Report: Hawaii's business tax climate improves slightly

by Merrilee Gasser, The Center Square, October 25, 2023 

(The Center Square) - Hawaii ranked in the bottom 10 in the Tax Foundation’s 2024 State Business Tax Climate Index but improved slightly in the national ranking, according to the report.

Hawaii ranked higher for its corporate tax at 18th, and its sales tax ranked 26th. However, the state’s property tax system ranked 31st and its unemployment insurance tax ranked 41st. The state is 42nd overall.

That’s up one spot from its ranking in last year’s report. In previous years, the state has wavered from 38 in 2014 to 33 in 2018 and then slowly back down to its current spot.

While many factors play into a company's location decisions, the report said that a state's tax system can either hurt or help its chances.

"The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth,” the report said

Hawaii’s attractiveness to businesses seeking a favorable tax climate has been dwindling over the years, the report shows. Its corporate tax system was in the top ten until sliding from 6 to 11 in one year, slowly falling to 19 in the following years.

The state’s 11% tax on individual income dragged its overall score down as the personal income tax component received the most significant weight in the index. It has repeatedly been scored on the low end throughout the index’s history since 2014.

Hawaii's middling ranking at 26 for its sales tax represents the state's score for its general excise tax, as Hawaii does not have a sales tax.

Hawaii’s general excise tax levies 0.15% for insurance commission, 0.5% for wholesaling, manufacturing, producing, wholesale services, and use tax on imports for resale, and 4% for all others, according to the Hawaii Department of Taxation.

The state also ranked low for its property tax rates. After reaching the 16th spot in 2016, the state’s property tax ranking has fallen to its current level in the 30s, the report shows.

The Tax Foundation grades states based on five different criteria. Individual income taxes account for 29.8% of the ranking, sales tax for 23.3%, corporate tax for 20.9%, property tax for 11.1% and unemployment insurance tax for 11.1%.

PDF: 2024-State-Business-Tax-Climate-Index (taxfoundation.org)