Q. I have a condominium in Hawaii that we rent out to vacationers on a weekly basis. Are we subject to any special taxes?
A. Yes. You are subject to, at a minimum, Hawaii Transient Accommodations Tax and General Excise Tax. You should also be filing a Hawaii non-resident income tax return.
Q. What is Transient Accommodations Tax?
A. Transient Accommodations Tax, or TAT, is a tax imposed on short-term rentals by the State of Hawaii. In common terms, it’s a “hotel tax” that also applies to vacation rentals.
Q. What is the current TAT rate?
A. 9.25% on the gross rental or gross rental proceeds (with some exceptions.) See, HRS Chapter 237D-2. Prior to July 1, 2009, TA was 7.25%; from July 1, 2009 to June 30, 2010, it was 8.25%.
Q. What is General Excise Tax?
A. General Excise Tax, or GET, is a tax imposed on (virtually) every business or commercial transaction subject to the tax by the State of Hawaii. See, HRS Chapter 237. GET is a “super” sales tax that applies to virtually every transaction including retail sales, services, rents, etc. There are extremely limited exceptions and some special rates.
Q. What is the current GET rate?
A. 4% state-wide plus a .5% County Surcharge in the County of Honolulu for all gross receipts subject to the tax.
Q. Why am I receiving an audit notice only now, as I have rented this unit for years (but not filed my returns)?
A. You have probably been identified by a computer search based on federal and state informational returns.
Q. I have a property manager/real estate agent renting my vacation property, have they paid my TA and GE tax?
A. Its possible but unlikely unless you have specifically made this arrangement with them (in which case you probably would not be reading this Q & A). Your property manager has probably collected TA and GE from your short-term renters but probably has not remitted it to the State of Hawaii (they probably sent it to you.)
Q. I don't have a TA license for my vacation rental, is that a problem?
A. Yes. Hawaii has a regime of penalties for not having a license. Its also unlikely that you have been paying GE and TA taxes in the absence of a license. Hawaii has a range of civil and criminal sanctions for failure to comply with the tax laws. Act 204 of 2015 added numerous requirements for advertisers and operators of vacation rentals and a number of new penalties for non-compliance. Read more here.
Q. How do I obtain a TA and GE license?
A. Tax licenses can be applied for with the State of Hawaii Department of Taxation.
Q. What is the maximum penalty for failing to file and pay GE & TA taxes?
A. You can be criminally charged with failure to file if you wilfully failed to file these returns, maximum penalties are $25,000 fine and up to one year incarceration, per unfiled year (fines for corporations are higher). Civil penalties can include 25% failure to pay plus 25% failure to file, based on amount due, for unfiled and unpaid returns.
Q. If we live outside of Hawaii, how can the Department of Taxation collect past-due TA and GE tax from us if we don’t want to pay or don't have the money?
A. The State Department of Taxation can file a tax lien, which will attach to any real property you own in Hawaii. Hawaii has a centralized Bureau of Conveyances that permits a single tax lien filing to attach to properties in each county. The Department of Taxation can then wait for you to sell your property or, possibly, seek to foreclose the tax lien. Also, the Department of Taxation can attempt to levy your property manager or rental agent to intercept any net proceeds of rental activity.
Q. Is there a statute of limitations as the State Department of Taxation is trying to go very far back?
A. There is no statute of limitations for unfiled returns, barring an assessment by the State.
Q. Can I get a reduction in penalties?
A. Penalties can be reduced based upon "reasonable cause" and pursuant to regulations and directives issued by the Department of Taxation.