Hawaii Affiliate Marketers Push for Lingle Veto

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.

16 Responses

  1. Bruce says:

    I so hope Linda Lingle doesn’t veto that bill. It’s time to level the playing field for local companies doing business online. We are a local internet travel company and have to pay tax on every penny we earn. Our agents work very hard on the front lines every day booking vacations for people coming to Hawaii. Why should affiliate marketers get a tax break for just sticking code in their sites and doing nothing?

  2. Shaggy says:

    It amazes me how backwards legislation is in Hawaii when it comes to finances. Instead of rethinking bureaucracy and its many expenses, they slap a new tax on something and continue to waste our money needlessly.

    Here’s a suggestion to anyone that thinks little bills like this “won’t matter”:

    Where is your next check coming from?

    Jobs are fast disappearing as the tourism market crashes and money coming into our economy out of state is being sucked up by new taxes (hotel taxes, transportation taxes, etc.) Instead of, let’s say not wasting billions on a light rail service for O’ahu…

    Money has to come into our state market from somewhere. Does Hawaii have an industry that can grow and create enough jobs to keep us living here? No manufacturing plants, no product lines, and a shrinking tourism market means the money will have to generated somehow!

    You tell me how taxing away business is going to save us.

  3. Bill Sodeman says:

    Good article, Ryan. This will be an interesting and short battle. Governor Lingle tends to reject taxes – but the current budget problems may complicate her veto and force the Legislature into misguided “action”.

    I am not a big fan of online affiliate marketing – especially when it involves sneaky URLs, spam, bait-and-switch and MLM.

    On the other hand, taxing the affiliate programs will only make Hawaii’s small businesses, especially sole proprietors, more isolated from the 48 contiguous states.

  4. Mel says:

    It probably is likely that the Governor will veto this tax bill. She has until June 30 to notify the legislature as such. She has to take action on this and other bills by July 15.

    On July 15 or shortly thereafter, the legislature will meet in special session to consider overriding the Governor’s vetoes.

    HB 1405 passed the State Senate with a 17 to 8 vote. Several of the legislators who voted “yes” on this bill, voted with reservations. Geting 2 or 3 of them to go along with the other 8 to sustain the Governor’s veto of HB 1405 will be enough to stop a veto override.

    No New Taxes.
    Join us for our anti-tax rally July 14 3 to 7pm State Capitol

  5. Bruce says:

    Shaggy is missing the point completely. Affiliate sites don’t provide jobs to anyone, just the site owner, they are designed to bypass employment of humans altogether. Local companies like ours employee REAL HUMAN BEINGS and have to market our sites ourselves, we don’t have the huge online marketing budgets these online companies have and we are forced to directly compete against them and their affiliate sites. The biggest advantage they have over us is that they DON”T PAY TAXES!! and that one of the reasons in some cases they have lower prices, so we have to cut our margin. Is that FAIR? It would be one thing if we had a cookie cutter site, but we support local agents with families and mouths to feed and pay taxes that affiliate sites don’t have to pay. We directly support the local economy without mainland interference. Affiliate marketers have mouths to feed too, but they should not have an unfair advantage over companies like ours, there is plenty of business online to go around for everyone. It takes all of 5 seconds to stick code into a web page and become an “affiliate”. I would like to know where Mel is getting his information? Perhaps he is an affiliate marketer who needs to get a REAL job.

  6. Dean says:

    Thank you Ryan for putting together an easy to understand and informative article.

    I encourage all Hawaii bloggers and website owners to inform yourself on this Bill because it has a direct effect on you.

    Also, I believe this is not just a Hawaii affiliate issue. This has a direct and indirect effect on so many other industries in Hawaii.

    Again, I encourage everyone to educate yourself on this issue and take action.

  7. Dean says:

    Bruce I would like to respond to your comments.

    Bruce I am all for a level playing field, that is why I think Bill SB1678 is a much better alternative to HB1405. Bill SB1678 is better known as the Streamline Sale & Use Tax.

