Hawaii Sales Tax Penalties & Interest Checklist
Introduction
Hawaii imposes a General Excise Tax (GET) on most business transactions and services. The
Hawaii Department of Taxation will penalize you if you don't file or pay your GET returns on time. These charges accumulate and can significantly increase what you owe.
Understanding how penalties and interest work in Hawaii is crucial because the state automatically adds them based on filing and payment dates—not on whether you intend to pay or whether you contact the department. Ignoring unpaid GET or unfiled returns does not stop these charges from growing.
What This Issue Means
When the Department of Taxation assesses penalties and interest on unpaid GET, it means the state has determined that a return was filed late, a payment was made late, or a return was not filed at all. Penalties are charges the state adds as a consequence of noncompliance. Interest is a per-month charge calculated on the unpaid tax balance, beginning with the original due date.
Both are added to your total tax debt. This differs from the original GET amount itself—penalties and interest are separate financial obligations resulting from the timing or failure to file or make payment.
Why the State Issued This or Requires This
Hawaii law requires businesses to file GET returns and pay GET on specified dates. The state automatically assesses penalties when businesses fail to file a return by the due date or fail to receive payment by the due date. The state also charges interest on unpaid tax to account for the time the money was not available to the state.
The penalty for failure to file a return on time is calculated at 5 percent per month, or part of a month, on the unpaid tax up to a maximum of 25 percent. Interest is calculated at two-thirds of 1 percent per month or part of a month on unpaid taxes and penalties beginning with the first calendar day after the date prescribed for payment. Penalties and interest are mandatory under
Hawaii tax law unless officially abated by the department.
What Happens If This Is Ignored
If penalties and interest remain unpaid, the Department of Taxation typically continues to add interest on the growing balance. The state may eventually pursue collection action, which can include issuing notices of intent to assess, filing a tax lien against your property, or taking enforcement steps to collect the debt. Ignoring notices from the department does not reduce the amount owed or stop collection activity. The longer penalties and interest remain unpaid, the larger your total obligation becomes.
What This Does NOT Mean
Being assessed penalties and interest does not mean the state has filed a lawsuit against you or taken legal action in court yet. It does not automatically mean your business license will be suspended or that a tax lien has been filed—those are separate enforcement actions that may follow if debt remains unpaid. It does not mean you cannot dispute the penalties or request relief.
The state offers an administrative process for requesting abatement or adjustment of penalties and interest under specific conditions. Receiving penalties and interest also does not mean the original return and payment deadlines have been extended; you are responsible for both the original tax and the penalties and interest added on top.
Checklist: What to Do After Receiving a Penalty and
Interest Notice
Step 1: Gather your records. Collect copies of all GET returns you have filed or should have
filed, find any payment receipts or proof of payment made to the Department of Taxation, and locate the penalty and interest notice or any other correspondence from the state.
Step 2: Verify the notice details. Review the penalty and interest notice carefully to confirm the
tax periods listed, the amounts stated as unpaid tax, the penalty amount, and the interest calculation.
Step 3: Determine your filing and payment history. Create a timeline showing when you filed
each return and when you made each payment. Note the due dates for each return, and identify which periods have unfiled returns or unpaid balances.
Step 4: Calculate your total obligation. Add together the original unpaid GET, all assessed
penalties, and all accrued interest listed on the notice, and understand that interest continues to accrue daily on the unpaid balance until it is paid in full.
Step 5: Decide whether to pay, request a payment plan, or request penalty relief. Review the
notice to determine the available options and consider whether you would like to pay in full, request a payment arrangement, or seek relief.
Step 6: If requesting penalty abatement or adjustment, contact the Department of Taxation to
obtain the official form and procedures for requesting penalty relief, complete the form according to state instructions, and include documentation that supports your request, such as records showing reasonable cause or good faith effort to comply.
Step 7: If paying the full amount, obtain the payment address and instructions from the notice or
the Department of Taxation website. Prepare payment for the total amount due, including penalties and interest, and send it with a clear reference to your tax identification number and the tax periods involved.
Step 8: If requesting a payment plan, contact the Department of Taxation to inquire about
payment plan options, provide information about your current financial situation and the amount you can pay regularly, and complete any application forms required by the state.
Step 9: Submit any requests or payments by the deadline. If the notice specifies a deadline for
response or payment, submit your response or payment well before that date using the mail or delivery method specified on the notice.
Step 10: Maintain copies of all correspondence. Keep copies of the original notice, your
response, any forms you submitted, payment confirmations, and any follow-up correspondence from the state.
Step 11: Monitor your account. Check the Department of Taxation website or contact the
department periodically to confirm that your payment or request was received and processed.
- Missing response deadlines can result in the notice becoming final or collection action
- Sending incomplete or unclear payment information may cause the state to fail to credit
- Ignoring follow-up notices creates additional problems because these typically indicate
- Not keeping proof of payment or submission prevents you from proving it was received if
- Filing or paying after the deadline without contacting the state first may eliminate specific
- Paying penalties and interest without addressing unfiled returns does not fulfill your
- Assuming the penalty amount is negotiable without a formal request is incorrect because
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 12: File all future returns and payments on time. Beginning immediately, file all required
returns by their due dates and pay all amounts due by the payment deadlines to prevent additional penalties and interest from being assessed on new tax periods.
What Happens After This Is Completed
After you submit a payment, payment plan request, or penalty relief request, the Department of
Taxation will typically send a confirmation or processing notice within a reasonable timeframe. If you paid in full, the department will update your account to reflect the payment, and you should receive a statement showing the balance as paid.
If you have requested a payment plan, the state will send you a payment agreement that details the amount of each payment and the corresponding due dates. If you asked for penalty abatement, the department will review your request and notify you of the decision—either approving the relief, denying it, or requesting additional information. Interest will continue to
accrue on any unpaid balance until the full amount is paid in full, regardless of whether a payment plan is in place.
Common Mistakes to Avoid proceeding. the payment to the correct account. the next step in the process or a request for further information. a dispute arises later. resolution options. obligation to file those returns. you must submit an official request using the state’s established process.
Frequently Asked Questions
How much interest will I owe on the unpaid GET?
Interest accrues at two-thirds of 1 percent per month, or part of a month, on unpaid balances under Hawaii state taxes. This rate is set by state law and applies to GET and use tax obligations, regardless of filing frequency or payment method. The federal interest rate does not apply to this calculation.
Can penalties be removed or reduced?
Yes, the Department of Taxation allows requests for penalty abatement under its rules governing fines, penalties, and other amounts. Relief depends on whether you show reasonable cause, good-faith tax compliance, or circumstances that prevented timely filing or payment under the filing requirements.
If I set up a payment plan, does interest still accrue?
Yes, interest continues to accrue on the unpaid balance while you make tax payments under a plan. Each payment reduces the principal, but interest is added monthly to the remaining amount until the debt is fully paid. Estimated tax payments or estimated taxes may also be required going forward.
Can I file an unfiled GET return after penalties have been assessed?
Yes, filing non-filed tax returns is separate from paying assessed penalties and interest. Filing the required tax form through Hawaii Tax Online satisfies your filing obligation and may help correct issues identified in a sales tax audit or assessment. Penalties already assessed remain due unless the state grants a waiver or relief.
Do sales tax exemptions or credits affect my audit balance?
They can if the original return overlooked properly documented sales tax exemptions and applicable tax credits, which could result in a lower amount owed. These must meet state documentation standards and be supported during the review process.
Facing State Tax Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement and are unsure how to respond, our team can help you understand your options and next steps.
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