on the amount of subcontractor cost built into my price. So the state is collecting at least twice (maybe more, since the subs buy materials from local businesses). No wonder the state is bankrupting local businesses.”
David Ristau: “If you’re being charged 4.5% by your subs, something is wrong in the preparation of your returns. The subs should be charging you 0.5% GE tax and you charge your end customer 4.5% and deduct the sub-contractors on your GE filings via Schedule GE to report the subs. State isn’t bankrupting businesses because of incorrectly prepared and filed GE forms…the small business is shooting itself in the foot by not seeking competent help in preparing the GE forms.”

 

Additional Reading

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

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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.

330 comments on “Everything You Need to Know About The Hawaii General Excise Tax

  1. I am a resident of California but when I was in HI (Ohau) for more than two years I bought a condominium and now I am renting it out through a real estate agency. I pay GE taxes and in my IRS form 1040 I file my Schedule E because I have another rental property in california as well.
    Can you please guide me as to how I can get deductions for my rental property GE taxes paid. Should I add in line 16 Taxes of Schedule E ?
    Also since I do not have any earnings in HI can I get full GE taxes refunded to me?
    Is there any other HI State form that I should file and get refunds of GE Taxes?
    Also my agent has not yet sent me the 1099 form as to how much they have paid for GE taxes. Aren’t they supposed to send me form for payment to State for GE taxes on my behalf.
    I am filing my returns now so please let me know as soon as you can.
    Thanks
    Kris

    1. @Kris:
      Show the GE taxes paid on your rental unit on Schedule E either on line 16, taxes or as a separate line item on line 19, other deductions. Line 19 reporting is used alot because HI auditors can see the GE tax (and TA tax, when applicable ) to easily match what was reported on G-49 and TA-2 filings.

      No, the GE taxes will not be refunded to you. It’s a tax on the gross receipts of the rental property. Your earnings, if I understand your meaning as wages earned in Hawaii have no correlation with your rental Gross Receipts of the rental property.

      Your agent most likely mailed your 1099 form on January 31st and it’s in the mail.
      Ask your agent to give you copies of all forms G-45 and G-49 filed on your behalf.

      Better yet, sign up for an online account with Hawaii Dept. of Taxation and access your complete GE filing and payment history via the internet and download PDF copies of the returns to your computer.

      Since you are filing the returns now instead of your agent, the online system will be an excellent way for you to file and pay all returns.

  2. I am a subcontractor who provides ship maintenance and repair. Our customer has a contract directly with the federal government. Because we are in ship repair, do we have to pay GET? If not, do we still have to pay the surcharge of .5%? If so, can we still charge the .5% to our customer if their contract is government related? And if I do have to pay, where are the US codes for reference in our Schedule GE?

    1. @Kyle:
      Kyle, I’m not an expert in this area of GE tax law and filings.
      While I’m willing to research the issues at a later date, I’m currently maxed on time with 2018 tax season.
      I suggest you contact HI Dept of Taxation directly with your list of questions.

      I do believe you are required to file GE return, regardless of status as sub-contractor on a Federal contract. Schedule GE will be used to deduct those exempt billings, if law allows.

      For your answer about GE codes, take a look at the instructions for the form G-45 and Schedule GE on HI DOT website.

      For specific law and administrative regulations, please scroll to a reply I posted last month that has a direct link to both online sources.

      I will post a follow-up reply with answer once tax season is a little less hectic.

  3. Thank you for your informative blog Ron! You made it very easy to understand.
    I do handmade crafts that I sell online via the Etsy Marketplace as well as I did a local craft fair. I am using Turbo Tax to fill out both my state and federal. But when filling out my state taxes on line 53 of the N-11 it asks if I filed out a schedule c, which I did, then it asks to enter the amount of Hawaii gross sales…Hawaii is in bold. So do they mean the amount of sales I made in total including those to the mainland and money I made locally, which I reported on my federal in schedule C? Or does it just mean my sales to those living in Hawaii? I emailed Hawaii Tax online’s office and they just repeated what that line says. Sorry if it sounds like a dumb question. But the amount I have listed on my schedule C is a lot different from just my Hawaii sales… If you could help me out it would give me a lot of peace of mind since it sounds like you understand their wording a lot better than I do.

    1. @Lisa:
      Since you are a Hawaii resident, the answer on line 53 should be the net total gross receipts as reported on G-49 as Hawaii source sales. SInce you have out of state sales, this will not match line 3 of your Schedule C.

