Overstock.com says five states have passed laws demanding that it collect sales taxes from their residents merely because the company uses in-state advertising affiliates to help it sell products within their borders.
But the Salt Lake City-based online discount retailer said this week that rather than become a tax collector for New York, North Carolina, Rhode Island, Illinois and Arkansas, it chose instead to sever its ties with thousands of its independent marketing affiliates operating there.
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"They wanted us to collect sales taxes for them simply for having marketing affiliates," said Jonathan Johnson, Overstock.com’s president. "We believe those laws are unconstitutional. Rather than fight, we decided to simply stop doing business with those affiliates."
Johnson described the company’s marketing affiliates as falling into two groups.
One category consists of bloggers who, in an effort to make money from their work, display Overstock.com coupons on their websites. They get a small payment when someone clicks on one of the coupons and uses it when making a purchase. The other category of affiliates consists of "coupon aggregators" — websites that gather coupons from various online sources and provide access to their users.
Tammy Cota, executive director of the Internet Alliance, an association of Internet companies that works to block legislation viewed as detrimental to e-commerce, said that even though those five states have passed similar laws seeking to force online retailers to collect sales taxes, at least 15 others rejected similar legislation.
"A lot of states have realized that there is nothing to be gained. If they pass [such] a law, companies just chose to sever their marketing ties with the state," she said. "The only time that hasn’t happened was in New York, when Amazon chose to keep its ties there so it had standing to challenge the law."
Overstock.com has joined that lawsuit, which is still making its way through the courts, Johnson said.
Just because Overstock.com decided to sever its marketing ties doesn’t mean it isn’t doing business with those states’ customers.
Instead of spending the money on its marketing affiliates, Overstock.com instead took that marketing money and gave it back to its best customers in those five states — those who spent more than $300 with the company during the past year.
"There are over 150,000 customers meeting this description, to whom we are, in effect, transferring $30 of value for a total economic value of over $4.5 million," the company said in a statement.
Johnson said that online retailers shouldn’t be expected to collect taxes like their brick-and-mortar retail competitors.
Traditional retailers, he said, use state and local services that are paid for with taxes.
"They consume a lot more of those services than we do by merely shipping a package to someone," Johnson said.
He added that Overstock.com collects sales taxes from its customers who reside in Utah because that’s where the company is based.
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