Urgent! Help Stop HB1405 - The Bill That Will Devastate Hawaii's Online Media Industry

Comment

Comment by Dean Takamine on June 13, 2009 at 3:35pm

Thank you everyone for the comments. Personally, I am not a political person but this bill has forced me to inform myself on the issues.

There is a lot that needs to be done in the next 2 weeks. Let's all do our part and prevent this bill from passing. I will keep everyone posted on any new developments.

Thank you Daniel for featuring this post. I am grateful to have a site like TechHui.com that allows us to spread information and mobilize quickly and efficiently.

Comment by Bruce M. Bird on June 13, 2009 at 10:24am

Oops! I messed up the link on my previous post. The paragraph containing it should read:

In recent years, a number of states have been trying to find a way around the Quill decision. Here's < a href="http://www.electronicretailerblog.com/2008/05/new-york’s-ambitious-sales-tax-law-broader-than-amazon-and-the-internet/#more-198"> an article about New York's new law (the law upon which Hawaii's bill is based).

Comment by Bruce M. Bird on June 13, 2009 at 10:19am

Governor Lingle should veto this bill. It's the right thing to do. And, politically, it's in her interest to do so.

In the Quill decision, the U.S. Supreme Court ruled that North Dakota could not impose its "use tax" on an out-of-state retailer that did not have a "physical presence" in that state. Quill, a mail-order retailer, had neither a sales force nor a retail outlet in North Dakota. The Supreme Court held that, under these facts, Quill and North Dakota did not have a sufficient "nexus" with each other for that state's "use tax" to apply. A shorthand way of expressing this decision is "nexus = physical presence".

In recent years, a number of states have been trying to find a way around the Quill decision. Here's < a href="http://www.electronicretailerblog.com/2008/05/new-york’s-ambitious-sales-tax-law-broader-than-amazon-and-the-internet/#more-198"> an article about New York's new law (the law upon which Hawaii's bill is based).

New York's new law is one of those "too clever by half" laws that invites litigation. Given the constitutional issues involved --3 or 4, by my count-- we're talking serious legal fees. What the legislators in Hawaii should do is to simply "sit back" in Hawaii and watch the "fireworks" from New York. In other words, let the State of New York litigate it. Let the taxpayers of New York pay for it.

On a related note, the Department of Taxation has indicated that the new bill may raise up to $4 million per year.

According to Peter Fritz (a tax attorney in Hawaii who supports the new bill):

"... it is more likely than not that out of state vendors will challenge the constitutionality the law. However, even if the law is declared unconstitutional, Hawaii may be able to claim any collected taxes because the amount collected is the amount that would be owed by the purchaser under Chapter 237, Hawaii Revised Statute. Alternatively, Hawaii should be able to obtain the names of the purchasers from the out of state vendor and send assessments to Hawaii residents."

So, there you have it. If the bill is enacted into law and it's constitutional, it will raises a small amount of revenue --"up to $4 million"-- from certain out-of-state retailers. If it's unconstitutional --and it probably is-- the State of Hawaii can get a list of customer names from the out-of-state retailers and send assessments to Hawaii residents.

Comment by Daniel Leuck on June 13, 2009 at 8:38am

(Apologies for the re-post. My first response followed a very long day and, as a result, had a less than diplomatic tone :-))

Aloha Dean. I fully support your efforts to kill this disastrous bill. 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.

Lawmakers: Like many others in our state, the tech entrepreneurs of Hawaii are working our butts off to grow our businesses and create new jobs in what is already a brutal business environment. With respect, you are making it increasingly hard to do business in our state. The last thing we need is another expansion of the crippling GE tax. High revenue based taxes will kill us.

Comment by John on June 13, 2009 at 7:43am

As a tactical consideration, it may be best to advocate the State to support the Streamlined Sales Tax Project instead of HB1405. For instance, that is what Amazon recommends.

The main argument I see from proponents (outside of revenue generation) is that this levels the playing field for physical businesses in Hawaii. Calling for support of the SSTP would position HB1405 opponents as seeking to solve the underlying problems.

Comment by Laurence A. Lee on June 13, 2009 at 1:46am

Troy, thanks for the link to Amazon's testimonial -- that's exactly what I was looking for. After studying that testimonial, combined with other tax increases, it's pretty clear that this bill would only serve to harm Hawaii's businesses; and would likely get Hawaii involved in a legal battle that (IMHO) we can't afford, and will likely lose anyway.

Off to Groklaw over the weekend to study up on Amazon v. New York, and see what can be used to persuade Governor Lingle to veto the bill, and give her the ammunition she needs to back that decision.

Comment by Eric Nakagawa on June 13, 2009 at 1:32am

My initial guess was that a company like Amazon would push the cost onto the Affiliates. However after reading links from Troy the full implications would mean that ALL Hawaii purchases would be taxed if they pay ANY one to generate leads via Affiliate -- whatever happened to requiring a physical presence?

I do not know how much revenue affiliate marketers in Hawaii generate -- I would think it'd be a function of the size of the organization. However with the severe drop across almost all industries in the islands I could see this legislation working directly against any sort of cost effective economic recovery. Any travel based companies who pay for work on referral and lead generation to get people to the island will now have an additional burden. *facepalm*

On the affil marketer end why bother choosing to sell leads to Hawaii based companies when you now have to generate MORE referrals (in a DOWN economy) to make up for the additional tax... if these people can't benefit business-wise from the traffic they will look to other (cheaper cost) opportunities?

As print based news and magazines start to dry up online advertising is one few remaining methods for generating and capturing interest (cheaply and efficiently). Businesses that augment revenue with affil sales (cpa/cpc) will have one less attractive option to generate revenue, the overhead required to implement any of these requirements (unless businesses are 100% behind the Hawaii demographic) will wipe out MANY small companies or startups.

Troy, does HB1405 also impact Ad Revenue generated from sites like (Adsense, Blogads)?

Comment by Troy Fujimoto on June 12, 2009 at 11:48pm

Yep it's true, Amazon has sent over a letter see page 6 Testimony on HB1405 - http://www.capitol.hawaii.gov/session2009/Testimony/HB1405_Testimon...

Lingle has received the bill and has to sign or veto the bill. If she takes no action on the bill (veto or sign the bill) it will become law around June 23rd.

Here are some other links with more affiliate marketing info on the pending bill.
http://blog.affiliatetip.com/archives/hawaii-bill-hb1405-goes-to-th...
http://www.performancemarketingalliance.com/2009/05/19/update-anti-...
http://forum.abestweb.com/forumdisplay.php?f=541

Comment by Dave Zuls on June 12, 2009 at 10:50pm

Hawaiian Airlines has an affiliate program with LinkShare. Many Hawaii webmasters benefit from this program as well as the airline. LinkShare could terminate the local affiliates which would likely kill the program or LinkShare might terminate the agreement with Hawaiian at the end of the contract due to this law.

Similar things could happen at your company. If you were planning to start an affiliate program to help sell your goods or services or if you were planning to monetize your website with ads... Well - You can forget about it if this law passes.

Comment by Laurence A. Lee on June 12, 2009 at 10:11pm

Dean Takamine said:To avoid this tax many merchants such as Amazon.com will just dump all their Hawaii affiliates and advertising contracts with Hawaii residents.

Dean, has Amazon publicly stated this intent, or is this just pure speculation? I appreciate a call to arms, but unless there are verifiable facts, I usually dismiss such calls with extreme prejudice.

From what I recall of Amazon -vs- New York (which imposed similar legislation a year ago), Amazon is grumbling about the situation but has NOT pulled the plug on their NYC affiliates. Feel free to correct me if I'm wrong on that.

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