we have a spending revenue problem. we need to start soon to make these tough choices so the american economy can work for us and not against us. > host: a question on twitter. instead of .. -- pay 22% if we fail. could that change the bond rating? guest: it is not going to take that dramatic a decline on the first step. we are not saying 6% now. that is what the scary situation is. we have historically low interest rates. people are not buying our bonds.

we can sell short-term debt, because it is still a safe investment relatively. investment rates go up and we will feel it very quickly. we have a lot in these low rates over a long term. that is the risk. our risk could be downgraded if we raise the debt ceiling limit and does something credible to demonstrated that we will start putting our finances in order,

ceo of overstocked dhaka, and scott peterson of the streamlined sales tax governing board explain their views. one of the issues be wishing state governments with tight budgets, local retailers, national on-line retailers and now congress is the issue of internet sales tax. that's our issue on the communicators. joining from salt lake city is the chairman and ceo of overstocked of calm, patrick byrne. mr. byrne, why shouldn't online retailers such as overstock .com collect sales tax for states? >> there's a constitutional argument and policy argument. what you want to hear first?

constitutional argument is this was taken of 20 years ago by the supreme court with regards to quell which is an office supply retailer north dakota and illinois, north dakota one after them. they had to collect taxes, have an early computer program you can go online and check in order things a lot like a website. it went when north it would try to get them to collect taxes once the supreme court found 8-1 in north dakota that under the article 1 of the commerce clause of the constitution commerce clause has the right to regulate regulate interstate commerce and that has been inferred with a call the durbin duty to dormant commerce clause which is the state has the right to impede or

burden, the supreme court found h-1 to force and hosted retailer violates the constitution. they left open to the u.s. and the power to do, to create some sort of national system of the congress hasn't done that. so, this is it goes against the green of the supreme court decision from 20 years ago. then i found on the policy side its -- it goes after people, websites like ours. we have an affiliate, an affiliate marketing relationship with anyone in california. 40 paulson in this country or affiliates in somebody made pocket change increate the sights and might link to us and amazon and anyone that goes through their site to as we pay commissions and of california says that's the same thing as having a factory in california. so, we are saying we are very

sorry because we love these affiliates that have a relationship with them so thousands of people get their businesses destroyed by california's act and the experience is that it doesn't actually raise the revenue because people move to wisconsin or neighboring states so it's bad constitutional policy. so does it give overstock.com or amazon and unfair and that is on the brick and mortar retailer? >> no it doesn't give an unfair advantage. although you've hit the nail on the head. first of all wal-mart and target because they unequivocally have a presence in all the states, brick and mortar stores they have to collect taxes even online so wal-mart and target have been hiring lobbyists for two or three years, so this is really ought wal-mart target bill. they're just hiding behind a smokescreen calling on the

retailer's but never care about ferris amine st retailers. >> gautham nagesh? >> thank you. now can you tell blood collecting and sales tax would have on your business? if you can quantify the would be great if you could describe the process of the burden. >> the impact would be there is about 12% of the u.s. population in california and about ten to 15% of the commerce runs through affiliate's so if you multiply those together you get about 2%. so about -- by california, you are passing this it means of of that 2% of revenue because we have to end those relationships. and in addition, this world of ifill yet marketing is i call it the ho chi minh war of the fleas

against the elephant. the companies that somebody may be a schoolteacher and have a web site at night she maintains calls best buy on purses dhaka, and then people looking for purses come to her side and she has found purses from 20 different retailers and they buy or not and people click and come to our site and purchase so she might be making now thousands of dollars a month on the side and in some of these people are multimillion-dollar businesses, and when a state like california or rhode island or arkansas past of these laws it means we have to say we are sorry these affiliate's have helped us. we have won all kind of awards from the affiliate industry and we are sorry that we have to end

