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; or
- the driver.
The tax on ridesharing companies applies at the retail rate, currently 4%, plus county surcharges For example, the surcharge is currently 0.5% on the island of Oahu.
If the ridesharing company is in contract with the rider, the company is responsible for the tax on the amount collected from a rider However, discretionary tips are not subject to tax.
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.
Ridesharing Companies Responsible for Tax
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.
Ridesharing companies are also known as also known as:
- transportation network companies;
- ridesourcing companies; and
- personal taxi services.
Drivers Responsible for Tax
A driver is subject to tax on the total amount paid to the drive by
- the ridesharing company; and/or
- the rider.
However, salaries or wages of drivers who are employees of a ridesharing company are exempt.
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