nonfiction books all weekend every weekend right here on c-span2. .. >> should carry a sales tax. patrick byrne, the ceo of overstock.com, and be scott peterson of the streamlined sales tax governing board explain their differing views. >> host: well, one of the issues

bewitching state governments with tight budgets, local retailers, national online retailers and now congress is the issue of internet sales tax. that's our issue this week on "the communicators." joining us from salt lake city is the chairman and ceo of overstock.com, patrick birr. gautham georgia again of "the hill" newspaper is our guest reporter. why shouldn't online retailers collect sales tax for states? >> guest: well, there's a constitutional argument and a policy argument. which do you want to hear first? >> host: go with both. >> guest: okay. constitutional argument is this was all taken up 20 years ago by the supreme court with regards to quill which is a office supply retailer. north dakota went with after them trying to -- it was based in illinois. north dakota went after them,

people to have -- them to pay taxes. you could go online, order things, so a lot like a web site. north dakota tried to get them to collect taxes, went to the supreme court. supreme court found 8-1 that under the article i, section 8 of the constitution, the commerce clause says congress has the right to regulate interstate commerce. and that, from that has been inferred what they call the dormant commerce clause which is the states have the right to impede or burden interstate commerce, and the supreme court found 8-1 to that trying to force an out of state retailer to collect tax violates the constitution. now, they left open to the u.s. government the power to create some sort of national system, but the u.s. congress has not done that. so this flagrantly goes against

the grain of a supreme court decision from 20 years ago. and then on the policy side it's, it goes after people, web site like ours. if we have an affiliate, an affiliate marketing relationship with anyone in california, say, 40,000 people in this country who are affiliates, and, you know, somebody just in their spare time makes some pocket change, they create these sites, they might link to us, they link to amazon, anyone who goes through their site to us we pay a commission, and so now california's saying the same thing as having a factory in california. so we are saying, well, we're very sorry because we love these affiliates, but we end our relationships since thousands of people get their businesses destroyed by california's act, and the experience of people who have done this is that it doesn't actually raise new revenue because people just move to wisconsin or some neighboring state. so it's bad constitutionally,

and it's bad policy. >> host: does it give an overstock.com or an amazon an advantage, though, over a brick and mortar retailer? >> guest: no, it does not give an unfair advantage, although you've hit the nail on the head. the push by walmart and target because they unequivocally have a presence in these states, they have to collect taxes even online, so walmart and target have been hiring lobbyists for two or three years, so this is really all the walmart, target bill. they're just hiding behind a smoke screen. they're calling unfair to retailers. >> host: what impact would collecting a sales tax have onour business? describe, also, the burden.

>> guest: okay. the impact would be, you know, there's about 12% of the u.s. population is in california, and about 10-15% of e-commerce runs think affiliates. so if you multiply those two together, you know, you get about 2%. so by california passing this it means that off about 2% of revenue because we have to end those relationships. and, and in addition i've always thought this world of affiliate marketing i call the ho chi minh war of the fleas against the elephant. they're tiny companies that somebody may, you know, be a schoolteacher and have a web site at night that she maintains called best buyen purses.com. and then people who are looking for purses come to her sight, she's -- site, she's found purses from be 20 different

internet retailers and, you know, she writes a little blog about what she think is the a good buy or not, and people click and come to our site and purchase. so she might be making, you know, thousands of dollars a month on the side. and some of these people are sort of million, multimillion dollar businesses. and when a state like california or rhode island or illinois or arkansas passed these laws, it means we have to say we're sorry, these affiliates have helped us. we've really, we've won all kinds of awards from the affiliate industry of working with these people, but we just have to say, look, sorry, we have to end our relationship. so that's the effect on us and on the affiliates. >> you've mentioned the affiliates, but one of the main issues of contention is what exactly constitutes a physical presence in a state that would thereby make the company liable for sales taxes. can you describe what you view as what should constitute a

physical presence? because we've seen amazon, this has been an issue regarding warehouses in their case, i believe in texas a judge ruled that they had a physical presence on the basis of some similar facility. what do you think should constitute a physical presence, and are there any states in which overstock current hi has a -- currently has a physical presence? >> mr. nagesh, that's a fair question, and that's a fair point. and i don't like to get in the business of hitting any particular competitor, but i would say a physical presence, i think a warehouse is certainly a physical presence. and, frankly, i believe that amazon has pushed this very, very hard for years. subsidiary owns the warehouse, and they do that all over the states. well, i think that's pretty

transparent, and i think that that's just a legal fiction, and i don't -- we don't buy into that. now, we have a warehouse in utah. we have a couple warehouses in utah. there was a point we opened a ware in indiana, and when we did, we paid taxes in indiana. then we shut the ware and brought it all back to utah. we're considering opening a warehouse in kentucky, and part of our planning is if we open the warehouse, we're not going to play these games and put it in a subsidiary and that means we don't have to pay tax there. so i think amazon, frankly, has pushed the line here very, very hard with their strategy of having warehouses but just parking them in subsidiaries. so that's a different question, and i would be more open to the state's position on that. at the risk of people saying, well, you're just saying this about a competitor. is. >> host: mr. byrne, what's the status of the new york legal, what's the new york legal status right now?

