Hawaii looks for more ways to increase remote sales tax revenue
Update 4.10.2019: S.B. 396 has been enacted. It takes effect January 1, 2020.
Lawmakers in Hawaii are considering a measure that would require marketplace facilitators such as Amazon, eBay, and Etsy to collect and remit tax on behalf of their third-party sellers. The measure includes use tax notice and reporting requirements for non-collecting forum providers.
Hawaii already taxes certain remote sellers via its economic nexus law (more on that below). But many marketplace facilitators don’t comply with such laws on the grounds that they’re not the actual seller; they hold the tax liability falls on their third-party sellers.
In response, more than a dozen states have amended their sales tax laws to make marketplace facilitators the seller of record. Hawaii may soon do the same.
Tax collection obligations for marketplace facilitators
S.B. 396 deems the marketplace facilitator the seller of record, and the third-party (marketplace) seller the wholesaler*. This means the responsibility to collect and remit tax falls on the marketplace facilitator, not the marketplace seller.
The bill defines “marketplace facilitator” as “any person who sells or assists in the sale of tangible personal property, intangible property, or services on behalf of another seller by:
- Providing a forum, whether physical or electronic, in which sellers list or advertise tangible personal property for sale; and
- Collecting payment from the purchaser and transmitting the payment, in full or in part, to the person selling the property."
To ensure tax is collected on all marketplace transactions, the measure also addresses other types of forums that facilitate sales.
Use tax notice and reporting requirements for non-collectors
S.B. 396 would impose use tax notice and reporting requirements on “any person other than a marketplace facilitator who provides a forum, whether physical or electronic, in which sellers list or advertise tangible personal property for sale and takes or processes sales orders.”
These notice requirements include:
- Posting a conspicuous notice on the forum informing potential purchasers that they’re required to pay Hawaii use tax on sales made through unlicensed sellers
- Providing a written notice at the time of sale that the purchaser may be required to remit use tax directly to the tax department, along with instructions on how to obtain additional information
Additionally, non-collecting forum providers would have to send an annual report to the Hawaii Department of Taxation by “the 20th of the fourth month following the close of the taxable year.” Such reports would contain the following information for each purchaser of tangible personal property delivered into Hawaii:
- The name and address (billing and mailing) of the purchaser
- The Hawaii address where tangible personal property was delivered to the purchaser
- The aggregate dollar amount of the purchaser’s purchases
- The name and address of the seller (not the forum provider)
If a seller opts to collect and remit tax in Hawaii, the non-collecting forum provider would be relieved of the use tax notice and reporting requirements on that seller’s sales. Furthermore, penalties for non-compliance — i.e., failure to collect and remit tax on behalf of third-party sellers and failure to comply with non-collecting seller use tax notice and reporting requirements — include an assessment of $1,000 per month while such failure continues, not to exceed $12,000.
Economic nexus in Hawaii
Hawaii was an early adopter of economic nexus. It imposes its general excise tax (GET)** on remote sellers that, in the current or previous calendar year, have:
- At least $100,000 in gross income or proceeds from the sale of tangible personal property, intangible property, or services delivered or consumed in Hawaii, or
- 200 or more separate transactions of the same.
At the time the law was enacted, states were prohibited from taxing sales by businesses with no physical presence in the state. Yet the physical presence rule was overruled by the Supreme Court of the United States on June 21, 2018, a week after Hawaii adopted economic nexus. In South Dakota v. Wayfair, Inc., the court determined a remote business’s “economic and virtual contacts” with a state were a sufficient basis for sales tax nexus (a tax collection obligation).
Hearing the news, Hawaii began enforcing economic nexus on July 1, 2018. But like a number of other states, it’s still looking to flesh out its remote sales tax laws with new collection requirements for marketplace facilitators, and new use tax notice and reporting requirements for non-collecting businesses.
It can be challenging to navigate the rapidly changing sales tax landscape. Automating sales tax management can help.
*Wholesaling is subject to a reduced rate of tax in Hawaii.
**Instead of a sales tax, Hawaii assesses a general excise tax (GET) on all business activities.
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