Borders Online v. State Bd. of Equalization
| Decision Date | 31 May 2005 |
| Docket Number | No. A105488.,A105488. |
| Citation | 29 Cal.Rptr.3d 176,129 Cal.App.4th 1179 |
| Court | California Court of Appeals Court of Appeals |
| Parties | BORDERS ONLINE, LLC, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. |
Scott L. Brandman (pro hac vice), J. Pat Powers, Andrew P. Crousore, Palo Alto, Baker & McKenzie, for Appellant.
Bill Lockyer, Attorney General, Randall P. Borcherding, Supervising Deputy Attorney General, David Lew, Deputy Attorney General, for Respondent.
We face with increasing frequency issues at the junction of Internet technology and constitutional principles. This is another such case.
Borders Online, LLC (Online), a Delaware company, sold more than $1.5 million in merchandise over the Internet to California consumers in 1998 and 1999. Online's website included a notice that any goods purchased from Online could be returned to any Borders Books and Music store (Borders store). Under the policy of Borders, Inc. (the owner of Borders stores), customers could exchange the items or receive a credit card refund. Numerous Borders stores are located all over California. Borders, Inc. (Borders) and Online also engaged in incidental cross-marketing practices to benefit the Borders brand. Online and Borders are affiliated through a common parent company but are distinct corporate entities.
The State Board of Equalization (Board) determined that Borders was Online's representative operating in the state "for the purpose of selling" Online's goods, and therefore Online was required to collect and remit a use tax from its California customers for the period April 1, 1998, through September 30, 1999 (the disputed period). (In the Matter of the Petn. for Redetermination Under the Sales and Use Tax Law of: Borders Online, Inc. (Sept. 26, 2001) [2000-2003 Transfer Binder] Cal. Tax Rptr. (CCH) ¶ 403-191, pp. 29,971, 29,972, 29,974 (Board's Borders Opn.).) The primary questions posed by this appeal are whether Borders's activities on behalf of Online were "for the purpose of selling" Online's goods and whether, through Borders, Online had a sufficient presence in the state to justify the imposition of the tax collection burden. The trial court, on summary judgment, ruled in favor of the Board. Online challenges the ruling on the merits and argues the case should have gone to trial. We conclude the trial court's determination was correct, and affirm.
Online is a limited liability corporation formed under Delaware law in 2001 with headquarters in Michigan.1 From April 1998 to September 1999, Online sold books, book accessories, magazines, compact discs, videotapes, and similar tangible goods over the Internet to customers, including customers in California. It did not own or lease property in California during the disputed period and did not have any employees or bank accounts in the state. Online employees located outside California received and processed all orders placed through Online's website, Borders.com. Online neither collected tax from its California purchasers nor paid sales or use taxes to the Board for its sales to California purchasers during the disputed period.
Online was wholly owned by Borders Group, Inc. Borders Group, Inc., also owns Borders, which, in turn, owns Borders stores. Numerous Borders stores are located throughout California and in other states. Borders stores sell merchandise that is comparable to the goods sold by Online over the Internet. Receipts at Borders stores sometimes contained the phrase "Visit us online at www.Borders.com." Although Borders stores did not have facilities to assist customers wishing to place orders with Online, Borders's employees were encouraged to refer customers to Online. Visitors to Online's website could access a "link" to Borders's website, www.bordersstores.com, which provided advertising and promotional information for Borders stores, including a list of store locations.
Two people who served on Online's board of directors also served on Borders's three-person board of directors during the disputed period. All but two of the nine people who served as officers of Online during the disputed period, including the two people who served as president in 1998 and 1999, also served as officers of Borders at some point during the disputed period. Borders and Online shared a similar logo. They also shared some financial and market data but did not intermingle their corporate assets. Borders and Online filed their tax returns on the combined report basis pursuant to Revenue and Taxation Code2 section 25101 et seq.
