Tuesday, June 30, 2009


Hawaii’s Internet tax could cost the state rather than help

by Larry Geller

Hawaii’s Internet tax (HB1405) could drive web companies to incorporate elsewhere. That’s what a caller told Lt. Governor Aiona yesterday on KHBH. If that happens, then the state would lose the amount of corporate taxes they now pay.

For most of us small timers, Amazon ads bring in little, so when the expected email arrived yesterday announcing that all Amazon Associates in Hawaii were being terminated, it was a ho-hum thing. I used to run those ads on my food blog, but took them out. They were a distraction and brought in next to nothing. As of July 1, Amazon would have to take state tax out of my almost nothing.

But others, with larger web presences, will take a bigger hit. The caller yesterday mentioned a six-figure loss. With numbers that big, it’s understandable that entrepreneurs will be looking to move their corporations out of Hawaii. It’s easy to do.

Just a couple of them moving out should result in a loss of revenue to the state greater than the tiny sums expected from Amazon and other affiliate programs. For those who were making significant revenues from affiliate programs, the tax on that income will be lost.

It’s not just Amazon, of course—dozens  of vendors canceled affiliates in New York when that state passed a similar law, according to testimony on this bill. Should companies register elsewhere, the entire tax on their incomes will be lost, not just 4%.

The Internet tax bill is on the governor’s list of bills she may veto. On balance, this is one that we may be better off if she did kill it


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Hawaii is a relatively attractive place for internet companies. This is one form of business that suffers no competitive disadvantage from high shipping costs and longer travel times. If you want to start a business where you can enjoy the island lifestyle, not a bad choice.

Yes, that is one thing you can do from here. I think the bother would be if you had to live here but your company had to be in another state in order to participate in affiliate programs (and possibly more).

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