DOW JONES NEWSWIRES
Overstock.com Inc. (OSTK) informed its marketing affiliates in
California, Hawaii, North Carolina and Rhode Island that it is
ending its business with them to avoid collecting sales tax.
Lawmakers in the states have passed or are preparing to pass
legislation that would require companies to collect sales tax if
they have marketing affiliates in the state. Affiliate marketers
run blogs or Web sites and get a sales commission by featuring
links to outside e-commerce sites.
Rival Amazon.com Inc. (AMZN) has taken similar steps in the past
few days, ending ties with affiliates in three of the same states
and warning about California.
"It's painful to have to terminate these relationships with
affiliates, simply because they live in states where
counterproductive (and likely unconstitutional) laws are being
passed," Overstock Chairman and Chief Executive Patrick Byrne said.
"However, politicians have to remember that a tax is a price that
government charges for a service, and when they raise their prices,
we're going to buy less of their services."
The decision highlights mounting tensions between online
retailers and cash-strapped states. Other states are considering
similar laws that would use affiliates as a way to force companies
to collect sales taxes for online purchases.
Byrne said Overstock plans to sever its affiliate relationships
in each state that appears close to passage of similar laws, but
will reinstate its businesses if the laws are found
unconstitutional, vetoed or repealed.
Forcing e-commerce sites to collect tax upfront would strip a
key advantage they have over traditional retailers, though
consumers are technically supposed to pay a so-called use tax for
online purchases on their own.
New York passed an Internet-sales-tax law last year, which
Overstock and Amazon challenged in court but lost. While they are
appealing that ruling, Overstock has dropped its affiliates in the
state and Amazon has begun collecting a sales tax in New York.
Overstock shares rose 5% to $12.56 in recent trading amid a
broad market rally and are up 17% so far this year.
-By Lauren Pollock, Dow Jones Newswires; 212-416-2356;
lauren.pollock@dowjones.com