Despite the spectacular eruption of Hawaii's Kilauea Volcano the Hawaii Legislature has passed online sales tax and economic nexus legislation, and sent it to Hawaii's Governor David Ige, for his signature to finalize enactment.
Hawaii Kilaueau Volcano Eruption (May 2018)
Hawaii 2018 Legislature in Session
If SB 2514 becomes law, an entity will be considered to be engaged in business in Hawaii, whether or not that entity has a physical presence in the State, if in the current or immediate preceding calendar year, the entity has $100,000 or more in gross income, or 200 or more separate transactions, from the sale of tangible personal property delivered anywhere within the State of Hawaii, or services used or consumed anywhere within the State of Hawaii, or intangible property used anywhere within the State of Hawaii. Under this definition an out-of-state entity is defined to be engaged in business in the state for the purpose of Hawaii's general excise tax (GET) code provisions.
Senate Bill 2514 now awaits the governor’s signature, but it is likely he will enact the legislation because he has previously expressed support for taxing remote sales. If Governor Ige signs the bill into law, it would take effect July 1, 2018, and apply to all transactions, as defined, beginning after December 31, 2017.
Hawaii General Excise Tax Certificate
You may have noticed in the paragraph setting forth the new provisions that these out-of-state entities will be subject to Hawaii's General Excise Tax (GET) code provisions. Hawaii doesn't actually have a State Sales Tax, they impose a general excise tax on all transactions of goods and services.
Hawaii's GET rate is 4% statewide with the exception of Oahu, where it is 4.5%.
Unlike sales tax, general excise taxes are paid by the business conducting the sale, not the consumer; however, Hawaii does allow businesses to pass the tax onto the customer and to charge up to 4.712% of retail value to recoup GET costs.
Because Hawaii is a destination sourcing state, meaning that tax is based upon the location of the buyer, rather than the seller, it seems natural that they would consider out-of-state sales to in-state buyers an appropriate extension of their GET tax code. I guess we can be somewhat surprised that it has taken them this long to enact tax changes like those contained in Senate Bill 2514.
Hawaii is by no means the only state implementing (or attempting to implement) tax requirements upon out-of-state sellers, it's just that their provisions are a little different since they don't collect sales tax but impose general excise tax. Anyway, if you want more information about how similar provisions in your own state, or states with whom you do business, check out Avalara's guide at this website.
Like every state, you can count on the fact that Hawaii is out to collect every penny of not only these new taxes, but their existing general excise taxes to insure they have the fiscal resources to provide state government services. They make use of audits, fines, and penalties as part of their enforcement actions to insure tax compliance. What would you do if the 'tax man' walked in to suddenly audit your GET records?
Because Hawaii's GET may seem simple you can get lured into a false sense of compliance. Don't fool yourself, you still need an expert like Avalara to help you navigate general excise tax payments and reporting within your overall business framework. After all, you wouldn't want to get burned when the Hawaii tax guy comes pouring into your place of business like a lava flow to collect the GET taxes they say you owe, when you thought you were strictly compliant.