HARPTA
Today, a client asked us, "If I own a property on Oahu using an out-of-state company LLC, am I subject to out-of-state withholding tax"
The answer:Yes, you are subject to it. It is actually called HARPTA (Hawaii Real Property Tax Act), and an out-of-state LLC is considered a non-resident person under Hawaii tax law.
1. It is a Withholding, Not an Extra Tax
The most important nuance is that HARPTA is not a separate penalty tax for out-of-state owners. It is a backup withholding system designed to ensure that non-residents pay their state capital gains taxes before taking their money out of Hawaii.
When you sell the property, the escrow company is required by law to withhold 7.25% of the total gross sales price (not your net profit) and send it directly to the Hawaii Department of Taxation.
