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On October 17, 2019, the Hawaii Department of Taxation released Tax Information Release No. 2019-03 (“TIR”), which provides guidance regarding Hawaii’s Gross Excise Tax (“GET”) marketplace collection provisions effective January 1, 2020. Specifically, the TIR clarified the types of businesses that qualify as marketplaces and administratively carved out certain taxpayers from the definition of marketplace facilitators and the marketplace payment requirements.
In the TIR, the Department indicated that it interprets Hawaii’s marketplace law to exclude travel agents or tour packagers who either: (1) arrange for the furnishing of transient accommodations, or (2) merely arrange for the furnishing of tourism-related services.
The determination of whether a travel agent or tour packager “merely arranges” for the furnishing of tourism-related services depends on the extent of the taxpayer’s involvement in the furnishing of the tourism-related service itself. The guidance lists the following activities that indicate involvement in the furnishing of tourism-related services, including:
• Ensuring that the tourism-related services are provided or that customers are refunded if the service provider fails to provide the service;
• Accepting any responsibility for the quality of the tourism-related service;
• Enforcing uniformity standards on service providers (e.g., cleanliness, comfort, or communication standards or health and safety standards in excess of the standards required by law);
• Controlling the amount and type of charges service providers may charge for ancillary items (e.g., prohibiting tips or payments other than those through the marketplace platform);
• Limiting payment methods service providers may accept (e.g., prohibiting cash payments);
• Providing insurance coverage for the service, customer or property used in furnishing the tourism-related service;
• Imposing exclusivity terms on the service providers selling through the marketplace (e.g., prohibiting service providers from listing services on other platforms);
• Hosting direct communications between the customer and the service provider, and
• Directing customers to communicate with service providers only through the marketplace’s communication channel.
No further guidance is provided, whether one or all these criteria must be met.
For those marketplace facilitators subject to the marketplace collection provisions, the TIR clarifies that the marketplace is the retail seller of all products and services sold through their marketplaces at the 4% GET rate plus any applicable county surcharge. The TIR also noted that sales of marketplace sellers made through marketplace facilitators are sales at wholesale at the 0.5% GET rate. However, the wholesale GET rate only applies to sales of tangible personal property and services by marketplace sellers.
Why this is important: Those marketplaces that furnish tourism-related services should carefully evaluate their activities and determine if their level of involvement is considered “merely arranging” for the furnishing of tourism-related services. If the taxpayer’s level of involvement is minimal, the taxpayer may qualify for the administrative carve-out and may not be responsible for the payment of Hawaii’s GET on entire proceeds from marketplace seller sales. Instead, the marketplace will continue to pay GET on only its proceeds from marketplace transactions.
What to prepare for: The inconsistent classification of marketplace facilitators among the states may result in marketplaces being deemed a marketplace facilitator in some states, while not in others. This may create some confusion for some marketplace sellers and will require additional communication and coordination with marketplace sellers.