For businesses purchasing inventory tax-free, securing a resale certificate in Hawaii is essential under the state’s General Excise Tax (GET) system. Unlike traditional sales tax, Hawaii imposes GET on businesses at every transaction level, meaning vendors must collect tax even on wholesale purchases—unless a valid resale certificate is presented. This certificate allows businesses to avoid unnecessary tax burdens, ensuring that GET is only applied when goods reach the final consumer. However, compliance is critical.
Hands Off Sales Tax (HOST) simplifies the process, helping businesses obtain, manage, and use resale certificates correctly. This guide covers everything you need to know.
What is a Resale Certificate in Hawaii?
In Hawaii, a resale certificate is a document that allows businesses to purchase goods intended for resale without paying the full General Excise Tax (GET) at the point of purchase. Instead of the standard 4% GET (4.5% in Honolulu), transactions involving a valid resale certificate are taxed at a reduced rate of 0.5%.
Purpose of a Resale Certificate
The primary purpose of the resale certificate is to prevent tax pyramiding, ensuring that the GET is applied only once—when the final consumer purchases the product. By presenting this certificate, businesses can reduce their tax burden on goods they intend to resell, thereby maintaining competitive pricing.
Difference from Other Tax Exemption Certificates
Unlike general tax exemption certificates that may apply to various tax-exempt entities or specific non-taxable goods and services, Hawaii’s resale certificate specifically pertains to transactions where the purchaser intends to resell the goods. It’s important to note that this certificate is not an exemption from tax but rather a mechanism to apply a reduced tax rate for qualifying transactions.
Proper use of the resale certificate is crucial for businesses to manage their tax liabilities effectively and remain compliant with Hawaii’s tax regulations.
Hawaii’s General Excise Tax (GET) System
Hawaii’s General Excise Tax (GET) is a comprehensive tax levied on businesses for the privilege of conducting operations within the state. Unlike traditional sales taxes that are imposed on consumers, the GET is assessed on the gross income of businesses, encompassing nearly all business activities, including retailing, wholesaling, farming, services, construction contracting, and rentals.
Key Differences Between GET and Traditional Sales Tax
- Tax Incidence: In most states, a sales tax is a levy on the consumer, collected by the retailer at the point of sale. In contrast, Hawaii’s GET is a tax on the business itself, calculated on the company’s gross receipts.
- Scope of Taxation: Traditional sales taxes typically apply only to the sale of tangible personal property to end consumers. The GET, however, applies to a broad range of transactions, including services and wholesale goods, making it more encompassing than standard sales taxes.
- Tax Rates: The GET rates vary based on the type of business activity:
- Retailing: 4% statewide, with an additional 0.5% surcharge in the City and County of Honolulu, totaling 4.5%.
- Wholesaling, Manufacturing, Producing: 0.5%.
- Insurance Commissions: 0.15%.
- Use Tax on Imports for Resale: 0.5%.
Understanding these distinctions is crucial for businesses operating in Hawaii to ensure proper compliance with state tax regulations and to effectively manage their tax liabilities.
Eligibility Criteria for a Resale Certificate in Hawaii
In Hawaii, businesses that engage in purchasing goods for resale can utilize a resale certificate to benefit from a reduced General Excise Tax (GET) rate of 0.5% on qualifying transactions. This certificate is essential for businesses aiming to minimize tax liabilities on wholesale purchases.
Types of Businesses That Qualify
- Retailers and Wholesalers: Entities that buy products with the intent to resell them to consumers or other businesses.
- Manufacturers and Producers: Businesses that acquire raw materials or components to create finished products for sale.
Specific Requirements for In-State and Out-of-State Businesses
- In-State Businesses: Must obtain a GET license from the Hawaii Department of Taxation. Upon securing this license, businesses can issue resale certificates to suppliers to benefit from the reduced tax rate on purchases intended for resale.
- Out-of-State Businesses: Hawaii does not recognize out-of-state resale certificates. Therefore, out-of-state businesses wishing to make tax-exempt purchases in Hawaii must register for a Hawaii GET license and provide a valid Hawaii resale certificate to suppliers.
It’s crucial for both in-state and out-of-state businesses to ensure compliance with Hawaii’s tax regulations by obtaining the necessary licenses and accurately utilizing resale certificates. Misuse or failure to adhere to these requirements can result in penalties and additional tax liabilities.
