TAX FACTS 98-1
GENERAL EXCISE TAX ON MEDICAL AND DENTAL CHARGES
The Department of Commerce and Consumer Affairs' Office of Consumer Protection
and the Department of Taxation have received questions regarding health
care providers who use an amount greater than the eligible charge to compute
the general excise tax visibly passed on to their patients.
It is the position of the Office of Consumer Protection that providers
may NOT base the general excise tax on an amount which exceeds the eligible
charges, and that to do so would violate State of Hawaii consumer protection
The Hawaii General Excise Tax (GET)
The GET is imposed on gross income which providers of goods and services
derive from business activities in Hawaii; the GET on gross income from
medical and dental services provided to patients is 4%. Although the GET
is levied on the health care provider rather than on the patient, it is
a common practice for health care providers to "visibly pass on" the GET
to patients. Visibly passing on the GET is neither required nor prohibited
by the GET law which is silent on this matter. Whether the health care
provider visibly passes on the GET is a matter of contractual agreement.
The Office of Consumer Protection has ruled, however, that the amount visibly
passed on and represented to be the GET cannot exceed the actual tax due
on the transaction.
Health care providers contracting with insurance companies may have
the amount of GET which they may visibly pass on to their patients limited
by those contracts. If the contract allows the GET to be visibly passed
on to the patient, the Office of Consumer Protection believes providers
must inform their patients of the tax and the specific percentage which
is being charged as "excise tax". If the contract provides for the insurance
company to reimburse the health care provider for the GET due on the amount
of the reimbursement, then the health care provider only may visibly pass
on to the patient the amount of GET due on the patient's co-payment.
The following are some common questions asked regarding the Hawaii GET
on medical and dental charges.
For more information, contact the Office of Consumer Protection on Oahu
at (808) 587-3222, or the Department of Taxation, Taxpayer Services, at
Health care providers must pay the GET on their gross income. What
is their gross income if part of the total charge is paid by the insurance
company and the balance paid by the patient?
The health care provider's gross income subject to the GET is the
total combined amount received from the insurance company and the patient
for the service provided.
May health care providers visibly pass the Hawaii GET on to their
The GET is an expense of doing business and is generally passed
on to patients. Separately stating the amount of general excise tax passed
on, a practice known as the "visible passing on of the GET", is not required
though it is commonly done. Some health care providers, however, may have
contracts with insurers that establish limits on the providers' ability
to visibly pass on the GET.
Can health care providers contracting with insurance companies compute
the amount of GET to visibly pass on to their patients based on an amount
which is more than the eligible charge?
No. If health care providers compute the tax on an amount greater
than their gross income (i.e., greater than the plan's eligible charge),
then the result will exceed the actual GET due on that transaction. Visibly
passing on an amount of GET which is greater than the actual tax due on
the transaction is a misrepresentation prohibited by State consumer protection
My statement shows that the doctor originally filed a claim for $150
with the insurance company, but that the insurance company reduced this
amount to the eligible charge of $110. The insurance company paid $88 to
the doctor, and my co-payment is $22. On what amount does the doctor compute
the GET visibly passed on to me?
If the doctor's contract with the insurance company does not include
the GET in the reimbursement and also does not limit the amount of GET
which the doctor can visibly pass on to patients, then the doctor would
compute the GET to visibly pass on based on the full $110 eligible charge.
If the doctor's contract with the insurance company includes the GET in
the reimbursement, then the doctor would compute the GET to visibly pass
on based on your $22 co-payment.
Due to an emergency, I was treated by a nonparticipating doctor (i.e.,
a doctor who does not have a contract with my insurance carrier) who can
thus charge more than the $300 eligible charge set by my insurance carrier.
I was eventually billed for $500 plus 4.166% GET on the full $500. Can
the doctor compute the GET on more than the eligible charge in this case?
Yes, the doctor may use the $500 amount to compute the GET to visibly
pass on to you. The doctor's gross income in this case is the total billed
to you rather than the eligible charge. Computing the GET to visibly pass
on to you on the entire $500 will not result in an amount greater than
the actual tax due, and thus will not violate State consumer protection
If the tax rate on medical services is 4%, why does my statement
show a GET charge of 4.166%?
The GET is levied on the health care provider's total gross income,
including any amount visibly passed on and represented to be the GET. The
additional 0.166% accounts for the GET due on the tax visibly passed on.
For more information, see Tax Facts No. 96-1, General Excise vs. Sales
My bill shows that 4.167% was added onto my bill. Is that permitted?
No. The Office of Consumer Protection has ruled that the amount
visibly passed on cannot exceed the actual tax due. The 4.167% rate results
from rounding UP the optimal percentage of 4.1666% to 4.167%. This is not
permitted because it may result in an amount visibly passed on which is
more than the actual GET due on the transaction, and thus violate State
consumer protection laws. NOTE: The 4.166% rate used to compute the tax
visibly passed on will change if the 4% GET rate is increased.
Are there any amounts normally charged by health care providers which
are exempt from the GET?
Yes. Gross income from the sale of prosthetic devices and prescription
drugs to patients (including vaccines administered to patients) generally
may be exempted from the GET if the charge for the device/prescription
is clearly separated from any related administrative and service charges.
Health care providers may not compute the GET to visibly pass on to their
patients on amounts exempt from the GET.
STATE DISTRICT TAX OFFICE ADDRESSES & TELEPHONE NUMBERS
|Oahu District Tax Office
830 Punchbowl Street
P. O. Box 1425
Honolulu, HI 96806-1425
|Maui District Tax Office
54 South High Street, #208
P. O. Box 1427 Wailuku, HI 96793-6427
|Hawaii District Tax Office
75 Aupuni Street, #101
P. O. Box 937 Hilo, HI 96721-0937
|Kauai District Tax Office
3060 Eiwa Street, #105
P. O. Box 1687 Lihue, HI 96766-5687
|Tel No.: 808-587-4242
Jan.-April 20: 808-587-6515
|Tel No.: 808-984-8500
||Tel No.: 808-974-6321
||Tel No.: 808-274-3456
|Forms by Mail
Tel No.: 808-587-7572
|Forms by Fax
On Oahu.: 808-587-7572
All Others: 808-678-0522
(From Your Fax Machine)