Vivian Marlowe
Alcohol in Hawaii is subject to a variety of taxes, including federal alcohol excise taxes, which are generally passed on to the consumer, and direct-to-consumer (DTC) shipment taxes. While Hawaii does not have a sales tax, there is a 4% general excise tax (GET) levied on businesses for the sale of tangible goods and services, which may be passed on to customers. Depending on the location of the sale within Hawaii, the total tax rate can be as high as 4.5%, including local and special district taxes. These taxes are administered by the Hawaii Department of Taxation (DOTAX).
| Characteristics | Values |
|---|---|
| State sales tax rate | 4% |
| Total tax rate | Up to 4.5% |
| Local taxes | 0% to 0.5% |
| Special district taxes | 0% to 0.5% |
| Combined general excise tax rates | 4% to 4.5% |
| Federal excise tax rates on beer, wine, and liquor | Vary depending on the percentage of alcohol in the product |
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What You'll Learn
Hawaii's 4% sales tax and local taxes
While Hawaii does not have a sales tax, there is a 4% general excise tax (GET) on the sale of certain goods and services. This is levied on businesses and charged to the seller, who may then choose to pass the charge on to customers. On top of the 4% state tax, there may be local taxes and special district taxes, which can range from 0% to 0.5%. This means that the combined general excise tax rates in Hawaii can be anywhere from 4% to 4.5%, depending on the location of the sale.
The GET in Hawaii is administered by the Hawaii Department of Taxation (DOTAX). Any GET collected from customers belongs to the state of Hawaii and not the business. Sellers are not required to collect GET, but if they do, they must register with the DOTAX. This registration requirement was previously only triggered by a physical presence in the state, such as employees or an office, but since 2018, it can also be triggered by economic and virtual connections to the state.
Hawaii also has specific rules for marketplace facilitators and non-collecting sellers. As of 2020, marketplace facilitators are responsible for collecting and remitting GET on behalf of marketplace sellers. Non-collecting sellers must post a notice informing potential purchasers that they are required to pay Hawaii use tax on sales made through unlicensed sellers. They must also provide a written notice at the time of sale that the purchaser may be required to pay use tax directly to the tax department.
Businesses attending conventions or trade shows in Hawaii may be required to register with Form G-45 and may be liable for collecting and remitting GET on orders taken or sales made during those events.
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Federal alcohol excise taxes
Alcohol excise taxes are levied on brewers or distillers by the Alcohol and Tobacco Tax and Trade Bureau and are generally passed on to the consumer in the beverage's price. These taxes are based on the proof gallon, which is a gallon of liquid that is 100 proof or 50% alcohol. The tax is then adjusted depending on the percentage of alcohol in the product. For example, the federal excise tax on rum produced in Puerto Rico and the US Virgin Islands is $13.50 per proof gallon, with $10.50 being returned to the territories.
One of the key justifications for alcohol excise taxes is to reduce the external harms associated with alcohol consumption. By increasing market prices and decreasing legal consumption, these taxes aim to mitigate issues such as drunk driving, intoxicated violence, and property damage. Additionally, the revenue generated from these taxes can be used to fund anti-addiction programs, enforce and incentivize sober driving, and support education initiatives.
Different tax rates are applied to various categories of alcohol, such as preferential tax treatment for products made from certain processes or raw ingredients. However, this non-neutral approach to taxation has been criticized for providing incentives for producers that may not always align with creating new and better products. Furthermore, the differential tax effects are often compounded by the creation of production subsidies, which may only benefit a select few producers.
It is worth noting that states also levy their own excise taxes on fermented malt beverages, and general sales taxes from state and municipal governments are added to the final price of alcoholic goods. These varying tax rates and structures can make the alcohol tax landscape complex for businesses and consumers alike.
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Direct-to-consumer (DTC) shipments
In Hawaii, wine sold and shipped directly to consumers must be packaged in containers with clear alcohol content labelling. Additionally, an adult aged 21 or older must provide a signature upon delivery. These rules are not unique to Hawaii, as nearly all states have similar regulations for wine labelling and signatures for direct-to-consumer (DTC) shipments.
Licensed alcohol shippers are generally required to register for sales tax in most states, regardless of economic or physical nexus. However, sales and use tax rates vary depending on the state, county, city, or special district. Therefore, accurate address information is crucial to determine the applicable tax rates for a specific location.
