Is SaaS Taxable In Hawaii? – Commenda

Hawaii’s tax system stands out among U.S. states, primarily due to its statewide 4% General Excise Tax (GET), which applies broadly to both goods and services, including Software as a Service (SaaS). Understanding how this impacts your SaaS business is crucial for compliance and financial planning.

In this blog, we will discuss and try to answer: Is SaaS taxable in Hawaii? We will discuss GET and Use Tax and walk you through all the steps of filing your SaaS taxes in Hawaii.

2025 SaaS Tax Rates in Hawaii

Hawaii does not impose a traditional sales tax. Instead, it levies a General Excise Tax (GET) on nearly all business income, including revenue from Software as a Service (SaaS). This makes SaaS fully taxable under Hawaii law, regardless of whether the service is delivered locally or remotely.

Key Details for SaaS Businesses

• Base Rate: Hawaii’s General Excise Tax (GET) is 4.0% on gross income, not profit.
• County Surcharges: Some counties add up to 0.5%, making the total rate 4.5% in those areas.
• Who Pays: The business owes the tax, but can pass it to customers as a line item. However, this is optional.
• What It Covers: GET applies to all gross income, including SaaS subscriptions, licensing, consulting, and support.
• Filing: Businesses must register with the Hawaii Department of Taxation and file GET returns, monthly or quarterly, based on revenue.

Hawaii GET Local Surcharge Rates by County

Is SaaS Taxable in Hawaii?

Yes, SaaS is taxable in Hawaii. The state’s General Excise Tax (GET) applies broadly to both tangible goods and services, and this includes software delivered through the cloud. The base General Excise Tax rate is 4.00 percent and applies to gross income, not just profit. Some counties also have surcharge rates.

How GET Applies to SaaS?

If your company offers any of the following, the revenue is subject to Hawaii’s GET:

• Access to a web-based software platform
• Cloud-based subscription services
• Hosted or remotely accessed software applications
• Software-as-a-Service bundles that include support or consulting

GET is applied to gross income, not profit. This includes all fees collected from Hawaii customers, regardless of where the business is based. While businesses may choose to pass the tax on to customers, they are not required to do so. This helps you to determine: Is SaaS taxable in Hawaii?

What About Use Tax?

In addition to the GET, Hawaii also enforces a Use Tax. This applies when a Hawaii-based business purchases software or digital services from an out-of-state provider that does not collect GET.

• If the out-of-state seller does not apply GET at the time of sale
• And the buyer uses or accesses that software within Hawaii

Understanding both GET and Use Tax is essential for SaaS providers and buyers alike. 

How Does Hawaii Define SaaS and Digital Products?

SaaS is treated as a service for GET purposes. Whether software is downloaded, hosted remotely, or accessed via the cloud, Hawaii considers it part of taxable business activity. This includes subscription fees, licensing charges, and usage-based billing.

Hawaii treats digital goods much like physical goods for tax purposes. Any product that is electronically delivered or accessed is considered taxable if sold to Hawaii-based customers.

Sales Tax On Software in Hawaii

The base GET rate is 4.00 percent statewide, with an additional 0.50 percent local surcharge in certain counties such as Honolulu, Hawaiʻi, and Kauaʻi, bringing the maximum rate to 4.50 percent depending on where the revenue is sourced.

In Hawaii, taxability is based on where the product is used or accessed, not the location of the provider. Any use by a Hawaii-based customer triggers GET liability.

How to Determine if Your Product Is Taxable in Hawaii?

Hawaii’s General Excise Tax (GET) system casts a wide net, taxing nearly all business activities, including those involving software and digital goods. To assess whether your SaaS product or service is taxable in Hawaii, it’s important to evaluate how the product is delivered, structured, and used.

Key Factors to Consider

• Delivery Method: Cloud-based or remotely accessed software is fully taxable as a service under GET. Electronically delivered software (such as downloads) is treated as tangible personal property and also taxed. Physical delivery does not change taxability; it only affects how the transaction is reported.

• Licensing Model: Subscription licenses and pay-as-you-go models are taxable if the end user accesses the service from within Hawaii. Perpetual licenses for downloadable or installed software are also subject to GET, regardless of duration.
• Customization Level: Fully custom software is considered a professional service, but it is not exempt. All revenue earned from building, implementing, or maintaining custom solutions is taxable under GET. There are no exclusions for development labor or project-based work.