>> guest: well, new york did the same, passed the same kind of law. we ended our relationship with affiliates, so did amazon, and be amazon filed a suit, and the appellate court, the state court pretty quickly ruled against amazon. but it got kicked immediately up to the appellate court. it may actually be at the new york supreme court now to decide this. it'll just keep getting kicked back until it reaches, i think, the u.s. supreme court, and then they'll really have a choice between standing by the analysis they did in 19991 in quill v. north dakota or sort of changing the whole doctrine. and, but until they do that, i think tax lawyers are pretty confident that once this gets kicked up all the levels from new york up to the supreme court it will be decided against new york, you know, until -- or unless it will be a sharp turn in supreme court reasoning if they go from an 8-1 decision 20 years ago to a completely, to

taking the other side now. >> host: mr. byrne, are you collecting sales tax in be new york, and what about california? >> guest: no, we're collecting sales tax in neither place because as soon as the law gets passed we, or the night before it gets passed or becomes effective, we send an e-mail to all of our affiliates saying, very record ri, we thank you, we built a nice record together, but as long as your state has this law, we have to sever our relationship. as soon as they expand the nexus to include a relationship with those small businesses, we sever the relationships. so we don't have any question in our view that we should be collecting tax. but with amazon it was a little bit different because they already had, they have, they have companies like the kindle software developers are based in the bay area, and they already

have warehouses and stuff. so it really wasn't quite as simple for them to really make sure they didn't have these relationships. >> host: now, mr. byrne, you've discussed the legislation as being propelled by target and walmart. obviously, large national retailers. but from the states' point of view there are two real concerns here that seem to be driving the policy which is, one, a short an of revenue in the current budgetary climate. there have been studies anywhere from 4.7 to 11.4 billion in terms of the estimated liabilities for online retailers should they have to pay the sales tax. and then the other issue, of course, is concern about main street retailers, small retailers and unfair competition. sales tax ranges from 4-8% in most states. that would seem to be a sizable advantage, so leaving aside target and walmart, what would you say to concerns from states that their small retailers are losing business to companies like overstock or amazon, and

then they're no longer available to pay taxes to the state, so that's a net loss on both ends? >> guest: well, i'd have three things to say. first of all, overstock or now o.co has a special division that just supports, and we've had this for a year and a half now, just supports main street retailers and manufacturers, we're doing everything we can for them just as an aside. the main response i would say is taxes, taxes don't come out of a burning bush somewhere. taxes are just the name for the price that a government sets on it services. it's just the price that they're setting on their services, and when anybody raises the price of something, when the plumber raises the price of his services, people buy less of it. and that's what's happening. and we, we consume less of the services of a state than a store does be it walmart, target or even a small store by having

people there, you know, driving, having the police force, having the fire department, having people in school and so forth. the store's consuming many more resources from the state than we are consuming just by having a ups drive and deliver something. so it seems extraordinarily unfair that we should say pay the same price for the services of the state. so i don't, frankly, buy -- i think the fairness argument cuts in our direction. >> host: mr. byrne, do you -- what would you like to see congress do, if anything? >> guest: well, if they're going, if this is to be done, i would say what they could do is one of -- is set up sort of a streamlined national sales tax, some rule that said we're going to -- you know, there are 7,000 taxing jurisdictions in america,

and some jurisdictions cotton candy is food. some it's entertainment, some it's candy. different tax rates in 7,000 jurisdictions. they would have to create some central databank that said, okay, in these 7,000 jurisdictions this is how every possible thing is, you know, millions of products are classified as this type of thing with this tax rate, and there was some central database that could be interrogated by online retailers, and at least that would get past the argument that the quill decision basically said it's unfairly burdensome to expect people being and meaning to know what the -- people in maine to know what the tax is in wichita, kansas, on duck hunting boots. if they provided for the creation of that sort of a central database, it would at least get by the arguments in quill. >> host: gautham that again --

nagesh. >> guest: are you familiar with senator durbin's changes? >> host: no, i'm not familiar. i don't know the specifics. >> host: it's the main street fairness act is what he's calling it. >> guest: that would be -- okay. and that would be sort of this national washington-created system? is that what you're asking me? >> host: yes, sir. >> guest: well p they did that, i -- if they did that, i think that would still be, i think that would get by the constitutionality test. so, now, would i be for snit no the, i think i'd probably still be against it. we're con assuming a lot less resources from any particular state, so i still -- so i don't know if it would get past sort of my view the fairness, or would it achieve the end, its stated end of raising more

