You’ve heard of the French medical organization Medecins sans Frontiers (Doctors without Borders)? Well, here in the states we have Taxes sans Borders.
Tax collectors around the country won’t give up until they have a chokehold on Internet commerce. And thanks to a recent state appellate court ruling, their grip just got a little tighter.
California’s 1st District Court of Appeal in San Francisco ruled on May 31 that Borders Group Inc. must collect taxes from its online sales in California. What makes this decision remarkable is the fact that the U.S. Supreme Court in 1992 ruled that companies don't have to charge sales taxes in states where they have no physical presence. There has to be a “nexus” that ties the business to the state.
Not in dispute is the fact that Borders Online sold more than $1.5 million in merchandise over the Web to California consumers from 1998 to 1999. What is in dispute, however, is the nexus. While there are 129 stores in California that operate under the Borders and Waldenbooks brands, the $1.5 million in merchandise was sold through Borders Online, which neither owns nor leases property in California. Nor does it have employees or bank accounts in the state. Quite simply, there is no nexus.
Is Borders hiding behind a crafty technicality? A legalistic dodge?
No. It was a widely followed — and accepted — practice of companies in the 1990s to separate their online and brick-and-mortar store operations for several reasons, including to save their customers the burden of paying taxes on their Internet purchases.
But that day might be coming to an end soon. If higher courts uphold the decision, Borders Group would not be the only company affected — and California would not be the only state to suddenly be in line for a windfall at the expense of . . . you guessed it . . . the taxpayers.