— If you own Hawaii properties and collect rental income, then you need to know the recent changes to the GET tax rate that apply to rental income.
Up until January 1, 2019, Honolulu County (the island of Oahu) was the only county with a 0.5% surcharge above the 4% GET rate. Back in 2007, the surcharge was justified as a temporary measure for the construction of Oahu’s new rail.
It appears some of the neighbor island counties also need extra revenue and decided to add their own surcharge effective 1.1.2019.
Watch what will happen to the temporary rate increases at the time they are scheduled to expire.
Hawaii rental income is subject to three tax obligations:
1) GET – All gross rental revenue (before expenses) from Hawaii properties is subject to Hawaii’s General Excise Tax (GET). The actual GET rate differs by county.
You may collect the GET from your tenant and pay it to the tax office. If you do, then the GET you collect increases your gross rental revenue and also becomes taxable at the same rate.
However, you may also collect the additional GET on top of the GET from your tenant. The total represents the maximum pass-on rate you are allowed to collect from your tenant.
Example of the GET maximum pass-on rate for Honolulu County:
- $1,000 gross rent received –> pay $45.00 GET (4.5% rate) = net rent $955.
- $1,000 rent plus collect $47.12 GET (4.712% max pass-on rate) = $1,047.12 gross rent received –> pay $47.12 GET (4.5% of gross rent) = net rent $1,000.
The table below shows the actual GET tax rate by county and the GET maximum pass-on rate that you are allowed to collect from your tenant to pay to the tax office:
2) TAT – In addition, all rental revenue from rental terms shorter than 180 days is subject to Hawaii’s 10.25% Transient Accommodation Tax (TAT)
GET and TAT filing requirements come with stiff penalties. There is no statute of limitations for audits. We strongly recommend to always file and pay your GET and TAT diligently.
See related article: GET & TAT in Hawaii – The Easiest Way to File & Pay
3) State Income Tax – You will also need to file a Hawaii State Income Tax Return, typically form N-11 or N-15, depending on if you are a Hawaii resident or part-year/nonresident.
Typically you would first file your federal tax return and then transfer the relevant figures onto your Hawaii tax return.
Going into more details is beyond the scope of this summary. We recommend you always consult with your favorite qualified tax professional.
Additional new TAT requirement:
A new law took effect on July 1, 2019, requiring hotels, resorts, and other short-term rental operators to pay TAT on any mandatory extra charges that the guest is required to pay as part of their short-term rental booking. Mandatory extra charges might include a resort fee, and also the cleaning fee if it is collected as part of the rental booking.
Those fees are to be included in the gross rental proceeds. Check the details here: SB380 SD1
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