Legislature passes bill to exempt certain medical services from General Excise Tax

The Legislature passed a bill to provide relief to the healthcare system in Hawaiʻi.

Senate Bill 1035 SD2 HD1 CD1, introduced by Sen. Lorraine R. Inouye (Senate District 1, Hilo, Paukaʻa, Papaikou, Pepeʻekeo), exempts hospitals, infirmaries, medical clinics, health care facilities, pharmacies, and medical and dental providers from General Excise Tax (GET) on goods or services that are reimbursed through Medicaid, Medicare, or TRICARE. If approved by the governor, this law will go into effect on Jan. 1, 2026.

Bill backers say that under the current law, there is incongruity in the way medical services are treated with regard to GET. Only medical services rendered at a nonprofit hospital, infirmary, or sanitarium are exempt from GET, but services rendered by individual or group practices or clinics are fully taxable. Government health programs such as Medicare, Medicaid, and TRICARE, do not compensate for the tax differential, which requires some providers to cover added costs.

“At the behest of my constituents from Hilo who are local medical practitioners, I proudly introduced Senate Bill 1035 to address the issue of unsustainable taxation on healthcare services in Hawaiʻi, particularly impacting underserved populations covered by Medicare, Medicaid, and Tricare,” said Inouye. “With a dwindling number of providers able to accept these essential insurances, the bill aims to relieve financial burdens and stimulate economic growth by exempting healthcare and dental services from the General Excise Tax. This measure especially benefits rural healthcare providers and patients, who often face challenges in accessing quality care due to limited resources and funding.”

The State already faces a shortage of nearly 800 physicians, and a recent survey of physicians by the John A. Burns School of Medicine found that the elimination of GET on medical services could be an effective means of recruiting and maintaining more physicians.

“We have not passed a GE tax exemption bill ever since I have been in office and thus, the passage of SB1035 to benefit medical providers who care for our kūpuna and ALICE families, is a momentous occasion,” said Senate Committee on Health and Human Services Chair Sen. Joy San Buenaventura (Senate District 2, Puna). “With this bill’s passage, we remove a major disincentive in servicing the underserved community and hope we can prevent the further loss of physicians, dentists and other medical providers, and save the health industry approximately $74 million per year.”

“For the medical community in Hawaiʻi, May 1, 2024 will be marked as an historic day. Today, we see the passing of SB1035, which brings crucial tax equity to Hawaiʻi’s independent medical providers,” said Hawaiʻi Medical Association president, Elizabeth Ann Ignacio, MD. “This legislation returns fairness to the taxation of medical practices, allowing more physicians to work in Hawaiʻi and increasing access to care for Hawaiʻi’s most vulnerable populations.”

Senate Bill 1035 now advances to the governor’s desk for consideration.