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Court: Borders Web Ops Must Remit CA Sales Taxes
ScentCone writes "A rather quiet appellate court ruling finds that Borders must start coughing up sales taxes to California. Even though Borders spun off their online business to a separate company (now run by Amazon), has no employees, physical facilities, banking, or other activity in the state, the court found for California. While this is at first alarming (unless you write e-commerce software, in which case this may be the Programmer Permanent Employment Act), the court's reasoning was that despite the separate structures, the Borders brick-and-morter presence in CA, some overlapping board membership, common logos, cross-promotion, etc., meant that the two divisions were too entangled to fend off CA's army of hungry revenuers. Ramifications could include good old print catalog operators, store-less biggies like Amazon that have partnerships with CA companies, and more."
While this is at first alarming (unless you write e-commerce software, in which case this may be the Programmer Permanent Employment Act)
Jeeze, these are activist judges, passing legislation and everything!
Someone remind me again why out-of-state internet sales are magically exempt from a state's sales tax?
Here's what I think: one global tax to deal with humanity's common infrastructure needs (health, communication, travel, upholding basic rights, defence and policing), and a voluntary contribution fund to deal with local, regional and national ongoing expenses and special projects. This business of sales taxes etc. in different localities just doesn't work in a world where communication/commerce is instant anywhere to anywhere, and travel/living is extremely flexible. Income taxes based on residency/citizenship just don't make sense for lots of people any more. A voluntary contribution would sure make governments pay attention to how they were providing service to their employers (the people).
Helping with organizational effectiveness is our job.
Borders approached the problem of how to avoid to paying sales tax in CA - an area where they have a substantial physical presence. Essentially this ruling will be largely limited to entities that have a physical presence in a state but want to try to dodge paying sales tax. Essentially the Appellate court side this is one entity masquarading as two.
Thalasar
I think their case is pretty weak in being able to nail Amazon with "presence in the state" based on the fact that Amazon is providing an outsourced service for a Borders subsidiary.
I would agree that Borders corporate structure looked suspiciously like it was set up to avoid collecting sales tax by the online division.
Sort of a variant of making your HQ in the Caymans if you are multinational. Except the latter is legal.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
This doesn't seem to be predatory or unusual. Borders has stores all over California. Whether the internet sales is run by someone else or not, it still says "Borders" on the web page.
Does this mean that if I buy something online when in Illinois, that I'll have to pay sales tax for something in California? If so, I won't be buying from Borders online but rather going to the B&M Borders in my town.
I am defenseless. Use your button. Mod me down with all of your hatred.
FTA:
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.
California's 1st District Court of Appeal rejected that argument, ruling on May 31 that the Borders' Web site and retail stores have been too intertwined to call themselves separate companies. The three-judge panel cited in-store advertising for the Web site, receipts that said "Visit us online at www.borders.com"; and the ability of customers to return online merchandise at retail stores.
Since web-only merchants like Amazon do not have retail stores in California, it looks like they are in the clear for now.
Why should online businesses not pay the same taxes brick and mortar businesses do? The time for this subsidy is over. B&N's online revenues are due in part to activities in California. Taxes are due. Simple. Everyone else pays, why shouldn't B&N?
But more seriously, I don't see how this applies. Sovereignty has very little to do with taxation... or does it? If it does, why is that the case? Why does a group of people have to be taxed by their governmental representatives for that group to be considered sovereign?
Helping with organizational effectiveness is our job.
So what? If a company has buildings in the state, and even though the merchandise is ordered over the Internet from out of state, sale taxes applies. It's been that way for years.
The California Internet use tax where you declare how much sales tax you owe the state on your tax return is a different headache. I usually put down zero since I don't remember if I paid sales on any my Internet purchases. Besides, why I should pay the state more money in the first place when they have trouble collecting it?
Borders Group Inc (holders of Waldenbooks and Borders, Inc) is based out of Michigan. Borders Books and Music (IE Borders, Inc) is a Colorado company - operated in Michigan.
They have a lot of facilities in California too but how does this article boil down to Borders being a CA company?