• Bundled Services: If your SaaS offering includes a mix of taxable and non-taxable components (e.g., software access bundled with consulting or hardware), the full bundle is likely subject to GET unless each item is separately itemized and billed. Hawaii does not provide a formal exemption for splitting non-taxable services unless clearly separated in your invoicing.

Are Digital Goods Taxable in Hawaii?

Yes, digital goods are taxable in the state of Hawaii. Taxable digital products include:

• eBooks, PDFs, and reports
• Downloadable music and video files
• Streaming services and pay-per-view content
• Online training courses and educational materials

In short, if it generates revenue and is used in Hawaii, whether it’s software or digital content, it is subject to the state’s general excise tax.

General Excise Tax (GET) Exemptions in Hawaii

While Hawaii’s GET applies broadly to most business activities, certain transactions may qualify for exemptions. It’s crucial to understand these exemptions and maintain proper documentation to ensure compliance.

• Sales for Resale – Transactions where goods or services are purchased for resale may be exempt from GET. The buyer must provide a valid resale certificate to the seller. 
• Nonprofit Organizations – Certain income received by nonprofit organizations may be exempt from GET, depending on the nature of the income and activities involved.
• Out-of-State Sales – Income from services performed for customers located entirely outside Hawaii may be exempt from GET.
• Subcontract Deduction – Contractors may deduct payments to subcontractors from their gross income when certain conditions are met.

Exemptions are not automatically granted; businesses must provide appropriate documentation to support each exemption claimed.

Consequences of non-compliance with SaaS tax rules in Hawaii

Overlooking Hawaii’s General Excise Tax (GET) or Use Tax obligations can lead to serious consequences for SaaS businesses. Even if unintentional, non-compliance is treated seriously by the Hawaii Department of Taxation.

• Penalties and Interest – Late filings or underpayments can trigger financial penalties and interest charges that compound over time.
• State Audits – The Department of Taxation may conduct audits to review your tax reporting, especially if inconsistencies are flagged.
• Out-of-Pocket Liability – If GET was not collected from customers, your business may still be required to pay the full amount.
• Legal Enforcement – Continued failure to comply may result in legal action or suspension of business operations within the state.

Staying compliant protects your business from unexpected financial burdens, preserves your operating authority in Hawaii, and supports smooth growth as your customer base expands.

Filing and Remitting Hawaii General Excise Tax (GET)

To remain compliant with Hawaii’s tax requirements, SaaS companies must file GET returns on a regular schedule. The process is straightforward but requires attention to filing frequency, deadlines, and proper documentation. Below is a clear step-by-step process to file sales tax in Hawaii:

1. Determine Your Filing Frequency

The Hawaii Department of Taxation assigns a filing frequency based on your total annual GET liability:

• Monthly: Required if GET liability exceeds $4,000 per year
• Quarterly: Required if GET liability is between $2,000 and $4,000
• Semi-Annually: Allowed if GET liability is less than $2,000

2. Mark the Due Dates

Returns must be filed by the 20th day of the month following the close of each filing period.

• For monthly filers: returns are due on the 20th of each month
• For quarterly filers: returns are due on April 20, July 20, October 20, and January 20
• For semi-annual filers: returns are due on July 20 and January 20

3. Where to File Tax Returns?

All GET filings and payments must be submitted electronically via the official portal: Hawaii Tax Online

4. Pay the GET Amount Owed

Calculate tax based on gross income sourced to Hawaii. Apply the correct rate (4.00% base plus applicable county surcharge, if any), and remit payment through the portal.

5. Keep Filing Even if No Tax Is Due

You must file a return for every assigned period, even if you have no taxable activity. Failure to file can result in penalties. Maintaining a consistent filing routine and using an online system like Commenda helps avoid delays, penalties, and interest. Click here to know more.

