Since 1999, Borders has used Amazon.com to handle on-line sales.
But before that switch, it sold more than $1.5 million of books and
CD
s through its own on-line presence at Borders.com, a
site then operated by a company then called Borders Online, Inc.
That company had its headquarters in Michigan. And while it was
part of the same group of companies as the Borders Books and Music
stores, it had no premises, employees or bank accounts in
California.
It is the state taxes on these internet sales – a bill for
$167,000 – that caused the dispute with California's Board of
Equalization. Borders paid, but it fought in court for a refund,
without success. So it appealed.
California's First District Court of Appeal ruled on the case on
31st May, upholding the decision in favour of the tax collector – a
ruling which could affect some other companies with both an
off-line and on-line presence today.
Internet businesses rely on a 1992 Supreme Court decision that
prevents states from collecting sales taxes from a business unless
the company has a physical presence or “nexus” in that state.
This creates an obvious discrepancy between on-line and off-line
retailers, with the latter arguing that it is unfair for them to
have to collect taxes while their on-line competitors do not,
making it harder to compete with a dot.com.
In the Borders dispute, the court looked at the connection
between the on-line company and the off-line company. Their
respective boards of directors contained some of the same people.
And it noted that customers could return books purchased on-line to
the physical stores. This made the off-line company the on-line
company's authorised agent or representative, and the court viewed
this policy as an integral part of the on-line service.
California-based stores also advertised the web business on their
till receipts: "Visit us at www.Borders.com".
So while the on-line company was based outside the state, the
court decided that it had a sufficient presence in California to
justify the imposition of the tax burden.