PS. Borders Online was dissolved a long time ago. Probably 5 months after being created. There are no more Borders Online employees. There are Amazong employees.
I orderd some smokes off the internet (3 cartons of smokes I couldnt find anywhere in florida). I had them delivered to the address I was at, but was not a citizen of florida. basically I was there for a few months working for a company.
The place I ordered from was in Texas.
About 2 days ago I got a letter in the mail from the state of florida saying I owe $10.50 on tax for the cigs.
I still cant figure out why I would have to pay florida tax on these, but just like every other good hearted american, Ill just pay the fee so I can forget about it instead of fighting it.
TruePunk | Games
I like Newegg. I find them to be reliable and cheap. I used them all the time when I lived in AZ. Unfortunately, I moved to CA. Since they are based in CA, I have to pay sales tax, negating some of their price advantages. Any recommendations for good, reliable computer retailers that are not based in CA?
taxation is a function of sovereignity. It's entirely a sign of it. When's the last time you paid a tax that didn't go to a government?
When's the last time you paid a tax that didn't go to your (local/state/federal government.
Britains don't pay taxes to Ireland. Californians don't pay taxes to Utah. French don't pay taxes to the Columbians.
All this does not apply to taxes paid while people are in a different country (I.E., even though I'm from the US I still pay VAT in Europe, and anyone from Europe would pay sales tax in the US.)
Fly me to the moon Let me sing among those stars Let me see what spring is like On jupiter and mars
You, as the buyer, are responsible for paying sales tax on out-of-state purchases. In California there's a line on the state income tax form for declaring that. You did pay it, didn't you?
Big states get to dictate the rules. If this were Alabama or Wyoming, I'd just take their state abbreviation out of the dropdown selector. Simple and effective :)
it's a blue bright blue Saturday hey hey
Interstate commerce commission and related laws prevent any state from regulating interstate commerce. It's an old and important law - one that some would say has reached its useful end, but suggesting it should be tossed gets States' Rights people upset.
I for would welcome our new California taxes and uh, uhm, oops. Sorry guys. I have no idea what I was saying.
I worked as an office junior for a guy once who refused to buy from brick & mortar bookstores once he found out about the Web - in this case amazon.com.
Textbooks and even some electronics cost at most 1/3 of what he was used to, and when the site worked it were pretty close to the quality of real stores... when it worked. Between increased time spent browsing the Web on the company's dime, ridiculously late shipments from private sellers, and corrupt cookie databases that never gave the same price twice (you try filling out a purchase order then!), I can't see how the TCO was much less than double the price of just shopping at Borders or Barnes and Noble.
Needless to say we switched back to the old way of purchasing soon after, and the guy was fired within a month. I have his job now and I'm glad to see Amazon finally getting taxed like it should so nobody else will have an incentive to make the same mistake.
Besides, those bastards deserve it for patenting the left mouse button!
Do you honestly expect the United Nations, with all of its corruption, to get the job done? Heavy corruption in the government is the norm in most of the world, and do you really expect the second and third world countries to not rape and pillage the first world?
No thank you. The corruption we have on the national level is barely contained, and by contained I mean regulated enough that we can still function. We can barely hold our own elected representatives responsible for anything, so how do you expect us to do that for a global system of government?
Click here or a puppy gets stomped!
As far as Amazon is concerned with respect to sales tax, you're a bit late on the prediction of ramifications. I'm a resident of Washington state, and I already have to cough up sales tax to Amazon. Fortunately between free shipping (assuming you can stand to wait) and their markdowns on most of the stuff I buy, I still come out ahead of where I might at a brick-and-mortar establishment. I hate to think what their e-commerce software has to do on every single transaction to assess proper taxes though.
--Ford Prefect
Those developments are clearly going in the wrong direction and can set a dangeraous precedent. I hope they Borders will appeal and this tax issue will be off the table once and for all.
The lengths governments will go to tax you. Sometimes they'll even make you think they're taxing an evil corporation instead.
You can tell the character of a man by observing those who hate him.