Step-by-Step Guide to Obtaining a Resale Certificate in Hawaii
To legally purchase goods for resale in Hawaii without incurring the full General Excise Tax (GET), businesses must obtain a resale certificate. This process involves registering for a GET license and completing the necessary resale certificate form.
1. Registration for a General Excise Tax License
All businesses operating in Hawaii are required to register for a GET license.
Instructions on Registering Through the Hawaii Department of Taxation
- Online Registration: Visit the Hawaii Tax Online portal to complete the registration process electronically. This method is efficient and provides immediate confirmation upon completion.
Mail-In Registration: Alternatively, download and complete Form BB-1, the State of Hawaii Basic Business Application, available on the Hawaii Department of Taxation’s website. Mail the completed form along with the one-time $20 registration fee to:
Hawaii Department of Taxation
P.O. Box 1425
Honolulu, HI 96806-1425
List of Necessary Information and Documentation for the Application Process
- Business Name and Address: Legal name and physical location of your business.
- Federal Employer Identification Number (FEIN): If applicable.
- Social Security Number (SSN): For sole proprietors without an FEIN.
- Description of Business Activities: Detailed explanation of the goods or services your business provides.
- Ownership Details: Information about business owners, partners, or corporate officers, including contact information and SSNs.
2. Completing the Resale Certificate Form (Form G-17)
Once registered and issued a GET license, businesses can utilize Form G-17 to make tax-exempt purchases for resale purposes.
Line-by-Line Guidance on Filling Out the Form
- Seller Information: Enter the name and address of the seller (the supplier from whom you are purchasing goods).
- Purchaser’s Hawaii Tax Identification Number: Provide your GET license number in the format GE-XXXXXX-XX.
- Nature and Character of Purchaser’s Business: Describe your business activities, specifying the types of products you sell.
- Type of Transaction: Indicate whether the purchase is for wholesale or retail resale by checking the appropriate box.
- Purchaser Information: Include your business name, address, printed name and signature of the authorized individual, their title, and the date of signing.
A fillable version of Form G-17 can be found on the Hawaii Department of Taxation’s website.
Explanation of the Difference Between Single Purchase and Blanket Certificates
- Single Purchase Certificate: Applies to a one-time transaction between the purchaser and seller.
- Blanket Certificate: Covers all purchases made from a specific seller for items intended for resale, remaining valid until revoked in writing.
By following these steps, businesses can efficiently obtain and utilize a resale certificate in Hawaii, ensuring compliance with state tax regulations and optimizing their tax obligations.
Proper Use of the Resale Certificate
A resale certificate in Hawaii allows businesses to purchase goods intended for resale at a reduced General Excise Tax (GET) rate of 0.5%, instead of the standard 4% (4.5% in Honolulu). Proper utilization of this certificate is essential for compliance with state tax regulations.
When to Use the Resale Certificate
Present the resale certificate to suppliers when purchasing items exclusively for resale in the regular course of business. This practice ensures that the reduced GET rate is applied appropriately.
Limitations
The resale certificate should not be used for:
- Personal Use: Purchasing items for personal consumption.
- Business Use: Acquiring goods or services for use within the business that are not intended for resale.
Misuse of the resale certificate can lead to tax liabilities and penalties. It’s crucial to ensure that the certificate is used solely for qualifying resale transactions.
By adhering to these guidelines, businesses can effectively manage their tax obligations and maintain compliance with Hawaii’s GET system.
Record-Keeping Requirements for Resale Certificates in Hawaii
Maintaining accurate records of issued and received resale certificates is crucial for businesses operating under Hawaii’s General Excise Tax (GET) system. Proper documentation ensures compliance and provides evidence of tax-exempt transactions during audits.
Guidance on Maintaining Records
- For Sellers:
- Retain all resale certificates (Form G-17) accepted from purchasers.
- Keep notices of inapplicability and revocation of resale certificates.
- Maintain records that correctly segregate items of gross income taxable at different rates.
- For Purchasers:
- Keep copies of all issued resale certificates.
- Retain notices of inapplicability and revocation related to these certificates.
These practices are outlined in the Hawaii Administrative Rules §18-237-13-02.