      When you file your G-45s and G-49 you should be using Schedule GE to document and report the excluded out of state sales, to report taxable Hawaii gross receipts.

      The net gross receipts reported on G-49 will be matched to your answer on line 53.

      The wording seems a bit confusing, however, the instructions for line 53 specifically state Hawaii gross receipts, net of refunds paid out, not total business receipts.

  4. I’m working on 2018 taxes.

    1. Income: If I’m correct, GE taxes that we collect are considered taxable income. But would that be the amount before or after the GE tax is taxed (ie 4.5% or 4.712% on Oahu)?

    2. Deductions: Same question – which amount is the amount that is treated as ‘Sales Tax’ for deductions

    1. Sorry – I should have clarified, I’m working on Income taxes and exploring the relationship between Income Taxes and the GE tax.

      1. @Jeff 01-30-2019:

        Item 1.: Incorrect assumption. Taxable income generally is considered and thought of as business income minus allowable business expenses.

        GE tax collected, if it is passed on and collected from a customer, is part of the Gross Receipts of the business. For a self-employed person, GE tax collected is generally reported on form 1040, Schedule C, line 1 as part of “Gross receipts or sales”. By reporting GE tax collected in this manner, Schedule C line 1 will match Hawaii form annual reconciliation form G-49 Gross receipts, either as one number or a combination of wholesale and retail sales of the business.

        In your case, include the GE tax collected from your customers on Oahu, with your sales income used to compute the GE tax you collected from your Oahu customers between January 1 and December 31.

        Item 2.: The amount reported on Schedule C is not “sales tax”. Rather it is best reported as “Hawaii General Excise Tax paid”, reported on line 23, Taxes and licenses, or as a separate line item included on line 27a, other expenses. Using the term “Excise tax” rather than “sales tax” may seem like a semantics issue, however, Hawaii does not have sales tax due from a customer. Rather, it has an excise tax due from the seller, regardless of whether or not the allowable excise tax is passed on from the seller to the purchaser or customer as a separately stated item on the sales invoice given to the customer.

        The dollar amount you report as “Hawaii General Excise tax expense” is the amount you paid in GE tax to Hawaii Dept. of Taxation between January 1 and December 31. It is most likely that the GE tax deduction will be different from the GE tax shown on the annual reconciliation form G-49 because most taxpayers pay the GE tax amount due for the period ended December 31 in January of the following year. GE tax is paid on actual cash receipts received, not sales reported for book or income tax purposes under the accrual method of accounting. For most individual filers reporting, it is a timing difference in this situation. You collected the tax in December and didn’t pay it to Hawaii DOT until January of the following tax year.

        However, if you filed your HI GE form G-45 for the period ended in December and paid the tax shown on the G-45 before December 31, then most likely your tax deduction will match the GE tax shown on the annual reconciliation form filed between January 1 and April 20th of the following tax year because all tax was paid prior to December 31.

        Most self-prepared income tax returns I’ve seen here in Hawaii simply used the tax paid amount shown on the G-49, ignoring the fact the tax owed for December period wasn’t paid until January of the following year. That is not the correct way to report the tax paid, however, it remains a common Schedule C reporting method for the expense.

        Your follow-up post regarding the relationship between Income taxes and the GE tax:

        Income taxes are computed on the net income of the business,i.e., total sales – total expenses = taxable business income.

        GE tax is computed on the gross receipts, with several statutory allowable exceptions, and only on the gross receipts minus allowable exceptions. Business expenses are not deducted from gross receipts when computing GE tax.

        Again, look to Schedule C:
        Income tax is computed:
        Gross receipts (line 1 minus sales returns, refunds and allowances)
        minus cost of goods sold (line 4)
        plus other income of the business (line 6) (not subject to GE tax)
        minus Total expenses (Line 28)
        minus Home office expenses allowed (line 30)
        equals Net profit or loss (line 31)

        GE tax is computed:
        Gross receipts (line 1 minus sales returns, refunds and allowances)
        minus certain statutory exemptions that are reported on Schedule GE
        equals taxable gross receipts for GE tax.

        I emphasize that NONE of the typical expenses reported on Schedule C lines 8 through 27 and line 30 to compute income subject to income tax are deducted from Gross receipts to compute GE tax owed on Gross receipts.