There are pretty specific issues regarding inter-state sales taxes called Nexus. There are reams and reams of case law and it is fairly well defined. If Borders had Nexus with California, then like any business with Nexus in California, they would be liable for the taxes.
There are ways to structure your business to avoid Nexus. Dell is a prime example. Business computers are taxable, but home computers are not.
Evidently, Borders' accounting/tax department messed up.
This is not about Barnes & Nobles (B&N) which is a totally seperate company and their online subsidiary does collect sales tax in several states.
This is about Borders Books and its online subsidiary.
When you fill out your CA State income tax, there is a place for you to report stuff that you bought out of state and didn't pay sales tax on.
As a practical matter, I suspect compliance is very low on this matter.
Now that you know, don't you feel bad?
This issue is a bit more complicated than you think.
In theory, this should be redundant.
California taxpayers are supposed to pay Use Tax anyways, which is based on your purchases from out-of-state sellers. Thus, even if you didn't have to sales tax to Amazon.com, you have to pay (almost) the equivalent amount of tax on your CA 540 form.
Interestingly, although this tax has been on the books for a long time, the state government only added a line for it on 540 personal tax forms last year.
This creates a dilemma - if you are a CA taxpayer who made any out-of-state purchases (mail, telephone, online), you probably owe CA use tax. But most people I know put "0" on this line - and thus committed fraud when they signed the declaration line at the end of their tax form.
Computer Associates is charging sales tax now? And here I thought their licensing schemes were a bit severe. I know ERWIN is good and all, but this is a bit much.
You're right, it's not fair to exempt Internet businesses from any tax that B&M businesses have to pay. But this decision isn't going to change much. There's still the fundamental consitutional rule that says that states can't collect taxes from out-of-state businesses. Which means that Internet businesses can continue to avoid collecting sales taxes in states where they have no B&M presence. It's just that Borders wasn't able to have it both ways: operate stores in California, and also have a "pure internet" business that sold books there tax free.
If the law is gonna be that Borders must pay sales tax to California for items sold into California ... how hard would that be to implement?
I appreciate that, taken to the extreme, this principle could mean that Borders must pay every little sales tax add-on implemented by every town anywhere. For example, parts of Puget Sound has a special tax to pay for a sports stadium ... lucky for Borders this silly tax is on restaurants, not on book sales, but under the same principle, nothing prevents, let us say, Dallas or Oakland from imposing a tax on books to help out the stuggling millionaires who own their sports franchiases except the political power of people who read books.
However, this is a problem that must affect programmers of cash-registers already. Somebody, somewhere, must be making good money for maintaining a database of local sales taxes. They could make a little more good money renting that database to Borders, Amazon, etc. Then the programming problem is simply to compare the ZIP code of the book buyer to the database.
What could go wrong? It would be computerized!
--- Attorneys Assisting Citizen-Soldiers & Families -
California got in its current mess by wild overspending and waste, not because it's starved for revenue. Rather than feed the legislature's addiction by bending over for more taxes, our response to demands for more taxes should be, "What the hell did you do with what I already gave you?" Please, depart from California so that I and my brethren have a prayer of reining in the political system that treats the public as an ATM.
Simple and clean solution: Implement a flat tax for all online purchases for all states (yes, even NH and the other tax-free states). Send the tax to each state based on the ship-to zipcode.
Results: Each state gets a piece of the action and the online stores can't complain about the costs to implement all of the different tax codes all over the nation.
Comment removed based on user account deletion
Internet businesses are not exempt from all taxes that brick and morters pay, mostly just sales tax (and obviously they will not have property tax except for where they have offices). The reason for this is that these companies do not utilize the services for which the sales tax is supposed to pay, ar at least not all of them. You can make a case about access to the court system, but how about things like the state education system or the State Police? It is inappropriate to tax Internet businesses to pay for these things.
Additionally, there are Constitutional issues involved when you start talking about taxing business that is Interstate. In this case (Borders) it seems pretty clear that the court made a good call. We should be careful about over extrapolating that to other businesses.
why we don't let (if not encourage) California to just go ahead and secede?
