I've been trading emails with someone from the Hawaii Department of Tax. They were very quick to respond. They caveat their responses with a disclaimer that it is an informal opinion for discussion purposes, but here's their take on it:
There are two acceptable methods for handling trade-ins.
Method 1:
The car dealership reports the
total sale of the new vehicle as gross income without removing the trade-in. The gross income is subject to general excise tax.
When the dealership sells the
traded-in vehicle, they
exclude the sale price of the traded-in vehicle from their gross income. Therefore, they do not pay general excise tax on the sale of the traded-in vehicle.
Example:
New car price of $10,000
Customer has a trade-in of $4,000
Dealer charges the new car customer the GET on the full new car price at $10,000 *4.712%
Dealer sells the trade-in for $5,000, and excludes this from gross income
The dealer can not charge GET to the person buying the trade-in car
Dealer reports $10,000 as gross income (plus the amount collected for GET)
Method 2:
The car dealership
exempts the trade-in value from the new car sale. They report the
net amount as gross income. The gross income (which is the new car sale price less the trade-in) is subject to general excise tax.
When the dealership sells the traded-in vehicle, they must report the sale as gross income. The gross income is subject to general excise tax.
Example:
New car price of $10,000
Trade in of $4,000
Dealer receives $6,000 and charges the 4.712% GET on the net of $6,000
Dealer sells the trade-in for $5,000 and must report the $5,000 as gross income and can assess GET of 4.712% on the $5,000
Dealer reports $6,000 of gross income for the new car and $5,000 of gross income for the used car, total of $11,000 of gross income (plus the amount collected for GET)
So Tesla is using method #1 and it is an acceptable method
provided they are not charging GET to the person buying the traded-in car.
Basically the DoTax rep wrote that the main issue would be if they are charging customers more for GET than they actually pay. That's not allowed and you can file a consumer protection complaint if you suspect that's the case.
Not sure what happens if Tesla is actually collecting
and paying more than they should be -- in the example above, they could be charging and paying GET on the $10,000 new car
and charging and paying GET on the $5,000 trade-in, and reporting total gross income of $15,000 (plus the amount collected for GET). Technically, this is incorrect, but the loser would be the consumer, the winner would be the State. Neutral for Tesla since they are just a pass-through.