by Joseph A. Lewis, JD, CPA
Oregonians love the beauty of their distant pacific neighbors in Hawaii, and often buy rental properties in Paradise, but what might seem like heaven to some, is no tax haven to landlords. While taxpayers should review the specifics of their particular case, their rental property, the jurisdiction it is located, and the instructions, here are some general questions and generalized responses that may be useful for taxpayers to review.
1. How is the tax computed?
- Taxpayer must file and pay both the general excise tax and the transient accommodations tax if taxpayer rented accommodations to a transient person for less than 180 consecutive days. If the rental unit is rented for 180 days or more, taxpayer is only subject to the general excise tax.
- Transient Accommodations Tax: 9.25% on gross rental receipts for periods after June 30, 2010. Rate was 7.25% before that.
- General Excise Tax: 4% of gross rental income. There is an additional .5% tax if the property is in Honolulu or Oahu.
2. What forms are required?
- BB-1 must first be filed to register for the General Excise and Transient Accommodations licenses. The fee is $20 and can be completed online.
- G-45: General Excise tax is a privilege tax imposed on business activity in the State of Hawaii including rental of personal or real property. Transient Accommodations Rental income must be reported on line 13 of the form G-45.
- TA-1: required for any an apartment, house, condominium, beach house, hotel room or suite, or similar living accommodation furnished to a transient person for less than 180 consecutive days in exchange for payment in cash, goods, or services rentals less than 180 days.
- GE-49: is a summary of taxpayer’s rental and General Excise for the entire year. There will be no additional tax due if the gross income, exemptions and deductions, taxable income, and taxes due were accurately reported and paid with the periodic tax returns. The annual tax return also may be used to make corrections to the amounts previously reported. For example, if taxpayer forgot to claim an allowable deduction such as a refund of rent previously reported, taxpayer may include the deduction on the annual return which may result in a refund.
- TA-2: summarizes taxpayers TAT activities for the taxable year. It may also be used to correct errors on the periodic tax returns (Form TA-1). As long as taxpayer’s total gross rental or gross rental proceeds, fair market rental values, taxes due, penalty and interest are accurately reported and paid in full on your periodic returns, no additional tax will be due when filing the annual return.
- G-75: report rentals on more than one island.
3. What are the due dates for the returns?
a. Upon applying for GE Tax and TA licenses with form BB-1, Hawaii may help determine for taxpayer the filing frequency, based on taxes owed. Filings must be made, even if taxpayer writes $0’s as gross income to report for the period. Depending on the amount of the tax, the filing is required 20 days after period end either:
i. Monthly: >$4k
ii. Quarterly: $2k-$4k
iii. Semi-annually: <$2k
b. GE 49: due on or before the 20th day of the 4th month following the close of the tax year. For calendar year taxpayers, this return will be due on April 20th.
4. What are the penalties & interest for late filing and late payment?
a. Penalty 5%/ month max 25%. Additional Interest is assessed at 2/3% per month, or 8%/yr.
5. If I haven’t paid, should we go back and file returns for prior years, or just file for the current year and let Hawaii deal with the delinquency issue?
a. Taxpayer will have to indicate when the rental activity started on the BB-1 application for the General Excise license, which will apprise Hawaii of the delinquency issue.
b. If the issue was discovered in 2015, taxpayer should file annual returns TA-2 and G-49 up through 2013, and file G-45, G-49, TA-1 and TA-2 for 2014.
- Taxpayer should include general excise tax on the tenant’s bill, since such amounts are excluded from gross rental income when they are passed-on, collected, and received from the consumer.
- Taxpayer is required to file a state income tax return, but only report Hawaii source income for non-residents.
- Taxpayer must show their Tax ID# (GE T and TAT) in any advertising.