TaxByte: Hawaii Clarifies Sales Tax Position on Downloadable Software
The Hawaii Department of Taxation has issued guidance clarifying its position on the handling of software sales under the general excise tax (GET). Whether the software is included on a tangible medium, such as a disc, or transferred electronically, the sale of prewritten or canned software constitutes a sale of tangible personal property. The selling of a license to utilize prewritten or canned software is also considered a tangible personal property transaction and therefore taxable.
A retail sale of tangible personal property is subject to GET at a rate of 4%; however, a wholesale sale of tangible personal property is subject to GET at a rate of 0.5 percent. A tangible personal property wholesaler is someone who sells tangible personal property to a licensed seller for resale. If a taxpayer sells or licenses prewritten or canned software to a licensed seller for resale or licensing, the transaction may qualify for the wholesale rate.
Selling made-to-order custom software is considered the sales of services. Services are normally subject to GET at a retail rate of 4%; however, a wholesaler is subject to GET at a wholesale rate of 0.5 percent. All of the requirements of Haw. Rev. Stat. 237-4(a)(10) must be met in order to be qualified for the wholesale rate for the selling of services. If software is sold or licensed through a marketplace facilitator, the marketplace facilitator is considered a retail seller and must pay GET at the retail rate of 4%. The marketplace seller, on whose behalf the software is sold or licensed, is considered to have made a wholesale transaction.
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