RELATING TO THE GENERAL EXCISE TAX.

SB2741

THE SENATE

S.B. NO.

2741

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

relating
to the general excise tax
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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SECTION 1.
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The legislature
finds that recent statewide research on food insecurity indicates that the
State continues to experience one of the highest household food insecurity
rates in the nation, with approximately one-third of households reporting
difficulty obtaining enough food and significantly higher rates in certain
counties.
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Farmers and ranchers
throughout the State face extraordinarily high operating costs, including costs
associated with inputs, land, transportation, energy, and labor.
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The structure of the general excise tax (GET)
imposes additional burdens on Hawaii's agricultural producers because the GET
is pyramided, meaning it is applied at multiple stages of production,
processing, distribution, and retail.

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The legislature further finds that although
direct farm‑gate sales of certain raw agricultural products may be exempt
under existing law, most producers who participate in modern supply chains
incur GET at several points along the path from seed to final sale, including
purchases of seeds, soil amendments, fertilizer, feed, equipment, supplies,
packaging, and contracted services; sales to processors, distributors, or
wholesalers; and retail sales to consumers.
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As a result, products grown in Hawaii may carry an effective tax burden
significantly higher than the nominal four per cent rate, with cumulative GET
impacts sometimes reaching five to eight per cent or more of the final retail
price.
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This places locally grown
products at a competitive disadvantage relative to imported goods that benefit
from lower production costs and do not experience the State's general excise
tax structure.

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The legislature believes that these
cumulative tax effects hinder growth in the State's agricultural sector, limit
farmers' ability to reinvest in their operations, constrain expansion of
diversified agriculture, and impede the State's goals for food security,
agricultural resilience, and reduced dependence on imported food.
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Removing the GET from Hawaii-grown food at
all stages of the supply chain will reduce production and distribution costs
for farmers and value-added food producers; improve price competitiveness for
locally grown foods; strengthen rural economies and small farms; reduce grocery
costs for households statewide; and advance statewide food security, resilience,
and self-sufficiency goals.

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Therefore, the purpose of this Act is to
phase in a general excise tax exemption for locally grown food.

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SECTION 2.
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Chapter 237, Hawaii Revised Statutes, is amended by adding a new section
to be appropriately designated and to read as follows:

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�237-
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Exemption
for locally produced food.
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(a)
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Beginning
July 1, 2026, there shall be exempted from, and excluded from the measure of,
the taxes imposed by this chapter, all of the value or gross proceeds arising
from:

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(1)
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The
sale of fresh, unprocessed produce by farmers, ranchers, or agricultural
producers;

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(2)
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The
sale of fresh, unprocessed local proteins, including beef, pork, poultry,
seafood, aquaculture products, eggs, and dairy products, by farmers, ranchers,
fishers, aquaculture operations, or agricultural producers;

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(3)
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The
sale of fresh, unprocessed produce and fresh, unprocessed local proteins by
processors, wholesalers, and distributors; and

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(4)
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The
retail sale for home consumption of fresh, unprocessed produce and fresh,
unprocessed local proteins.

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(b)
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Beginning July 1, 2028, in addition to all products exempted from this
chapter by subsection (a),
there shall
be exempted from, and excluded from the measure of, the taxes imposed by this
chapter all the value or gross proceeds arising from all locally produced food,
including:

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(1)
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All
locally produced proteins, including beef, pork, poultry, seafood, aquaculture
products, eggs, and dairy products, regardless of form or level of processing;

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(2)
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All
locally grown fruits, vegetables, and staple crops;

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(3)
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Other
foods grown, raised, caught, or produced within the State; and

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(4)
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Value-added
local food products; provided that the majority of agricultural inputs by
weight or volume are locally grown, raised, or caught.

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(c)
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Taxpayers claiming the exemption shall maintain records as required by
the department demonstrating compliance.

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(d)
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The department, in consultation with the department of agriculture and
biosecurity, shall adopt rules pursuant to chapter 91 to:

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(1)
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Certify
producers and qualifying products pursuant to subsections (a) and (b);

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(2)
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Establish
standards for determining the local content of value-added products;

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(3)
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Implement
labeling or disclosure requirements to ensure consumer transparency; and

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(4)
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Establish
procedures to verify wholesale, processing, and retail compliance.

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(e)
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The department may adopt rules pursuant to chapter 91 necessary to effectuate
the purposes of this section.

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(f)
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For the purposes of this section:

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"Fresh, unprocessed local proteins"
means locally produced beef, pork, poultry, seafood, aquaculture products,
eggs, or dairy products that:

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(1)
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Contain
no added salt, sugar, oils, fats, marinades, brines, or preservatives;

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(2)
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Have
not been cooked, cured, smoked, canned, or otherwise processed; and

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(3)
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Are
in their raw, whole, or minimally handled state.

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"Fresh, unprocessed produce"
means whole fruits and vegetables grown in Hawaii that contain no added salt,
sugar, oils, fats, or other additives and that have not been cooked, canned,
pickled, preserved, or subjected to value-added processing.
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"Fresh, unprocessed produce" shall
align with the standards described pursuant to section 141-13.

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"Locally produced food" means
any food or agricultural product grown, raised, caught, produced, or cultivated
within the State, including but not limited to fruits, vegetables, staple
crops, beef, pork, poultry, seafood, aquaculture products, eggs, and dairy
products.

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"Retail sale for home consumption"
means the sale of food intended for off-premises consumption and does not
include prepared foods taxed under section 237-13(2)(C).

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"Value-added local food product"
means a food item primarily composed of locally produced agricultural
ingredients and processed, milled, packaged, or otherwise prepared within the
State.
"

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SECTION 3.
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New statutory material is underscored.

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SECTION 4.
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This Act shall take effect on July 1, 2026.

INTRODUCED BY:

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Report Title:

GET;
Locally Produced Food; Exemption

Description:

Phases in
exemptions of locally produced food from the general excise tax.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.