It isn't just 4500+ tax rates. What is taxable, when it is taxable, and where it is taxable, all vary. Plus borders for taxation do not have to match borders for ZIP codes. I used to live at a place where my post office wasn't in the same state.
Mea navis aericumbens anguillis abundat
If yes then why would the state of california get to tax both amazon and borders for the same purchase?
If no then I can see this going through.
I expect that many people reading this are opposed to the idea of "taxing the internet". Let's get real here. Sales taxes are not going to go away; and the longer we fight it with an "all or nothing" mentality, the more we risk having truly draconian (and incredibly brain-dead) solutions imposed by Congress or the courts.
I lie through my teeth and then I crush you with taxes!
- Governor Arnhuld
If Borders donated enough to the Republican Party.
That's gotta fit into your schema somewhere
If you live in Nebraska and buy something over the web from California may soon be required that you pay BOTH california AND Nebraska sales taxes? If politicaians have their way you can count on it. Money is POWER and the more of YOUR money they control the MORE POWER you've given them. With enough power they'll tell you where you can go and what you can do. The advantage of such a situation is that since the differences between the US and CHINA will become trival at best and non-existant at worse we can shut stand down our military and open up our borders. Why fight and die just to exchange identical political systems?
If we do sales tax by the location of the business, what happens when the business has multiple locations? What if I order from an online store, which has multiple locations where it's running it's webserver as a whole, and multiple warehouses?
If we do sales tax by the physical location of the buyer at the time of transaction or perhaps the shipping address, does that sales tax go to that relative state? If so, how does the business location get it's tax revenue for itself? But then again, that leads to the first problem I mentioned above.
I think the best solution would be to do sales tax by the shipping address or physical buyer's location, and sending revenue to that state government. Additionally, there can always be property tax on the business property. Residential property is another matter I won't go into.
There's an easy way for Borders to get around this ruling... it's called:
;-)
Nevada.
So close, and yet so far from the California's revenue authorities.
If I read this story correctly, the chain of events appears to "maybe" be a bit more interesting (but I am speculating on some of this).
...
...
...
* Borders was apparantly not paying sales tax (speculation)
* They decided to pay the sales tax
* This might have been encourages by the California Tax
Amnesty program (again, speculation)
* ie, no penalties, but still interest
* Ahhhnolds plan to help balance the budget
* Borders then sues the state to get the money back
* They lost
* Borders then appealed
* They lost again (this is the current case)
In thinking of how borders runs their business, the line
If it looks like a duck
seems to apply.
If you don't like taxes, remember that for every tax that is avoided, there has to be another tax to make up for it.
Of course there is always the line
We should tax all foreigners living abroad.
I agree that the best way would be to do it by delivery address. Here's my logic...
Doing sales tax by business location is a bad idea I would believe. Although logic can state that it pays for the services located in the business's physical location, it's really the people that count I'm told. Businesses aren't people. But then again, there's people operating the businesses. Best solution would be to do a commercial property tax, whereas residential property tax is another subject entirely.
Sales tax should be done on the delivery address. Let say a person orders goods from an online business. That person is located physically in state A. That business has it's webservers located in multiple states all connected, and has warehouses located in multiple places. Of course, you could always do it by warehouse location, but let us not. Let say that the shipping location is different than the person's location at the time of transaction. Shipping location should count. It is by far the easiest way to do things.
Ramifications could include good old print catalog operators, store-less biggies like Amazon that have partnerships with CA companies, and more."
This is just such a wrong statement I don't know where to begin. There is so much case law in the US about mail order and catalogue sales that this particular case has nothing to do with upsetting. It's gone all the way to the Supreme Court.
When will people get it through their heads, if a business has a presences in a state (as defined by law), they are responsible for remitting sales tax on sales made in that state, whether the sale was at a local store, by phone or on the internet. If they don't have a presence in that state, no tax is due.
It's that simple (of course the lawyers get involved with what exactly a "presence" is, but that's besides the point).
that a lot of companies will be migrating out of California. I'm sure this will help the tax revenue base even more.
