By Brice Wallace
Overstock.com Inc., a Midvale-based online retailer, says it has begun to comply with a recent U.S. Supreme Court ruling regarding taxation of Internet sales but added that the court action “will have no appreciable impact on our business.”
The court ruling essentially allows states to require Internet sales taxes to be collected by online sellers regardless of whether those companies have a physical presence in the state. Overstock, as it has for years, is calling for federal legislative action on the Internet sales issue.
“Overstock.com Inc. is prepared to comply with today’s Supreme Court ruling in South Dakota v. Wayfair, Inc., which overturned long-standing United States Supreme Court precedent in Quill Corp v. North Dakota,” Overstock said in a news release following the court action. “At the same time, the company calls on Congress to intervene and legislate a fair solution in the wake of today’s ruling to lessen possible impacts on innovative Internet startups.”
“Though the impact of the court’s ruling today will be clarified by further proceedings in the lower court, we are prepared to comply with any outcome, and the decision will have no appreciable impact on our business,” Jonathan Johnson, Overstock.com executive and board member, said in the release.
By a 5-4 vote, the court set aside a precedent set 26 years ago that required a retailer to have a physical presence in a state before it could be compelled to collect sales taxes on behalf of that state. That physical presence will no longer be the standard.
“Today the U.S. Supreme Court has re-shaped the interstate commerce landscape in a move that could impact small-business innovation on the Internet, which has been a driving force behind our nation’s economy for the last 15 years,” Johnson said. “The framers of the Constitution intended Congress to regulate interstate commerce by thoughtful legislation. To lessen the potential impact of today’s ruling on Internet innovation, Congress can, and should, pass sound legislation allowing states to accomplish their aims while still permitting small Internet business to thrive.”
Overstock has long said that Internet retailers would face difficulty trying to collect and remit sales taxes in a patchwork of more than 12,000 state and local taxing districts.
Last week, Overstock said it has started the process to collect sales tax on purchases made by consumers across the nation. It also said it will begin expanding its physical and digital operations — including supply chain, marketing and recruiting — into states “in which tax nexus concerns previously prevented the company from having a direct presence.”
Overstock had $1.74 billion in revenue and a net loss of $109.9 million in 2017. The company’s stock price was as high as $39.45 on the day of the court ruling June 21 but had slipped to about $30.50 the middle of last week.
Following the court ruling, Derek B. Miller, president and CEO of the Salt Lake Chamber and Downtown Alliance, issued a statement supporting the ruling.
“This decision levels the playing field between brick-and-mortar and e-commerce businesses, both of which are critically important to Utah’s economy,” Miller said. “Our state’s sales tax base has been declining over the past several decades, leaving millions in uncollected sales tax from online sales that could go toward essential programs.
“As the voice of Utah’s business community, we now call on our state Legislature to take swift action and pass legislation that allows the state to collect this revenue. The court’s ruling today coupled with action from the Legislature will surely provide a boost to Utah’s economy and ensure our unrivaled business climate continues to thrive.”
State officials have estimated that Utah loses out on about $200 million annually when online retailers fail to collect state sales taxes.
The Utah Taxpayers Association said that because the uncollected taxes “are already due through the state income tax return filing on the use tax line, the association does not find this decision to be a tax increase for Utahns. Rather, this will assist Utahns to more easily comply with a longstanding state law.”
“We applaud the decision made by the Supreme Court today,” said Billy Hesterman, vice president of the association. “For too long, out-of-state retailers have had the upper hand over our local, in-state stores. This ruling now levels the playing field and allows the market to pick the winners and not an antiquated tax law.”
Hesterman said the association looks forward to working with the Legislature “to see that Utah uses the new revenue from this tax change to lower tax burdens across the state for Utah’s families and businesses.”
The Supreme Court ruling overturned a 1992 court decision giving online retailers what was considered a sales tax advantage. South Dakota two year ago filed a lawsuit against online retailers Wayfair, Overstock and Newegg related to state tax collection.
In the majority opinion written by Justice Anthony Kennedy, the court noted that South Dakota was losing between $48 million and $58 million annually in sales taxes not collected by online retailers. That figure balloons to between $8 billion and $33 billion annually nationwide, he wrote.
“The physical presence rule has long been criticized as giving out-of-state sellers an advantage. Each year, it becomes further removed from economic reality and results in significant revenue losses to the states,” Kennedy wrote.
E-commerce sales were estimated at $453.5 billion last year, he wrote. They account for 8.9 percent of total U.S. retail sales, “and it is likely that this percentage will increase. Last year, e-commerce grew at four times the rate of traditional retail, and it shows no sign of any slower pace.”