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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.  

2. Why the LLC Structure Doesn't Bypass It

Have you heard that the Cultural Plaza in China Town is about to be demolished and rebuilt? Early next year 2027 is expected