Rideshare services are subject to Hawaii general excise tax. The tax is collected by the person who is in contract with the rider, either:
- the ridesharing company, also known as the transportation network company, ridesourcing company or personal taxi service; or
- the driver.
Ridesharing companies are responsible for the tax on the total amount collected from a rider, except for discretionary tips, if the company is in contract with the rider.
However, the driver is responsible for general excise tax on the total amount collected if he or she is the person in contract with the rider.
Since ridesharing transactions involve three parties, it may not be immediately clear which party is in contract with the rider.
The general excise tax on ridesharing companies applies at the retail rate (currently 4%) plus any applicable county surcharge (currently 0.5% on the island of Oahu).
A ridesharing company is subject to tax if any of the following conditions are present:
- the company controls the manner in which the service is provided;
- the company controls the price charged to the rider;
- the company processes payments for the transaction, either directly or through a third party payment processor, rather than providing the rider’s payment information to the driver so the driver can directly bill the rider; or
- the company provides insurance coverage for the transaction.
A driver is subject to general excise tax on the total amount the ridesharing company and/or the rider pays to the driver. However, salaries or wages of drivers who are employees of a ridesharing company are exempt from general excise tax.
Furthermore, a driver may be eligible for the lower wholesale rate of tax (currently 0.5%) on the portion of income the driver receives other than tips, provided the driver qualifies as a “wholesaler.”
Tips and Mandatory Payments
Mandatory tips and payments
A ridesharing company is subject to general excise tax on mandatory tips and other mandatory payments. The tax applies at the retail rate with no deductions or income splitting.
For a discretionary tip, the person who receives the tip is subject to tax at the retail rate. If the ridesharing company and the driver divide a discretionary tip, the tax applies to both parties on their respective portions.
Discretionary tip income is:
- an amount the rider pays that is not part of the negotiated price;
- given voluntarily by the rider; and
- clearly given by the rider as a discretionary tip in addition to the negotiated price.
For example, a tip is clearly discretionary if:
- it is stated separately on the receipt or
- the rider separately gives the driver some cash for a tip.
Tax Information Release No. 2018-01, Hawaii Department of Taxation, January 8, 2018, ¶201-035