The higher the technology, the sharper that two-edged sword.
Just letting you know...
I know of only a couple California Citizens. Only said state Citizens are a party to the Bill of Rights. 14th amendment "citizens of the United States" is not legitimate.
That de-facto State of California has a corporation called "STATE OF CALIFORNIA" created by U.S. Congress, its postal trademark is "CA", and it is in federal jurisdiction by application of ZIP code (Zone Improvement Plan).
"California" is the de-jure state. If you were actually a state Citizen, then it would not say "citizen of the United States" and any oath or swearing you committ would not print "citizn of the United States."
This however is all without regard to the pre-eminence of states all-together; American inhabitants, the original countrymen; born on soil and have no debt/allegiance because they are lawful. You can't go to prison when you have no SSN...no you can't go to prison without a Social Security Number. To be a California Citizen, you aren't allowed to use any title of nobility or gift from the United States.
Just letting you know...
without prejudice
Of course it is not valid to make assumptions about anyone's existing legacy infrastructure, but in general, this *shouldn't* be hard to code for. Let's take a ruby on rails implemented site as an example (because that's the only web framework I'm very familiar with).
:conditions =>["state= :state"{:state=>@Customer.shipping_info.state}])
1) Make a database table called Sales_Taxes that is just something like state, sales tax
2) In the checkout code, do something like:
tax = Sales_Tax.find[:first,
@Order.price += @Order.price * tax unless tax == nil
Clearly this is a bit of a simplification, as probably multiple pages need to be updated, probably in multiple places in each place, but it's more tedium than anything. Probably less than a day's programmer effort for a moderately sized site. At least 1-2 days of thorough QA. Not exactly a backbreaker in my estimation.
When Lands' End was acquired by Sears, and their merchandise began appearing in all Sears stores, they had to collect sales tax in all these various jurisdictions. The software to do this already exists. They got something that plugged right into their IBM mainframe CLI green screen system. It is certainly a burden for an online merchant to do this, but not that difficult.
cd
I am a partner in a small specialty by-appointment bookstore in Los Angeles with a strong web presence and average internet sales of about $75 per. We charge 8.25% for orders sent to California addresses even if they're in San Diego (7.75%), San Francisco (8.5%), or Salida (7.375%). Every year without fail we battle some library or museum that insists on paying their local sales tax. They're generally slow payers (not nearly as bad as film studios though) but when we fill out the tax forms in January they ask for 8.25% and we have a healthy fear of audits. Whether a California customer calls, writes, faxes, emails or orders through our website we charge the same as if they were in the store.
The majority of books offered for sale (although not necessarily the most prominently placed) on these mega online bookstores are owned, shelved and shipped by small independent booksellers. They collect the money and deposit it into our account minus their commission and we drop-ship the orders. An order can be shipped across town without the big boys ever seeing the book and without depositing a dime into the state's coffers. Our sale is to the ethereal, tax sheltered Amazon not John Doe.
WARNING - RANT It amazes me that perfectly rational geeks will allow themselves to be fleeced by these online Wal-Marts when they can go to a site like http://addall.com/ or http://bookfinder.com/ and pay up to 25% less for the same books often from the same seller. Our websites might not be as fancy but why order from an ethically questionable corporation when you almost as easily get the exact same thing and pay a little less dealing with an independent bookseller. Plus I think it's nice to get a personal email from a human being thanking me for an order.
For example, see this post. Notice the startling similarities, particularly the reference to "office junior," the three paragraph format, and the unfortunate demise of the technology-using overling.
Whoever is posting these is putting an inexplicably large amount of effort into it. Don't fall for it. This is just troll bullshit, posted by some Luddite with an axe to grind.
I modded it "-1, Troll" then, and I would again, if I had mod points.
People abroad (and a lot of people here) don't realize that the decentralized system is what makes America's economy strong.