Online's California sales increased each quarter during the disputed period:
Period California Sales
2d Quarter 1998 $ 40,176.92
3d Quarter 1998 $139,897.16
4th Quarter 1998 $248,294.13
1st Quarter 1999 $361,205.97
2d Quarter 1999 $365,988.29
3d Quarter 1999 $500,451.29
From September 30, 1998, to August 11, 1999, Online posted the following return policy on its website: Any merchandise returned to Borders pursuant to this policy was either absorbed into Borders's own inventory or disposed of. Borders did not charge Online for accepting returns of Online's merchandise. Borders also accepted returns of saleable merchandise presented without a receipt (including merchandise purchased from competitor retailers) for store credit, provided that Borders carried the returned items. However, exchanges or credit card refunds for returned items were routinely provided only to Borders and Online customers with receipts or packing slips.
On July 29, 1999, the Board sent a letter to Online stating the company was required to collect and remit use taxes on all sales to California purchasers because Online's affiliate Borders acted as Online's agent by accepting return merchandise. Section 6203, subdivision (a) requires retailers "engaged in business in this state" to collect and pay a use tax. In stating its opinion that Online was required to pay a use tax, the Board relied on section 6203, subdivision (c)(2) (§ 6203(c)(2)), which defines "`[r]etailer engaged in business in this state'" as "[a]ny retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property." The Board reasoned that Online was "engaged in business in California" because Borders was "acting as an agent by accepting return merchandise on behalf of [Online] as defined in [the company's] Web site return policy."
Online removed its return policy message from its website on August 11, 1999. The Board continued to regard Online as a retailer engaged in business in California, however, and again wrote to the company on October 25, 1999, stating Online was required to collect and pay state use tax. On January 27, 2000, the Board issued a notice of determination to Online for unpaid use taxes, plus interest and penalties, for Online's sales to California purchasers during the disputed period.
Online filed a petition for redetermination, which the Board denied in a memorandum opinion. (Board's Borders Opn., supra, Cal. Tax Rptr. (CCH) ¶ 403-191 at p. 29,974.) The Board found that Online was covered by section 6203(c)(2) because (1) Borders was Online's authorized representative in California for the purpose of accepting returns from Online's California customers, and (2) the taking of returns constituted "selling" for purposes of the statute. (Board's Borders Opn., at pp. 29,973-29,974.) In so ruling, the Board held that "selling" includes "all activities that are an integral part of making sales." (Id. at p. 29,974.) The Board reasoned that Online's favorable return policy was designed to induce potential customers who might otherwise not make an online purchase to place orders, and thus the policy was "integral" to selling in e-commerce transactions. (Ibid.) The Board also ruled that Online had a sufficient physical presence in California (through Borders) to satisfy the commerce clause of the United States Constitution. (Ibid.)
On November 5, 2001, the Board issued a notice of redetermination to Online for unpaid use taxes, plus interest (but not penalties) for the company's sales to California purchasers. Online paid $167,667.78 to the Board and then timely submitted a claim for refund, which the Board denied. After exhausting its administrative remedies, Online filed a complaint in San Francisco Superior Court seeking a refund. Its complaint alleged it was not a California retailer and therefore was not required to pay taxes under state law and claimed the commerce clause prohibited imposing taxes on the company.
The Board filed a motion for summary judgment, and the trial court granted the motion. The court held that (1) Online was covered by section 6203(c)(2) because of Online's policy providing for returns at Borders stores, (2) the imposition of a tax on Online did not violate the commerce clause, and (3) the fact that Online's return policy was not posted on its website during the entire disputed period did not affect the conclusion that Online had a sufficient physical presence in California to support a finding of "substantial nexus." The trial court entered judgment on November 26, 2003, and Online timely appealed.
"The...
To continue reading
Request your trial
-
Harley-Davidson, Inc. v. Franchise Tax Bd.
...839, 849, [196 Cal.Rptr. 198, 671 P.2d 349] (Illinois Commercial ) [independent contractors]; Borders Online v. State Bd. of Equalization (2005) 129 Cal.App.4th 1179, 1189–1190, (Borders ) [agents].) All that is required is that the “ ‘activities performed in [the taxing] state on behalf of......
