This blog post may now be out of date. For our most up-to-date info on Hawaii sales tax, check out our “Hawaii Sales Tax Guide for Businesses.”
Your business is doing so well you’re selling items overseas! Well, technically, anyway – your package is about to say aloha to the beautiful islands of Hawaii. But something occurs to you: are you supposed to charge sales tax on this sale? How does it work?
If you’re like many business owners, sales tax is incredibly frustrating. To help you out, we’re covering troublesome states like Hawaii and detailing their rules and regulations.
You’re a merchant living anywhere but Hawaii
If your company is operated entirely outside of Hawaii, then you shouldn’t have to worry about sales tax. You can safely operate your business and not have to collect sales tax from buyers in the state.
You live and/or operate your business in Hawaii
Is your business on one of the islands of Hawaii? No matter which island you’re on, you have to collect sales tax from your customers if they also live in Hawaii. The state is a destination-based sales tax state, which means you’re concerned only where your customers are rather than where your business is.
For example, if your business operates out of Kailua Kona and a customer from Wailua orders an item, you need to collect the rate in Wailua. Your business’ existence in Kailua Kona doesn’t come into play.
While Hawaii doesn’t have a “sales tax” exactly, they do have general excise tax which is assessed on all business activities. Technically you’re not “charging” your customer anything – merely showing them the amount of the sale that you’re reporting to the government. So if you sell an item for $100 plus $4 tax for a total price of $104, it means the total price is $104. The $4 you remit to the state just becomes part of the transaction.
The base rate for Hawaii is 4%. However, individual counties add on their own general excise tax rates.
You live-out-of-state but use a 3rd party fulfillment service like FBA
In this scenario your business exists outside of the state of Hawaii but you have some nexus there. Perhaps you have an office, warehouse or a company van there. If this is the case you must collect general excise tax (again, there version of “sales tax”).
What all constitutes nexus? Here’s the definition from the Department of Taxation:
Section 237-13, HRS, of our GE Tax Law imposes “privilege taxes against persons on account of their business and other activities in the State”. Section 237-2, HRS, states that “business” includes “all activities (personal, professional, or corporate), engaged in or caused to be engaged in with the object of gain or economic benefit either direct or indirect.”
As stated above, Hawaii has a 4% rate for general excise tax. Each county has the ability to tack on a small extra percentage, though.
Filing sales tax in Hawaii
Before you ever collect your first general excise tax, you should register your business with the state of Hawaii. This will cost you a one-time fee of $20.
As far as when you pay, the due date is the 20th of the month following the end of a period. Whether you pay monthly, quarterly, or semiannually, it all depends on how much you’re taking in:
- Less than $2,000 per year: semiannual
- Between $2,001 and $3999: quarterly
- $4000 and above: monthly
Sales tax on shipping
Hawaii does require you to charge general excise on shipping.
Summary: Hawaii’s General Excise Tax works a lot like sales tax
While the state goes out of its way to explain how general excise tax is different from sales tax, it works mostly the same as far as businesses go. You still charge it to customers in order to send it in later to the state. The biggest difference is you’re not actually required to show how much you’re charging the customer.
So other than that, Hawaii works mostly like a typical destination-based state. If your business exists in the state or you have nexus, collect the tax on sales. The base rate is 4% but individual counties might tack on a little extra. Make sure to register your business first and you should be good to go.