DMA: Borders Ruling Doesn't Kill Quill

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The recent California appellate court ruling that Borders Inc. must pay state sales tax for books, music and other goods sold online to California residents does not change the interstate sales tax landscape, according to the Direct Marketing Association.


On May 31, California's 1st District Court of Appeals in San Francisco found Borders liable for $167,000 in taxes from April 1998 to September 1999.


Ann Arbor, MI-based Borders argued that it set up a separate company --Borders Online LLC, a Delaware firm that is an online division that has since been taken over by Amazon.com -- to run its online operations. Because that company doesn't own or lease property in the state, it was not obliged to collect and remit sales taxes from California residents, it argued.


Borders has 129 Borders and Waldenbooks stores and a distribution center in California.


Currently, online and catalog businesses aren't required to collect and remit sales tax to states where they have no physical presence, according to a 1992 ruling by the U.S. Supreme Court, Quill v. North Dakota. The Quill ruling held that it would be too burdensome on businesses if they were required to collect and remit sales taxes on behalf of the 7,600 state and local taxing jurisdictions nationwide.


The three-judge panel, however, said that since Borders' California stores essentially acted as agents for Borders.com by, among other things, accepting book returns from online customers, it must collect the tax for the state.


The panel also cited in-store advertising for the Web site and receipts from the stores that said, "Visit us online at www.borders.com." Borders' online and storefront divisions also shared some board members and a similar logo, the judges said.


"As we see it, the California appeals court decision doesn't really materially change the landscape on this issue," said Mark Micali, vice president, government affairs at the DMA in Washington. "If a company is prepared to keep its Internet operations truly distinct from its brick-and-mortar stores, this ruling shouldn't affect it. The rules have not changed, in our opinion. Quill is still as much the law of the land after the [Borders] decision as it was before the decision."


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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