Sales Tax Obligations of a Purchaser in Hawaii

April 13, 2006

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Sellers and service providers bear the responsibility for paying the sales tax to the state. However, Hawaii gives sellers and service providers the option of passing this tax onto their customers. Accordingly, you should check your invoices to determine who is paying this liability. If the vendor is passing this cost onto you, in some cases, you may be entitled to a partial or total refund of any sales tax you have paid. In order to determine if you qualify for a partial or total refund, review the discussions below.

Sales tax exemptions. Hawaii, unlike most states, does not provide a complete exemption from sales tax when tangible personal property is sold for resale. In fact there are very few cases in which no sales tax will be incurred when you make a purchase.

Casual sales, however, are completely exempt from sales tax because the law specifically excluded them from the definitions of business and engaging in business. For purposes of this exclusion, a casual sale is defined as an occasional, isolated, irregular, infrequent, or incidental sale or transaction, involving tangible personal property that is not ordinarily sold in the usual course of the seller's business.

As a rule of thumb, a sale will be casual if the vendor engaged in a trade or business sells tangible personal property that is not usually carried in inventory and the vendor's sales show a pattern of selling only inventory merchandise.

Chow Hound Food Mart recently purchased new computers for their administrative offices. Management decides to sell the old computers to those employees who are interested in purchasing them. The sale of these computers will not cause sales tax to be accrued since they are not normally carried as inventory by the Chow Hound Food Mart.

Resale exemptions. If you purchase goods or products and will resell them in your business, or include them as part of the service you provide, your purchase may qualify for a reduced sales tax rate. All sales made for resale are subject to a 0.5 percent rate of tax.

Resale exemption certificate. In order to obtain a resale exemption, the seller may require you to present, in good faith, a resale certificate. The state provides three resale certificate forms that you may use. There are two general resale certificates (Form G-17 and G-19) and one special form for contractors or persons taxable as contractors purchasing materials and commodities (Form G-18).

Blanket resale certificate. A blanket resale certificate you present to the vendor will be valid until either you or the vendor revoke it. A blanket resale certificate is a resale certificate that you provide to a seller from whom you make numerous exempt resale purchases. The idea is that by providing a blanket resale certificate, both you and the seller can avoid the hassle of having to deal with a new certificate every time you make a purchase. The law does not set forth any specific procedures for accepting a blanket resale certificate. However, you should present, in good faith, a blanket resale certificate to the seller that includes the same information as a regular resale certificate.

Use tax liability on out-of-state purchases. If you buy taxable property from an out-of-state seller, you're going to have to pay a use tax on the purchase price of the property. You pay this tax directly to the state.

Small business deductions or credits. Hawaii does not provide for any small business deductions from sales or use taxes. However, the state allows you to take a credit against use tax if you have already paid sales or use tax to another state on the property purchased. This credit cannot exceed the amount of sales tax assessed in Hawaii.