so that's the effect on us and the affiliates. >> you mentioned the affiliate's but the contention when we talk about this issue is what exactly constitutes the physical presence in the state that would make the company liable for sales tax? can you describe what you view as what should constitute as the presence because we have seen amazon this has been an issue regarding warehouses in their case i believe in texas a judge ruled they had a physical presence on the basis of the facility similar facility. what should constitute a presence and are there any states in which overstock has a presence in the pay sales taxes? >> welcome nagesh that is a fair question and a fair point and i don't get in the business of hitting any particular competitor but i think a warehouse is a physical presence, and frankly i believe

that amazon has pushed us jerry hard for years. they create warehouses in places like texas and then they say we don't own the warehouse we put it in a subsidiary and the subsidiary owns the warehouse and they do that all over the states. well, i think that's pretty transparent and that is a legal fiction, and we don't buy into that. we have a warehouse in utah. there was a point we opened a warehouse in indiana, and when we did, we paid taxes in indiana and shut and brought it all back to utah. we are considering opening a warehouse now in kentucky, and part of our planning is open a warehouse we are not going to play these games and put it in a subsidiary and that means we don't have to pay taxes there. so i think for the amazon and frankly has pushed the line very, very hard with their

strategy of having warehouses but in subsidiaries to it that as a question i would be more open to the state's position on that. at the risk of people saying you're just saying this about a competitor. >> what is the status of the new york legal -- what is the new york legal status right now? >> new york passed the same kind of all. we ended our relationship with affiliates, so did amazon, and amazon filed a suit and the appellate court the state court ruled quickly against amazon but it got kicked immediately up to the appellate court in the state supreme court now to decide this. they don't get kicked back until it reaches the supreme court and have it a choice between standing by the analysis they did in 1991 versus north dakota

or changing the whole background command but until they do that i think they are confident once this gets kicked up the levels from new york to the supreme court will be decided against new york unless a sharp turn in supreme court's reasoning 20 years ago to a completely taking the other side now. >> argue collecting sales tax in new york and what about california? >> we are collecting sales tax in neither place because as soon as it gets past for the night before it gets past or becomes effective, we send an e-mail to all of our affiliate's saying we are sorry, we think you we've built a nice business together but as long as your state has this law enforced we have to sever the relationship, so we keep on those because as soon as they expand the definition of nexus to include a relationship

with those small businesses we sever the relationship, so we don't have a question that we should be in our view of collecting tax. but with amazon the of countries to leave good companies like the kindle software developers still wasn't quite as simple for them to really make sure they didn't have these relationships. >> you discussed the legislation as being propelled by target and wal-mart obviously large national retailers but there are two points the center of the policy which is one, a shortage of revenue in the budgetary climate from 4.7 to 11.4 billion in terms of the estimated liability should they have to pay the sales tax and main

street retailers and unfair competition sales tax in most states that would seem to be a sizable what vantage when you add the other and vintages so leaving aside target and wal-mart would you say to concerns from states that they are small retailers losing to overstock or amazon and they are no longer available to pay taxes so that's a net loss on both ends? >> first of all, overstock for now o.co supports the man we had this a year-and-a-half supports means retailers and manufacturers doing everything we can for them as an aside. the main response i would say is taxes don't come out of a burning bush somewhere. taxes are the name for the price the government sets on its services. it's just the price they are

sitting on the services and when anybody raises the price of something, when the plumber raises the price of the services, and that's what is happening. and we consume less of the services of the state of them a store but wal-mart or a small store by having people having the police force, the fire department, having people in school and so forth, the store is consuming more resources from the staid and we are just by having a ups driver delivers something. so it seems extraordinarily unfair to say that we should save the same price for the services of the state sort of friendly by the fact that degette kutz our direction. >> would you like to see

congress do if anything? >> if this is to be done, i would say what they could do is set up as a sort of streamlined national sales tax, some rule that said 7,000 jurisdictions in america in some jurisdictions cotton candy is food and some as entertainment, different tax rates and a 7,000 jurisdictions have to create some central data bank that says okay these jurisdictions have every possible thing as millions of products are classified as this type of thing with this tax rate and some central database that could be interrogated by retailers, and the least that would get pass the the argument that the decision basically says it is unfairly burden some to expect mean to know what the tax