-
Barker v. Hennessy Indus., Inc.
...and not merely the allegations of the pleadings. ( Code Civ. Proc., § 437c, subd. (p)(2) ; Borders Online v. State Bd. of Equalization (2005) 129 Cal.App.4th 1179, 1188, 29 Cal.Rptr.3d 176.)"The purpose of summary judgment is to separate those cases in which there are material issues of fac......
-
Rodriguez v. SGLC, Inc.
...liability theory. "A representative is '[o]ne who stands for or acts on behalf of another." Borders Online, LLC v. State Bd. of Equalization, 129 Cal. App. 4th 1179, 1189 (2005) (quoting Black's Law Dictionary 1304 (7th ed. 1999)). "An agent is one who represents another, called the princip......
-
Castillo v. Glenair, Inc.
...despite their allegations, trial is in fact necessary to resolve their dispute.’ " ( Borders Online v. State Bd. of Equalization (2005) 129 Cal.App.4th 1179, 1187, 29 Cal.Rptr.3d 176 ( Borders Online ).) Summary judgment is appropriate "if all the papers submitted show that there is no tria......
-
Hawaii Department Of Taxation Finds Internet Retailer Has General Excise Tax Nexus
...Information Release No. 96-1. 8 See Borders Online, LLC v. State Board of Equalization, California Court of Appeal (First District), 29 Cal. Rptr. 3d 176, May 31, 9 As stated previously, the Department took the position that the affiliate was acting as an agent of the taxpayer by participat......
-
New Mexico Supreme Court Holds Online Retailer Has Substantial Nexus For Gross Receipts Tax Due To In-State Retailers Activities
...state courts have held that this requirement does not apply to income tax. 8 362 U.S. 207 (1960). 9 483 U.S. 232 (1987). 10 Id. 11 29 Cal. Rptr.3d 176 (Cal. Ct. App. 12 SFA Folio Collections, Inc. v. Bannon, 585 A.2d 666 (Conn. 1991); SFA Folio Collections, Inc. v. Tracy, 652 N.E.2d 693 (Oh......
-
Closing the Use Tax Loophole: Why Consumer Self-assessment Is a Viable Solution
...retailers to easily structure their organizations to avoid use tax liability on remote sales. See Finch, supra note 3, at 294. 76. 29 Cal. Rptr. 3d 176 (Cal. Ct. App. 2005).77. Id. at 179.78. Id.79. See id.80. Id. at 178.81. Id. at 192.82. 481 F. Supp. 2d 575 (E.D. La. 2007).83. Id. at 581-......
-
Online retailers battle with sales tax: a physical rule living in a digital world.
...& TECH. 299, 304-06 (2010) (analyzing Quill Corp. in the Internet age). Compare Borders Online, LLC v. State Bd. of Equalization, 29 Cal. Rptr. 3d 176 (Ct. App. 2005) (holding that because Borders stores accepted returns from Borders Online, Borders Online subject to taxes), with St. Ta......
-
Up the Amazon Without a Paddle: Examining Sales Taxes, Entity Isolation, and the “affiliate Tax”
...prices are not actually any lower because consumers are required to remit the tax they would have paid on the item at a later time. 35 29 Cal. Rptr. 3d 176 (Cal. Ct. App. 36 Id. at 178-79. 37 Id. 38 Id. at 179-80. 39 Id. at 185. 40 Id. 41 Baudier, supra note 33, at ¶ 11. 42 Id. 43 Id. 44 48......
-
Tcl - Online Retailers Netted by Nexus: the Borders Online Case - January 2006 - Intellectual Property and Technology Law
...& Wine Wholesalers Ass'n v. Heald, No. 03-1120 (May 16, 2005); and Swedenburg v. Kelly, No. 03-127 (May 16, 2005). 4. Borders Online, 129 Cal.App.4th 1179, 29 Rptr. 3d 176 (1st Dist. 2005). 5. "Taxing Time for the Internet?" 15 Business Law Today 11 (ABA Publishing, Nov./Dec. 2005 (with Nat......