If you use QuickBooks as your accounting software and are a Hawaii-based business, did you know an adjustment is necessary to properly report your gross income?
A little background information - GE is a tax imposed on the Seller NOT the Buyer. The tax is applied to majority of all goods and services such as (note this is not a complete list) - retail, construction, professional services, farming and wholesaling. You have the option to pass on the tax to the consumer in an attempt to recover the expense your business owes. Yes, you read that correctly - charging GE tax is optional!!! The overall State rate is 4% (for goods and services) while each county (except for Maui) adds it's own additional surcharge rate; the maximum tax that can be passed on to the consumer is 4.712%. Wholesaling, manufacturing (and other activities of this nature) and commission activities are charged at a different rate. You must report gross income NOT net. To learn more about GE, click here.
Food for thought...for businesses in Hawaii County- if you pass on the maximum GE tax rate of 4.712%, you are actually only required to pay 4.5% to the Department of Taxation.
Now back to QuickBooks. Since Hawaii's GE is a tax on the Seller and not the Buyer, the amount collected is INCOME to your business and needs to be included in your gross income. QuickBooks views the amount as a liability. Ultimately this is true, however the amount the software reports is incorrect and you will always end up with a discrepancy! This is one of few reasons why I dislike QuickBooks. When you go through the sales tax setup and input the tax rate at 4.712%...but in reality you are only paying 4.5% (for most businesses)...this will always leave a .2% discrepancy!! The system will prompt you that more tax is owed when you really don't. SOOOOOOOO, if you have been utilizing the Sales Tax function in QuickBooks and wondering why the amount doesn't match your GE filing, please stop! There will always be a discrepancy unless you change the tax rate to 4.5% in the system.
Whether you collect payments through QuickBooks or a third party (such as Square, Clover or PayPal), the system automatically allocates GE tax to an account called "Sales Tax Payable". It can be found under the Other Current Liabilities section of your Balance Sheet. *This account may be named differently in your system* An adjusting entry must be made at the end of every filing period (whether it is monthly, quarterly, semi-annual or annual) to move the amount from the balance sheet to the income statement where it can be properly captured as income.
This tutorial video will take you step by step on how to make the adjustment.
To file your GE tax online, please visit https://hitax.hawaii.gov/_/
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