rate is. so, at least congress could if they made some regular national system and provided the creation of the sort of a central database it would at least get by the arguments in quill. >> gautham nagesh. islamic have you been in contact with cementer durbin or familiar with the legislation he is drafted and it's still in the stages and would that constitute an acceptable solution to o.co? >> i'm not familiar. he would have to tell me. i don't know the specifics. >> amine st fairness act is what she's calling it. >> okay. that would be his national washington created system; is that what you're asking me? >> yes, sir. >> if they did that i think that would get a body the constitutionality test. but i before that? i think i would be against it

and say we are consuming a lot less resources from any particular state the and somebody that's physically located there so i don't know if it would get past in my view the fairness or achieve the ended is trying to achieve but it would at least be constitutional. >> please finish. >> of the supreme court decision did specifically carve out this is the way things stand now but the u.s. congress under the same article 1 section eight would have the power to create a solution to the problem but states can't do it unilaterally so we get by the constitutional issue. >> final question from gautham stifel. >> we are seeing a referendum or effort for the next election. is that something you support or independent of o.co?

>> and california? >> yes. >> we are supportive, there isn't a lot of cooperation on many issues between us and amazon, but i think this is a good referendum and released good that they are giving the people the right to choose, the people are getting the right to choose with their business model is and it's not being opposed in sacramento so in that sense i like the fact they're doing the referendum but you will not see us involved. >> if you would give a snapshot of your company and why you changed the name from overstock.com to o.co. >> overstock is an online discount shopping that's what we started off as an outlet store you would drive to an outlet mall. 200 a thousand products plus books and games and we brought the lowest price on the internet

and they really are the lowest prices and we liquidate inventory for people so we don't claim that everything it reveals house but what we have is 80, 80 % cheaper and we changed the name from said overstock to o.co because we are going global with it will be easier to teach a billion folks in china what o.co is the end overstock and we decided was catching on within the u.s. between 20 to 40% of our business is already shifted over from oversight to o.co so we decided to go with it and make up the brand and >> host: fled the transition from overstocked to o.co. >> how many employees and revenues? >> 1600 employees, 1.1 billion revenue profitable $8 million to years agreed 14 million last year as 30 million operating cash flow so a nice business

emerging. s chemical 1600 employees in utah? >> everyone of them. that monopoly read the top of the box. we've read the top of the box understand the rules and organize our business model this way and maybe that's why we resent other people coming in and working out what part of the rules the like. >> patrick byrne as the ceo of o.co also known as overstock.com. thank you. for joining us from salt lake and as we continue sales tax next to scott peterson director of the streamlined sales tax governing board it's a group that works with the state's to find a solution to the internet sales tax issue. we will be right back. >> continuing our conversation about internet sales tax half, communicators joining scott peterson who's an executive director of the streamlined sales tax governing board.

first of all what is your organization? >> state governments whose principal purpose is to reduce the burden retailers face as they try to collect the taxes. >> we finished talking with patrick byrne of overstock.com and he told us why he doesn't think a company based solely and utah should have to collect sales tax from all the different taxing jurisdictions around the country. why do you think a company like overstock should? >> our view is that the retail has changed and there was a time when retailing was impossible across the boundaries even though some tried to engage in business across the boundaries. today it's extremely simple to engage in the business, and the world is slowly moving towards the majority in the sales in this country and this tax will

