Corporate Tax Chat With Jonathan Johnson of Overstock.com

Overstock.com, Inc. was among the original plaintiffs in South Dakota v. Wayfair, decided June 21, 2018, when the U.S. Supreme Court tossed out the physical presence standard limiting states from requiring tax collection and remittance on remote sales. The ruling ushered in a new era of state sales tax laws and rules based on the economic activity of out-of-state sellers and marketplace facilitators.

Jonathan Johnson, Overstock’s CEO, recently responded to questions from Bloomberg Tax about the compliance challenges facing online marketplaces in the wake of the decision, and the concerns of e-commerce retailers as aftershocks of the seminal court case continue for a third year.

Johnson oversees and sets the direction for both Overstock Retail and a subsidiary, Medici Ventures, a blockchain technology company. Prior to joining Overstock, he was with TenFold Corp. in various positions, including as CFO and general counsel. Before that, he practiced corporate law in Los Angeles with two international law firms and served as a judicial clerk at the Utah Supreme Court.

Bloomberg Tax: Two years after Wayfair, what has been the chief compliance challenge with remote sales and marketplace facilitator tax requirements?

Johnson: The challenge has been the sheer number of taxing jurisdictions, which include states, counties, cities and other taxing jurisdictions. We were a named party in the Wayfair case. While we thought the Supreme Court would rule in our favor, we prepared for an adverse ruling. So, when the Supreme Court ruled as it did, we had integrated with a software provider and were able to begin collecting and remitting remote sales taxes quickly.

Bloomberg Tax: What are the costs of compliance, and what steps has Overstock had to take?

Johnson: We’ve probably incurred half a million dollars in software license fees and other costs to withhold and remit tax in the thousands of jurisdictions in the United States. Each taxing jurisdiction has separate rules about what, how, and how much an item is taxed. Even using a nationwide software provider, we’ve been sued in St. Louis for allegedly withholding too much sales tax. We didn’t, and this suit is a crazy example of overreach that comes from complexity!

Bloomberg Tax: What are your concerns about state remote sales tax requirements going forward?

Johnson: Our main concern is taxing jurisdictions seeking to retroactively apply the Wayfair decision. Remember, until the Wayfair decision, the Supreme Court had ruled that remote sellers need not withhold and remit sales tax. For jurisdictions to now pursue tax assessments for pre-Wayfair periods is wrong and unjust.

Bloomberg Tax: What direction would you like to see things take as Wayfair enters its third year?

Johnson: We would like to see federal legislation prohibiting retroactive application and requiring uniform treatment by all the taxing jurisdictions

Bloomberg Tax: Do you anticipate that, given the Covid-19 recession, states will be more aggressive in audits, enforcement, and other compliance efforts given they need every dollar they can get?

Johnson: This is definitely a concern. It’s another reason a federal solution is necessary. States and other taxing jurisdictions should take the long view and help retailers recover. States and other taxing jurisdictions should not try to seek retroactive tax assessments that courts should rule as illegal under prior Supreme Court precedent.

Bloomberg Tax: How do states balance the need for revenue with the need for retailers to recover economically?

Johnson: Smart and forward-looking state and other taxing jurisdictions will work with businesses going forward. They should be fair and not overstep the laws and taxing policies.