Warning: The Real Cost Of The General Excise Tax
Hawaii consumers — and tourists alike — pay a tax that’s often thought of as similar to a sales tax.
The 4.0 percent General Excise Tax is often tacked onto receipts just like a sales tax. But the power — and bite — of the tax goes much deeper. It touches the price of goods and services every step of the way to the consumer. That means that while it may appear to be just like a 4.0 percent sales tax, the cumulative total impact of the tax by the time a product or service hits the consumer is much higher.
The GET is “the envy of all states,” Rep. Marcus Oshiro, chair of the House Finance Committee, told Civil Beat. He pointed out that it’s broad based, easy to administer, equally applied to goods and services, and generates a lot of revenue with a relatively low rate.
“It’s a privilege of doing business” in Hawaii, Oshiro said.
But critics point out that unlike with sales taxes, where exceptions are made to avoid placing a burden on the poor for the necessities of life, the GET touches almost everything. Along with shipping, they say, it contributes to what is known as the Price of Paradise, the high cost of living in Hawaii.
To understand how the GET is woven into the price of goods or services in Hawaii, take what happens to put 100 cases of guava juice onto grocery store shelves. To keep the formula simple, follow the guavas as they pass from the grower through local juice producer Ito En to the grocer as a can of Aloha Maid guava juice.
Step One: The grower sell guavas to distributors that process the raw materials.
Step Two: The distributors puree the fruit, process the sugar, and sell the products to Ito En.
Step Three: Ito En makes the juice, packages it and sells it to supermarkets.
Step Four: Shoppers buy the drinks at the market.
If we were to track enough guavas to make 100 cases of juice – let’s say the price of those guavas is $100 — a wholesale GET tax of 0.5 percent at Step One would be 50 cents. The actual price of the guavas differs, but using this approach will make the math easier to follow. But what this approach doesn’t take into account is that the grower paid a 4.0 percent GET on some goods and services it needed to grow and sell the guavas. Those 4.0 percent payments are built into the $100 cost.
The distributor purees the fruit, and sells it to Ito En for $200 – plus another 0.5 percent — or $1 GET — added. Built into the markup to $201 are the distributor’s profits and their costs. Those costs include the bills it pays where it’s charged the GET of 4 percent. For example: rent, repair work, and equipment purchases. So, again, the tax is hidden in the cost, beyond the obvious 0.5 percent wholesale GET.
Ito En mixes the raw materials to make juice, cans it and then sells it to the supermarket, again adding the wholesale GET rate of 0.5 percent. But when Ito En sells the juice made from the original $100 worth of guavas, it now charges $500, plus GET of $2.50. However, again, that figure doesn’t take into account the hidden cost of the GET on Ito En, which it pays on things like rent, repairs and equipment. Ito En passes on those costs on to the supermarket.
Finally, the grocery store sells the 100 cases for $600, and in Honolulu adds 4.712 percent to the bill, or $628.27. But the grocery store also passes its GET costs on to consumers. So, for example, when it buys new shelves and equipment or pays an accountant for her services, the GET it’s charged gets built into its cost structure.
So the surface cost of the GET on the 100 cases of juice is $32.27. But the actual impact is much more difficult to ascertain because so many transactions along the way included GET charges.
“The biggest impact of the GET is in the overhead,” said Ito En Controller Francis Baluyot. “How it affects us is when we pay invoices, such as equipment repairs. The expense isn’t cheap to fix boilers. Multiply that by 4 percent. It gets hefty.”
Proponents of the tax point to how effective it is at raising money, how it applies to tourists so helps lessen the need to raise other taxes, such as income or property tax, and how it’s even-handed in how it’s applied.
However, others say the tax hurts poor populations disproportionately, because it is applied to essential products that they have no choice but to buy and that as a result they pay a greater percent of their income in the tax. Some states limit the sales tax on certain essential goods, like groceries, to avoid hurting poor populations. But in Hawaii few goods or services are exempt.
“When you go to the grocery store, whatever you buy – milk, eggs, bread – you’re paying tax on it. You rent your apartment, you’re paying the excise tax on that, too,” said UHERO Professor Carl Bonham. “So a higher percentage of your income goes to taxes if you’re in a lower-income family. And if you’re in an upper income tax bracket, a smaller percentage of your income goes to taxes.”
