Do contractors charge sales tax in Hawaii?

Yes, as general excise tax rather than sales tax. Contracting income is taxed, and the contractor may pass the tax on if the customer agrees.

Hawaii's general excise tax (GET) applies to contracting at 4% of the gross income of the business, plus a 0.5% county surcharge sourced to where the project is. All four counties levy the surcharge through 2030. Contractors include anyone in the business of erecting, constructing, repairing or improving buildings or structures, or making an installation in them, and anyone practicing architecture, professional engineering, land surveying or landscape architecture, or pest control or fumigation as a pest control operator (HRS § 237-6).

Materials are part of the taxable contracting income, and their cost cannot be deducted. Materials built into the work are bought at the 0.5% wholesale rate on a resale certificate. A contractor may deduct amounts already taxed to a licensed subcontractor, when both are GET-licensed and the subcontractor is reported on Schedule GE; the deduction cannot exceed the project's gross income.

Passing the GET on to the customer is allowed but not required. The business must tell customers it plans to visibly pass it on, customers must agree to pay it, and it cannot exceed the tax actually owed. The maximum visible pass-on rate is 4.712% in each county. A business may not hold out that the tax is not part of the price.

It turns on: whether the contractor chooses to pass the tax on visibly; for a prime contractor, how much of the job went to licensed subcontractors.

“Businesses must tell their customers if they plan to visibly pass on GET and customers must agree to pay it”Hawaii DoTax, Tax Facts 37-1