        GE tax paid is a deduction from income that is included in the total expenses of the business; reported either on line 23 or 27a thereby reducing income to be reported as taxable income for income tax purpose.

        I hope you’ve been able to follow my detailed answer to your question.

        Thanks for asking,

        David W Ristau CPA

        1. David – that is beyond helpful, wow, thanks!

          You have confirmed what I was hoping for and more, but you have expressed it all far more accurately than I ever could have. I would use this as an example for other small business owners going at it on their own.

          Good news – based on what you’ve typed up, I believe I’m doing it correctly.

  5. Hello David,

    Thank you for running this helpful post. I have a questions, my client has a cell phone store in HI, they do collect GET on regular transactions when they sale phones/accessories. My questions is that do they have to pay GET on the commission they receive from the big cell phone carrier (like T-Mobile, ATT and Verizon)? The issue is that they make tiny or no profit on the sell of phones and commission (earned through account activation for the carrier) is basically their only gross profit. If they have to pay GET, I do not think they will be able to pass the tax to the big carrier. Is there any exemption for commission received related to telecommunication industry? Thank you in advance for your help in this matter.

    1. @John:
      The telecommunications industry GET law is found at HRS 237-13.8 and the Administrative rules are found at HAR 237-13-06.16.
      Direct links to each item:
      http://files.hawaii.gov/tax/legal/hrs/hrs_237.pdf
      see pages 18 and 19 of 52
      http://files.hawaii.gov/tax/legal/har/har_237.pdf
      see pages 30-35 of 80

      I do not see any exclusion or exemption listed for the commission paid by the telephone company to a Hawaii vendor.

      From your description, the service your client provides is delivered in Hawaii, thus the commission earned is also Hawaii income.
      The commission income is subject to GET base rate 4% and any island sur-charge tax rate for Kauai, Hawaii or Oahu.

      I suggest a follow-up call to Hawaii Dept. of Taxation for confirmation.

  6. Hi David,

    Thank you for this highly informative post! This is my situation that I hope to get clarity on:

    I am a resident of HI, and last year, worked as an independent contractor for a company in CA. My work was providing tax preparation; all clients were in CA. I was paid by the company. As I understand, I need to file G-45 but can claim an exemption under code 132 for out-of-state services. Is that correct?

    In addition, I paid an independent contractor here in HI for some tax work that I subcontracted out. They are HI resident. I understand that they will need to file and pay GE tax. Would paying them the 1099-MISC have any effect on my filing the GE tax and claiming the exemption?

    1. @Tyler

      As I understand current GET law, your services fall under HRS 237-7, “Service business or calling.”
      Sale of contracted services delivered out of state are generally exempt under HAR 237-29.53, “Exemption for contracting or services exported out of state.”

      Note that in order to be exempt, HAR 237-29.53 has two qualifiers:
      (1) the contracting or services are for resale, consumption, or use outside the State; and
      (2) the value or gross income derived from the contracting or services performed would otherwise be subject to the tax imposed under this chapter on contracting or services at the highest rate.

      There is a further requirement that the seller “…shall take from the customer, a certificate or an equivalent, in a form the department prescribes, certifying that the contracting or service purchased is to be otherwise resold, consumed, or used outside the State.”

      As I’ve read the various exemption forms/certificates, I believe form G-61 is to be used to certify the service is used outside the state.

      I suggest you and the California company complete and sign form G-61 and each of you keep a copy of the form in your files to comply with the requirement to have a certificate on file.

      The GET exemption code 132 underlying HRS 237-29.5 is for sales of tangible personal property. I don’t think the sale of your services to the California company qualifies under exemption code 132.

      Rather, the proper exemption code is 133, underlying HRS 237-29.53 for sales of service outside the State.

      In G-45 instructions, the description for exemption code 133 is shown as “Services or contracting to Foreign Customers”. It is important to remember that the word “Foreign” in this instance means anywhere, state or country outside Hawaii and is thus “foreign” to Hawaii.

      Thus, answering your direct question as to exemption code, my answer is no. Instead you use exemption code 133.

      Regarding your purchase of sub-contractor services, I believe that HAR 18-237-13(6)-02 applies.
      (Page 36 of 80, Hawaii Administrative Rules)

      Both you and the sub-contractor are in the same service business, tax preparation. Your sale to a customer normally would be taxable at 4%. However, you have an exemption for out-of-state sale of service. I believe that because you and the sub-contractor are GE licensed and in the same service business, the sale by the sub-contractor to you is taxable the the wholesale 0.5% tax rate.

