M&A Advisory in Hawaii

Hawaii retains 12 brackets running 1.40% to 11.00%; under Act 46 of 2024, the 11% rate applies above $325,000 single / $650,000 MFJ in TY 2025 (bracket-widened, not rate-cut). HRS §235-51(f) caps net long-term capital gains for individuals at a flat 7.25% via alternative tax computation — a meaningful concession on what would otherwise be 11% ordinary treatment, but still far above zero-tax mainland alternatives. Pre-sale domicile relocation to Florida, Texas, or Nevada (establishing bona fide residency 24+ months pre-LOI) eliminates Hawaii's 7.25% capital-gains liability entirely on equity sale proceeds.

The GET is not a sales tax but a tax on the seller's gross receipts: 4.0% retail/services + 0.5% county surcharge = 4.5% effective combined through 12/31/2030. GET applies to asset sales: inventory in bulk at 0.5% wholesaling rate; covenants-not-to-compete at the full 4.5%; goodwill and real estate are exempt (real estate falls under conveyance tax). Many businesses gross-up the GET to a 4.7120% pass-through to customers. HRS §237-43 successor-liability regime makes DOTAX clearance (Form A-6) a non-negotiable closing deliverable — purchaser becomes personally liable for all seller tax liabilities up to purchase price if clearance not obtained.

HRS §235-2.45(e) makes IRC §1202 operative except for §1202(a)(3) and §1202(a)(4) — Hawaii caps the QSBS exclusion at the original 50% even when federal law allows 100% under OBBBA. On a $15M federally excluded gain, Hawaii taxes ~$7.5M at 7.25%, producing approximately $543,750 of state tax despite zero federal liability. Hawaii has not enacted matching OBBBA expansion legislation, widening the federal/state mismatch further. Domicile planning to a non-conforming or zero-tax state pre-sale, or non-grantor trusts sited in conforming jurisdictions, is a critical structuring move for QSBS-eligible Hawaii founders.

Hawaii's estate exemption is $5.49 million for 2025 and 2026 — tied to a 2017-baseline figure and not inflation-indexed — with progressive rates from 10% to 20% above the threshold. Portability between spouses is allowed (couples can shelter ~$10.98M combined); there is no inheritance or gift tax. The gap between Hawaii's $5.49M exemption and the federal $15M (2026 under OBBBA) makes pre-sale GRATs, sales to IDGTs, and QPRTs mandatory planning tools for Hawaii-resident sellers with estates exceeding $5.49M. Each year of delay without estate-freeze structuring can cost a Hawaii business owner $500K+ in otherwise avoidable state estate tax.

Hawaii corporate rates are graduated 4.4% / 5.4% / 6.4% under HRS Ch. 235 — the lowest top corporate rate in the West Coast comparison group (vs. California 8.84% flat, Oregon 6.6%-7.6% + 0.57% CAT). The Pass-Through Entity Tax election (Act 50/2023, amended Act 50/2024 and Act 58/2025) imposes a flat 9% entity-level tax on qualified members' distributive shares as a federal SALT-cap workaround, but Act 58/2025 requires members to add back their share of PTE tax to taxable income beginning TY 2025, partially eroding the benefit.

The TAT for hospitality assets is 10.25% in 2025, increasing to 11.00% effective January 1, 2026, plus 3% county TAT — combined effective tax on hotel revenue reaches ~18.5% in 2026. Maui Bill 9 (signed December 15, 2025) further phases out apartment-zoned vacation rentals, directly impairing condo-hotel asset values absent rezoning. Conveyance tax reaches $1.00/$100 (1.00%) for sales ≥$10M and $1.25/$100 (1.25%) for non-owner-occupied above $10M — on a $50M hotel sale the conveyance tax alone runs ~$625,000, payable at the Bureau of Conveyances on Forms P-64A/P-64B.