California Tax Commission to Audit Barnesandnoble.com

At its April 23 meeting, California's State Board of Equalization (BOE) voted 3-2 to conduct a full-scale audit of Barnesandnoble.com to determine if the online retailer has nexus in the state of California. The vote came after the Board reaffirmed its September 12, 2002 decision that Barnesandnoble.com was obligated to pay California back use taxes for a period of four months -- from November 15, 1999 to March 31, 2000 -- because Barnes & Noble stores were offering coupons discounting purchases made at Barnesandnoble.com.

"We are very pleased that [BOE] announced they're going to conduct a complete audit," said Hut Landon, executive director for the Northern California Independent Booksellers Association (NCIBA). "We are monitoring their research and will continue to provide them with evidence of the direct relationship between [Barnes & Noble and Barnesandnoble.com]." He stressed that the Barnes & Noble coupons offering discounts at Barnesandnoble.com was just one example of the nexus between the two companies.

After BOE's September ruling, Barnes & Noble requested a second hearing in an effort to overturn the decision. However, at the April 23 meeting, after the Board voted to reaffirm the ruling, it then voted to direct its audit staff to conduct a full nexus investigation of the activities of Barnesandnoble.com in California both prior to November 15, 1999 and after January 31, 2000. Carole Migden, chair of BOE, along with Board members John Chiang and Steve Westly, voted in favor of the audit.

"To the average customer, there's not a dime's worth of difference between something purchased at a Barnes & Noble store and at Barnesandnoble.com," Migden said in a press statement. "Our decision sends a message to national retailers: Do not try to use the Internet as a tax haven for your California stores that constitute one-eighth of our great nation's retail market. If the end result of your Internet commerce is a physical presence in California, you're going to be treated like every other store on every other Main Street or mall in California."

The use of Barnes & Noble stores to distribute discount coupons is only one example of having a physical presence in California, noted Betty Yee, deputy to the BOE chair. Another example of nexus would be using the stores to take returns, she said.

Nonetheless, at the April 23 meeting, Yee noted that the board voted unanimously to "firm up the definition of what constitutes nexus," a job which now falls to California's Business Taxes Committee. --David Grogan