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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."
Do you have any idea how freaking difficult it is to calculate sales tax for all 4500+ taxing jurisdictions in the US?
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
Because a buyer in one state is not under the jurisdiction of another state.
You are "magically exempt" from a foreign state's vehicle registration fees as well.
KFG
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 means Borders must collect CA sales tax on orders shipping to CA. That's it. They set up this convoluted legal structure to avoid paying that tax and the court said these are substantially the same entity.
Thalasar
Your argument would also apply to people under 18, all of whom seem to pay sales tax.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
I recall having this conversation with someone in another country about how the US's tax collection works (local/state/federal), and she didn't understand why everything wasn't federal. People abroad (and a lot of people here) don't realize that the decentralized system is what makes America's economy strong. It encourages competition among the states, and keeps them in check. Don't like the tax policy in one state? Move to another state -- and people and businesses do. It also allows experimentation among states. Apply this same argument to the city level as well.
People are also less apt to rip off the local government, because they see it as directly affecting themselves. Ripping off the federal (or even state) government feels a lot more anonymous.
Unfortunately, the US steadily goes in the direction of more central control. -sigh-
Sometimes it's best to just let stupid people be stupid.
No, it's not.
This law only applies to goods sold to CA residents. The very first sentence of the article states this. If this law applies to you, it means you're a Californian and can vote for your state reps.
"If they send someone here, I'll arrange the usual 'accident.'" -- Alice, "Dilbert"
No. Borders has a substantial physical presence in CA. They then set up a complicated legal structure designed to shield them from paying CA sales tax. The court said, "This is a dodge. You are the same company trying to look like two seperate ones." Your company in Mexico doesn't nor will it ever until you have a substantial physical presence in the state.
Thalasar
You can't even calculate sales taxes by zip code.
In Texas, for example, the sales tax rates in my zip code are 8.25% in the city limits and 6.25% outside the city limits. There are some zip codes that have three different sales tax rates depending on the location within that zip code.
Even if the sales tax is 8.25% in the zip code, the 2% local sales tax may be due to different local taxing authorities depending on the address. For example, you could have a city sales tax and a county sales tax for sales outside the city. So the company would have to be able to determine which taxing jurisdiction in order to properly remit the local sales taxes collected.
Here are, to the best of my knowledge, the Texas sales tax rules:
case 1: If the order is placed to a company in Texas, the sales tax to use is the sales tax where the company is located.
case 2: If the order is taken outside the state by a company who has no business presence in Texas of any kind, they are not required to collect sales taxes. However, if they wish to collect sales taxes, they may, as long as they remit whatever is collected to the state of Texas.
case 3: If the order is taken outside the state by a company who has a single business presence in Texas, the applicable sales tax is that of the location of that business. For example, if they have a store in Dallas and no other presence at all, you pay the 6.25% state sales tax and the 2% local sales tax which goes to Dallas.
case 4: If the order is taken outside the state by a company who has two or more business presences in Texas, the applicable sales tax is that of the destination address. So if the sales tax rate of every store by the company is 8.25% but the destination is in a 6.25% area, the applicable sales tax is 6.25%.
One surprising thing that was explained to me by someone at the Texas Comptroller's Office when I called up to get some clarification of the rules about three years ago is that it is okay if the company charges too much sales tax as long as all the sales tax collected is properly remitted.
Also, in the case of a delivery by UPS or Fed Ex, it goes by the address on the shipping label even if they end up delivering it to another address. Around here, the UPS and Fed Ex drivers rarely deliver anything out to my house. Indeed, most have no idea how to find the place. Instead, they drop it off at my office in town.
I was concerned that the fact that they drop it off at my office instead of my residence would create a problem since anything delivered to my office has a 2% local sales tax rate while anything delivered to my home has no applicable local sales tax. The guy from the Comptroller's Office said that the applicable sales tax was that of the shipping address whether or not it was ultimately delivered elsewhere.
I'm not sure what bothers me more - that you don't see the basic glaring flaw in your reasoning here, or that at least one moderator considers this "insightful".
This is a tax on transactions occurring in California. The taxes are levied by California's government against California citizens. Last I heard, California still had elections.
It's not like California is asking for taxes to be paid by some lady in New York who's shopping at Borders.com.
#DeleteChrome
As the operator of a couple of small e-commerce sites, I can tell you flat-out that having to pony up for such software would be the difference between being able to keep those sites running, and having to pull the plug on them.
Never mind the increased cost to my customers of just the taxes themselves. While this might not be the death of e-commerce, it would certainly result in a dramatic narrowing of the online marketplace. Not a good result, any way you look at it (unless through the rapacious eyes of taxing authorities and legislatures...).
Liberty in our Lifetime
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.
A business with no physical presence in State A doesn't derive any benefit from the government in State A when one of it's citizens orders something and they ship it from State B. The only company that actually uses resources from State A is the shipping company, which does pay local taxes on it's employees, property, vehicles, and gasoline proportional to the proportion of the transaction that did happen in State A.
That, and there's that whole pesky no tarrifs on interstate commerce by the states clause in the constitution.
This
Every legal foreign employee pays income tax in the USA, and in California, without any representation whatsoever. They pay all other taxes as well.
What keeps me going is my inertia.
Are you sure this is correct?
.
.never realized this and crafted laws the wrong way.
Yes, I have owned a brick and mortar retail store where I did all the paperwork myself, as well as having managed a number of others.
It is also the basis the for Supreme Court ruling exempting businesses for collecting sales taxes for customers in other states.
Neither party is privleged in the transaction, as is seen by states typically also applying sales transactions to exchange of goods for goods (based on fair market value.)
In which case both parties are legally buyers.We aren't dealing with issues of contractual privilege, we are dealing the tax liability. Tax libilities are always explicitly defined.
The relevant law is the one that requires you, as the buyer, to file with the state for each mail order purchase or casual transaction and pay the tax on it.
It's just that most companies charge the consumer (hey, dopey, you voted for the tax, you pay it. We're not!) but sometimes companies do have "we pay your sales tax" sales.
No.
In sales tax states you must acquire a permit from the state allowing you to collect the tax from the consumer.You must collect the tax. In most states you must list the cost of the tax explicitly, you cannot "bundle" it into the price, by law.
In the case of a casual sale the buyer is still repsonsible for paying the tax, such as when you buy a car from a private owner. The DMV will levy the tax against you when you seek to register the car, and the fact that your mom pays it for you as as gift does not alter the fact that you are one legally responsible.
"We'll pay the sales tax for you" is a marketing gimmick, not legal reality, and isn't even legal in some states where it would be considered a fraudulent claim (they've really just lowered the price).
I suppose some states, with ignorant, subgenius politicians. .
But you repeat yourself.
. .
The law is as the law is crafted, however, a sales tax is, by legal definition a tax on the consumer, which is why internet sales companies are "exempt" from them. They do not owe them in the first place. They only collect them. If you do not understand and accept this you will never be able to understand the "mail order loophole."
The problem is not in crafting the law the "wrong way," per se, but rather in using a form of law with consequences they aren't happy about.
A business tax on gross sales is an entirely different legal beasty than a sales tax.In a state with one of these you will not be levied at DMV for the car you bought from your neighbor.
KFG
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.