This "decentralized system" is why we have rampant corporate welfare. This "decentralized system" is why the tax burden has shifted more and more away from coporations and more and more onto individual taxpayers. The "state competition" you refer to does *nothing* for the people living in the state, nothing for the workers, nothing for the taxpayers when it encourages companies to move once their incentives for moving to that location run out. The *only* people who benefit from this are the companies who offer to bring 2,000 jobs to a community in exchange for a ten year break from taxes, sometimes even getting the community to build some of the companies facilities, and then leave when the incentives run out. It's a race to the bottom.
Anywhere there's a Dell store is a Nexus point for them. If I had a Dell computer (home section) shipped to my home in TN, I'd get charged sales tax because there's a big Dell store (over in Nashville, I think). If I had it shipped to my parents place in AR, no sales tax, they have no Dell store in AR. And TN sales tax is pretty high too (no state income tax).
- Give a man a fire and he's warm for a day, but set him on fire and he's warm for the rest of his life.
What is needed is a modern VAT system: input VAT is reclaimable by companies, so they don't pay tax except on the "value added."
Like in the EU, each state charges its own rate of VAT. If a company sells out-of-state to a registered business it sells ex-VAT. If it sells to an individual, it sells inc-VAT.
This would also have the advantage of interlocking nicely with Canada's GST making cross-border trade easier. Right now, Canadian shoppers get hammered with Sales Tax and then GST on the whole thing (nice that: GST on Sales Tax). With a proper VAT system, Canadians would import without further GST since VAT has been paid already.
Best of all, each State is under pressure to lower VAT (or face loss of sales). It brings in a bit of competition to tax rates. What's good for commerce should be good for Government, right?
K.
New Hampshire doesn't have sales tax. I ordered some books while in NH and had them shipped to someone else in MA. I was charged MA sales tax. Because the purchase happened in a sales tax free state I would expect not to be charged sales tax.
This is an integrity issue. If Borders operates a physical store in California then it should have to abide by the same rules as every other business. That means No cheating the system by legal manipulations.
Two possibilities on the type of tax you had to pay: It was either a "use tax" (not likely) or a special tax levied on any cigarrettes sold in the state (most likely). These special taxes (you know those stamps you see on the carton) are not part of the "sales tax" regime.
My suggestion is to stop smoking. Or, just switch to a brand you can buy tax-free at your friendly local neighborhood indian reservation.
Hopefully it will prevent corporations from opening bogus operations in states that don't tax. For example, the state of Washington is loving millions of dollars in taxes from Microsoft because Microsoft has opened entities in Nevada which doesn't tax them. If you want to read how Microsoft is screwing the state of Washington, look here: http://www.seattleweekly.com/features/0439/040929_ news_microsoft.php
Let's see:
Presuming that Borders has a shop in every state, and since their website doesn't ask where you live, essentially this means that their ENTIRE BODY of online sales are exposed to taxation. From every state. Which means that if they make $100 sale, they should plan to pay:
-4% ALABAMA
-5.6% ARIZONA
-6% ARKANSAS
-7.25% CALIFORNIA
-2.9% COLORADO
-6% CONNECTICUT
-6% FLORIDA
-4% GEORGIA
-4% HAWAII
-6% IDAHO
-6.25% ILLINOIS
-6% INDIANA
-5% IOWA
-5.3% KANSAS
-6% KENTUCKY
-4% LOUISIANA
-5% MAINE
-5% MARYLAND
-5% MASSACHUSETTS
-6% MICHIGAN
-6.5% MINNESOTA
-7% MISSISSIPPI
-4.225 MISSOURI
-5.5% NEBRASKA
-6.5% NEVADA
-6% NEW JERSEY
-5% NEW MEXICO
-4.25% NEW YORK
-4.5% NORTH CAROLINA (6)
-5% NORTH DAKOTA
-6% OHIO
-4.5% OKLAHOMA
-6% PENNSYLVANIA
-7% RHODE ISLAND
-5% SOUTH CAROLINA
-4% SOUTH DAKOTA
-7% TENNESSEE
-6.25% TEXAS
-4.75% UTAH
-6% VERMONT
-5% VIRGINIA
-6.5% WASHINGTON
-6% WEST VIRGINIA
-5% WISCONSIN
-4% WYOMING (3)
-5.75% DIST. OF COLUMBIA
= 248.525% cumulative sales tax
= $248.52 in taxes, BEFORE they even pay Federal Corporate Income tax.
