Sales Tax Nexus in Hawaii in HI — Tax Legal Guide | CGMIMM
Tax · HI
Sales Tax Nexus in Hawaii
Hawaii sales tax rate: 4% state General Excise Tax + local (avg ~4.44%). Economic-nexus threshold for out-of-state sellers: $100K sales OR 200 transactions.
Published May 6, 2026
## Sales tax nexus in Hawaii
Before 2018, businesses only had to collect sales tax in states where they had a **physical presence** (offices, employees, warehouses). The Supreme Court's **Wayfair v. South Dakota (2018)** decision changed that — letting states require tax collection based on **economic nexus** (volume of sales).
### Hawaii sales tax
- **Rates:** 4% state General Excise Tax + local (avg ~4.44%)
- **Economic-nexus threshold:** $100K sales OR 200 transactions
## What "nexus" means
Nexus is the connection that makes you taxable in a state. Two main types:
**Physical nexus:**
- Office, warehouse, retail location
- Employees in the state
- Inventory in the state (FBA / Amazon warehouses count)
- Salespeople / representatives
- Trade-show attendance (some states)
- Trucks / vehicles in the state
**Economic nexus** (post-Wayfair):
- Crossing dollar threshold of in-state sales
- Crossing transaction-count threshold
- Most states use $100K sales OR 200 transactions
- Some states use higher thresholds (CA $500K, NY $500K + 100 tx, TX $500K)
- Some states removed the transaction prong (ND, SD, TN, MN partially)
## Common physical-nexus traps
- **Inventory in third-party warehouses** — Fulfillment by Amazon (FBA) creates physical nexus in every state where Amazon has a warehouse
- **Affiliate / click-through nexus** — pre-Wayfair concept that some states still apply
- **Marketplace facilitator laws** — Amazon, eBay, Etsy now collect on behalf of sellers in most states
- **Drop-shipping** — physical presence at supplier creates issues
- **Remote employees** — even one remote employee creates nexus
- **Visiting on business** — extended visits, conferences, sales calls
## Marketplace facilitator laws
Most states now require **marketplace facilitators** (Amazon, eBay, Walmart, Etsy, etc.) to collect sales tax on sales made through their platforms. This:
- Shifts collection responsibility from individual sellers to the marketplace
- Lets sellers cross thresholds without registering individually if all their sales go through marketplaces
- Creates compliance simplification for many small sellers
BUT — sales made off-marketplace (your own website, in-person, wholesale) still trigger nexus separately.
## Streamlined Sales Tax Project (SST)
24 states have signed onto the **Streamlined Sales Tax** initiative — providing simplified registration, uniform definitions, and free tax-calculation services. Member states include AR, GA, IN, IA, KS, KY, MI, MN, NE, NV, NJ, NC, ND, OH, OK, RI, SD, TN, UT, VT, WA, WV, WI, WY.
## What's taxable vs exempt
**Generally taxable:**
- Tangible personal property (most goods)
- Some services (varies dramatically by state)
- Software (varies — sometimes only canned, sometimes also custom)
- Digital goods (varies — increasingly taxed)
- Restaurant meals
- Lodging
**Often exempt:**
- Groceries (varies; some states fully exempt, some reduced rate, some fully tax)
- Prescription drugs
- Medical equipment (varies)
- Newspapers / magazines (varies)
- Resale (B2B with valid certificate)
- Manufacturing inputs (varies)
- Casual / occasional sales (yard sales, etc.)
- Sales to charitable organizations (with certificate)
## Sales tax compliance
Once nexus is established:
1. **Register** with the state tax agency
2. **Charge correct tax rate** at point of sale (location-based; complex)
3. **Collect from customers**
4. **File returns** monthly, quarterly, or annually based on volume
5. **Remit collected tax** with returns
6. **Keep records** for 3-7 years depending on state
7. **Respond to audits** — sales tax audits are common, especially for ecommerce sellers
## Penalties for non-compliance
- **Back taxes** — owed for entire period of unfounded liability
- **Interest** — typically 5-12% annually
- **Penalties** — often 5-25% on top of unpaid tax
- **Personal liability** for responsible officers / owners (TX, CA, NY, others)
- **Criminal charges** in willful cases
## Sales-tax software
Modern compliance is generally tool-driven:
- **Avalara** — comprehensive nexus tracking, calculation, filing
- **TaxJar** — popular for ecommerce
- **Vertex** — enterprise-level
- **Sovos** — enterprise / complex
- **State-provided free tools** — limited but helpful for small sellers
## What you should do
If you sell into Hawaii from out of state — or you're a Hawaii seller wondering about your obligations elsewhere — review nexus carefully. Most Hawaii sales-tax issues benefit from a CPA or sales-tax-specialist consultation. Many state tax agencies offer voluntary disclosure agreements (VDAs) for catching up on past obligations with reduced penalties.
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*This guide is general information about Hawaii sales tax as of early 2026 and is not legal or tax advice. Sales tax law changes frequently and rates are updated. Consult a CPA or tax attorney for your specific situation.*
This guide is for general information only and does not constitute legal advice. Laws change and outcomes depend on your specific situation — talk to a licensed attorney before acting on anything you read here.