money, but it would at least be constitutional. >> host: last question. >> guest: okay, go ahead. >> host: no, no, no. please finish. >> guest: the supreme court decision did actually specifically carve out, you know, this is the way things stand now, but the u.s. congress under the same article i, section 8 would have the power to create a national solution to this problem, but states can't do it unilaterally. so it would get by the constitutional issue. >> host: final question from gautham nagesh. >> host: thank you. we're seeing a referendum or at least an effort to get a ballot measure on the ballot for the next election. is that something you support, or is that indent of o.co? is. >> guest: in california? >> host: yes. >> guest: well, we -- i support it. i think they're right. there's not a whole lot of cooperation on many issues between us and amazon, so you won't see us out there, but i think that they're in in the, i think this is a good referendum, and i think it's at least good that they're having the, they're

giving the pell the right to choose. the people are getting the right to choose what their business model is, and it's not being imposed from sacramento. so in that sense i like the fact that they're doing this referendum, but you won't see us involved. >> host: and finally, give us a snapshot of your company and why you changed the name from overstock.com to o.be co. -- o.co. >> guest: 200,000 products plus books, movies, music, games, and we have the lowest price on the internet. and they really are the lowest prices. and we with liquidate inventory for people, so they're great -- we don't claim to have everything everybody else has, but what we have is 80-85% of the time it's cheaper. and we changed the name from overstock to o.co both because we're going global and it's

going to be a lot easier to teach a billion people in china what o.co is, and 20-40% of our business has shifted over, so we just decided to go with it and make that the brand. it's be the esso to exxon transition in the '70s. >> host: how many employees and revenues? >> guest: service 00 employees -- 1600 employees, $1.1 billion in revenue, made $8 million last year, 14 million last year, so we have a nice little business emerging here in utah. >> host: and all 1600 employees in utah? >> guest: every one of them. when you want to play monopoly, read the top of the box. we read the box, understood the rules and organized our business model this way, and maybe that's why we resent other people coming in and sort of wiping out what part of the rules they like.

>> host: patrick byrne is the chairman and ceo of o.co, also known as overstock.com. thank you, sir, for joining us from salt lake, and as we continue our conversation on the issue of internet sales tax, up next is scott peterson, executive director of the streamlined sales tax governing board. it's a group that works with the states to find a solution to the internet sales tax issue. we'll be right back. >> host: and we're continuing our conversation about internet sales tax on "the communicators." now joining us, scott peterson, who is executive director of the streamlined sales tax governing board. first of all, mr. peterson, what is your organization? >> >> guest: we're an organization of state governments whose principle purpose is to reduce the burden that retailers face as they're trying to collect state sales taxes. ?rts well, we just finished talking with patrick byrne of overstock.com, and he told us why he doesn't think a company such as his, based solely in

utah, should have to collect sales tax from all the different taxing jurisdictions around the country. why do you think that a company like overstock should? >> guest: we, our view is that retailing has changed, and there was a time when retailing was impossible across state boundaries even though some tried to engage in business across state boundaries. today it's extremely simple to engage in interstate business, and the world is slowly moving toward a -- not in the too distant future we'll be the majority in internet sales in this country. and at that point in time the state sales tax will have ceased to exist. but the internet, frankly, was -- is perfectly suited for collecting sales tax because sale tax is best done when it's fully automated, and the internet is built for automation. they built those companies to eliminate people, frankly. there is hardly anybody that touches a transaction on the internet, and the software that

exists today for companies that do collect sales tax on all their sales is very simple to ip stall, and it operates with almost no errors. >> host: but philosophically do you think that the quill dig is outdated? >> guest: i do believe, i think, frankly, quill was outdated the day it was made. physical presence is probably the worst test one can possibly think of, think up to test, to make this thing possible because the people who often have the physical presence are the people who have the least ability to collect sales tax. i talk to a lot of retailers around this country and a lot of manufacturers and service providers who are mom and pop service providers, and because of how they do business they have to collect sales tax. my wife and i were at an antique glass show over the weekend. every one of those people, and they were all from outside of tennessee, every one of those people has to collect sales tack everywhere they go. every time they make a sale in tennessee, regardless of how

they make it, they have to collect tennessee sales tax. whereas -- and so it hits those people who have the least ability to do it the hard while those who are arguably the world's greatest technology companies don't have to do it, and they're the ones that are most perfectly suited to do it. >> host: gautham nagesh of "the hill. ". >> host: thank you. you said the quill decision is outdated. do you believe that there's any chance that the supreme court would be willing to readdress or reverse that decision as it's currently constituted? >> guest: it's going to take a lot of creativity to come up with a set of facts where we can prove to the court that the facts have changed. the court suspect going to revalue -- isn't going to reevaluate its legal decision, but it is, we think, possible to get the court to reevaluate facts. and the facts in the quill decision, frankly, weren't particularly good for today's environment because that was long before the internet, we were still talking about a

