January 3, 2012, 11:11 AM

Overstock proposes a sales tax ‘fairness bill’

The web-only retailer wants states to bear the cost of retailers’ sales tax collection.

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Responding to state pressure for the collection of sales tax on retail Internet transactions, Overstock.com Inc. has proposed that states provide merchants with tax-collection software—and cover the cost of using it. Last week, Overstock proposed what it calls the "Equity in Sales Tax Collection Act Bill” which CEO Patrick Byrne contends would be fairer to retailers than pending sales tax bills already being considered in Congress.

Overstock’s proposal will “garner support from the majority of e-commerce companies as well as many brick-and-mortar and brick-and-click retailers, particularly smaller and mid-sized retailers who would otherwise be hurt” by pending bills calling on merchants to collect and remit state sales tax, Byrne told the U.S. House Committee on the Judiciary on Nov. 30.

The retailer wants states to provide software that would automatically compute and report to states the proper sales tax amounts of each retail transaction. Overstock suggests that states could provide such software to work with bricks-and-mortar store cash registers and point-of-sale systems as well as online billing programs—in effect leveling the playing field among retailers by taking sales tax collection responsibility away from store retailers instead of adding collection duties to web-only retailers.

Overstock’s proposal also calls for retailers to be clear of liability for any errors made in calculating sales tax, and it would allow retailers to retain at least 2% of the sales tax collected, Overstock president Jonathan Johnson says. The proposal also calls on states to reimburse the providers of the software with a minimum of 3% of the amount of sales tax collected in each retail transaction.

Overstock has received “some initial interest” in its proposal from legislators, and some retailers including Newegg.com have expressed support for it, Johnson says, declining to elaborate.

Scott Peterson, executive director of the Governing Board of the Streamlined Sales and Use Tax Agreement, says Overstock’s proposal includes many of the same requirements already in the SSUTA, such as software and compensation for tax collection among online retailers. The SSUTA is a group of some 25 states that have been working toward a multi-state system that would increase tax collection among online retailers.

Dan Schibley, a state tax expert with CCH, a unit of Wolters Kluwer that publishes tax and business information, says it appears unlikely that Overstock’s proposal would win much support in Congress or among states. “This is an online retailer’s wish list, but I doubt it will go anywhere,” he says.

Schibley notes that states involved in the SSUTA have had a hard time agreeing to provide compensation at the level Overstock suggests in its bill.

In addition, Schibley and Peterson say, the Overstock bill supports the status quo backed by the U.S. Supreme Court that says states can only mandate sales tax collection by retailers with an in-state physical presence, or nexus in legal terms, such as stores or distribution centers. This “would put into federal law a definition of physical presence that doesn’t exist in any state,” says Peterson, a former tax official with South Dakota. “This idea would take state authority back in time about 50 years and impose new requirements on states.”

Other pending bills in Congress seek to overturn this nexus requirement—and it’s unlikely a new bill going in the other direction would win much support, Schibley says.

Overstock is No. 27 in the Internet Retailer Top 500 Guide.

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