Hawaii assesses a sales tax on every type of business transaction, including retail sales of tangible personal property and the gross receipts generated from services provided. So, if your business buys, sells, or uses products or services in Hawaii, a sales or use tax liability will probably be incurred.

Liability for sales tax. Hawaii is a state that assesses a sales tax on all sellers and service providers for the privilege of doing business in Hawaii. Hawaii general excise tax rates are 4.0 percent, 0.5 percent, and 0.15 percent. The 4.0 percent rate is the general rate--the odds are good this will be the rate that applies to your business. The 0.5 percent rate is generally the wholesale or manufacturer's rate, although it also applies to sales to blind, deaf or totally disabled persons. The 0.15 percent rate generally applies to insurance producers.

Liability for use tax. In order to avoid losing tax revenues on sales transactions taking place outside the state, Hawaii also imposes a use tax. The use tax is assessed against all persons who store, use, or otherwise consume tangible personal property in Hawaii that was purchased out-of-state. If the out-of-state seller you purchase property from is a registered retailer in Hawaii, you should pay the use tax to the retailer. If the retailer is not registered in Hawaii, you should pay the use tax directly to the state.

Sales or use taxes on services. In Hawaii, you will be required to pay sales tax on the gross receipts of all services you provide to your customers. The sales tax rate on intermediary sales of services is 0.5 percent.

Sales and use taxes on leased property. The gross income generated from the rental and leasing of personal and real property will be subject to the 4 percent sales tax. So, whether your business rents videos, DVDs or apartments, the business is going to incur a 4 percent sales tax on each rental.

The following discussions address common sales and use tax issues that many small business owners face.

• sales and use tax obligations of a purchaser
• sales and use tax obligations of a seller