LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

SANDRA L. YAHIRO

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809
PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

September 8, 2006

DEPARTMENT OF TAXATION ANNOUNCEMENT 2006-15
RE:General Excise Tax (GET) and County Surcharge Tax (CST) Visibly Passed on to Customers

Beginning January 1, 2007, as a result of the City & County of Honolulu's decision to enact asurcharge on the GET described in Section 237-8.6, Hawaii Revised Statutes, the total rate of tax
assessed on transactions subject to the surcharge and GET is 4.5% of the transaction's gross proceeds.
This Announcement supplements Tax Facts 96-1, where relevant, ONLY as a discussion of the newamount that sellers may visibly pass on to customers in transactions subject to the CST. Otherannouncements will be released within the coming months regarding other aspects of the CST law.
The GET is levied on the gross receipts of a business. On the customer's bill, however, the tax isexpressed as a percent of the price. Because gross receipts are defined to include any tax that thebusiness passes on to the customer, the tax rate expressed as a percent of the price is greater than thestatutory tax rate on gross receipts. With the county surcharge tax, the new statutory tax rate on grossreceipts for sales on Oahu is 4.5%.
The 4.5% tax on gross receipts translates into a maximum visible pass on tax rate of 4.712%
when expressed as a percent of the price and limited to six decimal places. Gross Receipts consist oftwo parts; (1) Tax = 4.5% of Gross Receipts, and (2) Price = 95.5% of Gross Receipts. The tax as apercent of the price is 4.5% divided by 95.5% = 0.047120 or 4.712%.
A seller is prohibited, as a matter of consumer protection law, from visibly collecting more than
the amount actually owed. With the addition of the CST, a seller may pass on the following amounts:(1) Nothing—The seller may choose not to pass on their GET expense to customers; or(2) 4.5%— The seller may choose to pass on to customers 4.5% of the cost to cover their
GET and CST expense; or(3) 4.712%—The seller may choose to pass on to customers 4.712% of the cost to cover
the optimum amount of GET and CST expense.
EXAMPLE — In a transaction where the revenue is $1,000 and the GET/CST pass on rate is
4.712 % (0.04712), $47.12 is the amount passed on to the customer. $1,047.12 is then the amount ofgross revenue subject to the GET and CST on Oahu. At the 4% state tax rate (0.04), $41.88 is paid toDepartment of Taxation Announcement No. 2006-15
September 8, 2006
Page 2the state on $1,047.12. At the 0.5% county surcharge tax rate (0.005), $5.24 is paid to Honolulu
County on $1,047.12. The total of the taxes owed to the state and county is $47.12 and equals to theamount of tax that was passed on to the customer. Thus, 4.712% is the optimum maximum rate that may
be passed on to customers.
For a more detailed discussion on the GET, including the reasons why a seller cannot pass on
greater tax than owed, please see Tax Facts 96-1.
For more information on this Announcement, please contact the Rules Office at 808-587-1577.

KURT KAWAFUCHI
Director of Taxation