Sales Tax Fundamentals
Get up to speed on the basics of sales tax
Does Hawaii Charge Sales Tax on Services?
byJuly 18, 2022
The majority of U.S. states require merchants to charge sales tax on tangible personal property (TPP), otherwise known as physical goods. Many states also implement sales and use tax on digital goods and SaaS. Because the economy has shifted over time from a manufacturing economy to a service economy, states are now looking to generate revenue by taxing services.
For service providers in Hawaii, there are a few important things to know. Firstly, Hawaii doesn’t have what we think of as traditional U.S. sales tax. They have a general excise tax (GET). 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. GET is levied on the gross income of all types of business activity, unless specifically exempted by law. Sales taxes, on the other hand, typically are levied only on sales of tangible personal property and only at the retail level.
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.)
With all that in mind, GET is treated similarly to sales tax in Hawaii, and a lot of the same sales tax rules apply. We’ll refer to GET as sales tax within this blog as a result.
Does Hawaii charge sales tax on services?
Services are generally taxable in Hawaii, here are some examples:
- Providing wholesale services
- Selling retail goods and services
- Renting, leasing real property
- Construction contracting
It’s important to note that there is a different tax rate for the different types of services, and those can be found here.
Please keep in mind that this is a guideline, and you should consult with a sales tax professional to determine if the services your business provides should be subject to state sales tax. For an in-depth look at Hawaii sales tax, TaxJar’s guide to sales tax in Hawaii and the Hawaii Department of Taxation has more details.