Hawaii's taxes on goods receives mid-range score in report
Tue, May 16, 2023 11:26 AM
By Merrilee Gasser, The Center Square
Hawaii's approach to sales taxes received a mid-range score in a report but showed slight improvement since 2020.
Hawaii ranked 27th in the nation for its sales tax, up from 30th in 2020.
Although the report refers to it as a sales tax, Hawaii's is technically not a sales tax but a general excise tax levied on certain goods.
It is one of five states with a 4% state-level sales tax. The others with a 4% rate are Alabama, Georgia, New York, and Wyoming, according to the Tax Foundation. The 4% rate is still much lower than states on the higher end, like California's 7.25% state sales tax, including a mandatory statewide local add-on tax.
The ranking of states based on their approach to sales taxes is part of the Tax Foundation's ongoing series, where the independent tax policy nonprofit breaks down different tax components of its 2023 State Business Tax Climate Index.
Hawaii's general excise tax is assessed on all business activities, according to the State Department of Taxation. County governments are also authorized to adopt a county surcharge on the state excise tax at the 4% rate. Only the County of Maui has not adopted a county surcharge. The other counties have adopted surcharges ranging from 0.25% to 0.5%, according to the Department of Taxation.
Sellers also have the option to pass on the business tax and any applicable county surcharges to customers, according to the Department of Taxation.
"The tax rate itself is important, and a state with a high sales tax rate reduces demand for in-state retail sales. Consumers will turn more frequently to cross-border or certain online purchases, leaving less business activity in the state," the report said.
Alaska, Delaware, Montana, New Hampshire, and Oregon are the five states without a sales tax that performed well in this category. Meanwhile, Hawaii avoided the lowest end, where the states that scored the worst were Alabama, Washington, Louisiana, California, and Tennessee. The poor-scoring states tended to impose high rates and taxed a range of business inputs, the report said.
"States that create the most tax pyramiding and economic distortion, and therefore score the worst, are states that levy a sales tax that generally allows no exclusions for business inputs. Hawaii, New Mexico, South Dakota, and Washington are examples of states that tax many business inputs. The ideal base for sales taxation is all goods and services at the point of sale to the end-user," the report said.
The Tax Foundation ranked Hawaii 43rd in the country for its entire tax code. Its graduated individual income tax rate ranges from 1.4% to 11%, its corporate income tax rate ranges from 4.4% to 6.4%, and the average combined state and local sales tax rate, or general excise tax, comes to 4.44%, the Tax Foundation said.