States' Tax Plans Backfire as e-tailer Ends Affiliate Relationships

SALT LAKE CITY, July 1 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today sent notices to all of its affiliate advertisers in California, Hawaii, North Carolina and Rhode Island that it is dropping their services owing to eminent passage of laws requiring internet retailers to collect taxes if they have local affiliate advertisers.

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In May 2008, Overstock.com ended its relationship with over 3,400 of its New York advertising affiliates and sued the state when New York enacted the first of these anti-internet advertising laws. The suit is still pending along with a sister suit brought by Amazon.com.

'It's painful to have to terminate these relationships with affiliates, simply because they live in states where counterproductive (and likely unconstitutional) laws are being passed,' said Patrick Byrne, Chairman and Chief Executive Officer of Overstock.com. 'However, politicians have to remember that a tax is a price that government charges for a service, and when they raise their prices, we're going to buy less of their services.'

Overstock.com's President, Jonathan Johnson, added: 'Internet advertising is a tidy little business that can be done by just about anyone, anywhere on the globe. When states unwisely and unconstitutionally pass these laws, their local internet ad business will quickly go dark, and that business will simply migrate to states more friendly to internet commerce. In the end, the only thing to be accomplished by these laws will be to put more local citizens out of work--exactly the wrong choice in a down economy.'

Overstock.com's action comes on the heels of Amazon's recent termination of its own North Carolina, Rhode Island, and Hawaii internet ad affiliates.

A handful of other states have considered similar laws which attempt an end-run around U.S. Supreme Court decisions requiring that a company have 'physical presence' in a state before it can enforce sales tax collection obligations.