GET Is Not a Sales Tax

Look at a receipt from almost any store here and there's a line near the bottom that adds about 4.7 percent. Most people call it sales tax.

Hawaii doesn't have a sales tax. The Department of Taxation says so in its own guide. What we have is the general excise tax, GET, and it works in a way that matters to anyone running a business here.

A sales tax is a tax on the customer. The store collects it and hands it to the state.

GET is a tax on the business. It's owed on almost everything the business takes in. Your customer never owes it. You do.

You owe it whether you charge it or not.

Say you bill a customer $10,000 and don't add GET. Most businesses selling to the public pay 4.5 percent, so you owe $450, and it comes out of your $10,000.

It's charged on what comes in, not on what's left after expenses. A business that brings in $300,000 owes about $13,500 whether it made a profit that year or not.

If you add it, add 4.712 percent, not 4.5.

You're allowed to add GET to your invoice as its own line, as long as the customer knows before the sale. Most people add 4.5 percent. That leaves you short, because the GET you add is also income, and you owe GET on it too.

Here's the math on that $10,000 job:

• Add 4.5 percent and you bill $10,450. You owe 4.5 percent of the whole $10,450, which is $470.25. You keep $9,979.75.
• Add 4.712 percent and you bill $10,471.20. You owe $471.20. You keep $10,000.

4.712 is the most the state lets you add, and it's exactly enough to cover the tax on the tax. Every county is at that rate right now.

Twenty dollars on a $10,000 job doesn't sound like much. On $300,000 of sales in a year, it's about $600 you earned and handed to the state.

Set it aside the day the money arrives.

Because GET is owed on every payment, the simplest habit is to treat 4.5 percent of every customer payment as money that was never yours. Move it to a separate account the day it lands. When your return is due, the money is already there.

This works even if you add GET to your invoices. 4.5 percent of what the customer paid is what you owe on it.

How often you file depends on how much GET you pay in a year. Twice a year if it's $2,000 or less. Every quarter if it's $4,000 or less. Every month above that. Each return is due on the 20th of the month after the period ends. The yearly return, the G-49, is due on the 20th of the fourth month after your year ends. For most businesses that's April 20.

Try It: The GET Check

1. Open your last invoice. If it adds GET, look at the rate. 4.712 percent is right. 4.5 means you're paying part of the tax yourself on every job. Anything above 4.712 is more than the law allows.
2. Add up your customer payments for your last GET filing period and multiply by 0.045. Put that next to the GET you reported for that period. They won't match to the penny, and there can be good reasons, like sales that are exempt or taxed at a different rate. A big gap is a question for whoever prepares your GET.
3. Take 4.5 percent of this month's customer payments so far. Is that much set aside somewhere you won't spend it? If not, move it today.

Some income is taxed at other rates, and some isn't taxed at all. Your CPA can tell you what applies to your business.

P.S. The state's own guide to GET is short and easy to read: Tax Facts 37-1.