      “..paying them the 1099-MISC” I believe is meant to mean paying them as an independent contractor, rather than as an employee.

      If this is what you meant, then the issue is that the independent service purchase is subject to GE tax law whereas the services of an employee, full or part-time are not subject to GE tax and instead subject to various state and Federal payroll taxes.

  7. If I sell items to out of state customers online via my website or eBay does every customer need to submit a G61 form so I can be exempt from including their sale price in the amount of gross income I will have to pay GET on?

    1. @Jason:
      Technically, the answer to your question is “yes”, each customer should sign and provide you a copy of form G-61 to ensure exemption form GE, since the requirement is each purchaser shall furnish a certificate to the seller.

      As a matter of law, if you claim the exemption without the requisite form G-61, the sale is subject to GE tax at the highest rate. That means the state rate 4% plus any applicable island sur-charge rate.

      It’s up to you as the licensed taxpayer to decide if you’re going to ask for purchasers to sign and return form G-61 to you to preserve your right to the exemption, or if you decide to claim the exemption without the certificate and risk a tax assessment if you’re audited by Hawaii Dept. of Taxation at a later date.

      I suggest a follow-up conversation with your tax adviser to discuss your particular facts and circumstances.

  8. I am under audit and in Hawaii they say even just the drafting on plans is considered a contractor and not a service provider, they consider drafting basicly under architect. There for I am required to pay 4% tax to the state and then the contractor needs to use my cost as a deduction from his gross income so they are not charging the home buyer double tax. Most of my contractors insist that i only bill them 0.5% tax and they say they are going to charge the client the 4% in the total home costs. But the tax office say not for drafting or for architect, they see that as contracting and not as a service. And in Hawaii only service providers can charge 0.5% GE tax, They insist that even a draftsman needs to charge and pay 4% GE tax. I got screwed over by only charging 0.5% tax to the contractors and now i have to pay the missing amount of GE tax 3.5% plus fees and penalty for lat payment. The general contractors need to get clear on who can charge 0.5% tax and who is required to charge 4% GE tax. Very unfortunate for me I am being punished for doing what the general contractor asked when i should have insisted on charging 4% and forcing them to use my fee including the 4% as a deduction from their gross income. That way the home buyer only pays the GE tax one time.

    1. My question is as a draftperson I draw plans and help pul building permits, in some cases I am hired by the general contractor, not by the home buyer. The general contractor says they are going to include my costs in the total price of the home and there for want me to only charge the general contractor 0.5% tax on my drafting service. But the state tells me as a draftsman they consider me a contractor like they would an architect. So although there is an architect involved I am not an architect I can only do drafting. I do not see any provission for drafting work under contractor description. So the state say i am doing architectural work. But i am not allowed to do architectural work with out a arch lic in Hawaii I can only provide drafting services. Do i have any chance of fighting an audit and claiming as a draftsmen that I am a service provider not a contractor? I only do drafting agreements i do not do drafting contracts, and under hawaii law I am not allowed to do architectural work without a arch lic. So I can only do drafting services…. Is there any hope for me or did i get screwed by only charging the contractors 0.5% GE tax??

    2. @Michael Leone:

      You’re under audit by HI DOT and you’re asking how to get out of paying the additional 3.5% GE tax you owe?

      First, you’re not being “punished”. You’re being told to pay the correct amount of tax.

      Your mistake was to not check the tax requirement with HI DOT BEFORE you sent your invoice to the contractor.
      The contractor is not an expert in GE tax law. He’s a building contractor.
      The expert you should have consulted was a CPA or the HI DOT.

      Now, you have to remember that GE tax is a tax on the SELLER, not the BUYER. HI DOT allows the seller to pass on the GE tax to the customer as long as it is visibly displayed on the invoice.

      I suggest you send the contractor an addition invoice for the additional tax, penalty and interest owed, PLUS GE on the additional amount you paid to HI DOT.

      If the contractor pays the bill, include it in your next GE ta return as Gross receipts.

      If the contractor doesn’t pay the bill, then you don’t add anything to your next GE return since GE is reported on cash basis.

      On your income tax return, you are allowed to deduct the 3.5% GE tax you’ve paid to HI DOT and the interest expense as business expenses.

