So, you need to know about sales tax in The Aloha State. Look no further!
Whether you’ve fully set up shop in Hawaii, or simply ship there once in a while, it’s important you know whether your business is liable to their sales taxes. This guide will tell you everything you need to know, plus direct you to the right places for handling any sales tax responsibility you may have.
What’s taxable in Hawaii?
Services include professional services provided by lawyers, architects, landscapers, etc. The definition can be pretty wide, and many exemptions can apply. Your best bet would be to check with Hawaii Department of Revenue to confirm your service is even taxable.
Tangible products, as you might guess, are physical items. Hawaii taxes most tangible products, but there can be exemptions! To be absolutely clear about which products are subject to sales tax, and which are exempt, check Hawaii Department of Revenue.
Digital products are goods that are delivered or accessed electronically, usually through the internet. Media streaming services and eBooks usually fall into this category, too, but rules can vary. Check Hawaii Department of Revenue website to be sure.
Better known as SaaS, these products are cloud-based software products, accessed online by customers. The definition of SaaS sometimes falls in the gray area of “digital service.” Hawaii does tax SaaS products, but check the website to confirm that the definition firmly applies to your service.
Do you have nexus in Hawaii?
The word “nexus” refers to a commercial connection in the state. Nexus determines the following questions for a state tax agency: Do you do business here, what kind, and how much? And when you do have nexus, that means you’re obligated to collect tax on your sales there.
So the first question for you to answer is whether you have nexus in Hawaii.
You probably have nexus in Hawaii if any of the following points describe your business:
- A physical presence in Hawaii: a store, an office, a warehouse or distribution center, storage space, you, an employee, a representative, etc.
- A significant amount of sales in Hawaii within twelve months. *
* This is called an economic nexus, a sales tax nexus determined by economic activity, i.e. - the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain threshold amount.
The threshold in Hawaii is $100,000 in annual sales or 200 separate sales transactions, whichever your business reaches first. To learn more about how this works, check out the Ultimate Guide to US Economic Nexus.
How to register for sales tax in Hawaii
Okay, so you have nexus! Now what?
The next crucial step in complying with Hawaii sales tax is to register for a sales tax permit. It’s actually illegal to collect tax without a permit. So to get all your ducks in a row, start with tax registration first.
You can find directions about how to register in Hawaii on their Department of Revenue website.
When registering for sales tax, you should have at least the following information at hand:
- Your personal contact info
- Your business contact info
- Social security number (SSN) or Employer Identification Number (EIN)
- Business entity (sole-proprietor, LLC, S-Corp, etc.)
- Bank account info (account number and routing number) where you’ll deposit the collected sales tax
How to collect sales tax in Hawaii
Now it’s time to tackle the intricate stuff! Tax rates can vary based on the location of your business and the location of your customer, plus the levels of sales tax that apply in those specific locations.
The state-wide sales tax in Hawaii is 4%.
There are additional levels of sales tax at local jurisdictions, too.
Hawaii has a destination-based sales tax system, * so you have to pay attention to the varying tax rates across the state. Charge the tax rate of the buyer’s address, as that’s the destination of your product or service.
* Important to note for remote sellers: While this is generally true for Hawaii, some state have peculiar rules about tax rates for remote sellers. Contact the state’s Department of Revenue to be sure.
Sales tax on shipping charges in Hawaii
Hawaii does apply sales tax to shipping costs. The rule of thumb is that if what you’re selling is subject to tax, then the shipping charges are also subject to tax. (And vice versa is true: If the item being shipped is not subject to sales tax, neither are the shipping charges.)
If you happen to be shipping products that are both taxable and nontaxable, then shipping charges for the entire shipment are subject to tax.
When to file taxes in Hawaii
When you register for sales tax, Hawaii will assign you a certain filing frequency. You’ll be asked to file and pay sales tax either monthly, quarterly, or annually.
Usually the frequency they choose is based on the amount of sales tax you collect from buyers in Hawaii. High-revenue businesses file more frequently than lower volume businesses, for example.
Hawaii sales tax returns are due on the 20th day of the month following the reporting period. If the due date falls on a weekend or holiday, then your sales tax filing is generally due the next business day.
How to file taxes in Hawaii
When tax time rolls around in Hawaii, whether it’s monthly or annually, you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- Make a payment
Hawaii requires that any seller with a sales tax permit file a sales tax return on your due date, even if you don’t have any sales tax to report or pay. Even if you didn’t make a single sale in Hawaii during the reporting period, you should must do a “zero tax filing.”
Other Hawaii tax info
If you miss a filing or payment deadline, certain penalties can apply. Such a pain! Check the state’s website for up-to-date penalty fees.
On a brighter note, you could be eligible for sales tax discounts in Hawaii! Usually these discounts are designed to save you a bit of money, as a reward for complying with the sales tax system. Check the state’s website for up-to-date discount policies.
Sales Tax Holidays
One final tricky aspect about Hawaii sales tax are the sales tax holidays. During these days of the year, you aren’t required to charge sales tax, and buyers will expect to not be charged. Check the state’s website for current sales tax holidays.