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Editorial 7 MIN READ

Hawaii in February 2024: a $51 LLC and a 4% tax that touches everything

The cheapest formation fee on the continent, paired with a gross-receipts tax that finds you before the income tax does

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. What it costs to form
  2. The annual report, and why it costs what it costs
  3. The General Excise Tax, which is the whole story
  4. Corporate income tax, and the question of election
  5. Who this state actually makes sense for
  6. Sources

Hawaii LLC costs $51 to form and $15 a year to keep on file. Those two numbers look like a bargain until you hit the General Excise Tax, which takes 4% of your gross receipts (4.5% on Oahu) whether you made a profit or not.

This is a guide for someone forming in Hawaii in early 2024. It is not a pitch for the state. The fees are cheap; the operating tax is the part that surprises mainland founders, and the part you have to price in before you file.

What it costs to form

You file Articles of Organization with the Department of Commerce and Consumer Affairs Business Registration Division. The preferred channel is Hawaii Business Express, the state's online portal, which is where most filings land. The base fee for a domestic LLC is $50, plus a $1 State Archives fee, for a total of $51. Expedited review is $25 on top of the base filing fee, which gets you one to three business days instead of the standard queue that currently runs one to two weeks in peak season.

The articles themselves are short. You name the LLC (the name must contain "Limited Liability Company," "LLC," or "L.L.C."), you give a mailing address and a principal office in Hawaii or elsewhere, you name a registered agent with a Hawaii street address, and you state whether the LLC is member-managed or manager-managed. Hawaii allows a single-member LLC, and the statutory authority for the form sits in HRS Chapter 428, the Uniform Limited Liability Company Act as Hawaii adopted it.

Chapter 428 is worth at least a skim before you file. Section 428-103 gives you the default structure of an LLC, section 428-203 lays out what the articles must contain, and section 428-409 sets the fiduciary duties of members in a member-managed LLC. If you plan to draft an operating agreement that deviates from those defaults, which most multi-member LLCs should, knowing the baseline rules is what lets you tell a drafter what to change.

The annual report, and why it costs what it costs

Hawaii does not tax LLCs simply for existing in the way Delaware does with its flat $300 annual tax or California does with its $800 franchise tax. Hawaii asks for an annual report and $15 for filing it. The report is tied to the quarter in which the LLC was formed: if you formed between January and March, your annual report is due each year between January 1 and March 31. April through June filings have an April-to-June renewal window, and so on through the calendar. Hawaii Business Express will send a reminder to the email the LLC listed on file; the due quarter is also printed on the formation receipt.

The $15 figure does not scale with revenue and does not double as a franchise tax. Miss the quarter and the entity falls into "not in good standing" status within 30 days of the deadline, at which point the state charges a $10 reinstatement processing fee on top of the late report. Entities that remain delinquent for two consecutive years are administratively dissolved, and reinstating an administratively dissolved Hawaii LLC involves additional paperwork and a $25 reinstatement fee on top of the back annual reports.

The combined picture for a plain-vanilla Hawaii LLC that did nothing all year is therefore $51 to form and $15 to keep it alive each year thereafter. That is one of the cheapest maintenance regimes in the country by a meaningful margin. The money Hawaii gets from your business comes from somewhere else.

The General Excise Tax, which is the whole story

If you take one thing from this article, take this: Hawaii does not have a sales tax. Hawaii has a General Excise Tax, codified at HRS Chapter 237, and it is not the same animal. A sales tax is a tax on the consumer that the merchant collects. The GET is a tax on the privilege of doing business in Hawaii, imposed on the seller, measured by gross receipts, and it applies to services, rentals, professional fees, commissions, and practically every transaction a business touches. Most states exempt services from sales tax. Hawaii taxes them.

The base rate is 4%. In the City and County of Honolulu, which covers all of Oahu, there is a 0.5% county surcharge, pushing the effective rate to 4.5%. Kauai and Hawaii County also have surcharges in force for 2024; Maui County has historically been the outlier without a county surcharge, though that has shifted in recent legislative sessions. Before you quote prices, confirm the current surcharge for the island where your customers are.

The GET is imposed on you, not on your customer, but HRS §237-22 lets you pass it through. Most businesses visibly add it to invoices, either as a line item (commonly shown at 4.712% on Oahu, which is the gross-up that produces a 4.5% effective tax after the tax itself is taxed) or baked into price. Filing frequency depends on annual liability: monthly if you owe more than $4,000 a year, quarterly for between $2,000 and $4,000, and semiannually below $2,000. Returns are filed on Form G-45, with an annual reconciliation on Form G-49 due the 20th day of the fourth month after the close of the tax year.

For a service business with $200,000 in gross receipts on Oahu, the GET at 4.5% is $9,000 before you touch the income-tax calculation. That is the number mainland founders miss when they benchmark Hawaii against, say, Texas or Florida. The filing fees are cheap; the transaction tax does the heavy lifting.

Corporate income tax, and the question of election

For LLCs that default to pass-through treatment, Hawaii does not tax the entity on income. The members include their distributive shares on their Hawaii personal returns, at rates that top out at 11% at the high end of the individual brackets. For LLCs that elect to be taxed as C-corps, Hawaii's corporate income tax, set by HRS §235-71, is tiered: 4.4% on the first $25,000 of taxable income, 5.4% on the next bracket up to $100,000, and 6.4% on taxable income above $100,000.

Hawaii does not currently offer a pass-through entity tax election, the workaround many states enacted after the 2017 federal $10,000 SALT cap to let partnerships and S-corps deduct state income tax at the entity level. States that have one (New York, California, New Jersey, and most of the rest of the country by now) give their residents a meaningful federal-tax benefit. Hawaii residents running pass-through businesses in Hawaii do not have that lever, and as of February 2024 there is no pending legislation expected to pass this session that would add one. That matters most for professional partnerships and high-income LLC members; it is noise for a sole proprietor under the SALT cap anyway.

Who this state actually makes sense for

Hawaii is a good state to form in if you live in Hawaii and do business in Hawaii. That sounds like a tautology. It is not. Many mainland founders incorporate in Hawaii because they vacation there or because they plan to, and that is exactly the case where the arithmetic breaks.

Hawaii taxes gross receipts from services delivered to Hawaii customers whether the service provider is registered in Hawaii or not. If you already have a California LLC delivering remote services to clients in Honolulu, you have a GET exposure today, and forming a second Hawaii LLC does not fix that exposure; registering for a Hawaii GET license does. The LLC is the easy part. The tax registration is what actually matters.

For a Hawaii resident starting an operational business in Hawaii, the $51 formation and $15 quarterly report is the cheapest front-end in the country, the ULLCA-based statute is predictable, and the GET is the price of admission regardless of entity form. You were going to pay it as a sole proprietor anyway. The LLC gives you the liability shield and the management flexibility of Chapter 428 without adding a franchise tax on top.

For a holding entity meant to own passive assets, a Hawaii LLC does not have obvious advantages over Wyoming, Delaware, or the owner's home state; the GET does not apply to pure investment income, which reduces but does not eliminate the filing overhead, and foreign qualification in Hawaii still costs and still triggers annual report obligations.

If you are forming this quarter, file on Hawaii Business Express rather than on paper, register for your GET license at the same time through the Department of Taxation's Hawaii Tax Online portal, and put the annual report renewal quarter into whatever calendar you actually read. The filing fee is the easy money. The tax is the money that matters.

Sources

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