Kokua Line

By June Watanabe

Sunday, December 2, 2001

Businesses must
reveal state excise
tax amount

Question: Is it possible for a store to charge the 4 percent excise tax without disclaiming the information? In other words, someone said that after buying some things from one of the large department stores, they didn't want to pay the excise tax on the relatively large purchase because there was no disclaimer to that effect in the advertising.

I thought there was a law that said if the advertising says plus state tax, the customer pretty much agreed to pay that, but what if there is nothing that says plus 4 percent or 4.166 percent state tax?

Answer: That's a very good question, one that points out a state tax law that really isn't being followed.

Basically, merchants are required to disclose the full price of an item whenever a price is quoted, including in advertisements. A quick check of some ads revealed either no mention of a tax or an inadequate mention of "sales tax included."

What that means to consumers is unclear. The state Department of Taxation says if you don't want to pay the tax on an item because it wasn't disclosed upfront, the merchant doesn't have to sell it to you, while the state Office of Consumer Protection says it would have to look at each case individually.

We should first explain that Hawaii does NOT have a sales tax, which is a tax imposed on consumers whenever they buy something at retail. In states where there is a sales tax, retailers are required to collect the tax for the state or local government.

What Hawaii does have is a general excise tax (GET), a gross receipts tax that many consumers mistakenly think is a sales tax.

The difference, however, is significant. With a sales tax, businesses simply collect the tax for government. With the GET, the tax becomes an additional expense that businesses incur as part of doing business in Hawaii.

The tax department emphasizes that the GET is imposed on the retailer, not the purchaser, and the retailer may CHOOSE to pass on the general excise tax to their customers.

Supposedly, businesses are not actually charging customers the tax. It may be semantics, but the tax department says businesses merely are showing customers the extra amount they are charging in order for them to pay the state the GET.

Businesses are not required to visibly pass on the GET; it simply may be folded into the sales price. So, some businesses do not add an additional cost to an item, others will add 4 percent and still others add 4.166 percent, all of which are allowed.

But in all instances, the amount the state requires be paid as tax is 4 percent.

There are a lot of requirements and restrictions regarding how businesses can pass on the GET to customers and why either 4 percent or 4.166 percent is allowed.

You can get more details by asking the tax department (587-4242) for a copy of its publication, "Tax Fact 96-1 (General Excise vs. Sales Tax)" or by going online at www.state.hi. us/tax/taxfacts.html

But regarding prior notice, the department says that under consumer protection laws, businesses that visibly pass on the GET to customers must notify them of "their intent to add an additional amount as tax whenever prices are quoted."

On top of that, businesses must specify the actual amount. "Telling a customer that tax will be added is not sufficient, since the customer has no way of knowing whether the amount added on will be 4 percent, 4.166 percent or some other amount. Businesses must ensure that their intention to visibly pass on the general excise tax is prominently noted and thoroughly understood by customers before the transaction takes place."

When asked what would happen if someone refuses to pay the GET, claiming no upfront disclosure, a tax department spokeswoman said, "The passing on of the general excise tax is a contractual matter between the buyer and the seller. Thus, if the customer refuses to pay the tax, the seller can choose not to sell the item to that customer."

Stephen Levins, acting executive director of the state Office of Consumer Protection, reiterated that "full disclosure should be made in all advertising regarding the full amount the consumer is required to pay to purchase something."

However, when asked if someone could refuse to pay the additional charge claiming there was no prior disclosure, Levins said, "The facts of each case would have to be examined."

OCP had hoped that merchants would voluntarily comply by making full disclosure in their ads, he said. "If the merchants omit what may be critical information, this is something we will have to take a look at it."

If you feel that you are the victim of unfair or deceptive advertising, "bring it to the attention of my office, and we'll take a closer look at this," Levins said.


To Mr. Ray Nakasone for being so kind, driving three weary senior citizens who missed the bus in Aiea on Thanksgiving Day to the bus facility in Kalihi. You saved our day, and we will never forget you. -- K. Ikeda, S. Yasuda and S. Yoshimura

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