      The penalty amount is non-deductible on your income tax return.

      Last, next time call the HI DOT or a CPA BEFORE you send out any invoice that you aren’t crystal clear as to what the GE tax should be charged….

      David W Ristau CPA

      1. Thanks for the replay, I orriginal billed at 4% and several of the contractors insisted that because they were going to include my subcontract price in their total price, and that they were going to be charging the 4% then I should only be charging then the 0.5% pass through tax. But perhaps because they did charge the 4% maybe they will be willing to pass it back down to me as the sub, as you pointed out it should have been charged on top of my cost and then deducted off of the contractors gross income. It comes down to the issue of weather I am a service provider or a contractor in the eyes of Hawaii Tax Department. They view architects as contractors and they do not differentiate if you are a draftsmen not an architect.

      2. Hi David, Your response seems odd based on the article stating that subcontractors should only charge .5%. Can you clarify for me, as this issue comes up for us all the time. Thank you.

  9. We are a small mainland company doing business with a company in Hawaii. We have three small contracts. I know we owe GET on 2 of the three as we will be providing a deliverable to the Hawaii company. However, the first contract is for work that will be open and completed on the mainland…but paid for by the Hawaii company. Do we owe GET on this first contract?

    1. @Patti 10-23-18:
      I presume your company registered for a GE license number and as an out of state vendor you are voluntarily reporting your sales to customers in Hawaii.

      The 2 of 3 sales comment is not clear as to what “deliverable” is being delivered to Hawaii. For now I’ll assume four scenarios for the 2 of 3:

      1. The 2 of 3 sales are tangible goods shipped as interstate retail sales. No GET is required to be collected on interstate sale of tangible goods and exclusion item # 08, item 132 is cited on Schedule GE to exclude the sales from HI GET tax.

      2. The 2 of 3 sales are tangible goods shipped as interstate wholesale sales to a HI company with valid GE license. GET tax is charged at wholesale rate 0.5% and collected from licensed HI company and then included in your reported GE gross wholesale receipts and you pay GE wholesale tax on sales.

      3. The 2 of 3 sales are tangible goods shipped as interstate wholesale sales to a HI company without a valid GE license. GET tax is not charged at wholesale rate 0.5% and is not collected from unlicensed HI company. Exclusion item #01, item #132 is cited on Schedule GE to exclude the wholesale sales from HI GET tax.

      4. The 2 of 3 sales are services performed and delivered within Hawaii. GET (including Oahu surcharge, if applicable) is required to be paid by you and you may pass on the GET to your customer visibly shown on your invoice as a separate line item. It is not mandatory to pass on the GET to to your customer, however, if you do so, the GET tax collected is included in your gross receipts for the period and tax is computed on the gross receipt including collected GET tax paid by your customer. Note that this is different than typical mainland sales tax which excludes tax collected when computing sales tax to be paid to the state revenue office.

      Item 1 of 3, the last item mentioned in your query: work that is open and completed on the mainland is included in your gross receipts as a revenue source and then excluded as interstate sale as service completed and delivered on the mainland. If the work is completed on the mainland and delivered to Hawaii, and your customer derives benefit from your work within Hawaii, then the work is not excludable from GET and is reported and GET tax paid on it as a service. Be sure to ask your preparer if the services are creating a nexus situation for your company and perhaps also causing an income tax return filing to be due in addition to GET returns.

      Regards,
      David W Ristau CPA

      1. Hi David
        i have a somewhat similar question.

        We a mainland distributor quoting an item to a US Military contractor in HI. They will then supply this product to the US Military end user. Transaction value will be about $85K.

        Would we be liable for GET? if so, is it the .5% i read about?

        thanks!

        1. @jim: As I read your post, you are a mainland company, with no Hawaii presence, shipping to a Hawaii distributor.
          Classic interstate sale not subject to GET in Hawaii or sales tax in your state.
          If you’re registered with HI DOT and have GE license, then you report your sale in wholesale section of form G-45, listing dollar amount in column A, then deduct entire amount in column B, citing out of state sale for entire amount on Schedule GE to exclude sale from tax.

          Distributor in HI has obligation to report landed wholesale inventory cost and pay 0.5% tax on goods shipped into Hawaii AND may or may not have to collect GET from US Military and report it as sale to end user.

          No, I don’t think you’re liable for any GET since you’re on mainland and selling to another intermediary located in Hawaii.

