Amazon Calls Hawaii's Bluff

Well, that didn't take long.

Hawaii, buckling to the pressure from Amazon.com(AMZN Quote), announced yesterday that it will remain tax-free to Internet retailers, after Amazon and other e-commerce sites pulled the plug on affiliate programs in the area.

After hearing pleas from state Internet business owners, Gov. Linda Lingle on Wednesday vetoed a bill that would have forced online retailers to collect Hawaii's 4% general excise tax if they advertise in the state.

Unless the Legislature's Democratic majority overrides the Republican governor's veto, Amazon said it would reinstate its Hawaii affiliates.

Hawaii is missing out on about $37 million this year and $45 million next year in uncollected e-commerce sales, according to an April study by the University of Tennessee.

Amazon, Overstock.com(OSTK Quote) and Blue Nile(NILE Quote) announced plans this week to end affiliate programs in certain states. All three will stop advertising in Rhode Island and North Carolina. Overstock also ended its affiliate program in California.