Marketplace facilitators to collect Hawaii sales tax for third-party sellers
Like more than 35 other states, Hawaii will soon require marketplace facilitators to collect and remit the tax due on all sales made through the platform, including those by third-party or marketplace sellers. The new requirement takes effect January 1, 2020.
The collection requirement applies to marketplace facilitators based in the state of Hawaii, as well as out-of-state marketplace facilitators that have economic nexus with Hawaii. Economic nexus is established when a remote business has, in the current or preceding calendar year:
- $100,000 or more in gross income sourced to Hawaii, or
- At least 200 transactions with parties in the state
Marketplace facilitators must count all sales — their own and third-party sales — when determining whether a threshold has been met.
GET obligations for marketplace facilitators
Starting January 1, 2020, marketplace facilitators are considered the retail sellers of tangible personal property, intangible personal property, and services sold through the marketplace. As such, they’re responsible for the collection, remittance, and reporting of Hawaii’s general excise tax (GET), the Aloha State’s version of a sales tax.
The first step for marketplace facilitators not already doing business in Hawaii is to register to obtain a GET license. A GET license must be in hand on January 1, 2020, or prior to starting business activities (whichever is later).
GET rates in Hawaii vary based on the nature of the transaction. A rate of 0.5 percent applies to wholesale sales of goods and services, as well as certain other sales. Retail sales of goods and services and certain other transactions are taxed at 4 percent in most parts of the state, though in some areas a county surcharge brings the rate to 4.25 percent or 4.5 percent.
Once registered, marketplace facilitators are subject to the retail rate for their own sales into Hawaii and for most sales made through its marketplace (regardless of whether the seller is registered in Hawaii).
However, marketplace facilitators are also subject to the wholesale rate for:
- Sales of tangible personal property made through the marketplace if the marketplace seller is not engaged in business in the state;
- Sales of tangible personal property delivered to a marketplace facilitator outside of Hawaii prior to the sale through the marketplace; and
- Sales of services through the marketplace if the marketplace seller is not engaged in business in the state and the services are ultimately used and consumed in Hawaii.
Act 2 (2019) defines “marketplace facilitator” as any person who sells or helps sell tangible or intangible personal property or services for another by listing or advertising the item for the marketplace seller and collecting (directly or indirectly) payment from the purchaser. Marketplace facilitators include, but aren’t limited to:
- Brick-and-mortar marketplaces of any type
- Educational service websites or applications
- Food delivery service marketplaces
- In-person service and task-based service platforms
- Remote intangible property or data access marketplaces
- Remote service marketplaces
- Transportation network companies
- Travel agents or tour packagers that go beyond merely arranging for the furnishing of the service
The following are not considered marketplace facilitators:
- Travel agents or tour packagers that arrange for the furnishing of transient accommodations
- Travel agents or tour packagers who merely arrange for the furnishing of tourism-related services
The Hawaii Department of Taxation provides examples of activities considered to be the furnishing of tourism-related services in the revised Tax Information Release No. 2019-03.
GET obligations for marketplace sellers
As with marketplace facilitators, marketplace sellers with a physical presence in Hawaii should already be registered to collect and remit the Hawaii GET. Remote marketplace sellers should be registered and collecting GET if they have economic nexus with Hawaii ($100,000 in gross income or 200 transactions in the state in the current or previous calendar year), even if they sell only through registered marketplaces.
When calculating the economic nexus threshold, marketplace sellers should include their direct sales, as well as any sales made through marketplace facilitators that are not registered in Hawaii and do not collect and remit on their behalf.
Marketplace sellers that make direct sales and sell through collecting marketplaces should include:
- Direct sales of tangible personal property to consumers in the state (not through a marketplace);
- Sales of tangible personal property made through a marketplace facilitator but shipped into the state (either to the end consumer or the marketplace facilitator) by the marketplace seller; and
- Sales of intangible personal property and services in the state if ultimately used or consumed in the state, regardless of whether the sales are direct or made through a marketplace facilitator.
Marketplace sellers should collect the GET retail rate (4 percent, 4.25 percent, or 4.5 percent) on their direct sales into Hawaii.
Marketplace sellers should collect the GET wholesale rate (0.5 percent) for:
- Sales of tangible personal property through a marketplace facilitator if the marketplace seller ships the item directly to a retail purchaser in Hawaii (as opposed to a facilitator)
- Sales of tangible personal property delivered to a marketplace facilitator in Hawaii prior to a retail sale (i.e., the facilitator must store it in Hawaii until a sale is made)
- Sales of services sold through a marketplace facilitator if the service is utlimately used and consumed in Hawaii
This is unusual. While some other states require marketplace sellers to register even when they sell only through registered marketplaces, Hawaii is unique in holding marketplace sellers liable for tax on certain sales made through a registered marketplace. Learn more in state-by-state registration requirements for marketplace sellers.
Notice and reporting requirements for non-collecting marketplace facilitators and referrers
Hawaii law (Act 2) also imposes notice and reporting requirements for any person who provides a forum for sellers to advertise or list products for sale in Hawaii but does not collect payment from the purchaser (i.e., referrers).
Marketplace facilitators that have been granted an exception from the new tax collection obligations imposed by Act 2 must also comply with the notice and reporting requirements.
GET obligations for consumers in Hawaii
If neither the marketplace facilitator nor the marketplace seller has a physical presence in or economic nexus with Hawaii, neither is required to register to collect GET. However, either may register to collect as a courtesy to customers.
In the event no tax is collected by the marketplace facilitator or seller, the consumer is liable for use tax. Learn more about consumer use tax and how it relates to sales tax.
More details about Hawaii’s new collection and reporting requirements can be found in the Hawaii Department of Taxation’s Guidance Regarding Marketplace Facilitators.
All but two of the 45 states that have a general sales tax have adopted sales tax collection obligations for remote sellers, and most have also adopted marketplace facilitator laws like Hawaii’s. Learn more in Avalara’s seller’s guide to nexus laws and sales tax collection requirements.
Updated 2.27.2020 to provide a link to the latest information from the Hawaii Department of Taxation (Revised TIR 2019-03).
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