On the news tonight there was a segment about states starting to tax new items.  Here in Hawaii, EVERYTHING is taxed.  Unlike the other 49 states, Hawaii is the ONLY state in the union that has a general excise tax(GET).  Unlike a sales tax which is a tax on the consumer, the GET is a tax on the business for the privilege for doing business in the State of Hawaii.  The trick about this tax is that it is a tax on gross receipts of the business so what ever money is collected on any product or service, the company pays to the state. 

Even though people say we have a low tax of 4%, they don't realize the intricacies of the tax.  There is a 1/2 percent on all wholesale transaction up to the final sale where the 4% is added, but it's not just 4%.  Say that a business charges $10 for an item and they collect 4% of the $10 or $0.40  totally $10.40 collected from the customer, they have to pay 4% of NOT the $10 but $10.40 which is $0.41.  So to make up for this businesses will collect 4.166% as the maximum amount.  If they collect 4.167%, by law they are in violation of state law. When the business charges 4.166% on $10.00, they collect $10.41 from the customer and then pay 4% to the State of Hawaii on $10.41 which is $0.41 so the business keeps the $10.00 that they originally wanted to charge.

There was a law that passed several years ago that allows the City and County of Honolulu to collect and extra 0.5% to be used for mass transit (which hasn't been approved yet but they've collected the money for several years now).  As a result, when you buy something on Oahu the business must remit 4.5% to the State of Hawaii, but because the tax is compounded, businesses charge 4.712%.  So a $10.00 charge with 4.712% is $10.47 collected from the customer and then the 4.5% is remitted to the state or the $0.47  with the business getting their $10.00.

Now according to Tax Foundation of Hawaii if the state took the total collections of the GET and converted it to the one step only final transaction sales tax, the resulting tax rate would need to be about 12%.  That would make Hawaii the highest sales tax in the nation but because most of the tax is hidden within the wholesale transactions, people think it's not that bad.

Recently there was a proposal to raise the GET to help close the budget gap in the state.  They wanted the rate to go up 1% point or that's what they want people to believe.  If the rate when up by 1%, the rate would be 5% or a 25% increase in the tax rate.  So for the island of Oahu, the rate would be 5.5%.  Businesses would have to charge 5.85% in order to have all the numbers work out correctly.  If that 5.0% GET was changed over to a sales tax, it would be about 16% due to the compounding issue that occurs. 

The legislature has no plans on changing the GET to a sales tax.  If they did, people would be outraged that they are taking so much money from the public.  Because of how confusing the GET is, most people don't understand it and especially don't understand the wholesale portion.  When I mention to the the short of converting it to a sales tax the rate would be about 12% people are outraged. 

So for those people living in states that have just started getting charged for services, welcome to my world and the high taxes levied on the businesses in the State of Hawaii that get passed onto the consumer.