          1. David-
            thanks for your reply. That’s what I thought also.

            However, it also looks like we become liable if we exceed $100K in HI sales/per year or 200 transactions.

            Aloha! (Kalaheo alumni)

          2. @JIM:

            Updated answer to my earlier answers regarding out of state sales to companies in Hawaii:

            Yes, on July 10, 2018 HI DOT issued tax announcement #2018-10 that changed the rules for interstate sales to Hawaii:

            Act 41, Session Laws of Hawaii 2018 (Act 41) clarifies the “in the State” requirement by
            creating a bright-line rule for businesses that lack a physical presence in Hawaii. Specifically,
            Act 41 provides that a person is engaging in business in the State, regardless of whether the
            person is physically present in the State, if in the current or preceding calendar year:
            (1) The person has gross income of $100,000 or more from the sale of tangible
            personal property delivered in the State, services used or consumed in the State,
            or intangible property used in the State; or
            (2) The person has entered into 200 or more separate transactions involving tangible
            personal property delivered in the State, services used or consumed in the State,
            or intangible property used in the State.

            Effective date of this change was 07-10-2018.

            Follow this set of rules, NOT my earlier answer.

            David W Ristau CPA

      2. @Patti:

        Updated answer to my earlier answers regarding out of state sales to companies in Hawaii:

        You need to determine if your sales to Hawaii are more than $100,000 in a year. If yes, then the open 3rd contract is also reportable for GE tax purpose for sales after announcement date 07-10-2018.

        On July 10, 2018 HI DOT issued tax announcement #2018-10 that changed the rules for interstate sales to Hawaii:

        Act 41, Session Laws of Hawaii 2018 (Act 41) clarifies the “in the State” requirement by
        creating a bright-line rule for businesses that lack a physical presence in Hawaii. Specifically,
        Act 41 provides that a person is engaging in business in the State, regardless of whether the
        person is physically present in the State, if in the current or preceding calendar year:
        (1) The person has gross income of $100,000 or more from the sale of tangible
        personal property delivered in the State, services used or consumed in the State,
        or intangible property used in the State; or
        (2) The person has entered into 200 or more separate transactions involving tangible
        personal property delivered in the State, services used or consumed in the State,
        or intangible property used in the State.

        Effective date of this change was 07-10-2018.

        Follow this set of rules, NOT my earlier answer.

        David W Ristau CPA

  10. Aloha, I started a handyman business in Hawaii. I purchase materials and then get reimbursed by the customer upon job completion. Do I charge GE tax on just the labor or do I charge it on materials also? Much Thanks!

    1. @Alan 10-20-2018: Materials and GET are handled one of two ways:

      1. Material invoices you pay to vendor that show full retail GET tax rate (plus Oahu surcharge) can be passed on to your customer WITHOUT MARK-UP for reimbursement and are then excluded from your GET filing and reporting.

      2. Material invoices you pay to vendor show wholesale or retail GET tax rate (plus Oahu surcharge) are marked up again by you to higher dollar amount, are included on your invoice to customer and you charge customer GET tax on your invoice amount for services AND materials.

      If you choose to mark-up your materials when billing your customer, you should provide to your vendors completed HI DOT form G-17 and then your vendors will charge you wholesale GET tax on your purchases.

      HI DOT form G-17 is found online here:

      http://files.hawaii.gov/tax/forms/2016/g17.pdf

      If you choose option #1, be sure your tax preparer EXCLUDES the reimbursed expense from your gorss receipts for GET purpose AND proovides you a copy of the reconciliation workpaper for your files for future reference.

      Regards,
      David W Ristau CPA

  11. Do I have to pay GET on tips received from my customers? For example, I sell food to a customer for $25. I do not pass the GET to the customer. So my GET liability is 4%, or $1. But the customer includes a $5 tip on the credit card slip. Is my GET liability calculated on the total amount received, $30, for a total GET of $1.20?

    Same question but let’s say I do pass the GET onto the customer. Food costs $25. I add 4.166% GET and charge the customer $26.04. The customer leaves a $5 tip. When I pay my GET to the state, what do I pay?

    (I do not live/do business on Oahu.)

    1. An update to my own query! I was able to confirm with Hawaii Taxpayer Services that tips–when paid to the company– are subject to GET. Tips earned by individual servers are not subject to GET since the company will withhold payroll taxes on that money. But if tips are given to the company or, as in our case, the company is a partnership LLC where the owners do not get a salary, per se, those tips are subject to GET. Maybe this will assist someone else.