-Styopa
As a Hoosier I'm not in the least alarmed, and not just because IN is not CA. Here, if a remote vendor doesn't collect sales tax, we're required to figure it ourselves and send it in along with the income tax. Since I pay the same either way, I'd much rather have the vendor send it in for me. He's got to have tax calculation code for *some* state anyway, so why not put in the full set of tax tables?
I'd think all businesses tat sell either via catalog, or ecomerce, ought to be based out of the state of New Hampsire, with no state income or sales taxes, the companys would have alot of shelter from the "local" taxes
This ruling doesn't really have broader application; it was a ruling by a California court, not a Federal one. What did Borders expect, that California was going to decide it couldn't tax them?
If they wanted to argue they didn't have a California nexus, they should have arranged for the case to be in Federal court.
Since a general sales tax cannot be shifted
forward to the consumer, Borders themselves
will pay the tax.
The details of the case can be found at http://www.courtinfo.ca.gov/opinions/documents/A10 5488.PDF
With a policy like this, CA (and probably any other state in need of some extra cash) could argue that the online company was just an extension of the brick-and-mortar Borders stores located in the state.
Let's say I'm sitting here in the Caymans, selling lemonade online. I've contracted with a loosely organized network of 7-year old kids, who deliver the actual product through a series of sidewalk stands across CA. I collect $.25/cup and I pay each kid $.10/cup they deliver. Am I liable for sales tax in this case? If so, how much?
Now pretend I sell books and that I have contracted with UPS to be my sole delivery service. Since UPS has outlets in CA, I tell my customers to make their returns at any UPS Store. Do I need to pay sales tax because of my implied presence in CA? If so, do I pay tax on the price paid for the product or for the delivery?
I don't file this tax form on two principles: 1) I don't have patience to do the additional recordkeeping to keep track of taxes owed, and 2) I'll be darned if I'm paying taxes that my neighbors probably aren't paying, either.
But if the courts or the feds can ensure that everyone is levied equally, and automatically, I'll be quite happy to cough up my fair share.
On Amazon, the book came up in 2 seconds, price new was $9.25, with used options down to $6.29. Also, I got a cover image, reviews, publishing information, comments from other readers, and free shipping with a $25 purchase. My name, address, and credit card information were on file.
On Bookfinder, it took ~30 seconds to come up with only used selections, the cheapest of which was $12.55. No additional information was provided. Shipping was $3.49 and it shipped within 2-3 days. The best shipping deal, BTW, was $3.49 for the first book, and $1.49 per additional book. Buying the book required registering for some random bookseller's website, and typing in a bunch of information.
To be fair, once I got to the actual reseller's website (alibris.com, not the actual seller, which was some outfit in Georgia), I did receive some reasonable, but minimal information about the book.
Call me a perfectly irrational geek if you want, but I'd buy from Amazon.
Yes, in some cases I might be able to find a deal there... But we're talking about a bestseller here, not some obscure Golden Age pulp, and there weren't even any new copies available, much less at a bargain price. My time is worth a lot more (this posting notwithstanding).
Each purchase owes sales tax for its own home state (aka address on the buyer's credit card), if and only if the seller has a physical presence in that state. It's not hard to figure out.
I am a lawyer, but this isn't legal advice. If youneed legal advice, find an attorney located in your jurisdiction instead of expecting free online advice.
The Supreme court previously ruled on this for mail order businesses.
They did *not* rule that the state taxes aren't due. They ruled that, at the time, it was far too burdensome for states to impose requirements on out of state firms, which would leave each firm subject to massive reporting and compliance costs.
The court also noted that Congress had the power to deal with the situation.
