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.
This is not tax or legal advice and it might not apply to your situation. While it may be OK to pass along GE Tax according to GE Tax law, there could be other laws preventing it. For example, if you are in a lease or other contract, it might not be appropriate to add GE Tax to your arrangement.
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 Information presented on this page may be outdated. Please read all Hawaii State-provided form instructions carefully.
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.
- Do I Have to Pay Hawaii GE Tax on my Property Rental?
- Passing Along Hawaii GE Tax to Your Customers
- Hawaii GE Tax – The 10 Most Frequently Asked Questions
- How Often Do I File My Hawaii General Excise Tax Forms?
- Simple Guide to Hawaii GET (General Excise Tax) Forms
- If you received a letter saying that you owe Hawaii General Excise Tax or Transient Accommodations Tax, click here for help.
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