I just saw this chart from Strategas Research Partners. Surprising was just how much of Hawaii’s total tax revenue comes from consumption taxes (64.5%). Hawaii ranks 7th nationally.
Herein lies a “price of paradise” lesson. All six states that rank higher are consumption tax regimes that offset higher sales taxes with no taxation of income. In contrast, Hawaii has the second highest marginal income tax rate in the U.S.
From the State of Hawaii’s website:
What is Hawaii’s sales tax rate?
Hawaii does not have a sales tax; instead, we have the [General Excise Tax] GET, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others. For differences between the GET and sales tax, please see Tax Facts 37-1, General Excise Tax (GET).
If your business activity is taxed at the 4% rate and is conducting business on Oahu, you are also subject to the .50% Oahu County Surcharge Tax.
Hawaii’s GET is unusual in that it (1) applies to all transactions, including rent and healthcare; (2) has somewhat of a compounding effect, as tax is owed (and passed on) at each level of production; and (3) isn’t offset with a low income tax rate—Hawaiians are taxed heavily on consumption and income.
Another quirk is that, since excise tax applies to every transaction and are owed by businesses (that pass along the tax to consumers), consumers pay a tax on the tax they pay. That’s why the actual tax rate paid in Oahu on a transaction is not 4.5% but over 4.7%.