A hearing is scheduled to occur today on H.B. 1694, a bill filed earlier this month in the Hawaii House of Representatives that includes click-through and affiliate nexus provisions. The House Committee on Finance will hear testimony later today regarding the proposed legislation.
What Does the Legislation Say?
The bill defines a person “engaged in business in the state” to include any remote seller or entity affiliated (‘affiliated’ here means one, who pursuant to an agreement with or in cooperation with the seller, performs services in Hawaii related to the tangible personal property sold by the seller) with the seller that has entered into an agreement with a person or entity located in Hawaii—for either a commission or “other consideration”—who directly or indirectly refers customers to the remote seller through a link on a website or, for example, a hyperlink embedded in an email.
There are two important provisos in order for the remote seller to have nexus under this bill:
First, the remote seller must have total cumulative sales in excess of $10,000 within a preceding 12-month period to purchasers in Hawaii as a result of referrals from in-state persons or entities. Second, the remote seller, within a preceding 12-month period must have total cumulative sales of tangible personal property to purchasers in Hawaii in excess of $1 million.
If passed, H.B. 1694 would take effect on July 1, 2013, unless pre-empted by a federal law.
Interestingly, H.B. 1694, in referring specifically to embedded hyperlinks, gets right to the heart of one of the Constitutional issues surrounding affiliate nexus laws. That is, when an in-state partner—or affiliate—goes beyond placing a mere advertisement on a website and reaches out to in-state customers using modern replacements for salesmen standing on a street corner with flyers—i.e., the embedded hyperlink in an email blast—then the activities of the remote seller’s in-state affiliate would presumably surpass what is Constitutionally protected solicitation.
From a practical perspective, although presumable that some remote sellers and their Hawaiian affiliates contract for services beyond mere advertisement—i.e., email blasts; social media targets—these contracts could either be amended to exclude nexus-creating activities before the effective date or the House or Senate may consider additional language to permit certain activities of the affiliate while excluding others. Given geographic and logistical considerations that might be prohibitive to certain sellers, and the number of remote sellers that might use affiliates in Hawaii for solicitation and marketing purposes, the possibility of legislative consideration regarding specific affiliate activities is certainly conceivable.
This is not the first time that the Hawaiian legislature has considered affiliate legislation. The Governor eventually vetoed an affiliate bill passed in 2009, and a similar bill introduced this time last year did not get out of Session. Past attempts to get affiliate nexus legislation passed in Hawaii have not only failed due to a lack of support of the Governor but have pitted the state House and Senate against the other. In addition, the previous legislation created an impact on the affiliate community. When the 2009 bill passed, both Amazon.com and Overstock.com ended their relationships with in-state affiliates. Expect today to hear from small Hawaiian affiliates as well as brick-and-mortars wanting a level playing field when it comes to sales tax on retail sales in the state.
Rep. Isaac Choy (D) introduced both H.B. 1694 and last year’s affiliate bill in the House. There has been vocal opposition to this bill from Choy’s counterparts in the Senate. Sen. Carol Fukunaga (D) thinks that the effect of the legislation on local affiliates—in some instances, terminating their entire income—is too harsh a result. Fukunaga has advocated an alternative to passage of affiliate nexus in the state—passage of the Streamlined Sales Tax Agreement, which would offer a simplification for online retailers to collect and remit tax.
Will the affiliate bill have a different fate this go-around? With tailored language presumably excluding mere advertisement—while not protecting other activities, like email—H.B. 1694 may just have Hawaii saying “Aloha” to affiliates and their saying, “Aloha, Hawaii!”