Most of us know that when we purchase a good or service in Hawaii, we must pay tax. It’s called the General Excise Tax, or GET, and it seems to show up in the price of everything we buy.
This tax, unlike most sales taxes, is imposed on the merchant selling the goods or services to us, but we see it on the bill anyway. But what happens if we want to buy something that local merchants just don’t offer, we go online, and no tax appears on the bill. Do we still pay tax when we make those purchases? Technically, yes. The law provides that if you buy something from a merchant who doesn’t have to pay our GET and you import it into Hawaii, then you are supposed to pay the tax.
Although this tax, called the Use Tax, applies to many online purchases, most individual taxpayers don’t pay it. The Department of Taxation could go after you for it, but generally won’t unless you are a business or it’s a big-ticket purchase like a car or boat. (This happens in other states with Use Taxes as well, so we are not alone.)
The good news for businesses making online purchases is that the list of merchants that are paying GET is getting longer. Amazon, for example, accounts for a big chunk of online shopping. It is paying GET on purchases made in April or later, so those who buy things from Amazon and have been paying Use Tax can stop paying on those purchases.
Businesses who register for and pay GET often do it without much fanfare. Their customers who pay Use Tax on purchases from them sometimes keep on doing it unwittingly. One Hawaii Supreme Court case, called Tax Appeal of Aloha Motors, Inc., 69 Haw. 515, 750 P.2d 81 (1988), involved a business that kept on paying Use Tax needlessly between 1968 and 1981, and overpaid more than $760,000 cumulatively. When Aloha Motors finally figured it out, the court held it could only recover three years of over-payments, because there is a statute of limitations in favor of the State. Other General Motors dealerships at the time were all making the same error because of some complex circumstances. They all went to the Legislature, and ultimately obtained a special waiver allowing the recovery of up to around $2 million in overpaid Use Tax. (Act 297, Session Laws of Hawaii 1990.)
If you are a consumer or business and you are paying Use Tax, you shouldn’t expect to get a special waiver like the General Motors dealerships did. If you pay too much and you don’t figure it out within three years, you are probably out of luck. There are, however, great tools that didn’t exist back in the 1980s. Anyone today can look up GET licenses online. Just go to the Department of Taxation’s website and follow the link that says, “Search the Tax Licenses.” If a vendor of yours has a GET license, you don’t need to pay Use Tax on your purchases from that vendor. You’d be well advised to search through your Use Tax vendor list against the licenses every so often.
What happens if you have paid too much? For example, what if you are a business that has dutifully paid Use Tax on Amazon purchases every year and have been doing so until this day, including on purchases made after March 31? One possibility is wait until the year ends, recalculate your annual liability on the G-49 reconciliation return that you need to file anyway, and use that to claim a refund. If you have paid too much in prior years for which the statute of limitations is still open (generally three years from the due date of the return), then you can file an amended return to claim a refund. And, of course, you can always contact your friendly neighborhood tax practitioner to help you figure out which of your options is best.
Tom Yamachika is president of the Tax Foundation of Hawaii.