Hawaii Sales Tax Guide
Chapter 8: Understanding Hawaii sales tax rules for shipping & handling
If you run your business out of Hawaii, those of us stuck on the mainland are super jealous. It’s a good thing you live in one of the most beautiful places on earth; Hawaii’s tax rules for sellers may make you want to start paddling for Tahiti.Is Shipping Taxable in Hawaii?
The State of Hawaii has no sales tax; the state calls its tax on retail sales a general excise tax or GET. Since the amount of the tax is itself taxable, Hawaii provides formulas for how much GET you can charge your customers.
For example, if you sell a customer $100 worth of goods and charge an additional four percent in GET, you will actually owe the State of Hawaii $4.16 (the spare change is the tax on the $4 in GET you charged the customer).
If you think that’s odd, you just don’t get Hawaii. If you survived that terrible pun, here’s what you need to know about the Aloha State’s version of sales tax: because it’s a tax that businesses pay on their income from retail sales and not a consumer tax on retail sales, it works a bit differently from sales taxes in the other 49 states.
You can include GET in the sales price or add it on top like a sales tax, but, either way, you will have to pay the tax if you have nexus in Hawaii. If you do charge GET to your customers, the maximum you can tack on is the amount of GET on their purchases plus the GET on that GET amount. Get it?
All shipping and handling charges are taxable in Hawaii, whether they are stated separately on the invoice or not. The same rule applies to personal delivery: it’s pretty much always taxable.Tax-Exempt Exemptions
Shipping and handling on a tax-exempt order is also tax-exempt. The example Hawaii’s Department of Taxation representative supplied in response to our query about this was a shipment from a Hawaii seller to an out-of-state customer; the customer is obligated to pay use take in the state where he or she lives, but the Hawaii business does not have to collect and remit GET on orders shipped to customers who live elsewhere.
In Hawaii, not much falls into the tax-exempt category. The state is extremely unusual in that it imposes its general excise tax on wholesale orders, though at a lower rate (0.5 percent rather than the 4 percent state general excise tax). So shipping and handling on wholesale orders is also subject to the 0.5 percent excise tax.
Because Hawaii imposes the GET on businesses and not on customers, the state doesn’t issue exemption certificates to nonprofits, and even sales to government entities are subject to GET.FOB Outside Hawaii
Because Hawaii is an island state, its general excise tax code deals extensively with shipments coming into Hawaii from elsewhere. To avoid GET, sellers can have their customers accept delivery of an item in another state and ship it FOB. FOB (a shipping term that stands for Free on Board) means the buyer takes possession at the seller’s door and assumes liability for the items during shipping. The buyer arranges usually shipping and pays the carrier directly for FOB shipments.Help for Hawaii Sales Taxes on Shipping
Most of your sales in Hawaii will be taxable. When in doubt, collect and remit GET tax on orders you ship to in-state customers.
The Hawaii Department of Taxation shared this advice: “Sellers should know that the general excise tax is a broad-based tax on gross income, from whatever source derived, including amounts collected as shipping fees.” The state’s excise tax page includes a number of hypothetical scenarios to help you determine what taxes you need to collect and remit in different situations.
Now that you understand the ins and outs of Hawaii’s general excise tax, you are ready to get a bungalow by the beach and move your winter operations to the Aloha State. Mahalo!