Hawaii Contractor Taxes and Licensing Guide

Hawaii has no sales tax. Instead, contractors pay general excise tax (GET) on their gross contracting income, labor and materials together, at 4% plus a county surcharge, which makes 4.5% on every island today. GET is a tax on your business, but you may visibly pass it on to customers, up to a maximum rate of 4.712%.

Do Hawaii contractors charge tax on labor?

In effect, yes, because GET applies to everything you bill. The Department of Taxation (DOTAX) says "Hawaii does not have a sales tax; instead, we have the GET, which is assessed on all business activities," and that "the tax is on the business and not on the customer." Its contractor guide, Tax Facts 99-3, says "gross income from contracting is subject to GET at 4% plus county surcharge." There's no split between labor and materials. The whole contract price is your gross income.

Because it's your tax, not the customer's, you owe it whether or not you show it on the invoice. DOTAX says a seller "may choose to visibly pass on" GET and the surcharge. When you do, the maximum pass-on rate is 4.7120% in each county. That's higher than 4.5% because the GET you collect is itself gross income that gets taxed.

How the subcontract deduction works

You can't deduct what you spend on materials. Tax Facts 99-3 says plainly that material costs "cannot be deducted from gross income subject to the GET." Payments to subcontractors are different. A prime contractor can deduct them if you're both contractors under HRS § 237-6, both of you have GET licenses, and you report each sub's name, Hawaii Tax I.D. number and amount on Schedule GE. Two limits trip people up:

• Your deductions on a project can't exceed your gross income from that project. Overpaying subs on one job doesn't offset another.
• Buying materials from a supplier, even one that's also a contractor, isn't a subcontract. If the supplier also installs, it can count.
• If a prime hands a sub materials and a check for the rest, the sub still owes GET on the full contracted amount, materials included.

What do contractors pay on materials and imported goods?

Materials you build into the job are taxed lightly when you buy them. Tax Facts 99-3 says materials incorporated into the finished work that "remain perceptible to the senses" are wholesale transactions at 0.5%; you give the supplier Form G-17 or G-18. Everything else you buy, like tools and equipment, is a retail sale at 4% plus the county surcharge.

Shipping goods in from the mainland triggers Hawaii use tax, based on the landed value (price plus shipping, insurance and duties). The same split applies:

What does the county surcharge add?

Every county now adds 0.5% to the 4% state rate. DOTAX lists Honolulu, Kauai and Maui at 0.5% through 2030, and Hawaii County at 0.5% from 2020 through 2030. Tax Facts 99-3 confirms contracting income is subject to the surcharge. The surcharge doesn't apply to 0.5%-rate activities like wholesale services. Some older contracts that don't allow pass-through may be exempt from the surcharge; DOTAX's surcharge page lists the cutoff dates by county.

Who needs a contractor license in Hawaii?

Generally, anyone who offers to, holds out as able to, or contracts to do residential, commercial or public works construction, alterations or improvements needs a license from the Contractors License Board, part of the Department of Commerce and Consumer Affairs (DCCA). Bidding counts too: "a license is required to offer to undertake work which requires a license." Hawaii has no reciprocity with other states, so mainland contractors take the same exams. Our contractor license guide explains how other states compare.

Licenses expire September 30 of even-numbered years. At renewal, businesses and sole proprietors must submit a current tax clearance from DOTAX, so unpaid GET can hold up your license.

What income tax and filings do Hawaii contractors handle?

GET isn't your only state tax. Tax Facts 99-3 lists three: income tax, GET and use tax, plus withholding and unemployment tax if you have employees. You need a GET license (Form BB-1) before doing business, and a withholding license if you have staff. Your business files a Hawaii income tax return each year, periodic GET returns on Form G-45, and the annual GET reconciliation on Form G-49. Periodic returns are due on the 20th day of the month after the period closes.

Mainland contractors aren't off the hook. DOTAX allocates contracting income to where the project is, so an out-of-state contractor working in Hawaii owes GET on that job. Federal estimated tax applies as everywhere; use the quarterly estimated tax calculator to plan for it and budget GET separately.

What employee coverage does Hawaii require?

Hawaii stacks three programs, all run by the Department of Labor and Industrial Relations (DLIR) Disability Compensation Division:

• Workers' compensation. DLIR's employee notice says workers "do not pay for the premium cost; your employer pays the entire amount." The Contractors License Board also requires proof of workers' comp insurance if you have employees. See workers' compensation.
• Temporary disability insurance (TDI). Covers off-the-job injury or illness. Employees can be asked to share the premium, but no more than half the cost and not over 0.5% of weekly wages.
• Prepaid health care. Employers must offer an approved health plan to eligible employees who work at least 20 hours a week. An employee's share can't exceed 1.5% of monthly wages or half the premium, whichever is less.

Other Hawaii rules to keep in mind

• Government work is taxed. GET applies to contracting for county, state and federal governments, including on military bases.
• Affordable housing exemption. Certified low- and moderate-income housing projects can qualify for a GET exemption through Form G-37.
• Cash or accrual. You can report GET on a cash basis even if you use accrual for income tax, if you notify DOTAX.
• Liens. Protect your payment rights under Hawaii's mechanics lien statute.
• Compare. Washington also taxes the full contract price, while Alaska has no statewide sales tax. Our labor vs. materials guide explains the main state models.