Overstock.com CEO Testifies Against Proposed Federal Remote Sales Tax Bills

My name is Dr. Patrick M. Byrne. I am the Chairman and CEO of Overstock.com, Inc., an E-commerce retailer which last year had 1,500 employees, $1.1 billion in revenue and $14 million in net income. Thank you for the invitation to testify today as the Committee explores the constitutional limitations on states' authority to impose sales tax collection obligations on nonresident E-commerce retailers like Overstock. I have views on this subject because, from my experience, I believe that if the proposed collection obligations had existed in October 1999 when Overstock.com launched, we would likely not be here today. The odds against a new online business being successful are long in any case, but requiring online businesses to collect sales tax on behalf of remote state governments without remuneration, simplification and indemnity, make those odds even slimmer. So I appreciate this opportunity to share my views on this subject.

In 1999, we offered less than 100 products for sale; today the number is about 1 million. For each of the last six years, various industry groups, including the National Retail Federation and American Express, have routinely ranked Overstock as #1, 2, 3, or 4 in customer satisfaction among all U.S. retailers, online and off. In 2010, Forbes ranked Overstock as the number one retailer in employee satisfaction, and Glassdoor ranked Overstock ninth in its list of top 50 corporations in America to work.

We have long been noted for our corporate social responsibility. In 2001, we launched Worldstock Fair Trade, Overstock's socially responsible store for products handcrafted by artisans from developing nations and rural areas of the USA. The department distinguishes itself from its competitors by returning between 60-70% of the sales price to the artisans. To date, we have returned more than $73 million to Worldstock's artisan suppliers. We donate all profits from Worldstock to charity, and we use most to build schools and orphanages in some of the poorest nations in the world. For us to be here today, my colleagues at Overstock have had to be fanatics about service, adaptation, and innovation.

Overstock is physically present only in Utah. All of our operations, servers, and employees are located in Utah. As I have already indicated, if when we launched in 1999 and had only $1.8 million of revenue, we had been required in states in which we had no presence to calculate and collect sales tax in thousands of separate taxing districts, respecting their thousands of unique taxing practices and tax holidays, we would not have survived to grow and provide the 1,500 jobs we now do. The cost of compliance in what is currently reported as 9,746 taxing jurisdictions, the unavailability -- even today -- of affordable off-the-shelf plug-and-play software solutions, the cost of employing and training people to implement and run the software, the administration and resolution of state audits and resulting assessments, and the risk of penalties and suits by plaintiff bar attorneys for software errors and omissions, would have been too high a hurdle to overcome. I imagine the same could be said for Newegg, Amazon, eBay and other E-commerce start-up companies that have blossomed over the last decade.

We oppose the pending bills because they "outsource" to retailers, without compensation, the burden of collecting taxes from residents of states where those retailers have no physical presence nexus. The absence of a physical presence nexus requirement, the long-standing Constitutional standard to be met before states may impose burdens of taxation beyond their borders, makes remote sales tax collection a burden on innovation, entry, and commerce. The taxing jurisdiction should be primarily, if not exclusively, responsible for collecting sales tax from its residents. If states want or need to hire retailers to collect sales taxes from their residents, true "fairness" requires that the states provide them with: (1) plug-and-play software solutions, (2) indemnification from computation, collection, and administration errors, and (3) compensation for doing the tax collection work on behalf of those states.

For a remote seller, determining what transactions are taxable and at what rate in a given jurisdiction is extremely complex. For example, we sell gift baskets. Some of the nearly 10,000 taxing jurisdictions impose sales tax on the entire basket of goods, others exempt food products from taxation, and others treat some of the products as candy subject to a higher tax. I trust you see the problem. Back-to-school sales tax holidays for clothes and supplies are another example. It is far easier for retailers with a physical presence in a jurisdiction to know the tax nuances of their jurisdiction. But it is vastly more complex for an E-commerce retailer with thousands or millions of products to know the specifics of the nearly 10,000 taxing authorities where they are not physically present. Thus, if Congress allows states to shift the sales tax collection obligation to retailers, it must require that states supply the software solution. Failure to do so exacerbates the heavy burden to entry of startups and small businesses.