On top of sales tax, alcohol taxes, including "markup" taxes and traditional "gallonage"-based excise taxes, are typically applied to DTC shipments. While these taxes are often included in the item's price, there are cases where they must be passed on to the consumer. It is important to note that tax rates and regulations are subject to frequent changes, and businesses should seek specialised advice for compliance.
As of 2023, Hawaii's direct-to-consumer shipping of liquor was limited to wineries shipping wine. Other liquor manufacturers, including beer producers, were not permitted to directly ship their products to consumers. However, bills like SB1571 and HB1259 aim to allow the direct shipment of all forms of liquor by certain licensees, potentially increasing local jobs and revenue for small businesses. These bills also emphasise the need for reciprocity with other states regarding liquor shipping.
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General excise tax (GET)
While Hawaii does not have a sales tax, it levies a 4% general excise tax (GET) on the sale of tangible goods and some services. The GET is charged to the seller and remitted to the state tax authorities, and sellers may choose to pass the charge on to customers. On top of the 4% state tax rate, there may be local taxes of up to 0.5% and special district taxes, which can bring the total tax rate to 4.5% in some locations. The GET in Hawaii is administered by the Hawaii Department of Taxation (DOTAX).
The GET is a tax on businesses for the sale of goods and services, and it is similar to a sales tax. However, with a sales tax, the consumer typically pays the tax directly to the governing body, whereas with the GET, the seller pays the tax to the governing body and may pass the cost on to the consumer.
The GET applies to most sales of tangible personal property and some services. It is important to note that the GET is not a tax on the sale of real property (land and buildings) or intangible property (such as stocks and bonds).
The GET is typically applied to the gross receipts or gross proceeds of a business, which means it is calculated based on the total revenue from the sale of goods or services without deducting any expenses. However, there may be certain exemptions or exclusions from the tax for specific types of businesses or transactions.
Prior to 2018, Hawaii could only require a business to register and remit GET if it had a physical presence in the state, such as employees or an office, retail store, or warehouse. However, following the Supreme Court's decision in South Dakota v. Wayfair, Inc., Hawaii can now tax businesses based on their economic and virtual connections to the state, or economic nexus. This means that out-of-state sellers with no physical presence in Hawaii may still be subject to the GET if they have an economic nexus with the state.
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Nexus and economic presence
In addition to sales tax requirements, alcohol taxes also apply to direct-to-consumer (DTC) shipments in Hawaii. Licensed alcohol shippers are required to register for sales tax in most states, regardless of economic or physical nexus. In the case of Hawaii, instead of sales tax, the state imposes a general excise tax (GET) on gross receipts or gross income from business activities within the state. This means that businesses with nexus in Hawaii must register with the Hawaii Department of Taxation and charge, collect, and remit the appropriate tax.
Nexus is generally established when a business has a physical presence in Hawaii, such as a retail store, warehouse, inventory, or regular visiting salespeople. However, following the South Dakota v. Wayfair Supreme Court ruling, states can now pursue sales tax from eCommerce businesses with a 'significant presence' in their state. This has expanded the definition of nexus to include economic activity, now referred to as economic nexus. In Hawaii, this legislation came into effect on July 1, 2018, and applies to taxable years beginning after December 31, 2017.
According to Hawaii's economic nexus law, a person or business is subject to the GET if they meet either the sales or transaction number thresholds in the current or preceding calendar year. The thresholds are $100,000 in gross income or gross proceeds from the sale of tangible personal property, services, or intangible property used in Hawaii, or 200 or more separate transactions involving the sale of these items within the state.
It is important to note that out-of-state businesses can also establish nexus in Hawaii without a physical presence. This can occur when an out-of-state business has ties to in-state affiliates or conducts activities that contribute to establishing or maintaining a market for its products in Hawaii. Presence is determined by factors such as providing services in conjunction with the sale of property.
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Frequently asked questions
While Hawaii does not have a sales tax, there is a 4% general excise tax (GET) on alcohol. On top of the state tax, local taxes can increase the total tax rate to 4.5%.
The GET is levied on the sale of tangible goods and some services. The tax is charged to the seller, but it can be passed on to the customer.
Federal alcohol excise taxes are collected from the brewer/distiller by the Alcohol and Tobacco Tax and Trade Bureau. These taxes are generally passed on to the consumer in the beverage's price.
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