A Hawaii sales tax exemption doesn't exist in the way most states define one because Hawaii doesn't charge sales tax, at least by name. It charges a General Excise Tax (GET) on businesses that operate in the state and offers limited exemptions. Wholesalers, for example, are taxed at 0.5% instead of the standard 4% rate. The mechanism differs by category, and businesses must apply it correctly.

Below, we'll discuss which transactions qualify for reduced or excluded treatment, the certificates and records a business needs to back up those claims, and what happens when the Department of Taxation disallows an exemption after the fact.

Key takeaways

• Hawaii taxes businesses through a General Excise Tax (GET) rather than collecting sales tax directly from buyers. However, businesses often pass the cost of this tax on to the buyer.

• Exemptions in Hawaii generally reduce the tax rate on a transaction or exclude income from a business's tax base rather than excusing the business from a charge.

• With General Excise Tax (GET), the seller – not the buyer – carries the liability when the state disallows an exemption or reduced rate. This is because GET is fundamentally a tax on the business and not the customer.

What is a Hawaii sales tax exemption?

Instead of excusing a buyer from tax on a purchase, most Hawaii exemptions reduce or exclude income from a business's taxable base. That's because Hawaii doesn't charge a sales tax; it charges a General Excise Tax (GET), which is a tax on businesses for the privilege of operating in the state. Sellers typically pass this cost to buyers as a line item charge that looks a lot like sales tax on a receipt.

Who qualifies for a Hawaii GET exemption?

Qualification for a GET exemption in Hawaii depends on the type of transaction. The categories aren't automatic, and a business must identify which one applies and document it.

Here are a few examples:

• Wholesalers selling to licensed retailers: Tangible goods qualify for a reduced rate because GET is collected again when the retailer sells to the end customer.

• Businesses selling directly to the federal government: Goods sold to the US government are excluded from GET.

• Foreign diplomats and consular officials: Diplomats and consular officials can make transactions using a card issued by the US Department of State, which grants them an exemption from state taxes such as GET.

What types of Hawaii GET exemptions exist?

Hawaii's exemptions fall into a handful of practical categories.

Here are some common ones:

• Prescription drugs and prosthetic devices: Sales to individuals by a hospital, infirmary, medical clinic, healthcare facility, pharmacy, or practitioner licensed to administer drugs or prosthetic devices are excluded from GET.

• Qualifying federal scientific work: Proceeds from certain scientific contracts get an exclusion, distinct from the general federal sales exclusion.

• Exports: Tangible property as well as services sold and shipped out of Hawaii for use or resale elsewhere generally fall outside the state's GET base.

• Wholesale and resale transactions: Goods sold to a licensed reseller for resale are taxed at 0.5% instead of the standard rate, since GET applies again once the final sale happens.

How do businesses apply a Hawaii GET exemption at checkout?

A business needs a completed resale certificate from the buyer before applying the reduced 0.5% rate to wholesale and resale transactions. Hawaii generally uses Form G-17. The certificate captures the buyer's and seller's information along with a statement that the goods are being purchased for resale. The seller keeps it on file rather than submitting it to the state at the time of sale. It becomes the seller's proof if their business is ever audited.

A business selling through Stripe can configure Stripe Tax to apply Hawaii's GET rates automatically. The business can also flag specific products as exempt by using tax codes, so that GET isn't calculated on those line items. Because GET applies to the business's gross income rather than to each transaction the way sales tax does, the checkout calculation isn't final. When it is time to file, the business still needs to reconcile what Stripe Tax calculated against what actually qualifies for reduced or excluded treatment.

What records do businesses need to keep for Hawaii GET exemptions?

The state resolves taxes within three years, so businesses must retain GET exemption documentation for at least that period.

Here are some records you need to keep:

• Resale certificates from every wholesale buyer: Keep buyers' resale certificates on file.

• Invoices and sales records that separate transaction types: On invoices, it's smart to put wholesale rate sales, excluded sales, and standard rate sales on separate lines.

• Contracts supporting federal or scientific contract exclusions: These sales don't necessarily come with a standard certificate format, so the contract itself can serve as the supporting record.

What happens if a Hawaii GET exemption is claimed incorrectly?

Because GET is based on a business's gross income rather than collected from the buyer transaction by transaction, the seller carries the liability when an exemption or reduced rate is disallowed. If the Department of Taxation decides a wholesale sale should've been taxed at the standard 4% rate instead of 0.5%, it assesses the difference against the seller directly. If a GET return is filed late, the business is charged an additional 5% of the unpaid tax per month, up to 25%. A 20% late payment penalty might also apply if the business doesn't pay the tax on a timely filed return within 60 days after the due date. Interest accrues after the due date at a rate of two-thirds of 1% per month on unpaid tax, including penalties.

In Hawaii, a seller who accepts a resale certificate in good faith still needs that certificate to hold up under scrutiny because the state pursues the seller's return, not the buyer's purchase. A Hawaii business that applies the wholesale rate without collecting proper certificates, or excludes federal sales income without a contract to back it up, builds exposure that compounds with every filing period until an audit catches it.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.

FAQs about Hawaii sales tax exemptions