Understanding Sales Tax Exemptions in Hawaii

Understanding Hawaii’s General Excise Tax (GET) system can be challenging for businesses, especially when handling resale transactions or dealing with tax-exempt buyers like nonprofits and government agencies. Hawaii’s tax structure applies to nearly all business income, which makes proper exemption documentation essential.

In Hawaii, exemption and resale certificates allow qualified buyers to purchase goods or services without paying GET, provided the transaction meets state requirements. If a seller fails to collect or store the correct documentation, they may still be responsible for the tax, even if the sale should have been exempt.

Commenda helps businesses in Hawaii manage sales tax exemption certificates more effectively. Its tools handle certificate collection, verify buyer information in real time, and keep all records stored securely online.

In this guide, you will learn who qualifies for GET exemptions in Hawaii, how to manage a Hawaii sales tax exemption certificate properly, and how Commenda supports businesses in staying compliant.

What Are Exemption and Resale Certificates?

Sales tax exemption certificates and resale certificates are legal documents buyers use to make qualifying purchases without paying sales tax at the time of the transaction. These certificates are essential tools for ensuring compliance with Hawaii tax regulations.

Understanding the distinction is critical for compliance, especially when it comes to Hawaii sales and use tax exemption certification requirements. Below are some key differences and use cases:

Aspect Exemption Certificate Resale Certificate
Purpose Used to claim exemption based on the buyer’s status or the type of transaction Used to avoid tax on goods purchased for resale
Common Users Nonprofits (e.g., 501(c)(3) organizations), government agencies, exempt entities Wholesalers, retailers, and resellers
Example A nonprofit purchasing supplies for a charitable event A retailer buying bulk clothing to sell in their store
Tax Avoidance Type Exempts buyer due to their tax-exempt classification Defers tax because goods will be taxed when resold
Documentation Required Approval or form (e.g., G-6) showing tax-exempt status Form G-17 indicating intent to resell items
Eligibility Criteria Must meet exemption conditions under Hawaii law Must hold a valid Hawaii GET license and sell goods in the regular course of business
Audit Role Proves the buyer’s exemption to avoid liability during audits Proves that purchases were for resale and not personal/business use
Risk if Misused Could result in tax assessment if used for non-exempt purchases Misuse (e.g., personal use) may lead to tax, penalties, and interest during audits

Exemption Types Recognized in Hawaii

Hawaii does not impose a traditional sales tax like most states. Instead, it levies a General Excise Tax (GET) on the gross income of businesses. However, several types of exemptions and deductions are recognised under Hawaii tax law, allowing businesses and organisations to reduce or eliminate GET obligations on qualifying transactions. Here is what you need to know:

Resale Exemption

Businesses that purchase goods for the purpose of resale may be eligible for the resale exemption, which allows them to:

  • Avoid paying the full GET on purchases intended for resale.
  • Instead, pay a reduced wholesale rate on qualifying transactions.

Key details:

  • Form Required: G-17, Resale Certificate for Goods General Form
  • Usage: The buyer provides this certificate to the seller as proof of their intent to resell the purchased items.
  • Responsibility: The seller must retain a copy of this form for their records to substantiate the tax treatment in the event of an audit.

Nonprofit Exemption

Nonprofit organisations that are recognised as tax-exempt under Section 501(c)(3) of the Internal Revenue Code may qualify for the GET exemption in Hawaii. This applies to income and purchases related to:

  • Charitable functions
  • Religious activities
  • Fundraising events

Key details:

  • Form Required: Form G-6, Application for Exemption for Charitable/Religious Organizations
  • Approval Process: The nonprofit must submit Form G-6 and receive formal exemption approval from the Hawaii Department of Taxation.
  • Documentation: Once approved, the nonprofit receives an exemption letter that should be kept on file and shared with vendors when necessary.

Government Entities

  • Federal government agencies are fully exempt from Hawaii’s GET.
  • However, state and county government purchases may still be subject to GET, unless specifically exempted under certain contracts or programs.

Vendors selling to federal entities should obtain and retain supporting documentation confirming the government status of the buyer.

Manufacturing Exemptions

Manufacturers engaged in qualifying activities may be eligible for:

  • Reduced GET rates or
  • Exemptions on transactions related to wholesale sales or goods exported out of Hawaii.

