Why does Hawai‘i have a GET?
It’s because of the Great Depression. That’s really it.
In September, Rick Hamada tried to figure out why the State of Hawai‘i had a GET instead of a conventional sales tax. The GET, he succinctly explains, is much more convoluted than a simple statewide sales tax.
To Hawai‘i’s residents, the tax is ubiquitous. You pay the GET when you grab coffee in the morning, groceries in the afternoon, or dinner in the evening. While picking-up anything with a vehicle, you pay for it with the gasoline burned to keep your engine running.
Today, the GET is the most important source of revenue in the State of Hawai‘i. “The largest tax type by revenue is the general excise tax,” the State Department of Taxation (DoTAX) declared in 2024. “In FY 2024, the State collected $4.5 billion from this tax, a 0.9% increase from the previous year.”
The State of Hawai‘i’s total tax revenues in that same period totalled $11.08 billion, meaning that more than forty-percent (40.61%) of all revenues are drawn from just the GET.
The GET’s ascension to the centerfold of state tax policy is the accidental product of a crisis that was resolved before Pearl Harbor. In fact, it is the result of over three years of bi-partisan debate by territorial legislators, territorial governors appointed by Presidents Herbert Hoover and Franklin Delano Roosevelt, and a coterie of small business leaders.
However, most folks do not know the true story of the GET, or how Hawai‘i even ended up with it in the first place.
Declining Property Tax Revenues
Across the United States, sales taxes emerged as “a tax of last resort” for cash-strapped state governments during the Great Depression. Hawai‘i, then only a territory of the United States, was not an exception, except where it opted for the GET in lieu of a straightforward sales tax.
Before the GET was established in 1935, financial pressures in 1932 had already pre-empted a reckoning with the territory’s reliance on property taxes for revenue.
The anxieties bubbled to the surface in early 1932, when the Territorial Legislature was convened by Republican-appointed Governor Lawrence F. Judd to consider several changes to the state’s tax structure. On May 11, 1932, Judd passed Act 42, which provided for the establishment of an excise tax targeting businesses across the islands.
The establishment of the Business Excise Tax (BET) was accompanied by cuts to the Territory’s property tax system, resulting in a temporary halt to the Territory’s taxation of personal property.
“Falling values stimulated a demand for a major reduction in the real and personal property taxes, then the mainstays of the Hawai‘i tax structure,” one exhaustive 1963 study from the Legislative Reference Bureau explained.
By November 1932, John Snell of the Honolulu Advertiser was trying to understand why the Territory proceeded to adopt a BET instead of a general sales tax.
Tax Commissioner Albert Waterhouse, one of the major architects of the BET, pinpointed the territorial economy’s reliance on the exportation of plantation goods (remember, it is 1932) as an important consideration. As Snell understood it, “the Territory would lose most of the revenue it is gaining this year from exports of sugar and pineapple under the business excise tax, as very little of the Islands’ production of these commodities is sold at retail in the Territory.”
The BET was subject to a trial run. In May 1934, Judd’s Democratic successor Joseph Poindexter convened an advisory committee on taxation to consider prospective amendments to the Territory’s tax structure. While Judd’s introduction of the BET might have been regarded as temporary, Republican legislators and the Democratic Governor Poindexter proceeded to make it a permanent revenue source for the Territory.
The BET, as the predecessor to the GET, was still subject to editorial criticism, in part because it was regarded as a tax which shifted pressure from property values to commerce. “Conceived in confusion, born in haste, and put into operation in a sort of desperate flurry of effort to raise needed revenues,” the Star-Bulletin declared in May, “the excise tax has been and is a failure.”
Reforming the BET was the partial conclusion of Governor Poindexter’s advisory committee, which as a result arguably became one of the most consequential tax study groups in Hawai‘i’s history.
The BET was subsequently repealed on May 9, 1935, with the signing of Act 119 into law. Meanwhile, as a means to still capture revenues from businesses, Act 141 of the 1935 Session of the Territory of Hawai‘i permanently established the GET two days later, on May 11, 1935.
The LRB’s 1963 comparison of the BET and the GET found that the new tax policy was far more expansive for local businesses. “Consequently,” their analysis found, “the [GET] became a cumulative one, not merely applied to the value added at each stage of production and distribution as under the business excise, but at each stage taxing again the values added at all earlier stages.”
Our Evolving Tax Policy
While it carries all the appearances of a conventional sales tax, the GET is not a sales tax. This matters in the context of its stated purpose. As the law’s title suggested from the beginning in 1935, it was a levy “on the privilege of engaging in certain occupations.”
In September 2023, the State Department of Taxation released a primer on the exact purpose of the GET, noting that there are two key differences between the GET and a conventional sales tax. Their explanation, nearly 90 years after the fact, is relevant to the 1935 law.
"First," DOTAX explains, "the GET is a tax on the business for the privilege of doing business in Hawaii, whereas a sales tax is a tax on the customer that is collected by the business.”
Secondly, DOTAX further explains, the GET is a “tax on income from almost all business activities,” while a sales tax is only a tax on ‘tangible goods.’ Such goods, DOTAX explains, can only include physical objects “that you can touch such as furniture, books, clothing, or toys.”
Certain taxes in Hawai‘i’s history have been reformed, replaced, or repealed. The most onerous example is the poll tax, which was once regarded as a mechanism to prevent poor residents from voting in elections. Per one 1957 report in the Honolulu Record, this particular tax was repealed in 1943.
According to Jonathan Helton at the Grassroot Institute of Hawai‘i, the GET is not actually a sales tax, even though it looks like one. “In reality,” Helton wrote in 2023, “the excise tax is a tax on the total revenues of the businesses, at every transaction level, from manufacturing to wholesale to retail.” (Helton’s overview is one of the most accessible overviews of the GET, if you want to learn more).
Meanwhile, Devin Thomas and Daniela Spoto of the Hawai‘i Appleseed Center for Law & Economic Justice regard the GET as regressive tax on Hawai‘i’s residents, meaning residents with lower incomes will often pay a higher proportion of their income through the GET on such necessities as groceries. Their findings mirror those of the Legislative Reference Bureau’s 1963, which similarly concluded that the GET would be a far less regressive tax if it exempted food.
Running a business is not an innate ‘privilege’ in Hawai‘i, nor is the ability to buy groceries. Reckoning with the ghosts of the Great Depression are necessary for any future in Hawai‘i.
The state government in Hawai‘i is incredibly reliant on the GET, meaning it is not likely to disappear anytime soon.
In the meantime, Hawai‘i should work to correct instances where our GET inadvertently engages in ‘tax pyramiding.’ Compared to any other state in the Union, Hawai‘i is among the worst with this practice.
The GET’s base, or the scope of the items that it taxes, is far too large by national standards. According to the Tax Foundation, “the ideal sales tax base consists of all final consumption, both goods and services, while exempting intermediate goods to avoid tax pyramiding, where the tax is imposed multiple times on the same final product.”
While the Territory of Hawai‘i wanted to capture as much exported revenue as possible from major plantations without levying property taxes, we live in a very different economy. Proponents of the GET based in 1935 like the Territory’s Tax Commissioner would find Hawai‘i an economically foreign place. Tax systems must evolve with the times.
Times change. So too should our GET.
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