Hawaii Gov. Linda Lingle has vetoed House Bill 1405, a bill that caused online retailers to terminate affiliate relationships with Hawaii businesses and households, shutting off a torrent of revenue and income adding up to millions of dollars a year.

The bill sought to collect state taxes from e-tailers though they do not have a physical presence in Hawaii.

State House leaders said yesterday they felt the bill had a technical flaw and therefore would not attempt to override the veto. That means the issue is done for the year, according to House Speaker Calvin Say.

A similar law in New York is being challenged by Amazon.com Inc., Lingle said, so “;it would be premature to enact legislation on this issue until the New York case is resolved.”;

The governor indicated yesterday she was “;vetoing this bill immediately to help ensure Hawaii is not economically hurt by legislation that was not well thought-out and would have negative consequences for nonprofits such as the University of Hawaii bookstore, and businesses throughout our state.”;

The bill would have hurt small Hawaii businesses making customer referrals to out-of-state businesses, as well as to people in the state developing an online media industry, she said.

“;I am hopeful by vetoing this bill that mainland-based companies will promptly restore their relationships with our state.”;

Overstock.com issued a statement yesterday morning indicating it was cutting ties with affiliates in Hawaii, California, North Carolina and Rhode Island, not knowing Lingle had targeted the bill for possible veto, following similar moves by Zappos.com, Audible.com, Amazon.com, BlueNile.com and others.

“;Because of the way these laws work, we have to sort of be in front of it, rather than waiting for her veto,”; Patrick Byrne, Overstock chairman and chief executive officer told TheBuzz.

A call from California Gov. Arnold Schwarzenegger to Overstock.com yesterday, providing assurances that his veto would stand, got the company to immediately reinstate its affiliate relationships in that state.

Lingle's office was unable to reach the company, given the time difference between Hawaii and Utah.

The revenue stream that businesses and residents with Web sites gain through advertising affiliations with online retailers is substantial.

Overstock has “;a couple hundred thousand affiliates”; who earn 7 percent commissions on click-throughs resulting in purchases, Byrne said.

Some 40,000 of those affiliates around the country depend on such arrangements for their annual income, he said.

Byrne estimated that the affiliate universe generates about $15 billion in e-commerce sales and that affiliates are “;collectively earning about $1 billion ... across America this year.”;

Amazon.com affiliates earn up to 15 percent on referrals, while fine-jewelry e-tailer Blue Nile does not disclose its affiliate numbers or terms, said John Baird, director of communications.

“;We applaud the governor's stance on this issue and agree with her that it is unconstitutional legislation,”; Baird said.

———

Erika Engle is a reporter with the Star-Bulletin. Reach her by e-mail at .(JavaScript must be enabled to view this email address).