  12. Maths(?) behind the 4.712% tax, when GET is 4.5%.

    B is business cost for an item
    T is the tax rate the customer is charged
    GET is the state’s GET tax rate

    What is the tax, T, that businesses can charge so that they are able to get back business cost, B, and government gets their portion (ie. GET x what the customer pays).

    Start with the equation below, then solve for T, and you’ll have the answer for any GET.

    The background for this equation is that the left side is what the customer pays and the right side is what the business and government gets. And they got to be equal or else we got tax fraud 🙂

    Customer = Business + Government
    Bx(1+T) = B + Customer x GET
    Bx(1+T) = B + (Bx(1+T))xGET

    Solving for T:
    Bx(1+T) = B+(Bx(1+T))xGET
    1+T = 1+(1+T)xGET (Note: B no longer involved after dividing out B).
    T=(1+T)xGET
    T=GET+TxGET
    T-TxGET=GET
    T(1-GET)=GET
    T=GET/(1-GET)
    GET cannot equal 1. And if tax T needs to stay positive than GET should be > 0 and < 1.

    If GET=4.5%=0.045, then T=.045/.955=.04712042 (Actual Oahu GET is slightly different)

    And if GET=4%=0.04, then T=.04/.96=.0416667 (Actual neighbor island GET is slightly different)

  13. Note for the newbies like me. When filing paper BB-1 form. For the Taxpayer Legal Name. use the name format, LASTNAME, FIRSTNAME, MIDDLE name. I used FIRSTNAME MIDDLE LASTNAME format and got a business license with legal name MIDDLENAME LASTNAME FIRSTNAME. No where on the form or the instructions indicates the required format, I suppose it is just implied in the tax world.

  14. If I am a small business owner that sells a service but also pay myself for some of the services, do I have to pay GET tax twice?

    1. @Luis Alvarez:

      If your business is a sole proprietorship, only the business pays GET.

      If your business is a LLC taxed as a corporation or partnership, or a corporation, the LLC/Corporation pays GET on services sold through the LLC/Corporation.

      It’s highly unlikely you as an individual will be paid for your services by your company other than as W-2 wages or profit distributions, both of which are not subject to GE tax.

      You own the small business, so as a shareholder or member-manager, you’re not being issued a 1099-MISC for non-employee services. Thus, you as an individual have no GET reportable income from your small business.

      I suggest you speak with your tax preparer for detrailed explanations.

      David W Ristau CPA

  15. Aloha,

    I’ve lived on Oahu for 15 years and have been employed by the same company for those 15 years. This company is domiciled in PA. I’m the only employee in Hawaii and I receive a salary. The company is a consulting firm and charges consulting fees.

    I’m a computer tech guy and am not involved in the marketing process. My company does have a client in Hawaii who they do work for once in awhile. Is my company subject to the GET tax for the fees charged to that one client?

    1. @Greg from Oahu:
      The short answer for GET is yes.
      You are their employee on Oahu.
      I will presume you “do the work for” the once in a while client.
      Your company has nexus with Hawaii due to you being paid wages for work performed within Hawaii.
      Nexus creates obligation to collect and pay GE tax.
      None of this discussion affects you as their employee since GE isn’t paid for wages received.
      I suggest the company talk to its CPA for further guidance.

  16. We are an Illinois company. We sold to a company in Hawaii who are also based in Illinois. They are telling us they are exempt in Hawaii but do not have a Hawaii registration number on their multijurisdiction resale certificate. Can they use another state’s registration number for Hawaii?

    1. @Tim:
      Your sale is an interstate sale by your company.
      You have no presence in Hawaii and are not registered for GE tax.
      The GE tax is on you, the seller, not your customer.
      That said, you’re not registered and you’re sending an interstate sale.
      NO TAX OBLIGATION for you to HI.

      1. @TIM:

        Updated answer to my earlier answers regarding out of state sales to companies in Hawaii:

        You need to determine if your sales to Hawaii are more than $100,000 in a year or more than 200 transactions. If yes, then the sales are reportable for GE tax purpose for sales after announcement date 07-10-2018.

