Kokua Line
June Watanabe
Car owners owe state
tax for new cars
shipped to islesQuestion: I have conflicting information regarding the purchase of a new car on the mainland and what is taxable after its shipment to Honolulu. I understand if I purchase a new car from a mainland dealership and drive the car from the dealership to the shipping company in California, the car is considered used and will not be subject to Hawaii state taxes. Would you please advise me on this matter?
Answer: In the situation you describe, you probably would have to pay the 4 percent Hawaii use tax.
Generally, if you purchased a vehicle out of state less than three months (90 days) before shipping it to Hawaii, the law presumes that the car was purchased for use in Hawaii, and the use tax applies, according to Grant Tanimoto, rules officer for the state Department of Taxation.
"However, if the taxpayer can provide 'clear and convincing' evidence that the car was not purchased for use in Hawaii, then the use tax may not apply," he said.
The use tax is applied to the "landed value" of the car or other tangible personal property brought into Hawaii. The landed value is calculated as the "fair and reasonable cash value of tangible personal property" when it arrives in Hawaii, including the purchase price, shipping and handling fees, insurance costs and customs duty, but not including any sales or use tax paid to another state.
In fact, any tax paid on the purchase of the car to another state may be used to offset the Hawaii use tax liability.
According to Tanimoto, unless there is an exemption in the law, all property (new or used), services and contracting imported from outside Hawaii generally is subject to the use tax.
That's to put out-of-state businesses on the same playing field as in-state businesses.
Since most local businesses are subject to the general excise tax and must pay a tax on the gross income generated by their business, they are at a price disadvantage with out-of-state businesses, which are not subject to the GET, Tanimoto explained.
The use tax attempts to equalize the price disadvantage by requiring people who acquire goods, services and contracting from out-of-state sellers to pay a tax at the same rate that a Hawaii seller would have paid in the GET, he said.
Tanimoto said there is no use tax exemption for "used" cars, although there are several cases in which a car purchased out of state may not be subject to the use tax.
One would be if a private vehicle were brought into Hawaii for nonbusiness use by a person who acquired it outside the state while a "bona fide resident" of another state or country; if that person acquired it for use outside the state; and if that person "made actual and substantial use" of it outside Hawaii.
Tanimoto gave two examples on how the use tax may or may not be levied:
>> A Hawaii resident purchases an automobile in Oregon while on vacation and uses it to drive across the country and back to the West Coast. He imports the car into Hawaii four months after the purchase. The importation of the car to Hawaii is subject to the use tax because the owner was not a bona fide resident of another state at the time of the purchase.
>> A Texas resident is in the military and stationed in Oregon. He buys a new car in California, and the vehicle is used as the main means of transport for his family during that time. Two months later, he is ordered to relocate immediately to Hawaii. He imports the car to Hawaii 10 weeks after purchase. Although that is less than 90 days, he may present the relocation orders and mileage (showing substantial usage given the time of possession) as evidence that the car was not purchased for use in Hawaii.
Tanimoto added that the two sample transactions still may result in a use tax liability because Oregon does not have a sales tax (the counterpart to Hawaii's GET).
However, if someone pays a sales, use or general excise tax to another state on the sale of the automobile, the amount paid may be used to directly offset the amount of any Hawaii use tax that is due.
Tanimoto gave as an example a resident of state X buying a car in that state for $20,000 and paying a 3 percent sales tax ($600) imposed by that state. Two months later, he ships the car to Hawaii.
If the landed value of the car is $21,000, the Hawaii use tax would be $840 (4 percent of $21,000). However, the owner may offset the $840 Hawaii tax by the $600 sales tax he paid to state X, reducing his use tax liability to $240, Tanimoto said.
Meanwhile, Tanimoto noted that the use tax does not apply to vehicles bought via a "casual sale," which means an "occasional, isolated, irregular, infrequent or incidental sale of tangible personal property which is not ordinarily sold in the course of the person's trade or business."
For example, a Hawaii resident who buys a used car in Oregon from a person not normally engaged in the business of selling cars and brings it into Hawaii two weeks later would not be subject to the use tax. That's because had the "casual sale" occurred in Hawaii, the gross receipts from the sale would not be subject to the GET.
Tanimoto pointed out that effective Jan. 1 of this year, importer-owners of motor vehicles are required by law to file Form G-27, the Motor Vehicle Use Tax Certificate.
This form must be presented to the Motor Vehicle Registration Office of the county in which the vehicle will be registered to declare that the use tax has been paid or that no use tax is due.
The only people or agencies exempt from this requirement are car dealers; active-duty members of the U.S. Armed Forces stationed in Hawaii who are not Hawaii residents and who have already paid sales/use taxes on their vehicle to their home states; and federal, state and county governments.
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