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Hawaii deciding how to tax Internet shopping


Hawaii lawmakers are looking for creative ways to tax online shopping, either by requiring Internet sellers to hand over customer information to the government, or by enrolling in a multistate program in which websites voluntarily collect taxes.

Online retailer said Monday it would stop doing business with affiliate advertisers in Hawaii if the reporting requirement becomes law, but the company would comply with the voluntary tax collection scheme.

Legislation for both proposals was pending this week before state lawmakers desperate for money, with estimates of uncollected tax from electronic sales reaching $60 million in Hawaii alone next year, according to a University of Tennessee study. State tax officials said they expected to receive up to $30 million in new revenue annually under either measure.

The tax collection method favored by House lawmakers would require out-of-state businesses to provide yearly statements to the government listing customer names and transaction amounts, which tax collectors could then use to seek the state’s general excise of 4 percent on neighbor islands and 4.5 percent on Oahu.

"All we’re saying is, ‘Hey, we can’t force you to collect our taxes, but we can request information from you,’" said Rep. Isaac Choy, D-Manoa. "If you’re not going to collect our taxes, give us information and we’ll collect our own taxes."

The idea is based on a similar law passed in Colorado last year that resulted in Amazon dropping its affiliate advertisers there. Amazon would do the same in Hawaii, said spokeswoman Mary Osako.

"Amazon opposes unconstitutional ‘click-through-nexus’ or reporting laws and, regrettably, would be forced to end our contracts with associates in Hawaii if the state passed that type of legislation," Osako said in a statement.

Several Web-based companies, including Amazon and, previously cut off its Hawaii advertisers two years ago before then-Gov. Linda Lingle vetoed an online sales tax bill. Afterward, the companies reinstated those business relationships.

"The people who bore the brunt of the damage were all the local affiliates who got cut off for two months. For some companies, that represented all of their income," said Sen. Carol Fukunaga, D-Lower Makiki-Punchbowl. "That to me is kind of harsh."

She prefers enrolling Hawaii in the 24-state Streamlined Sales and Use Tax Agreement, which changes state tax codes to make it simpler for Internet retailers to collect the tax.

Amazon and about 1,500 other companies participate in the voluntary program by collecting taxes on items bought online and then sending the money to the states.

The voluntary approach allows online companies to collect and distribute taxes in bulk, rather than burdening state tax departments with sending tax bills to residents who sometimes only owe pennies, said Scott Peterson, executive director for the Streamlined Sales Tax Governing Board.

"It shifts away from the tried and true method of having the retailer collect the tax," Peterson said. "The issue is that the states don’t have the legal requirement to make everybody collect, but everybody owes the tax."

Retail stores in Hawaii find themselves at a competitive disadvantage with websites that don’t collect general excise taxes, said Carol Pregill, president for the Retail Merchants of Hawaii.

"Internet sales have increased dramatically, and obviously they’re taking business away from the brick-and-mortar stores," she said. "Business taken away from stores here does affect our survival and also employment."

The two Internet tax bills were pending before a conference committee this week, where House and Senate legislators must resolve their differences in order to pass the bill.

They’re facing a Friday deadline for all bills to have cleared conference committee and be ready for final votes next week.



HB1183, SB1355:


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