My pet solution is to do it by five digit zip code. Jurisdictions that share codes will have to come to terms on how the code's revenue will be split, or see it all go to the state. Monthly or quarterly, firms would file a single report and write a single check, along with an electronic form showing how much in each of perhaps four categories was sold in each zip code (perhaps food, clothes, another category, and other). A single federal defnition would be used for the categories, not the local definitions.
I'd also allow multiple entities to handle the collection/redistribution. They would be entitled to a commission (probably a fraction of a per cent), and could compete based upon service and possibly a rebate to the companies of part of the commission.
hawk
"mortar". c.c
I don't know about other states, but in Ohio sales tax varies by county. I live in Columbus (Franklin County) and sales tax here is 6.75%. I think the statewide base sales tax is 5.75% though, not 6%.
But, uh, in regard to your comment itself, they would just have to figure out which state's (or which county's!) sales tax to apply. So, $6.75 tax if I bought it.
"Sales taxes in theory should support the government infrastructure a business uses to conduct itself such as the court system, utility infrastructure if it's public, etc."
:-). "In theory" car taxes should pay for the road infrastructure, American federal income tax pays for WWII, and British Income Tax supports the war against Napoleon.
What a naive statement
Taxation is all about governments taking money to do what governments do, good or bad. They will always try to take as much as they can without damaging the economy or causing public outcry. Justification of any given tax is purely PR; in reality everything goes into the common pot. So called "tax cutting" administrations are more often "tax moving", either onto another type of "stealth" tax, or off into the tax burden of future generations.
This is not CA or even USA thinking. Every tax systems in history across the planet has been the same.
of course the lawyers get involved with what exactly a "presence" is, but that's besides the point
No, that exactly is the point. In the case in question, the fact that the online Borders brand has no nexus in California other than brand and marketing similarity with the separately incorporated brick-and-mortars, wasn't enough to insulate them from remitting CA sales tax.
In this case, it's pretty clear that Borders was trying to be a little slippery, but at a technical level, they're exactly as removed from nexus in California as, say, a small mom-and-pop mail order operation in South Dakota might be.
If a local retailer in California that sells some complementary product or service does any cross-promotion or referring to that business in South Dakota, that mom-and-pop could wind up in exactly the same boat. Likewise basic web affiliate marketing... any affiliate who happens to be in CA, referring traffic to a non-CA business (and there are thousands of examples of this) could be dragging all of those companies into the CA revenue stream by proxy. Likewise, any intermediary (like Commission Junction, or Performics) that enables that activity, could be a bridge to making their entire network of merchants "entangled" with California businessses.
Borders' web ops do not have a presence in CA "as defined by law", but the court found that it was close enough to count. Result: taxes due, despite that lack of nexus. Other indirectly related companies will find themselves in the same boat, by the thousands, given CA's dire finacial straights.
Don't disappoint your bird dog. Go to the range.
No, that exactly is the point. In the case in question, the fact that the online Borders brand has no nexus in California other than brand and marketing similarity with the separately incorporated brick-and-mortars, wasn't enough to insulate them from remitting CA sales tax.
Since I can order a book online from Borders but return it to the local Borders for credit, Borders has nexus. Barnes and Noble tried the same thing and loss in a different state.
As a followup to this, you would also need to look at their SEC filings and their federal tax returns and see how they view themselves for reporting purposes, too.
It's a lot more complicated than just having a brick and mortar storefront.
QVC got in trouble, because they were owned by Sears and used Sears warehouses for storage purposes. Even though the goods were separated and they paid "rent," they were deemed to have nexus, since the rent went to the parent company and was eliminated for tax purposes.
Microsoft got it, because they would send sales reps into various states for institutional sales.
Nexus refers to a financial presence in the state, not necessarily a physical one (ie store front).
It is a pretty well defined concept and if Borders lost the case, then they were trying to do something to get around it and the courts didn't buy it.
Again, if I can return an online purchase locally, then the local store is what probably triggered the nexus.
Or, if they don't have your brand, request it.. you'd be surprised how many smaller businesses with a storefront will carry a recommended, or requested brand...
Michael J. Ryan - tracker1.info