Internet taxes in the near future:
An appellate court ruling against Borders Group Inc. sets a precedent that could enable California to force some major Internet retailers to start paying state sales tax for books, music and other goods sold online to state residents.
Whether California tax collectors use the precedent to go after not only Borders but Barnes & Noble Inc., Amazon.com and other online retailers remains to be seen. But independent booksellers and other “bricks-and-mortar” retailers have been cheering, saying the ruling should remove their Internet competition’s unfair advantage.
“There are a lot of online retailers who are watching this intently,” said Tom Dressler, a spokesman for the California Attorney General’s office. “Clearly online retailing is growing so one would think the potential revenue problem is fairly substantial.”
Businesses can avoid paying sales taxes to states where they have no physical presence, according to a 1992 U.S. Supreme Court ruling.
Borders Group Inc. says it has never collected sales tax for books and music sold over the Internet to California residents, even though the Ann Arbor, Mich.-based corporate parent operates 129 California stores under the Borders and Waldenbooks brands, as well as a 414,000-square-foot distribution center in the state.
Borders says it doesn’t have to collect California sales taxes because its online division _ since outsourced to Amazon.com _ doesn’t own or lease property in the state. None of the online division’s employees or bank accounts are in California and all Internet orders were received and processed outside the state.
“We’ve done everything within the confines of the tax law. We have always believed that what they did was correct under the Constitution,” said Borders lawyer Scott Brandman.
I am sure there are people who know much more about this issue than I do, so have at it in the comments.
Mr Furious
I think Border’s argument is crap. If they have storefronts in CA, they should be collecting sales tax, end of story.
I’m no tax attorney or anything close, but I live in Ann Arbor, and I know Borders is often full of crap.
What they are trying to pull of here is akin to a Bermuda incorporation. If the online company is a completely seperate business, then they shouldn’t have called it Borders. But they wanted the name recognition and the trust associated with a brick and morter store, thus, pay up.
Kimmitt
I have to agree; this is corporate sophistry.
Imbicil
“This is corporate sophistry”
Which doesn’t mean it is against the law. A corporation has a moral obligation to serve its shareholders, and if that means screwing the tax-man, legally, then that’s what a corporation should do.
CalDevil
This really isn’t anything new and it doesn’t appear to be beyond the bounds of SCOTUS’ Quill decision.
Previously, Wal-Mart set up a similar entity a few years ago, but backed away from the sales tax argument after it found it more beneficial to tie the Walmart.com site to its stores. I believe that it now collects sales taxes online for just about all states.
Borders’ entity sounds very similar to what Wal-Mart did.
BTW, this could have the effect of causing sales taxes to be collected on Amazon only to the extent that the sale is via one of the brick & mortar stores (e.g., Borders) being hosted there.
It does not impact Amazon’s much more sizeable direct business. That could only be affected if Congress acts to override the effects of Quill (as a number of states have lobbied). I don’t think we’ll see that happen any time soon.
Sean P
I’ve been purchasing products on ebay for years, and most (though not all) California sellers already tack on sales tax to the transcaction if the winning buyer is from California (Illinos has also been doing the same thing for years). I don’t think I’m being ripped off, as sellers who do this will let you know up front, but still, what gives?
Kathy K
Sean,
Individual sellers are located in their individual states. They don’t have online divisions located in some other place. They only have one ‘store’ – so they are required to charge sales tax for sales to people in the same state as their one ‘store’.
The Phnom Penh
The sales tax system is broken when it comes to online sales. If, to use a wholly hypothetical example, someone in Washington state wants to buy a new Mac, he can have it shipped to a friend in Oregon, where there is no sales tax, and then just have it shipped to him, thereby saving a couple of hundred dollars over having it sent directly to Washington.