GET Protection Act’s Harsh Penalties Relaxed for Nonprofit Orgs

Back in 2010, the Hawaii legislature passed the GET Protection Act (Act 155) which denies GET benefits (i.e., exemptions, deductions, credits, lower rate of tax) for taxpayers that fail to obtain a GET license and/or fail to file their annual GET tax return within 1 year of the due date.  This rule will potentially take away exemptions and 1/2% wholesale tax rates and impose the highest 4.5% GET tax rate on noncompliant taxpayers.

The GET Protection Act also imposes personal liability, aka “trust fund liability,” for unpaid GET liability on key persons responsible for an organization’s financial management.   This could lead to some very harsh results for taxpayers (and their key persons) that routinely take advantage of GET benefits such as wholesalers, contractors, sublessors, travel agents, etc.

In 2012, the Hawaii legislature relaxed some of these harsh penalties for nonprofits.  See Act 219, S.B. 2238 (2012).  Effective July 1, 2012, the department of taxation will be required to give certain nonprofit organzations a 90-day written notice to comply before denying the GET benefits.  See Announcement 2012-09.    Key persons responsible for financial management of nonprofits can breath a sigh of relief because they are now exempted from trust fund liability for their nonprofit’s unpaid GET tax liability.  However, only section 501(c)(3)(charitable), 501(c)(4)(civic leagues and social welfare orgs), 501(c)(8)(fraternal orgs), and certain 501(c)(2)(title holding corps) organizations are covered.  Other nonprofits such as labor unions and chambers of commerce are out of luck.

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