Unlike most other states, Hawaii does not have a sales tax. But the GET is sometimes mistakenly called a sales tax because businesses are allowed to pass those taxes on to their customers. Collecting the GET rate from customers creates more taxable income for companies — a factor companies take into account when charging for goods and services. As a result, the customer pays the GET rate plus a little extra, essentially GET on the additional revenue the GET brings in.
All transactions on Oahu are taxed an extra 0.5 percent to help pay for the planned Honolulu Rail Project.
The use tax is the general excise tax's complement and is applied to imported goods used in Hawaii. It is collected when the product enters the state. The use tax is 0.5 percent when the import is sold for retail, leased or rented, or used to manufacture or construct another product. For all other imports, the tax is 4 percent.
Together, the general excise and use taxes make up a crucial source of revenue for Hawaii. Typically, they generate roughly half of the state's tax income – about $2.8 billion in fiscal 2014. (Individual and corporate income taxes, tobacco and liquor taxes and the Transient Accommodations Tax also help fill the state's general fund.)
As a broad-based tax, the GET adds extra costs to the manufacturing of products at every step of the way, from the material supplier to the manufacturer to the wholesaler to the retailer. The GET is regarded as part of the Price of Paradise because of its cumulative effect on the price of goods and services. It increases the price tag of both living and doing business in Hawaii.
Because the GET makes up such a large portion of the state's general fund, lawmakers have periodically looked at raising the tax rate to generate extra income. The proposal is often met with resistance because of the regressive nature of the tax.
The GET is an artifact of the 1930s when Hawaii was still a U.S. territory. At that time, Hawaii didn't have flourishing retail or tourism industries on which it could levy sales taxes. Instead, its economy was based on sugar cane and pineapple, which were exported. Lawmakers used the GET as a way to collect taxes on those exported goods.
The majority of the state's pineapple and sugar cane producers have shuttered. Today, the state relies almost exclusively on tourism and government spending to support its economy. Some see the GET as a barrier to doing business in Hawaii, arguing that the GET's extra charge prevents new industries from making meaningful economic contributions and discourages consumer spending. The tax has also been criticized because it applies to the sale of basic necessities such as food and medical services — items that are exempt from sales tax in most states.