Sales Tax Fundamentals
Get up to speed on the basics of sales tax
General Excise Tax vs. Sales Tax: What’s the difference?
byJuly 22, 2021
We often say forty-six U.S. states (plus Washington D.C.) have a sales tax, but that is a simplified way of talking about what is actually a collection of different taxes that are (usually) charged at retail by sellers to customers..
While the vast majority of U.S. states will require or allow sellers to collect tax at the point of sale, not all states strictly have a “sales and use tax.”
For example, Hawaii imposes a General Excise Tax (GET) rather than a sales and use tax (SUT) . Even though these two taxes generally work the same way at the register or online shopping cart checkout, they aren’t quite the same thing.
Let’s dig into the differences between GET and SUT and what they mean for e-commerce sellers.
What is sales tax?
Sales tax is just what it sounds like. A tax on a sale of tangible personal property such as a desk or a toothbrush. In most U.S. states, sales tax is a percentage of the transaction price, collected at the point of sale from the buyer by the seller.
In other words, the buyer actually pays the sales tax while the seller is merely a collection agent. The seller’s job when it comes to sales tax is to collect the sales tax from the buyer and then pass it on to state taxing authorities.
Of course, because sales tax is due on all taxable sales, if the seller fails to collect sales tax when they should have, they may be on the hook for paying the sales tax themselves, out of pocket.
What is General Excise Tax (GET)?
While a buyer might experience it similarly, Hawaii’s General Excise Tax (GET) is different from most other states’ sales and use tax.
Rather than a tax on a sale paid by the buyer, GET is a tax for “the privilege of doing business” in the state of Hawaii and levied on the seller. According to the Hawaii Department of Taxation, “Activities subject to GET include wholesaling, retailing, farming, services, construction contracting, rental of personal or real property, business interest income, and royalties.”
In Hawaii, a seller is responsible for remitting GET whether or not they actually collect GET on a transaction. However, sellers are allowed to pass GET on to customers, and that’s why, if you make a purchase in Hawaii, you’ll likely see a small percentage of the sale tacked on to your receipt to cover GET.
Last but not least, while sales tax is due on retail sales of tangible personal property, GET is due on all business transactions, even if you are selling to another business (a transaction that would generally not be taxable in other U.S. states with a sales and use tax.)
Recap: The Difference Between GET and Sales Tax
To put it simply, sales tax is charged at the point of sale and paid by the buyer to the seller. The seller then remits that collected sales tax to state taxing authorities. Further, retailers can get in trouble for not collecting sales tax from buyers.
Hawaii’s General Excise Tax (GET) is owed to the state (and local) Hawaii taxing authorities by a business, for the privilege of doing business in the state. That business can choose to pass the GET on to customers at the point of sale, but will not get in trouble if they do not. And if the business does not pass the cost of GET on to their customers, they are still responsible for paying GET to state and local taxing authorities in Hawaii.