Common General Excise Tax Challenges for SaaS Companies in Hawaii

While Hawaii doesn’t impose a traditional sales tax, SaaS companies still face important compliance hurdles under the state’s General Excise Tax (GET). Some of the key challenges 

• Nexus Confusion: Selling to customers in Hawaii can trigger GET obligations, even if your business operates entirely out of state. Hawaii’s broad definition of economic presence makes this easy to overlook.
• Bundled Services: Packaging SaaS with services like training, support, or downloadable content can make the entire bundle taxable. To reduce risk, itemize each service clearly on invoices.
• Exemption Handling: Some sales may qualify for exemptions, such as those to nonprofits or resellers, but Hawaii requires valid documentation. If you don’t collect and maintain proper certificates, you could face unexpected tax bills.
• Multi-State Complexity: As you sell across the U.S., staying compliant with Hawaii’s GET and other states’ sales tax rules gets complicated fast. Definitions of SaaS and digital goods vary widely from state to state.
• Use Tax Exposure: If your Hawaii-based company uses out-of-state software vendors who don’t collect GET, you may still owe Use Tax. Many businesses miss this until an audit brings it to light.

Staying ahead of these challenges requires routine taxability reviews, careful recordkeeping, and proactive use of exemption and registration tools provided by the Hawaii Department of Taxation.

Simplify SaaS Tax Compliance with Commenda

Managing Hawaii’s General Excise Tax along with sales tax obligations in other states, can become a major distraction for SaaS companies. Commenda helps streamline the entire compliance process so you can focus on scaling your business.

With Commenda, you can:

• Make Clear Taxability Decisions: Understand whether your SaaS products or digital services are subject to tax in Hawaii and every other state where you do business.
• Stay on Top of Nexus Rules: Automatically monitor economic activity that may create tax obligations across state lines, including Hawaii.
• Handle Exemptions Confidently: Collect and manage valid exemption certificates in one secure location, making audit preparation simple and efficient.
• Automate Tax Filing: File accurate GET and sales tax returns across multiple jurisdictions using a system designed for the complexity of SaaS billing.

Commenda provides the tools you need to stay compliant, reduce risk, and keep your operations running smoothly in Hawaii and beyond. Talk to our expert today!

FAQs About Hawaii SaaS Sales Tax 

Q. Is SaaS taxable in Hawaii if my business doesn’t have a physical office there?

Yes. Hawaii applies its General Excise Tax (GET) on most business transactions, including SaaS. If your business exceeds $100,000 in sales or 200 transactions in Hawaii within a year, you are considered to have economic nexus and must register to pay GET, even if you have no physical presence in the state.

Q. How does Hawaii classify SaaS products for sales tax purposes?

Hawaii classifies SaaS as a taxable service. It does not matter whether the software is downloaded or accessed remotely via the cloud; if it’s sold to a Hawaii customer, the gross receipts are subject to GET.

Q. Do I need to collect sales tax in Hawaii if I only sell subscription-based SaaS?

Yes. Subscription-based SaaS is fully taxable under Hawaii’s GET rules. If you meet the state’s economic nexus thresholds, you’re required to register and remit tax on these transactions.

Q. Are setup fees or bundled SaaS services taxable in Hawaii?

Yes. One-time setup charges and other fees related to SaaS are generally taxable in Hawaii. If SaaS is bundled with other services or support, the entire amount is typically taxed unless you itemize and clearly separate exempt components.

Q. What are the penalties for not charging sales tax on SaaS in Hawaii?

If you don’t comply with GET requirements, you may face penalties for late filing, underpayment, and interest on overdue amounts. Hawaii also conducts audits to ensure that remote sellers meeting nexus thresholds are following tax rules.

Q. Does Hawaii provide exemptions for SaaS sold to nonprofit or government entities?

No. Most SaaS sales remain taxable even if the buyer is a nonprofit or government entity. Hawaii has limited exemptions, and in most cases, sellers must apply GET to all qualifying receipts.

Q. How often do SaaS businesses need to file sales tax returns in Hawaii?

Filing frequency depends on your total annual GET liability. Monthly if you owe more than $4,000. Quarterly, if you owe between $2,000 and $4,000. Semi-annually if you owe less than $2,000

Q. What’s the easiest way to automate SaaS sales tax compliance in Hawaii?

Using tax automation tools like Commenda can help. These platforms track Hawaii’s economic nexus thresholds, calculate GET accurately, and file returns automatically, making compliance easier for SaaS businesses.