Overstock.com, Inc. (Nasdaq: OSTK) (short cut: O.CO) today applauded the decision by a Federal Court in Colorado enjoining the enforcement of Colorado’s new “internet tax notice” law.
The controversial law, enacted in 2010, required out-of-state retailers to publish to Colorado purchasers a notice telling them of their obligation to pay Colorado “use” taxes on their purchases.
The law also required retailers to report these transactions to the Colorado Department of Revenue at year’s end, and to tell Colorado purchases at year’s end of their obligations to pay and that the retailers were providing purchase information to the Colorado tax authorities.
“We not only thought the Colorado law was a huge invasion of customer privacy,” said Jonathan Johnson, President of Overstock.com, “but that the law clearly violated the U.S. constitution by plainly discriminating against out-of-state retailers. Other state legislatures considering copycat legislation should take note that this type of law is not legal.”
The case was brought by the Direct Marketing Association, a membership organization consisting of companies who market products across state lines by mail and through the internet.
The court’s injunctive decision cites constitutional grounds as the basis for its order, noting the Colorado law’s discriminatory effect on out-of-state retailers—those the law targeted for compliance. The law was heavily lobbied in the waning days of the last legislature by local brick-and-mortar retailers.
The court buttressed its ruling by citing to long-standing decisions by the U.S. Supreme Court supporting the principal that a state may not impose on out-of-state retailers burdens not imposed similarly on in state retailers. Citing these decisions, the court observed that “out-of-state retailers that do not have a physical presence in Colorado generally are not obligated to collect and remit sales tax on their sales in Colorado.”
The new Majority Leader of the Colorado House of Representatives, Amy Stephens was swift to endorse the court’s ruling. Majority Leader Stephens stated: “Unfortunately, this tax proposal was rushed through the legislature, causing concern for consumers and leading to the immediate loss of Colorado jobs.” Stephens added she would later be introducing a measure to repeal the entire law in an effort to recover the jobs lost.
Overstock.com noted that the efforts to impose on out-of-state internet retailers tax collection obligations began in 2008, when New York passed a law that made doing business with New York’s internet advertisers a basis to force out-of-state retailers to collect sales tax. It backfired: Overstock.com and other retailers reacted by terminating contracts with New York advertisers and Overstock.com sued in New York state court.
Although a New York trial court ruled in favor of the state, the company is confident that it will ultimately succeed and has pressed on through appeals, citing the Supreme Court cases as were relied upon by the U.S. District Court in its decision yesterday. Ultimately, Overstock.com believes that when Federal Courts examine the question, all these types of laws will be found unconstitutional.
Overstock.com, Inc. (short cut: O.CO) is a Savings Engine offering brand-name merchandise at discount prices. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com and http://www.o.co. Overstock.com regularly posts information about the company and other related matters on its website under the heading “Investor Relations.”
Overstock.com® is a registered trademark and O.co™ and Savings Engine™ are trademarks of Overstock.com, Inc.