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.