June 14, 2005

Selling Online? Should You Charge State Tax?

Large brick and mortar retailers are worried that they will have to charge taxes to customers who buy goods from them. Imagine how the "low cost" of Amazon.com or other retailers would evaporate by adding 5%, 10%, 3% to each purchase.

Currently, if you don't have a physical presence in a state, you don't have to charge tax to those residents. The argument is geared to big retailers who have a physical stores in a (or more than one) state. However, states know they are losing a lot of money by not capturing online tax revenue. The "online tax" writing, is on the
wall.

Soon you and your smaller business might need to start worrying as well.

The Associated Press writes 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.

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.

California's 1st District Court of Appeal in San Francisco 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.

0 comments