Overstock.com 2012 Annual Report Download - page 24

Table of Contents
We expect the online retail market to become even more competitive as traditional liquidators and online retailers continue to develop and improve
services that compete with our services. In addition, more traditional manufacturers and retailers may continue to add or improve their e-commerce
offerings. Traditional or online retailers may create proprietary, store-based distribution and returns channels. Competitive pressures, including the
introduction of same-day delivery capabilities, from any of our competitors, many of whom have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and other resources than we do, could harm our business.
Further, as a strategic response to changes in the competitive environment, we may from time to time make competitive pricing, service, marketing
or other decisions that could harm our business. For example, to the extent that we enter new lines of businesses such as third-party logistics, or
discount brick and mortar retail, we would be competing with large established businesses such as APL Logistics and Ross Stores, Inc. In the past we
have entered the online auctions, car listing and real estate listing businesses in which we compete or competed with large established businesses
including eBay, Inc., AutoTrader.com, Inc. and Realtor.com. We no longer offer online auctions services or real estate listing services.
If one or more states successfully assert that we should collect sales or other taxes on the sale of our merchandise or the merchandise of third
parties that we offer for sale on our Website, or that we should pay commercial activity taxes, our business could be harmed.
We do not currently collect sales or other similar taxes for physical shipments of goods into states where we have no duty to do so under federal
court decisions construing applicable constitutional law. One or more local, state or foreign jurisdictions may seek to impose sales tax collection
obligations on us because we are engaged in online commerce, even though to do so would be contrary to existing court decisions. The future location
of our fulfillment or customer service centers networks, or any other operation, service contracts with third parties located in another state, channel
distribution arrangements or other agreements with third party sellers, or any act that may be deemed by a state to have established a physical presence
in states where we are not now present, may result in additional sales and other tax obligations. New York and other states have passed so-called
"Internet affiliate advertising" statutes, which require a remote seller, with no physical presence in the state, to collect state sales tax if the remote seller
contracted for advertising services with an Internet advertiser in that state. In New York and states passing similar laws, we have terminated our use of
locally based Internet advertisers. Several other states currently have similar tax proposals under consideration. In a case that is now on appeal, an
Illinois state court struck down on constitutional grounds a similar Illinois statute. If such laws survive constitutional challenge, we may elect to
discontinue in those states valuable marketing through the use of affiliates based in those states, or may begin to collect taxes in those states. In either
event, our business could be harmed. Further, our business could be harmed 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 September 2009, we received a letter of determination from the Ohio Department
of Taxation noting the Department's determination that we are required to register for remitting of the Commercial Activity Tax, and owe $612,784 in
taxes, interest, and penalties as of June 30, 2009. The Ohio Department of Taxation has issued additional estimated assessments of estimated tax,
interest and penalties totaling $146,162 as of December 31, 2012. We have filed protests to challenge the Department's Assessments on constitutional
grounds and the matter is currently pending before the Ohio Department of Taxation's Legal Division for administrative review and determination. A
hearing on these matters was held November 18, 2011. No administrative ruling has been issued following the hearing. We believe the determinations
to be unlawful and erroneous and are vigorously contesting the determination. If Ohio is successful and its assessment withstands constitutional
challenge in both administrative and judicial appeals, the enforcement of the assessment
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