A largely overlooked piece of legislation sitting on Gov. Linda Lingle’s desk has been dubbed “the bill that will devastate Hawaii’s online media industry” by a local online marketer. Dean Takamine of Synertech Media is now hoping that local internet businesses and technology companies will come together and convince the governor to veto HB1405.
HB1405 basically requires any online merchant (including Amazon.com) to collect and pay Hawaii’s General Excise Tax if they have affiliates in Hawaii. Technically, Hawaii residents and businesses are supposed to pay taxes on all online purchases, but since only some online merchants include the GET, it’s largely voluntary and unenforced. HB1405 puts the onus of tax collection on the merchant if anyone in Hawaii participates in affiliate marketing programs on their behalf.
Affiliate marketing programs are very popular (here’s a map of Hawaii-based affiliates provided by LinkShare), as website owners can promote hotel stays, airline tickets, books, CDs, and other products and services, and earn commissions based on sales generated through their affiliate links. The problem is that online merchants will likely terminate affiliate relationships with everyone in Hawaii rather than deal with tracking and collecting Hawaii taxes. In fact, Amazon.com submitted testimony [PDF] to Hawaii lawmakers saying so:
If HB 1405 were enacted, Amazon would have little choice but to end its advertising relationships with Hawaii-based participants in the Amazon “Associates Program.” HB 1405 would provide no new tax revenue collected by Amazon or others who sever their relationships with Hawaii-based advertisers, and any revenue estimates should take this into account.
This past legislative session was a contentious one, tackling hot topics like Act 221 and civil unions, and a massive state budget shortfall has put cutting costs and increasing revenue at the top of the government agenda. So HB1405 flew under the radar, with most of the people tracking it doing so from outside the state. There was a forum post in March here, a call to action on a committee hearing in April there, but little notice locally. (Burt Lum and I included a brief item in the April 8 broadcast of “Bytemarks Cafe” on HPR.) It passed its final reading on May 7, and was transmitted to the governor.
Gov. Lingle has 45 days to consider the bill, which will become law with her signature… or without it on June 23. The only hope for affiliate marketers is a veto, and Takamine has been spreading the word, calling on people to contact the governor and urging her to kill the bill. He’s also asking people to submit letters to the editor to local newspapers.
He’s already met with and earned the support of Sen. Carol Fukunaga, and he says that Troy Fujimoto, online media director for the Honolulu Star-Bulletin, “believes it will cause a huge blow to all Hawaii media companies.”
Takamine has found lots of support on TechHui.
“Are we not isolated enough? Do we not have enough barriers to competition for doing business with the mainland USA?” asks Roxanne Darling. “This just does not make sense – we’ve got to get more creative than just taxing everything. It is so short-sighted, so uncreative, so backward thinking.”
TechHui founder Daniel Leuck added: “When will our lawmakers learn that the best way to collect more tax revenue is to make Hawaii a better place to do business? Its already been a very bad year for business both legislatively and in terms of macroeconomic trends.”
The Performance Marketing Alliance has posted an email template for Hawaii affiliates to customize and send to Gov. Lingle and other key decisionmakers, and Takamine has set up a Ning community to coordinate and organize the veto effort.
In the urgent search for additional revenue, it’s not surprising that HB1405 was passed by Hawaii lawmakers. But the revenue it’s intended to raise could evaporate if major online merchants simply cancel their affiliate programs rather than comply. And, as the Tax Foundation of Hawaii has noted time and time again, complicated and narrow tax changes like this often cost more money to administer and enforce than they bring in. Meanwhile, many local businesses that rely on affiliate programs to survive would be crippled.
I hope Takamine and his allies can appeal to Gov. Lingle’s strong anti-tax principles and convince her to veto HB1405.