What Hawaii expects from a new trade business

Over $1,500, or any permit, and you need a license

The Contractors License Board (under DCCA) licenses three branches: general engineering, general building and specialty. There is no separate handyman license. The closest thing is an exemption for jobs where labor and materials total $1,500 or less, and it disappears if the work needs a building permit, is part of a larger job, or got split up to stay under the number.

A general contractor can't do specialty work outside his license. Electrical and plumbing are specialty trades under this law. Hawaii's code also has a Board of Electricians and Plumbers, so ask the Contractors License Board whether a separate trade license applies to you before you bid.

This one has teeth. If you didn't have the license before you contracted, you can't sue to recover for the work or materials, on the contract or for what the work was worth. A construction attorney can tell you where your work lands before you bid it.

Source: HRS 444-2, exemptions · HRS 444-7, classification · HRS 444-9, license required · HRS 444-22, civil action · HRS 448E-2, Board of Electricians and Plumbers · DCCA Contractors License Board

Who to call: an attorney near you

One part-timer is enough to need comp

Hawaii's Disability Compensation Division says employers with one or more employees, full-time or part-time, are under the law. Coverage has to be in place through an authorized insurer or approved security.

Owners have ways out for their own coverage. The law leaves out an individual LLC member with a distributional interest of at least 50%, a partner, and someone who owns at least 50% of the corporation they work for.

Watch your subs. When you take a contract, the law treats you as the employer of everyone working on it, including your subs' employees. The direct employer is on the hook first and you're behind them.

Going without costs at least $500 or $100 per employee per day, whichever is more, and 14 days in default can get your business shut down by court order. An insurance agent who writes contractors can price it.

Source: HRS 386-1, definitions · HRS 386-121, security for compensation · HRS 386-123, penalty · Disability Compensation Division

Who to call: an insurance agent near you

Getting paid: a Hawaii lien goes through a judge

In most states you record a lien. In Hawaii you ask a circuit court for one, and it doesn't attach until a judge finds probable cause at a hearing.

• File the Application and Notice of Lien within 45 days of the date of completion.
• The date of completion is normally when the owner or GC publishes a completion notice twice in the paper and files proof with the court. The clock can start from that notice, so watch for it. If no valid notice is filed within a year of actual completion, the date is one year after actual completion.
• Serve it on the owner and anyone with an interest, the way a summons is served. The hearing comes 3 to 10 days after service.
• Land court: if the land is registered there, file a certified copy of the order with the assistant registrar within 7 days of its entry.
• Sue to enforce within 3 months after the order directing the lien to attach, or the lien expires.

On homes, a licensed contractor has to explain lien rights and the homeowner's bond option out loud, and give a signed written contract before work starts. Hawaii courts have voided contracts and refused liens over this. Suppliers also lose lien rights on dwelling work if they sold to someone who needed a license and didn't have it, or if they gave unreasonable credit. A construction attorney can set up your contract once.

Source: HRS 507-43, filing notice and duration · HRS 507-49, exceptions · HRS 444-25.5, homeowner disclosure and contracts

Who to call: an attorney near you

No sales tax. General excise tax on your whole gross.

Hawaii doesn't have a sales tax. It has the general excise tax (GET), and it's on you, the business, not just the customer. Contracting pays 4% of gross income. That's the money coming in on the job, labor and materials together, not your profit. Lump sum or separated doesn't change that.

All four counties add a 0.5% surcharge, set to run through 2030, so plan on 4.5%.

You can pass the tax on to the customer, but you don't have to. The tax is on you either way. In Honolulu the maximum pass-on rate is 4.712%, because the tax also applies to the tax line. On a $10,000 job, absorb it and you owe $450. Pass it on and the customer pays $10,471.20, you send in $471.20, and you keep the $10,000. Check the Department of Taxation for your county's rate.

There's one big break. If you're the GC, you can deduct what you paid a sub who is a contractor and paid GET on that money, as long as you show the sub's name and GET number on your return. Keep those numbers on file. A CPA who works with contractors can show you how to build GET into your pricing.

Source: HRS 237-13, contractors · Hawaii Department of Taxation, GET

Who to call: a CPA or tax pro near you

LLC, sole proprietor, or S-corp?

You file Articles of Organization with DCCA's Business Registration Division. The fee is $50, plus $25 if you want it expedited and a $1 state archives fee. Check the annual report's fee and due date with the Business Registration Division. Separately, you need a $20 one-time GET license before you take in any income.

Hawaii has no franchise tax on LLCs, but its income tax on pass-through profit runs in brackets as high as 11% at the top.

When an S-corp election starts paying off is a numbers question. Bring what the business clears after your floor rate to a CPA and have them run it.

Source: DCCA BREG, domestic LLC filing · HRS 235-51, income tax rates · Hawaii Department of Taxation, GET license

Who to call: a CPA or tax pro near you