legacy industry that was doing things through catalogs whereas today, you know, while there's still a very large catalog industry in this country, it is not the prevalent way of making sales remotely. and because we think the facts have changed, we think we have at least an opportunity to ask them to reconsider. >> host: absolutely. now n that decision my understanding is that there was some concern to the number of different tax jurisdictions and the varying rates, and you said that's something that can be addressed because the internet allows for automation. can you talk about that difficulty? mr. byrne told us it's quite onerous, and as an organization that helps retailers navigate that, you can offer your perspective. >> guest: one of the requirements we make on states at the request of retailers was to figure out boundaries. retailers told us they always had to do the boundary analysis themselves, so they had to figure out which city was changing its boundaries on any given day and build that into

their computer system and be responsible for errors. the streamline sales tax governing board requires states to do that for them and give that data to retailers at no cost. all the liability is on the states then for any errors that are in that. but, i mean, computers are built for numbers, and the world this retailing and remote commerce is tie today two things, your zip code and your tax rate. and every streamline state has to build a database of all the nine-digit zip codes that exist inside their state and a corresponding tax rate, and give that away free to the retailers. all the retailers have to do is build that into their system or what we would actually prefer is that they use the software that we, that we're trying to get the whole world to use which does all this for them. we have a thing called a certified service provider which is not a very fancy name, but it describes the relationship that these folks have with the states which is we certify that their

systems are accurate, we certify that their systems will calculate the right sales tax every time in any jurisdiction in this country, and then we give to the sellers who use it complete liability relief just in case there happens to be an error in it. >> host: to be clear, you're talking about collecting sales tax in all states, not just the ones where the retailer has a physical presence. >> guest: yes, that's correct. we don't believe physical presence is a valid test anymore. we don't believe retailing is now a business that's solely done where you are located. your customers are everywhere. my customers are everywhere. i don't need to have, i don't need to have a store, i don't need to have a warehouse, i don't need to have somebody packaging boxes. i can outsource 100% of my business. all i need to do is come up with an idea, to -- go to amazon or google or yao and ask them to -- yahoo! and ask them to create a store for them, have them be

third party drop shippers, and all i have to do is sit in my pacement and watch the -- basement and watch the money roll in. you're creating the drop shipment tracking and it's exactly like what existed today for sales tax administration. >> host: mr. peterson, could that lead to even more offshore businesses such as moving to the bahamas and doing it in the bahamas so you don't have to worry about the sales tax issue? >> guest: there is some concern about that, but it's not really very much because all the stuff that comes into the united states has to go through customs, and to the extent someone was able to bring things in without going through customs, i suppose that could happen. but the majority does, and the federal government actually has a hand in helping the states administer that part of the sales tax. not a very good hand, mind you, but there is some discussion, and that would be something we would want to make sure doesn't happen. >> host: what about the argument

such as raised by "the wall street journal" editorial page and others that an overstock.com doesn't require the same services that a local grocery store or a local pharmacy, whatever, a local macy's may need in that city? if it burns down, you know, the macy's in the local city is not going to come to overstock's rescue in utah. >> guest: and that's very cute, but i think we're confusing tax collection burden and tax burden. the tax burden in this situation is the consumers. and the consumer does use the fire department and the police department where they are sutting. their house burn-- sitting. their house burns while the ups truck shows up, that fire department's going to protect ups truck, overstock's box and the customer. you could make an argument that the state may not have the right to tax the income of overstock.com, although there's a lot of states that disagree

with that, but that's the only direct burden on, tax burden on overstock. all we're asking overstock to do is collect their customers' sales tax. they collect sales tax in utah today, they presumably benefit from the fire protection and police protection that the utah sales tax provide to their corporate offices, but it's their customers whose fire departments and police departments are not being funded because overstock's not collecting sales tax. >> host: of course, there's also the other issue of how the taxation differences effect small business bees or retailers in states, physical and online. in your view there's been estimates anywhere from 5 billion to 11 billion of the amount of revenue that could be collected if sales taxes were applied online. does your organization have any estimate of how much that shortfall is, and how do you think it impacts retailers in states where they are at the disadvantage to online

companies? >> guest: our estimate for 2012 is it is a total of $23 billion in lost revenue from, lost collections from both online sales, catalog sales, 1-800 sales, television sales. in our world all of those things are equal. you know, they're smaller compared to what the internet is becoming, but they're all part of the big package. we think that is actually, that that estimate was given to us in 2009, and the authors of that estimate now think it's low. and we're very concerned that it's going to be much higher than that, and it will continue to get much higher. obviously, the collection is an issue for the states and local governments that allow on that revenue, but those folks in the little towns across this country trying to make a living selling to the people inside their community that have an automatic 6-8%