Overstock.com 2015 Annual Report Download - page 23

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Mobile commerce and our Club O offerings are becoming increasingly significant to us. Customers who use mobile devices and customers who join
Club O may behave differently from our other customers. For example, the conversion rate of purchases from mobile devices is lower than from other sources.
If our mobile customers or our Club O customers are less profitable to us than our other customers, it could have a material adverse effect on our business.
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We do not currently collect sales or other similar taxes on sales 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, regardless of whether it has any 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.
Many other states currently have passed similar laws and others have legislative proposals under consideration. We may discontinue valuable marketing
through the use of affiliates based in those states, or we may begin to collect taxes in those states. In either event, or if one or more states or any foreign
country where we do not or did not collect sales or other taxes successfully asserts that we should do so or have done so, it could have a material adverse
effect on our business.
In 2013 the United States Senate passed the Marketplace Fairness Act of 2013 (“MFA”), but it failed to pass in the House of Representatives. Efforts
continue to enact similar legislation, which would permit qualifying states to force remote sellers like us to collect taxes in states where we have no physical
presence. The enactment of legislation similar to the MFA could have a material adverse effect on our business.
Other states have enacted forms of economic taxes to which we may be subject. We have been subject to and in the past contested an audit by one
such state of an economic tax assessment and settled the audit demand by payment of a diminished assessment without penalty or interest. In Q3 2015, we
received a Tax Assessment from the Department of Revenue of the State of Washington asserting that we had nexus with Washington during the period
January 1, 2008 to May 31, 2015 and assessing approximately $31.5 million in taxes, interest, and/or penalties asserted to be due, subject to future field
verification by the Department of Revenue, for the period. We also recently received an additional Tax Assessment for the period of June 2015 through
November 2015 in the amount of approximately $2.5 million in taxes, interest and/or penalties. If we were ultimately held liable for all or substantially all of
the amounts assessed against us by the Washington Department of Revenue, or for any large claims by any other states or their revenue departments, it would
have a material adverse effect on our business.
Several other states have enacted laws requiring remote vendors to notify resident purchasers in those states of their obligation to pay a use tax on
their purchases and, in some instances, to report untaxed purchases to the state tax authorities. Other states have enacted legislation to require retailers
without a physical presence in the state to collect and remit state sales taxes if they engage in any activity in connection with the selling, leasing or delivery
of tangible personal property or taxable services within the state. More states may enact these laws, or other laws to force or encourage through economic
pressures remote retailers to collect and remit sales tax. Such laws could harm our business by imposing unreasonable notice burdens upon us, by interposing
burdensome transaction notices that negatively affect conversion, or by discouraging customer purchases by requiring detailed purchase reporting. The
occurrence of any of the foregoing could have a material adverse effect on our business.
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Economic circumstances affecting many states have increased the pressures on state legislatures and agencies to find ways to increase state revenues.
States may continue to increase sales and use tax rates, create new tax laws covering previously untaxed activities, increase existing license fees or create new
fees, any or all of which may directly or indirectly
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