Overstock.com 2010 Annual Report Download - page 36

Table of Contents
proposals under consideration. If such laws survive constitutional challenge, we may have to elect to discontinue in those states valuable marketing through
the use of affiliates based in those states, or begin in those states the collection of the taxes. In either event, our business could be harmed and our business
could be adversely affected if one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of our
merchandise in compliance with these or any other state law. At least one state, Ohio, asserts that we should pay a commercial activity tax because we sell
merchandise in Ohio, even though we have no physical presence there. We challenged in Ohio state court the constitutionality of the commercial activity tax;
however, the court declined the case for the reason that it was not a ripe controversy. The State of Ohio has since assessed us $612,784 in taxes, interest, and
penalties as of June 30, 2009, which assessment we are now contesting through administrative procedures. The Ohio Department of Taxation issued
additional estimated assessments of estimated tax, interest and penalties totaling $24,545 for the period July 1, 2009 through December 31, 2009 in
September, 2010.We believe the assessment to be wrong and are contesting the assessment. If Ohio is successful and its assessment withstands constitutional
challenge in both administratively and in court appeals, the enforcement of the assessment could harm our business. If other states similarly enact and are
successful in enforcing similar commercial activity tax laws, these also could harm our business.
The States of Colorado and Oklahoma have enacted laws requiring remote vendors to notify resident purchasers in those states of their obligation to pay
a use tax on their purchases. In Colorado, the law requires vendors to notify Colorado purchasers annually by U.S. mail of all their annual purchases, and
provide to the State of Colorado the same information in the first quarter of the year for previous year's purchases. On January 26, 2011, a federal court in
Colorado, citing constitutional concerns and noting that a party challenging the constitutionality of the Colorado law would have a likelihood of success at
trial, granted a preliminary injunction preventing the Colorado Department of Revenue from enforcing the provisions of the Colorado law. Notwithstanding,
other states may enact legislation similar to these laws. Such laws could harm our business by imposing unreasonable notice burdens upon us, or by such
detailed notices, or the threat of invasion of privacy, discourage customers from making purchases over the Internet.
Economic pressure on states could harm our business.
The current economic climate has resulted in a sharp decline in state revenues, and states have projected large state budget shortfalls in the years ahead.
These shortfalls require state legislatures and agencies to examine the means to increase state revenues. States may increase sales and use tax rates, create new
tax laws covering previously untaxed activities, or increase existing licenses or create new fees all of which may directly or indirectly harm our business.
Similarly, administrative agencies and executive agencies may apply more rigorous enforcement efforts, take inflexible, unreasonable or unprecedented
positions respecting these laws they administer, especially if the laws they administer carry monetary penalties and fines which either the state or the
administrative agency may use to balance their budgets. To the extent that states pass additional revenue measures, or significantly increase their enforcement
efforts of existing laws, these activities could directly or indirectly harm our business.
Laws or regulations relating to privacy and data protection may adversely affect the growth of our Internet business or our marketing efforts.
We are subject to increasing regulation at the federal, state and international levels relating to privacy, security, retention, transfer and use of personal
user information. For example, we are subject to various telemarketing laws that regulate the manner in which we may solicit future suppliers and customers.
Such statutes and regulations, along with increased governmental or private enforcement, may increase the cost of our business. In addition, many
jurisdictions have laws that limit the uses of
30