Overstock.com 2011 Annual Report Download - page 36

Table of Contents
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 do not have a physical presence or "nexus."
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 we have no physical presence in those jurisdictions. The future location of our fulfillment or customer service centers networks, or any other operation
of the company, 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. We challenged the constitutionality of a New York state law which requires Internet retailers to collect and remit New York sales taxes on
their New York sales who have no physical presence or "tax nexus" in New York, if the retailer uses the services of New York based Internet advertisers. The
trial court dismissed our challenge, and on appeal, the appellate court has partially affirmed the trial court. We dismissed a portion of the challenge remanded
to the trial court and continue to appeal the other portion of the trial court's ruling. As a result of the enactment of the New York law, we terminated our
relationship with New York based advertising affiliates. Other states have passed similar Internet affiliate advertising statutes, and in those states we have
terminated our use of locally based Internet advertisers. Moreover, there are other states that currently have similar tax 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 $97,768 as of December 31, 2011.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, Oklahoma and South Dakota 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, by interposing burdensome transaction notices that negatively affect conversion, or discourage customer purchases by requiring detailed purchase
reporting which would threaten customers with an invasion of their privacy.
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