New County Surcharges Begin Jan. 1
Ordinance No. 1874 was enacted in Hawai‘i County on June 29, 2018. The ordinance authorizes the imposition of a county surcharge (CS) on general excise tax (GET) for Hawai‘i County beginning on Jan. 1, 2019, and ending on Dec. 31, 2020, at the rate of 0.25%. Since the retail GET rate is 4%, the total rate of tax imposed on transactions subject to the Hawai‘i CS is 4.25%.
As a general rule, the CS only applies to transactions where the retail rate of 4% applies; the CS does not apply to wholesale sales or insurance commission where the GET rates are 0.5% and 0.15% respectively. For guidance regarding the sourcing of income between counties, see Hawai‘i Administrative Rules sections 18-237-8.6-01 to 10.
Rate of tax visibly passed on to customers
GET is levied on the gross receipts of a business, including amounts that are passed on and collected as GET from customers. To account for this imposition, the maximum rate that may be passed on to customers is higher than the statutory rate of 4.25% (4% GET + 0.25% Hawai‘i CS). However, a seller is prohibited by consumer protection law from visibly collecting more than the amount actually owed.
The maximum rate that may be visibly passed on in Hawai‘i County is 4.4386%. This pass on rate is limited to six decimal places and is calculated as follows. When the taxes are visibly passed on the gross receipts consist of the purchase price and tax. The purchase price represents 95.75% of the gross receipts and the tax represents 4.25% of the gross receipts. The tax stated as a percent of the price is 0.044386 or 4.4386% (4.25% divided by 95.75%).
It is important to note that the 4.4386% rate is the maximum rate of tax that may be visibly passed on. Sellers may also pass on the tax at the statutory rate of 4.25% or may elect not to visibly pass on the tax at all.
The following example illustrates why the maximum visible pass on rate is greater than the statutory rate. Assume that the purchase price is $1,000, that the pass on rate is 4.25%, and the amount collected as tax is $42.50. The GET due is $41.70 ($1,042.50 x 4%) and the Hawai‘i CS due is $2.60 ($1042.50 x 0.25%) for a total of $44.30 due. The amount visibly passed on as taxes was $1.80 less than was due on the transaction. If the taxes were passed on at the maximum rate of 4.4386%, $44.38 would have been collected as tax on the transaction. The GET due would have been $41.77 ($1,044.38 x 4%) and the Hawai‘i CS due would have been $2.61 ($1,044.38 x 0.25%) for a total of $44.38 due.
The following table contains the county surcharge rates and effective dates:
COUNTY SURCHARGE TAX
|County of Hawai‘i||0.25%||January 1, 2019 to December 31, 2020|
|County of Kaua‘i||0.50%||January 1, 2019 to December 31, 2030|
|City & County of Honolulu||0.50%||January 1, 2007 to December 31, 2030|
|County of Maui||0.00%||No county surcharge|
The county surcharge only applies to transactions subject to the 4.0% General Excise Tax (GET) rate. The county surcharge does not apply to activities taxed at the 0.5% rate (e.g., wholesaling) or the 0.15% rate (i.e., insurance commissions).
A seller may choose to visibly pass on the GET to its customers, but is not required to do so. The maximum pass-on rates, which include the county surcharge if applicable, are as follows:
MAXIMUM GENERAL EXCISE TAX PASS-ON RATES
|County of Hawai‘i||4.4386%|
|County of Kaua‘i||4.7120%|
|City & County of Honolulu||4.7120%|
|County of Maui||4.1666%|