Real Estate Related Taxes In Hawaii
Having lived in many states Hawaii’s dependency on the real estate industry by far is quite impressive. The reliance can be measured using the following revenue generating policies:
- Property Tax
- GET or General Excise Tax (Hawaii does not have a Sales Tax)
- Conveyance Tax
- Transient Accommodation Tax
Hawaii taxes 5% of the gross sale amount which is withheld from the transaction when the Seller is a non-resident. Essentially a way the state assures the collection of capital gains tax. It requires the buyer to deduct and withhold this specific percentage of the proceeds. If the buyer fails to do so they could be liable for up to 50% of the amount and guilty of a criminal misdemeanor.
Property Tax or Ad valorem which means tax according to valuation. This is a system of tax which is reflective of the state’s budget. After each county determines its fiscal obligation, then based on 100% of fair market value of the Land plus Improvements the tax is computed on a dollar per thousand bases. There is another distinguishing feature regarding this tax. It allows for an exemption. Essentially an amount deducted from the fair market value to lower the tax liability. In most states the exemption is tied to the owner’s age $40,000 for a person up to 54 years of age, $60,000 for owners between 55 and 59, $80,000 if 60 to 64, $100,000 if 65 to 69 and $120,000 for owners 70 or older. There is a caveat. The property needs to be owner occupied.
GET or GENERAL EXCISE TAX
Every person doing business in Hawaii must get a general excise tax license. This is a service based tax policy. Those sources of income subject to the tax are Sales of Tangible Personal Property, (i.e. retail merchandise, machinery, vehicles, office equipment, etc). Services, where they are intended to be used or consumed. Commissions, where services are rendered. Except are real estate services, depending where the real estate is located. Rentals or leases of tangible personal property. Rental or Lease of real property depending where the property is located. Contracting, depending where the job is located. Investment Interest. Depending where the investment is located. Interest on Deferred Payment sales depending on where located. Finally, Theater or amusement depending on where the event takes place. Depending on Tax strategy percent to be charged to vendee is 4.712%. While the cost to the vendor is 4%.
In Hawaii all transactions involving real property must have a conveyance certificate, even leasehold transferences in excess of five years. The deed cannot be recorder until the tax is accounted for. Exempt are properties conveyed via gift or probate or in cases where consideration is less $100. For property where the owner is eligible for homeowners’ exemption the rate is 0.10% where the value is up to $599,999. It is .20%, for values $600.000 to $999,999 and for properties over $1,000,000 it is taxed at a rate of .30%. For those properties where the Buyer is a non owner occupant it is .15, .25 and .35 respectively. The sticking point is the seller is required to pay this tax, ouch!
TRANSIENT ACCOMMODATIONS TAX
The TAT is charged on the gross proceeds of living accommodations. This tax is designed for short term rentals of 180 days or less. The rate is currently 9.25% and it does not include the 4.712% general excise tax.
SO, WHEN IS an “R” LIKE A “B”?
There are two major designations in Hawaii real estate. RS stands for Real Estate Salesperson an individual who can be compensated directly or indirectly by a real estate broker. R is a real estate broker a person who for real estate services can be compensated by the public.