Hawaii Imposes Income Tax on Remote Sellers Using Wayfair Approach

November 4, 2019

Hawaii is the first state to impose income tax filing requirements on out-of-state sellers based on Wayfair-type criteria. Beginning January 1, 2020, remote sellers who ship or deliver products or services into Hawaii must remit income tax, if specific economic thresholds are met.

Out-of-state sellers with no physical presence in Hawaii will be subject to income tax if, during the current or preceding year:

  • 200 or more transactions are completed with persons within the state, and
  • $100,000 or more in gross income from these transactions is earned; or
  • Business is done in or outside Hawaii and the apportionment formula sales factor numerator is $100,000 or more.

Remote sellers meeting these thresholds have been required to collect and remit sales tax to the Hawaii Department of Taxation since July 1, 2018. It is questionable, however, whether the state can enforce the new nexus rule on sellers of exclusively tangible personal property. Federal law protection is available to such sellers as long as activity “within the state” is limited to the solicitation of sales for tangible personal property.

For more information on this bill, visit the Hawaii Department of Taxation website.

Other states are expected to adopt similar legislation. These new tax obligations will increase the compliance burden on remote sellers. For help with determining how to respond to these new requirements, contact Cherry Bekaert’s State & Local Tax professionals.