        On July 10, 2018 HI DOT issued tax announcement #2018-10 that changed the rules for interstate sales to Hawaii:

        Act 41, Session Laws of Hawaii 2018 (Act 41) clarifies the “in the State” requirement by
        creating a bright-line rule for businesses that lack a physical presence in Hawaii. Specifically,
        Act 41 provides that a person is engaging in business in the State, regardless of whether the
        person is physically present in the State, if in the current or preceding calendar year:
        (1) The person has gross income of $100,000 or more from the sale of tangible
        personal property delivered in the State, services used or consumed in the State,
        or intangible property used in the State; or
        (2) The person has entered into 200 or more separate transactions involving tangible
        personal property delivered in the State, services used or consumed in the State,
        or intangible property used in the State.

        Effective date of this change was 07-10-2018.

        Follow this set of rules, NOT my earlier answer.

        David W Ristau CPA

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  18. Aloha Ron,

    Thanks for all the great info. I own a small tour company and collect GE Tax during the booking process. My question is: Say I collect $70 for a snorkel tour…..$35 of that goes direct to the boat owner who takes the tour out. Do I pay GE taxes on the $70 or $35, considering that the boat owner is paying taxes on his $35 share of the sale? It seems if I am paying on the $70 and he is paying on his $35 we are getting double taxed. :/

    1. @808:
      If you collect $70 for the snorkel tour WITHOUT showing GE tax as separate line item on customer receipt, then you pay GET on entire amount charged. Doesn’t matter what you pay the boat owner.

      However, if boat owner is smart, he/she sends you an invoice for $35 plus 0.5% GE tax as they are a sub-contracted service provider to you that you are charging end customer in full for all services.

      At all times you pay GE tax on the full $70 and if boat owner is smart he/she files and pays only the wholesale GE tax rate.

      OR:

      If boat owner charges you the $35.00 and boat owner pays 4.0/4/5% GE tax, charges and displays it on the boat owner invoice to you and you pass on that exact charge to your customer WITHOUT MARK-UP, then you exclude the boat owner invoice from your gross receipts because it is an expense reimbursement passed on without mark-up, solely reimbursed from you to boat owner. AND you do NOT include the dollars in GE gross receipts amounts you receive that are reimbursed without mark-up.

      Which means you report only $35 plus GE tax charged to your customer and displayed on your receipt to your customer.

      If boat owner fails to display GE tax as separate line item on the invoice to you, then you pay GE on total $70 and boat owner pays on his/her $35 and state gets almost double tax revenue.

      Look at the past 3 years transactions that you reported for GE tax. You may have a refund coming if reimbursed expenses were passed on correctly yet mistakenly included in your gross receipts reported and tax paid.

      Remember that if you charged your customer GE on the whole $70 and it was displayed on the customer receipt on the whole $70, then you are obligated to pay to the state the full tax you collected, despite the fact boat owner was actually a reimbursed expense without mark-up. You don’t get to keep the tax you incorrectly collected.

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  20. Hi – we live on the mainland, own condo on Maui that we rent out when we are not on the island. Previously we managed everything on our own. When on the island last February we hired a management company.
    Am I correct to understand that now instead of paying both transient and general excise taxes, we now will pay just general excise tax on the monies received from the management company? If that is correct, on the G-45 tax form, are the monies still to be listed under Transient Accommodation Rentals (#13 on form)?

    1. @Kathy: NO, Absolutely NO. If your unit is a vacation rental unit you will continue to pay GE and TA taxes same as before when you self-managed. Primary exception that may occur is if you rent the property long-term for 6 months and a day. Then the property is not required to pay TA tax for the rental income.
      Assuming you’re continuing short-term rental, then noting changes for reporting on G-45 and G-49 (You list as TA rent, deduct TA tax received and pay GE tax on net gross receipts and include schedule GE to support the TA tax deduction in column B of G-45 and G-49).
      If you’re changing to long-term rental, you report the rental as “Other rentals” (line below Transient Accomodation rentals).
      You continue to file your TA returns, even if the amount is zero, as long as the account is open.

      You didn’t state where your source of mis-information came from re rents received from rental agent, however, it was dead wrong for short-term/vacation rental properties.

      David W Ristau CPA

  21. Hi Ron, thanks for the useful information.

    I noticed an error in the following statement: “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.”

    The state doesn’t allow you to “round up a bit” — the reason it’s 4.712% instead of 4.7025% is because paying 4.5% tax on the 4.5% tax on the 4.5% tax equals 4.712%. Going any further doesn’t increase it beyond that.

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