Back Tax Settlement Between California and B&N Finalized

California's Board of Equalization (BOE) and Barnes & Noble have finalized their agreement over sales taxes owed by Barnesandnoble.com. B&N will be required to pay the state approximately $9 million in back taxes, plus penalties and interest, for failure to collect and remit sales tax, as previously reported in Bookselling This Week. The $9 million agreement settles two cases: a BOE audit for a four-month period in late 1999, during which Barnesandnoble.com offered online users coupons redeemable in Barnes & Noble stores; and a full-scale audit of the website that the BOE launched in 2003. The agreement was finalized in late August.

"I'm delighted that northern Californian booksellers really pushed this issue," said Hut Landon, executive director for the Northern California Independent Booksellers Association (NCIBA). "This effort caused B&N to begin collecting sales tax online nationally and penalized the retailer for not collecting sales tax during a period when they clearly should have been."

Landon stressed to BTW that the key to this decision is that B&N is now collecting and remitting sales tax on online orders. "That's one more competitive disadvantage for indies that's been taken off the board," he said.

In the summer of 1999, NCIBA and a number of area independents first urged the BOE to investigate whether Barnes & Noble had nexus in the state. They initiated meetings with the chair and the general counsel for the BOE and a number of its investigators.

In November 1999, Landon and indie booksellers became aware that Barnes & Noble stores were placing Barnesandnoble.com coupons in customers' shopping bags. The coupons, a limited, holiday promotion, offered customers a $5 discount on online purchases of $25 or more. NCIBA sent the coupons to the BOE in the hopes that it would investigate Barnes & Noble, which the BOE did. "We were like, what else do you need?" Landon told BTW in 2002. "If this isn't a clear case of nexus, what is?"

In September 2002, the BOE ruled that Barnesandnoble.com was obligated to pay California back use taxes for a period of four-plus months, and Barnes & Noble appealed.

A year later, the BOE voted to conduct a full-scale audit of Barnesandnoble.com to determine if the online retailer had nexus in the state of California. In June 2005, the staff of the BOE completed the audit and delivered the opinion to its Board that Barnesandnoble.com had nexus in the state and that the chain retailer owed approximately $20 million in back taxes, sources close to the BOE told BTW at the time. Barnesandnoble.com then sought a settlement with the BOE.

Barnes & Noble currently collects sales tax in the 45 states that collect sales tax. --David Grogan