Duration for Retaining Records
While Hawaii’s General Excise Tax Law does not specify an exact retention period for resale certificates, it’s prudent to follow general record-keeping guidelines. The Hawaii Archives Division’s Records Management Branch provides retention schedules for various records.
Additionally, federal guidelines often recommend retaining tax-related documents for at least three years, aligning with the statute of limitations for audits. However, some records may need to be kept longer, depending on specific circumstances.
By adhering to these record-keeping practices, businesses can ensure compliance with Hawaii’s tax regulations and be well-prepared for any potential audits.
Consequences of Misuse or Non-Compliance
Misusing a resale certificate in Hawaii can lead to significant penalties and legal repercussions.
Potential Penalties
- Fines: Engaging in business without the required General Excise Tax (GET) license can result in fines up to $500 for most businesses. For cash-based businesses, fines range from $1,000 to $3,000.
- Additional Penalties: Failure to file tax returns by the deadline incurs a penalty of 5% of the unpaid tax per month, up to a maximum of 25%. If tax is not paid within 60 days of timely filing, an additional penalty of 20% of the unpaid amount applies. In cases of fraud, penalties can reach up to 50% of the underpayment.
Legal Implications
Non-compliance may lead to misdemeanor charges, with fines up to $25,000 for individuals and $100,000 for corporations, along with potential imprisonment of up to one year. Willful failure to pay collected taxes is considered embezzlement, subject to fines exceeding five times the amount not remitted or imprisonment for up to ten years.
To avoid these severe consequences, it’s imperative for businesses to use resale certificates strictly for intended resale purchases and maintain accurate records of all transactions.
How Hands Off Sales Tax (HOST) Simplifies Hawaii Resale Compliance
Navigating Hawaii’s General Excise Tax (GET) system and properly utilizing a resale certificate can be complex. Mistakes in obtaining, using, or maintaining these certificates can result in unnecessary tax liabilities, penalties, and compliance risks. Hands Off Sales Tax (HOST) ensures businesses handle resale certificates correctly, minimizing risks and maximizing tax savings.
Resale Certificate Assistance
HOST offers comprehensive resale certificate services, ensuring businesses can:
- Obtain a valid resale certificate: HOST helps businesses secure their Hawaii resale certificate (Form G-17) quickly and efficiently.
- Ensure compliance: HOST provides guidance on proper certificate usage, reducing the risk of penalties and tax miscalculations.
- Streamline documentation: HOST ensures businesses maintain the required records to stay compliant with state tax regulations.
Comprehensive Sales Tax Solutions
Beyond resale certificates, HOST provides:
- Sales tax registration and compliance: Assistance with obtaining GET licenses and ensuring timely tax filings.
- Nexus analysis: Identifying whether your business has tax obligations in Hawaii and other states.
- Audit support: Expert guidance in handling tax audits and defending against penalties.
With HOST, businesses can focus on growth while leaving the complexities of sales tax compliance to professionals.
How HOST’s ResaleCertify Works
Businesses must secure the right documentation, maintain compliance, and avoid unnecessary tax liabilities. Hands Off Sales Tax (HOST) simplifies this entire process through ResaleCertify, an innovative tool designed to help businesses obtain and manage resale certificates efficiently.
- Seamless Registration – Sign up with HOST to gain access to ResaleCertify and begin the process.
- Automated Certificate Generation – Input your business details, and ResaleCertify dynamically generates the necessary resale certificates for Hawaii.
- Compliance Assurance – HOST ensures that all certificates meet Hawaii’s GET regulations, minimizing audit risks and reducing administrative burdens.
By leveraging ResaleCertify, businesses eliminate the hassle of manually handling resale certificates while ensuring full compliance with Hawaii’s tax laws. Let HOST take care of the complexities so you can focus on growing your business.
Stay Compliant and Maximize Your Tax Savings
Obtaining and correctly using a resale certificate in Hawaii is essential for businesses looking to minimize tax burdens under the state’s General Excise Tax (GET) system. Ensuring compliance, maintaining accurate records, and avoiding misuse are critical steps in staying on the right side of tax regulations.
That’s where Hands Off Sales Tax (HOST) comes in. HOST simplifies the entire process, from securing a resale certificate to managing tax filings and audits. Whether you need help registering, maintaining compliance, or navigating complex tax laws, HOST is your trusted partner. Reach out today for a consultation and let the experts handle your sales tax needs.