This generally applies to:

  • Goods are produced and sold to resellers or wholesalers.
  • Products are shipped directly out of the state.

Export / Out-of-State Sales

Sales of tangible goods that are shipped out of Hawaii and destined for use outside the state may qualify for GET exemptions. However, the exemption only applies if:

  • The goods are physically shipped by the seller or through a common carrier.
  • Proper documentation of out-of-state delivery is retained.

Contractors and Subcontractors

Hawaii allows special deductions for certain contracting and subcontracting arrangements. These help avoid pyramiding of the GET and apply when:

  • A subcontractor is hired by a contractor already paying GET on a project.

Key Form: Form G-72, Subcontract Deduction Certificate
This form must be completed and retained to claim the subcontract deduction properly.

State-Specific Requirements for Exemption Certificates

If you are wondering, “How do I get a Hawaii sales tax exemption certificate?”, then do not worry. Hawaii has its own set of documentation and compliance standards for sales tax exemption certificates, which differ from those of other U.S. states. Here are the requirements you need to know:

Required Information on Certificates

Every valid exemption or resale certificate in Hawaii must include:

  • Full name and address of both the buyer and the seller
  • Buyer’s valid Hawaii Tax Identification Number
  • The nature of the buyer’s business (e.g., reseller, nonprofit, manufacturer)
  • A clear description of the goods or services being purchased
  • A statement indicating the basis for the exemption (e.g., resale, nonprofit use)
  • Signature and date of the buyer or authorised representative

Standard Forms Used in Hawaii

Hawaii does not participate in the Streamlined Sales and Use Tax Agreement (SSUTA). Therefore, only state-issued forms are accepted:

SSUTA or multi-state exemption forms are not valid in Hawaii.

Validity and Renewal Periods

  • Hawaii’s resale certificates (Form G-17) do not have a fixed expiration date.
  • However, if the buyer’s business status changes (e.g., ceases operations, changes tax ID), a new certificate should be obtained.
  • Best practice: Refresh certificates every 3–4 years to ensure they reflect current information and tax status.

Submission and Recordkeeping

  • Exemption and resale certificates are not submitted to the Hawaii Department of Taxation.
  • Instead, they must be:
    • Obtained and retained by the seller
    • Available during audits
  • Both paper and electronic (scanned) versions are acceptable, as long as the information is legible and accessible upon request.

Note: For those wondering, “What is a Hawaii sales tax exemption certificate?” It’s a state-recognized document that allows qualified buyers to make tax-free purchases on eligible goods or services.

Common Pitfalls and Compliance Risks

Managing a Hawaii sales tax exemption certificate requires diligence and attention to detail. Several common errors can expose businesses to unnecessary tax liability and audit risk. These typically include:

Expired or Outdated Certificates

Using outdated exemption certificates with expired tax IDs or incorrect buyer details can lead to non-compliance. While Hawaii doesn’t set a strict expiration, the state recommends revalidating certificates every three years or after significant buyer changes. Businesses should schedule regular reviews to ensure certificate accuracy and validity.

Incomplete Documentation

Certificates missing crucial details, such as the buyer’s tax ID, business purpose, or signature, are considered invalid. Even if the buyer is technically exempt, Hawaii’s General Excise Tax (GET) may still be assessed retroactively. Maintaining fully completed, accurate certificates is essential for proving exemption eligibility during audits.

Misuse by Ineligible Buyers

Some buyers may use resale certificates for non-exempt purchases, such as personal items or operational expenses. When this occurs, the seller is held responsible for unpaid taxes, interest, and penalties. Proper vetting of buyers and careful recordkeeping help prevent misuse and protect the business.

Poor Documentation of Out-of-State Sales

To claim Hawaii’s export exemption, businesses must prove that goods were shipped out of the state. Without adequate documentation, such as shipping records, tracking information, or signed contracts, the exemption becomes invalid. Sellers must consistently document and retain evidence of out-of-state deliveries to remain compliant.

Consequences of Noncompliance

If a business cannot produce valid exemption documentation during an audit:

  • The seller, not the buyer, may be held liable for back taxes.
  • Penalties and interest can significantly increase the financial burden.
  • The business may also be subject to extended or repeat audits, disrupting operations.

