Overstock exits Arkansas; cites tax law change

Salt Lake City-based Overstock.com announced Friday it is pulling out of Arkansas after Gov. Mike Beebe signed into law a bill requiring online retailers to remit tax collections like their bricks-and-mortar competitors.

SB 738, carried in the Arkansas Senate by Sen. Jake Files, R-Fort Smith, was designed to close a loophole in tax law that puts Arkansas small businesses — those that collect sales taxes locally — at a competitive disadvantage.

With the bill now law, Arkansas joins other states seeking to level the playing field between local retailers and large online retailers. Discount online retail giants like Amazon.com or Overstock.com don’t currently collect sales tax on items sold. They contend that customers are obligated to make the payments voluntarily.

“This bill doesn’t create any new taxes," Files said when he filed the bill. "It ensures that sales taxes already due are collected in a more efficient way. This will give consumers the peace of mind that they aren’t going to be liable for paying sales taxes after making online purchases, as they are now."

But officials with Overstock.com say the law is unconstitutional because it forces out-of-state retailers to collect sales tax merely for using in-state ad services. The company said it will cancel all ad contracts in Arkansas and will end relationships with affiliate sellers in the state. Overstock has taken similar actions in Illinois, New York, North Carolina and Rhode Island.

"We will cut marketing ties in any state passing laws making out-of-state retailers collect sales tax simply for having marketing affiliates in those states," Overstock.com CEO Patrick Byrne said in a statement. "We have ended our relationships with the all marketing affiliates in Arkansas, and we will take the money we would normally pay those affiliates, and use it to reward our best customers in Arkansas.”

The company, which employs just under 1,300 and posted 2009 revenue of $876.769 million, is an online retailer that sells a range of products from bedding to electronics to clothing and appliances. Overstock.com also provides manufacturers, distributors and other retailers an alternative sales outlet.

Files said he regrets the decision, but stands by the new law.

“I regret that a company like Overstock.com would choose to pull its affiliate relationships, but if they can’t compete on service and price on a level playing field in Arkansas, that is their prerogative,” Files said. “I think we have and will continue to do things in Arkansas that encourage and incentivize businesses to locate, build, and grow here, and we want people and companies who want to compete on merit and not on unfair advantages like not being willing to collect a tax that is due.”

Matt DeCample, spokesman for Gov. Mike Beebe, said if Overstock doesn’t want to operate in a state with a law creating a level playing field for merchants in- and out-of-state, that’s their call.

“That’s their initiative to take. … If they are not going to try to advertise and compete in Arkansas, that’s fine by us,” DeCample said.