Question: Who should get a general excise tax license?
Answer: Every person or entity engaging in business activities in Hawaii -- including wholesaling, retailing (including sales at craft fairs), farming, services (including compensation received for professional and/or other types of services provided), construction contracting, rental of personal or real property, business interest income and royalties -- must apply for a general excise tax license and file the appropriate tax returns to pay the GE taxes due.
Q: How do I get one?
A: Form BB-1, Basic Business Application, should be completed and submitted to the state Tax Department with the one-time application fee of $20, along with a completed payment voucher, Form VP-1. These forms are available on our website at hawaii.gov/tax.
Q: How do I comply with tax law once I get a license?
A: About six to eight weeks after sending in the application, the GE license will be mailed to the applicant. A letter will be sent with additional information on filing requirements and instructions.
For greatest efficiency and convenience to the taxpayer, the department urges taxpayers to file and pay the GET via the Internet at www.ehawaii.gov/efile.
Q: Do we have to charge tax on our products and services and clearly declare it as such?
A: It is not required to visibly pass on the tax to the customer as an additional itemized charge, but in most cases it is done. Consumer protection laws do not allow you to visibly pass on an amount that is more than the actual general excise tax due on the transaction.
Q: If I have a GE license, is there a minimum or a ceiling as to how much I can make with it before I file tax returns?
A: There is no minimum or ceiling on the GE tax. This is a gross receipts tax that is paid by the business on all income received from their customers. Even if there was no income received for a period, the law requires that the Form G-45 (Periodic Return) and Form G-49 (Annual Return and Reconciliation) be filed to properly reflect that there was no income received. Moreover, filings are required whether or not the business also incurred losses.
Q: Do I also then have to report my GE income on my IRS tax returns?
A: Yes, you would report your gross receipts on Schedule C ("Profit or Loss from Business") on Part I, line 1, "Gross receipts or sales." But for income tax purposes, expenses incurred by the business may be deducted on Schedule C, so the net amount would be taxed.
Q: How often do I have to file GE tax returns?
A: General excise and/or use tax returns must be filed throughout the year. Whether you file monthly, quarterly or semiannually largely depends on the amount of general excise tax you have to pay during the year.
You may file semiannually (every six months) if you will pay $2,000 or less in general excise taxes per year. You may file quarterly if you will pay $4,000 or less. You must file monthly if you will pay more than $4,000 in general excise taxes.
Q: What are the most common mistakes made by GE licensees, and how can I avoid making them?
A: One of the most common mistakes made by GE licensees is not filing the GE returns when there was no income to report. Under the GE tax law, every licensee is required to file both the periodic and the annual returns every year -- whether there is income to report or not -- until the license is canceled.
Additionally, many licensees file only the periodic returns but not the annual return, thinking that they have already fulfilled their filing obligation. However, if the annual return is not filed, the account is not reconciled, and the taxpayer's records show it as a nonfiled year.
-- Interviewed by Erika Engle
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Editor's note: "Akamai Money" seeks out local experts to answer questions about business in Hawaii. If you have an issue you would like us to tackle, please email it to business@staradvertiser.com and put "Akamai Money" in the subject line.
Credit: Fred Pablo
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