For example, A retailer in Honolulu accepts a resale certificate from a buyer purchasing several pieces of equipment. Later, it’s discovered that the buyer is a nonprofit organisation using the items internally, not for resale.

During a Department of Taxation audit:

  • The retailer cannot provide evidence that the sale qualified for the resale exemption.
  • The Department assesses full GET on the transaction.
  • A penalty for negligence is added due to improper documentation and lack of verification.

Best Practices for Managing Exemption Certificates in Hawaii

Properly managing a Hawaii sales tax exemption certificate and resale certificate is critical for businesses operating in Hawaii, where the General Excise Tax (GET) applies to most business activities. Following structured best practices can help reduce compliance risk, ensure audit readiness, and protect your bottom line.

Collect Certificates at the Time of Transaction

The most reliable way to ensure exemption compliance is to collect the exemption or resale certificate before or at the time of the transaction. Waiting until after the sale can jeopardize the exemption. In Hawaii, sellers must have valid documentation on file to avoid GET liability if audited. For example, if you sell goods to a wholesaler or nonprofit, obtain a completed Form G-17 or G-6, respectively, before finalizing the sale.

Validate Certificates Against State Standards

Every certificate should be reviewed carefully to ensure it meets Hawaii Department of Taxation standards. This includes checking for:

  • A valid Hawaii Tax ID number
  • Accurate and complete buyer and seller information
  • A specific reason for the exemption
  • Buyer’s signature and date of issuance

Sellers should only accept Hawaii-issued forms, as the state does not accept multi-state or SSUTA exemption certificates.

Regularly Update and Refresh Certificates

Even though Hawaii’s resale certificates do not have a fixed expiration date, businesses are strongly encouraged to review and refresh certificates every three to four years. Certificates should also be updated if the buyer undergoes any change in tax status, business name, or location. Maintaining up-to-date documents reduces the chance of errors during an audit.

Store Certificates Digitally for Quick Retrieval

Maintaining physical copies of sales tax exemption certificates can be risky and inefficient. A best practice is to use a digital storage system that allows you to store, tag, and retrieve certificates quickly. Digital storage solutions improve organization, save space, and are especially helpful if you are required to produce documentation during an audit by the Hawaii Department of Taxation.

Set Proactive Renewal and Review Reminders

Using calendar alerts or automated reminder tools can help your team stay ahead of renewals. Establish a policy to revisit certificates on a scheduled basis. For instance, conduct semi-annual reviews of your certificate files to identify outdated or incomplete records and re-engage with customers to request updated documentation when needed.

Conduct Periodic Internal Audits

Routine internal audits of your exemption certificate database can help catch compliance lapses before a state auditor does. This internal process should involve:

  • Verifying the presence of a certificate for every exempt transaction
  • Reviewing the accuracy and completeness of each certificate
  • Flagging potential issues, such as blank fields or invalid tax IDs

These audits serve as an early warning system and demonstrate good-faith compliance to regulators.

How Commenda Simplifies Exemption Certificate Management in Hawaii

Managing exemption and resale certificates manually under Hawaii’s GET system can be complex and resource-intensive. Commenda is a global sales tax platform that simplifies the entire process with a purpose-built platform designed to support Hawaii’s unique tax compliance requirements. Here is more about our core capabilities:

  • Automated Collection: Commenda automatically requests sales tax exemption certificates from customers during checkout or invoicing, using forms specifically required in Hawaii, such as Form G-17 or G-6. This ensures documentation is collected upfront and tailored to local GET rules.
  • Bulk Validation: The platform validates Hawaii Tax ID numbers, cross-checks buyer information, and reviews forms for completeness and compliance with Hawaii Department of Taxation standards.
  • Real-Time Alerts: Get instant alerts when a certificate is missing key data, potentially non-compliant under Hawaii law, or due for a periodic update, even though Hawaii forms do not officially expire.
  • Secure Cloud Storage: All certificates are stored digitally in a secure, centralised archive, searchable and accessible within seconds. This makes it easy to respond to audit requests from the Hawaii Department of Taxation.
  • Integrations with Business Systems: Commenda integrates with major ERP and accounting platforms such as QuickBooks, NetSuite, SAP, and Microsoft Dynamics, allowing certificate status to sync seamlessly with transactions and invoicing workflows.
  • Compliance Dashboards: Built-in tools highlight missing or invalid certificates, helping businesses stay ahead of audit risks and improve the state of Hawaii sales tax exemption certificate management.

