The new year may bring a new tax to some online purchases.

Act 2, Session Laws of Hawaii 2019, changed how certain online purchases from marketplace facilitators (known as “MPF”) such as Amazon will be taxed. The MPF will be deemed to be the retail seller, not the company that is actually selling the product to the consumer.

But more problematic is that Act 2 adds a new and additional level of online taxation by creating a sale “at the wholesale rate” by the marketplace seller (known as “MPS”) to the MPF. This sale is taxed at the wholesale rate of 0.5%.

Is this new level of online taxation just a money grab?

A MPS is a business that sells through a MPF such as Amazon. A MPS can be a business that is too small to be legally required to pay the state’s general excise tax, a large company that is already paying GET or a related company such as Amazon Services selling to the Amazon entity that operates the marketplace website.

A screen shot of the Amazon logo. A new Hawaii law raises questions about taxation. 

Whether this will increase the cost of an online purchase will depend on whether the MPS’s wholesale tax can be added to the amount of retail tax and that is passed on to the consumer by the MPF.

If the tax can be passed on, the cost will increase. If the tax cannot be passed on the MPS may decide not to sell to consumers in Hawaii rather than absorb the expense of the new tax and preparing a Hawaii GET return.

Act 2 went into effect New Year’s Day. I am waiting for a response to my letter asking about whether the MPS’s wholesale tax can be passed on to the consumer.

Buying Widgets

An example helps to illustrate the possible difference in taxation for purchases before and after Act 2.

A consumer living on Oahu wants to purchase a widget. Visiting the Amazon website, the consumer finds a widget for sale for $100 by the Acme Company and adds it to the shopping cart. The purchase qualifies for free shipping. Last year, Acme, a business located on the mainland, has nexus because gross receipts for sales to Hawaii exceeded $100,000.

For purchases prior to Jan. 1, the amount of $4.71 ($100 multiplied by 4.712%) would be added to the invoice for the GET and the county surcharge.

For purchases on or after Jan. 1, Amazon is deemed the seller and Acme is deemed to have made a sale at wholesale to Amazon. Amazon is responsible to pay the GET because Act 2 provides that “a marketplace facilitator’s gross income or gross proceeds of sale include receipts from sales on behalf of other sellers.” Amazon would add taxes of $4.71 ($100.00 multiplied by 4.712%) to the invoice.

Because Acme is deemed to have sold the widget at wholesale to Amazon, Acme owes an additional tax of $0.50 ($100 multiplied by 0.5%). However, Acme might not be able to pass the wholesale tax on to the consumer.

I am not anxious to pay more for my online purchases.

Passing Acme’s tax on to the consumer appears to conflict with existing guidance from the Department of Taxation. Tax Facts No. 37-1 states that the maximum amount that a business can pass on to the Oahu consumer (GET and County Surcharge) is 4.712%. Adding Acme’s 0.5% wholesale tax to Amazon’s 4.712% tax would cause the tax to exceed the maximum rate stated in the Tax Facts.

Guidance in a GET brochure states that the visible pass on of the GET is a matter of contract between [the seller] and [the consumer]. Act 2 says that the marketplace facilitator, Amazon, is the seller. Acme is deemed to have made a sale to Amazon, not the consumer.

Since Acme is not the seller to the consumer, there is no agreement to pass the tax owed by Acme on to the consumer. Allowing a pass on of Acme’s tax would appear to conflict with this guidance.

As a consumer, I am tired of placing an order only to find that the company will not ship to Hawaii.

This law may make this problem worse. I am not anxious to pay more for my online purchases. We deserve an answer.

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