Passing Along Hawaii GE Tax to Your Customers

Hawaii allows most businesses to pass along the General Excise Tax (GE Tax) to customers, but there are a few things you need to know about the subject.

Warning: Every tax situation is different and you may need more forms that are presented here. This is an introductory guide only, and we recommend having your tax forms filed by a professional. Information presented on this page may be out-dated. Please read all Hawaii State-provided form instructions carefully.

Tax Services Oahu | Hawaii General Excise Tax Services

Passing Hawaii GE Tax to Your Customers

As of the 2020 update, for most businesses in Hawaii the General Excise Tax rate is 4%. On Oahu, Kauai, and the Big Island there is a 0.5% surcharge.

Sounds simple enough, but if you simply add these rates to your sales you will still end up collecting less money than you have pay to the state. Why?

It’s because Hawaii levies GE Tax based on gross sales income, unlike sales tax in most states, where businesses are treated more like a tax collector.

Let’s look at a simple example. Say we have a business in Honolulu selling artwork. We make 10 sales at $100 per sale, collecting $1000. If we add 4.5% to our customer’s bill, we would have collected $1045. This becomes our gross sales, and this amount is subject to the excise tax.

When we go to pay our GE Tax bill to the state, we end up multiplying our gross sales by 4.5%. In this case it would be $1045 * 0.045 which is $47.03.

See the problem? We collected $45 from the customer to cover our GE Tax expense but we paid $47 to the State of Hawaii. This can really add up especially if you have a lot of gross sales (not a bad problem to have).

Adjusting Prices Above the GE Tax Rate

To bridge the gap between what a business collects from their customers and what is payed to the state, businesses are allowed (in many cases) to add 4.1666% to each sale on Maui (the county with no surcharge), or 4.712% to each sale on Oahu, Kauai, and the big island.

This way when a small business collects extra revenue from their customers to cover the GE Tax, they now collect a very close amount to how much they pay to the State of Hawaii.

Note that if you are a commissioned agent you cannot pass the tax along to your customers. There are other exceptions as well. It’s often prudent to seek the advice of a tax professional to make sure you are in compliance.

If you think you might want to hire us to help prepare your taxes, please contact us here.  Our email is taxservicesoahu@gmail.com and our phone number is 808-744-5314. Aloha.

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10 Replies to “Passing Along Hawaii GE Tax to Your Customers”

  1. I have a small business cleaning vacation rentals.
    And want to know if I can charge my customers tax.
    If so how much should I be charging them.

    1. Aloha, thanks for the comment!

      Unfortunately we can’t give specific tax advice on how to file income or GE Taxes to non-clients without first going over and understanding your entire situation, setting up a client/accountant agreement, and disclosing our privacy policies.

      The answer to your specific questions are “it depends” – and going over your entire situation takes time and work. We charge $150 for a consultation – which would also include information on bookkeeping, income taxes, and estimated tax planning.

      If you would like our help in this capacity, we will be honored to have you as a client. Please call us at 808 744 5314 to make an appointment.

      Thank you very much for your understanding.

  2. This absurd selling. The bottom number that is net is still higher with the higher charges. If you charge higher (1045), you pay more tax but you take home (997) versus the original $955 off the original charges

  3. Aloha!
    Thanks for taking my question.
    As a handyman I recently did repair work for a General Contractor. They have asked me for my GET # so (they say) they can claim a subcontractor deduction on their GET return. My earnings from them have been reported via form 1099. Is it legit that they should need my GET # also? If yes, will you please briefly clarify as to why?
    Thank you so much!
    Rick K.

  4. My daughter signed a yearly rental agreement for $2000 per month in Hawaii. Landlord wants to charge them an additonal 90 per month above and beyond the agreed price of 2000 to cover sales tax.

    Any thoughts on how to handle this..

    1. Aloha – thanks for your comment. This is more of a legal question than a tax preparation question, so I’m not qualified to answer for you. If I had to guess, I would say that they can’t do that if it is not on the lease, but I’m not sure. You can seek out advice from an attorney or perhaps try to call the state taxpayer services at 808-587-4242. Best wishes in your searches.

  5. Aloha, I am having an issue with a massage therapist I pay via check to her LLC.

    She claims that she pays .42% GET when I pay her via check and therefore has been charging me for the tax.

    For example, for a $125 session she will charge me $125 x .42% = $177.50.

    This seems ridiculous, and no other person I have worked with has ever charged me this extra amount. Many people say I am crazy for paying it but I donʻt know much about taxes so I have been stuck.

    What is the normal taxes for this type of thing and do you have any other advice?

    Mahalo

    1. Aloha – thanks for the comment.

      Sounds like it could be a math issue. It appears as if that calculation you provided assumes 42%, not .42%

      I think that $125 plus $125 X .42% should be $125.53 (not $177.50)

      Though I’m not sure where she is getting .42% or 42% from. That’s not part of the tax code as far as I know.

      1. Thank you for your reply, I really appreciate the help.

        Yes it is very strange, she claims she pays 42% total tax if I pay her via check. So if I pay for a months of sessions in a check of $2,000 she says that she will end up paying $840 taxes so actually only get $1,160 to spend.

        What is the normal tax rate for an independent contractor for this type of job?

        Mahalo

        1. What is the normal tax rate for an independent contractor for this type of job?

          I’m sorry, the tax rate depends on so many factors, I’m not able to answer that questions for you. To answer, I would have to seek information from her – and that’s not service that I can provide for you.

          In my opinion, it’s on you to decide whether her services are worth what you are paying or not. If not, provide a notice of some sort and perhaps try to negotiate for the price you are willing to pay. If you can’t come to terms, maybe it’s best that you seek out services elsewhere for a better price.

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