A California Court of Appeal held May 31 that Borders Online must pay a use tax to the State Board of Equalization for online sales to California customers.
NEW YORK -- A California Court of Appeal held May 31 that Borders Online must pay a use tax to the State Board of Equalization for online sales to California customers.
Online retailers often avoid paying sales or use taxes in states where they sell merchandise if they do not have a physical store or other presence.
Borders Online sold more than $1.5 million in merchandise over the Internet to California consumers in 1998-1999. The Web site included a notice that any goods purchased from Borders Online, owned by Borders Group, could be returned to any Borders Books and Music store, owned by Borders Inc. The brick-and-mortar retailer would then exchange the items or provide the customer with a credit card refund.
The State Board of Equalization determined that Borders, which has stores in California, was the representative of Borders Online. As a result, the online store was required to collect and remit a use tax from its California customers.
The use tax is one imposed on Interstate sales for "the privilege of use of property by the buyer who purchases goods that would not otherwise be subject to a sales tax," the court wrote. It is a tax on the use of tangible personal property purchased from any retailer in the state.
The online company objected, arguing that it was not a California retailer.
Noting that Borders Group owned Borders Online and Borders, as well as other interactions between the online and offline retailers, the court held the online store subject to tax.