Key Benefits

  • Reduced Audit Risk: By ensuring certificates are accurate, timely, and properly stored, businesses reduce the risk of penalties, interest, and assessments from the Hawaii Department of Taxation.
  • Improved Operational Efficiency: Commenda automates certificate collection and tracking across sales, accounting, and procurement channels, reducing reliance on manual processes.
  • Significant Time Savings: Accounting and compliance teams can spend less time chasing down paperwork and more time focusing on higher-value tasks, thanks to automation and real-time visibility.

Book a free demo to talk to an expert to know about sales tax exemptions and customise workflows for your business!

Getting Started with Commenda in Hawaii

Managing Hawaii General Excise Tax exemption certificates with Commenda is quick and straightforward. Here’s how to get started:

  1. Create an Account and connect your sales or ERP system to Commenda.
  2. Upload Existing Certificates or allow Commenda to request certificates from your customers using Hawaii-specific forms automatically.
  3. Enable Hawaii Rules, which Commenda automatically applies based on buyer details and transaction location.
  4. Use the Dashboard to monitor certificate status, receive alerts, and view compliance gaps in real time.

FAQs: Exemption Certificates in Hawaii

Q. What are the specific documentation requirements for exemption certificates in Hawaii?

Buyers must submit completed Hawaii-specific forms, such as Form G-17 for resale or Form G-6 for nonprofit exemptions. The certificate must include:

  • The buyer’s and seller’s names and addresses
  • A valid Hawaii Tax Identification Number
  • A description of the goods or services
  • The stated reason for the exemption
  • The buyer’s signature and the date of issue

All certificates must be filled out accurately and retained by the seller for audit purposes.

Q. How do I know if a buyer qualifies for an exemption under Hawaii tax law?

Review the buyer’s status and intended use of the goods or services. Common exemptions include:

  • Resale (wholesalers)
  • 501(c)(3) nonprofit organizations
  • Sales for export outside of Hawaii
  • Qualified contractors or subcontractors

You can verify Hawaii Tax ID numbers by using a compliance platform like Commenda for validation.

Q. Does Hawaii require periodic renewal or revalidation of exemption certificates?

Hawaii does not require formal expiration or renewal of resale certificates like Form G-17. However, it is best practice to refresh certificates every three to four years or whenever there is a change in the buyer’s tax status or business information. Keeping updated records helps defend against liability in the event of an audit.

Q. Can I accept out-of-state resale or exemption certificates in Hawaii?

No. Hawaii does not accept out-of-state or multi-jurisdictional certificates. All buyers claiming an exemption must submit Hawaii-specific forms, such as Form G-17 or G-6, regardless of the location of their business.

Q. What happens if I can’t obtain a certificate before a sale?

If you do not have a valid sales and use tax exemption certificate on file before or at the time of sale, you are required to apply Hawaii GET to the transaction. The Hawaii Department of Taxation may not allow retroactive exemptions during an audit, even if you receive the certificate later.

Q. How does Hawaii handle drop shipment transactions involving resale certificates?

Hawaii allows the use of resale certificates in drop shipment scenarios, but only if the buyer has a valid Hawaii Tax ID and provides a proper Form G-17. The buyer must also meet the requirements for wholesale transactions. Sellers should retain full documentation of the transaction to support any exemption claimed.

Q. What are the penalties for exemption certificate errors in Hawaii?

If sales tax exemption certificates in Hawaii, or resale certificates, are missing, incomplete, or misused, the seller may be held liable for:

  • Unpaid General Excise Tax (GET)
  • Interest and penalties
  • Possible extended audit periods if poor documentation is found
    Accurate recordkeeping is essential to avoid these risks.

Q. Can I automate certificate collection and validation to meet Hawaii audit standards?

Yes. Tools like Commenda are built to comply with Hawaii’s exemption certificate requirements. Commenda supports automated collection, real-time validation, and secure cloud storage, helping you stay compliant and ready for audits.