Hawaii Enacts Legislation with Marketplace Nexus and Notice & Reporting Requirements Provisions

Hawaii has enacted legislation with marketplace nexus and notice and reporting requirements provisions, effective January 1, 2020. Per the legislation, a marketplace facilitator is considered the seller of tangible personal property, intangible property, or services for Hawaii sales and use tax purposes. The seller on whose behalf the sale is made shall be deemed to be making a sale at wholesale and subject to the wholesale rate of tax (0.005%). A marketplace facilitator’s gross income or gross proceeds include receipts from sales on behalf of other sellers.

Per the legislation, “marketplace facilitator” is defined as any person who sells or assists in the sale of tangible personal property, intangible property, or services on behalf of another seller by:

• Providing a forum, whether physical or electronic, in which sellers list or advertise tangible personal property, intangible property, or services for sale; and
• Collecting payment from the purchaser, either directly or indirectly through an agreement with a third party.

Effective January 1, 2020, any person other than a marketplace facilitator who provides a forum, whether physical or electronic, in which sellers list or advertise tangible personal property, intangible property, or services for sale and takes or processes sales orders can elect to be deemed the seller or comply with the following notice and reporting requirements:

• Post a conspicuous notice on its forum informing purchasers intending to purchase tangible personal property, intangible property, or services for delivery to or use in Hawaii that they are required to pay use tax if the sale is made from an unlicensed seller;
• Provide a written notice to each purchaser at the time of each sale of tangible personal property, intangible property, or services for delivery to or use in Hawaii that the purchaser may be required to remit use tax directly to the Hawaii Department of Taxation (DOT) and provide instructions for obtaining additional information from the DOT on whether and how to remit use tax to the DOT; and
• No later than the twentieth day of the fourth month following the close of the taxable year, submit a report to the DOT that includes, with respect to purchasers of tangible personal property, intangible property, or services delivered to or used in Hawaii, the following information:
  • The purchaser’s name, billing address, and mailing address;
  • The address in Hawaii to where tangible personal property was delivered to the purchaser (only if tangible personal property was purchased);
  • The aggregate dollar amount of the purchaser’s purchases from the seller; and
  • The name and address of the seller.

Anyone who fails to comply with the notice and reporting requirements and has not elected to be deemed the seller will assessed a penalty of $1,000 if the failure is not for more than one month, with an additional $1,000 for each additional month or fraction thereof during which the failure continues, not to exceed $12,000 total.

The legislation also amends the definition of “import” to include the sale of tangible personal property, intangible property, or services by a marketplace facilitator with a valid license on behalf of an unlicensed seller for delivery to or use by a purchaser in Hawaii. (Act. 002 (S.B. 396), Laws 2019)

UPDATE: The Hawaii Department of Taxation has issued updated guidance on the state’s marketplace nexus legislation that takes effect January 1, 2020. Per the guidance, all marketplace facilitators and marketplace sellers engaged in business in Hawaii must register for General Excise Tax (GET) licenses prior to January 1, 2020, or prior to starting business activities, whichever is later. Marketplace facilitators and marketplace sellers that do not have a physical presence in Hawaii are deemed engaged in business in the State if they meet the state’s economic nexus thresholds of gross income of $100,000 or more or 200 or more separate transactions in Hawaii.

Marketplace facilitators that are engaged in business in Hawaii are subject to GET at the retail rate for:

• The marketplace facilitator’s own sales made into Hawaii; and
• Sales made through its marketplace into Hawaii, regardless of whether the marketplace seller is registered to do business in Hawaii.

Marketplace facilitators are also subject to use tax at the wholesale rate for:

• Sales of tangible personal property through the marketplace where the marketplace seller is not engaged in business in Hawaii;
• Sales of tangible personal property that is delivered to the marketplace facilitator outside of Hawaii prior to the sale through the marketplace; and
• Sales of services through the marketplace where the marketplace seller is not engaged in business in Hawaii and the services are ultimately used and consumed Hawaii.

Marketplace sellers that are engaged in business in the State are subject to GET at the retail rate for:

• The marketplace seller’s own retail sales made into Hawaii

Marketplace sellers that are engaged in business in Hawaii are also subject to GET at the wholesale rate for:

• Sales of tangible personal property made through a marketplace facilitator that the marketplace seller sends to a retail purchaser in Hawaii;
• Sales of tangible personal property that is delivered to a marketplace facilitator in Hawaii prior to the retail sale; and
• Sales of services that are sold through a marketplace facilitator that are ultimately used and consumed in Hawaii.

The updated guidance also states that the marketplace nexus legislation requires any person who provides any type of forum for sellers to list or advertise products, but who do not collect payment from the purchaser directly or indirectly, to either:

• Comply with the notice and reporting requirements described above; or
• Elect to be deemed a marketplace facilitator.

(Tax Information Release No. 2019-03 (Revised), Hawaii Department of Taxation, December 13, 2019)