Rideshare businesses such as Uber and Lyft, like their accommodations counterparts such as Airbnb and VRBO, have been enthusiastically embraced by the public. States, however, are still sorting out how to tax this business model. Recently, Hawaii clarified its General Excise Tax (GET) obligations for transportation network companies and their drivers.
Unless a specific exemption applies, GET is imposed on the gross proceeds of all business activities in Hawaii. In most instances, the seller is liable for GET. However, in rideshare transactions, liability isn’t always clear. In some circumstances, the transportation network company (TNC) is liable; in others, the driver is.
When the TNC is liable for GET
TNCs must remit state and applicable local GET on the gross proceeds of the total amount collected from a rider, with the exception of discretionary tips, when any of the following is true:
- The TNC controls how the service is provided;
- The TNC controls the price charged to the rider for transportation;
- The TNC processes payments for the transaction, whether directly or by using third-party payment processors (as opposed to merely providing a rider’s payment information to a driver to bill the rider directly); or
- The TNC provides insurance coverage for the transaction.
When the driver is liable for GET
A driver owes GET on his or her gross income, which is the total amount the TNC and/or the rider remits to the driver. This may include discretionary tips.
In certain circumstances, a reduced wholesale rate of 0.5 percent may apply to the fare income (not tips). A driver is eligible for the reduced rate if he or she makes wholesale sales, which the state defines in HRS §237-4. If the driver is an employee of the TNC, his or her salary or wage is exempt from GET.
There are two types of tips: discretionary and mandatory.
Liability for GET on discretionary income (tips) depends on who receives the tip. If the tip is divided between the driver and the TNC, the tax applies to both portions and must be paid by each. If only the driver receives the tip, only the driver is liable.
A tip is discretionary if it’s optional, meaning it’s in addition to the negotiated price, given voluntarily, and separately stated on invoices and/or receipts. GET also applies to cash tips.
The TNC is liable for GET on mandatory tips. A gratuity is mandatory when it’s automatically added to the bill for a particular reason, such as for transportation of a large party or the use of a special vehicle. Hawaii allows no deductions or income splitting on mandatory tips.
For more details, see the Hawaii Department of Taxation’s Tax Information Release No. 2018-01.
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