Overstock.com threatens if Mass. taxes online sales

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March 1, 2013, 7:58 pm
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(NECN: Peter Howe, Boston) - A number of Massachusetts companies are making anywhere from a few hundred to many thousands of dollars each month by running advertisements on their websites driving traffic from shoppers to Overstock.com.

But that’s profit the Utah e-tailer is now warning legislators on Beacon Hill it will yank off the table if Massachusetts enacts a law requiring companies with "affiliate" networks like Overstock’s to collect the 6.25 percent state sales tax on purchases made by Bay State residents.

In a letter to Massachusetts affiliates made available to the media, acting CEO Jonathan Johnson wrote: "We believe these bills are not only harmful to business, but unconstitutional ... (and) if any of these bills pass, overstock dot com will sever its relationships with all Massachusetts based affiliate advertisers before any bill becomes law." Johnson added: "We have done this in each state where such legislation has passed."

Johnson cited three specific bills: House 2762, Senate 1330, and Senate 1462, whose main sponsors are Rep. Marty Walsh and Sen. Sonia Chang-Diaz, both Boston Democrats, and Sen. Jamie Eldridge, an Acton Democrat.

"These bills are bad for business and bad for Massachusetts," Johnson wrote.

With online retailing king Amazon.com now agreeing to collect Massachusetts sales tax this coming November, Jon Hurst, president of the Retailers Association of Massachusetts, said Overstock's a holdout, and effectively threatening small local vendors to protect its own unwarranted profits.

"Overstock certainly has not agreed to collect anywhere, and they've been really a bully on all this," Hurst said. "They use the local affiliates to ultimately do their lobbying work in order to try to prevent these laws from passing."

In Overstock’s affiliate program, website owners can make a 1 percent commission on media and electronics sales, 5 percent on watches, apparel and jewelry, and 7 percent on many other merchandise categories for running web links or banner ads or other clickable features that send buyers to Overstock’s website to buy items.

Overstock general counsel Mark Griffin said he couldn’t immediately specify how many Massachusetts-based entities are Overstock affiliates.

Unclear in the debate is what could happen to vendors who sell products through Overstock and depend on it for some portion of their sales, which may come through affiliate ads. One Bay State vendor whose products show up on Overstock.com is KidzSack in West Newbury, which makes travel-souvenir activity backpacks for kids typically sold as custom-branded products in hotel and museum gift shops and generically online. Tina Hill, KidzSack owner, said in a phone interview, "I don’t get a lot of sales from Overstock … and frankly, they don’t make it very easy for you to do business with them."

Hurst said retailers have for several years endorsed the state legislation triggering online vendor tax-collection responsibility if they have affiliates in the state, and still do this year. But, he said, they will be putting more energy behind getting the U.S. Congress to enact legislation overturning a 1992 Supreme Court ruling and require that whatever taxes states collect through physical stores, they must collect from online retailers, too.

"Only Congress can fix that problem, so that's where our real efforts are right now, is on that federal legislation," Hurst said, "to get Congress to do the right thing that will go after the Overstocks for all 50 states."

With videographer Rich Mazzarella

Tags: Boston, massachusetts, Peter Howe, Jon Hurst, online sales tax, Retailers Association of Massachusetts, Overstock, affiliate marketers, Jonathan Johnson
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