    Please do a google search on it to learn more. It allows Hawaii to collect it’s sales & use tax in a much more efficient way because it joins a majority of the other states in adopting a national Internet sales & use tax. This would make it easy for all merchants to file & pay state sales tax.

  8. @Bruce – you are caught in the cross-hairs of this problem and I have sympathy for you. However, the GET is a very poorly constructed tax and at some point it needs to be dealt with.

    @Bill Sodeman – Affiliate marketing has a lot of slime in it to be sure but there are far more (IMO) positive uses. It is a business model made possible by the internet and does in fact create jobs and incomes for people who want to be more self-reliant than having a j-o-b.

    To me, this is an example of the responsibility that comes in tandem with all of the freedom of information and communication that comes with the internet. As citizens we can no longer claim ignorance as to what the legislature does; we can and should learn about the issues, discuss them, and influence their outcomes. Thanks Ryan.

  9. Daniel Leuck says:

    Nice summary Ryan. Bruce, I sympathize with your situation, but running a successful affiliate site entails a lot more than, “…sticking code in their sites and doing nothing.” The high traffic sites invest real money in generating content, adding features, SEO, etc. Many of them are also employers. The problem with this tax is that it makes Hawaii less appealing than other states in terms of affiliate marketing.

    Note that I think your type of business should also pay lower taxes so you can provide more competitive prices and win back tourists who have opted for less expensive destinations. If we want to raise tax revenue we need to make Hawaii a better place to do business for _all_ our businesses.

  10. Dean says:

    For those sending emails to Linda Lingle ([email protected]) I would appreciate it you could cc me at [email protected]. Also if you send letters to the editors I would appreciate a copy of your letter. I would like to see measure the response we are getting.

    Hate to say it but we don’t have much time only 2 weeks left. I appreciate the informative comments from everyone.

  11. Envy says:

    BRUCE Post #1… I make money from online, and if it was as easy as “Why should affiliate marketers get a tax break for just sticking code in their sites and doing nothing?” then why are you and your agents working so hard in travel why not “do nothing” and get paid…

    Your post just ensured my next family vacation to hawaii will not be booked through HAWAII ALOHA TRAVEL

  12. Bill Sodeman says:

    @roxannedarling – you made a good point about affiliate revenue. Some people in Hawaii need that extra affiliate income, and HB 1405 would be a disaster for them.

    I really do believe Amazon would disable affiliate account revenue for anyone with a Hawaii mailing address. It’s a heavy-handed message – but some of our legislators don’t respond well to subtlety.

    The lure of affiliate revenue inspires online scammers and black hat affiliate marketers – that much is certain. The results don’t always justify the means.

    As an example, using scripts or malware to add or replace the affiliate code in an Amazon link is something I’d consider shady behavior.

    While I hope HB 1405 gets torpedoed and replaced with a better alternative, I’m not ready to endorse affiliate marketing in all its shapes and forms.

    Perhaps we need a code of ethics for affiliate marketers.

  13. Peter pan says:

    Either tax everyone or no one. Keep it fair. Why should Amzn prosper at expense of local business owners? Local businesses keep their money in the community creating more jobs. Where does Amzn stash its cash??? Not here that is for sure.

  14. Veto HB1405 says:

    Passing HB1405 – will not level the playing field for Bruce.

    What will happen is companies with Hawaii affiliates will kick them out of their programs. They will still keep their advantage by excluding Hawaii based business from working with them.

    This would lessen the tax revenue that HB1405 was supposed to capture, since Hawaii based businesses will have less revenue from their affiliate relationships.

    Passing SB1678 – will level the playing field for Bruce. Since this bill is setup to participate and add pressure on the federal government to pass a law that would require all companies to collect taxes on online transactions. With this bill it would not matter if a business has any relationship with a Hawaii resident. It would be across the board.

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