cease to exist but it's perfectly suited for collecting sales tax because sales tax is best done and is fully automated and the internet is formation. they built this company steal money to people. it is hardly anybody that touches a transaction on the internet and the software today for companies that do collect sales tax on all their sales is simple to install and operates but almost no errors. >> philosophically do you think that quill decision is outdated? >> i think it's all dated the day that it was made. physical presence is probably the worst test one can fink of to make this possible because the physical presence and the least ability for the sales tax. i talked to a lot of retailers around the 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 or at an antiques show over the weekend. every one of those people has to collect sales tax everywhere they go and once decree that presence in tennessee every time they make a sale regardless how they make it over the phone or the internet to have to collect sales tax whereas it hits those people as the least ability to do the hardest while those who are the greatest technology companies don't have to do it and they are the ones most perfectly suited to do it. >> gautham nagesh. >> on sales tax he said the decision is outdated do you believe there's a chance they would be willing to address or reverse it doesn't as currently constituted? >> it's going to take creativity where we can prove to the court

the facts have changed. the court isn't going to be evaluated its legal position, but it is we think possible to get the court to reevaluate the facts and the facts in the quill decision were not good for today's environment because this is long before the internet, still talking about a legacy industry doing things to the catalogs whereas today the prevalent way of making sales remotely because we think they changed and we have the opportunity to ask them to reconsider. >> absolutely. now in that decision, mike understanding is there was concern to a number of different tax jurisdictions and varying rates and you said that's something that can be addressed because the internet allows the mission. can you talk about the difficulty? mr. byrne told us it is onerous and as an organization that

helps the retailers navigate that you can offer your perspective. >> one of the requirements we make a mistake at the request of the retailers was to figure of boundaries. they said they always have to the boundary analysis themselves, so they had to figure out what city was changing its boundaries and build that into their computer system and be responsible for any errors. we require states to do that and give the date of retailers no cost and all the liability than is on the state's for any errors that might happen in that, but the world in retailing and remote commerce is tied to two things come as a cook and your tax rate and a free streamline state has to build a database on all of the nine digit zip codes that exist in the state and in the corresponding tax rate and give a fat-free so all they have to do is build that into their

system or we would prefer to use the software that we are trying to get the world to use which does all of this for them. we have a thing called a service provider which isn't a very fancy name, but it describes the relationships these folks have which is we certify the systems are accurate and that the systems will calculate the sales tax every time and in any jurisdiction of the country and give complete relief just in case there happens to be in error. >> to be clear you're talking about collecting sales tax in all states not just the ones the retailer has a difficult presence? >> that's correct we don't believe that physical presence is a valid test or that retailing is now a business that is solely done where you are located my customers are everywhere. i don't need to have a warehouse

or have somebody packaging i can outsource 100% of my business to really need is to come up with an idea, go to amazon or google or yahoo! and ask them to enter into a contract with a bunch of suppliers to provide the information are the products and be a third-party shippers and only have to do is sit in my basement and watch the money brolin. and the software that goes along with your credit card and creating your store and the tracking is exactly like what exists today for the sales tax. >> could that lead to even more offshore businesses such such as the bomb was? so you don't have to worry about the sales tax issue. >> there is concern about that but it's not very much because of the stuff has to go to the customers and to the extent that someone is able to bring something to the united states without going to customs i

suppose that could happen that the overwhelming majority becomes through customs, so there has to be some -- the federal government actually has a hand in helping the states administer that sales tax, not a very good hand but there is some discussion that there would be something that we would want to make sure doesn't happen to the islamic what about the argument as raised by "the wall street journal" editorial page and others that an overstock of calm to doesn't require the same services the local grocery store or pharmacy local macy's may need in that city if it burns down it isn't going to come to the overstock rescue in utah. >> we are confusing the tax collection burden and the tax burden. the tax burden in this situation is the consumers and the consumer does use the fire department where they are

sitting. their house burns while the ups truck shows op with the box that fighter department is going to protect the trucks and the customer. you can make an argument that the state may not have the right to tax the income although there's a lot of states that disagree with that. but that is the only burden on the tax burden on overstock. all we are asking them to do is collect customer sales tax. they collect today they presumably benefit from the utah sales-tax and corporate offices but it's the customers who's fire departments are not being funded because overstock sales tax. >> there is the other issue of how the