Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 237 - GENERAL EXCISE TAX LAW › Subchapter 2 - LICENSES; TAX; EXEMPTIONS › Section 18-237-13-02.01 - Tax on business of selling tangible personal property by an out-of-state seller, including drop shipments

Current through June, 2024
(a) For the
				purposes of this section:
"Accept or Acceptance" means the purchaser or its agent
				  inspecting the tangible personal property and taking physical possession of the
				  tangible personal property or having dominion and control over the tangible
				  personal property.
"Agent" means a person authorized by the purchaser to act on
				  behalf of the purchaser and includes the power to inspect and accept or reject
				  the tangible personal property.
"Delivery" means the act of transferring possession of
				  tangible personal property. It includes, the transfer of goods from consignor
				  to freight forwarder or for-hire carrier, from freight forwarder to for-hire
				  carrier, one for-hire carrier to another, or for-hire carrier to
				  consignee.
"Drop Shipment", sometimes known as direct delivery, means
				  the delivery and acceptance of tangible personal property by a customer in
				  Hawaii from a manufacturer or wholesaler who is someone other than the seller
				  with whom the customer placed the order.
"Landed value" means the value of imported tangible personal
				  property which is the fair and reasonable cash value of the tangible personal
				  property when it arrives in Hawaii. It includes the sales price, shipping and
				  handling fees, insurance costs, and customs duty. It does not include sales tax
				  paid to another state.
"Nexus" means the activity carried on by a seller in Hawaii
				  which is sufficiently connected with the seller's ability to establish or
				  maintain a market for its products in Hawaii. It includes issues of taxability
				  addressed under the Due Process and Commerce Clauses of the United States
				  Constitution to support the application of the general excise tax and the use
				  tax under chapters
				  237 and
				  238,
				  HRS, respectively.
"Place of delivery" means the state or place where the
				  purchaser or its agent accepts a delivery of tangible personal property.
(b) Imposition of general excise
				tax on sales of tangible personal property to customers in Hawaii. Section
				237-13, HRS,
				imposes "privilege taxes against persons on account of their business and other
				activities in the State . . . ." Section
				237-2,
				HRS, states that "business" includes "all activities (personal, professional,
				or corporate), engaged in or caused to be engaged in with the object of gain or
				economic benefit either direct or indirect . . . ."
(1) The act or place of passing of title is
				not the determinative factor for purposes of imposing the general excise tax.
				In states imposing a retail sales tax where a sale is defined as the transfer
				of title or ownership, the place where title passes may be relevant. The
				general excise tax, however, is not a sales tax imposed when title passes.
				Rather, the general excise tax is a gross receipts tax imposed when business is
				transacted in Hawaii.
(2) The
				general excise tax law looks to the place of delivery of tangible personal
				property to determine whether the sale of tangible personal property is
				business transacted in Hawaii.
(3)
				Hawaii does not impose the general excise tax on sales of tangible personal
				property which originate outside of this State unless the place of delivery of
				the tangible personal property is in Hawaii and the seller has nexus. There
				must be both:
(1) a place of delivery within
				Hawaii by the purchaser, or its agent; and
(2) the seller must have nexus for the
				general excise tax to apply to a particular sale. The general excise tax will
				not be imposed if one of these elements is missing.
(4) Delivery of tangible personal property to
				a freight consolidator, freight forwarder, or for-hire carrier utilized only to
				arrange for and/or transport the tangible personal property does not constitute
				acceptance of the tangible personal property by the purchaser or its agent
				unless the freight consolidator, freight forwarder, or for-hire carrier has
				expressed written authority to accept the tangible personal property as an
				agent for the purchaser. Simply signing the bill of lading without this
				expressed written authority is not sufficient.
(5) When the place of delivery of the
				tangible personal property is to a customer in Hawaii and the seller has nexus,
				the sale of that tangible personal property constitutes business subject to the
				general excise tax. Section
				237-22,
				HRS, states that gross income or gross proceeds of sale will be exempt if the
				State is prohibited from taxing the gross income under federal law or
				constitutional principles. If an out-of-state seller has no nexus with Hawaii,
				its gross income or gross proceeds of sale would be exempt under section
				237-22,
				HRS.