Online Sales Tax Debate Rages On

by Rachel Deahl -- Publishers Weekly, 2/13/2006

Here's a riddle: You can't see me, I change from place to place, and some people think I shouldn't live online. What am I? Anyone in the bookselling business could tell you the answer—the online sales tax. Independent booksellers have lobbied government officials for years to force online retailers to charge sales tax. Last week, the ABA's flagship publication, Bookselling This Week, published a story announcing that Barnes&Noble.com had finally instituted the charge. As it turns out, the simple story touches on a slightly more complex issue, one many involved say has more to do with perception than reality.

The story said that Barnes&Noble.com had started collecting sales tax "with no fanfare" in all but seven states and Washington, D.C., after Borders lost a sales tax decision last June (PW, June 13). But a representative from B&N.com said the piece's assertion is off base and there is nothing newsworthy happening. Kevin Frain, B&N.com's CFO (who was quoted in the ABA piece), said the story's characterization that the company has just started charging sales tax is wrong, as is the implication that it has been quietly expanding the practice. Noting that B&N.com has always charged sales tax in New York, New Jersey, Nevada and Tennessee (states where it has offices or warehouses), Frain maintained that since 2004 the chain has been increasing its sales tax collection state by state. According to Frain, in February 2005, the company collected online sales tax in 13 states, a number that increased to 29 in October and 37 in November. With the addition of the eight new states in November, B&N.com also switched from listing on its Web site all the states it does charge sales tax in to noting only those that it does not. "This was no huge change, just something we did for simplicity's sake," Frain said.

But Hut Landon, executive director of the Northern California Independent Booksellers Association, said there is change afoot and it's quite significant. "We've been fighting this for five or six years now; this is not no news," he said. Landon said that, at least as far back as July, B&N was not collecting sales tax in California and in a number of other states. Frain claimed that B&N.com's collection of sales tax is entirely independent of the Borders decision as well as their own pending case in California, which is currently under appeal. Although Frain called the Borders case entirely different from theirs, Landon said the connection is obvious. "If I were Barnes & Noble and facing any kind of investigation into back sales taxes, one of the things I would start doing immediately is collecting sales tax."

Even though the tax for a single book purchase can be small, Vivien Jennings, who owns Rainy Day Books in Kansas City, Mo., said customers usually notice it. "We charge sales tax on our site and customers will often ask us about it... so they're aware [of it]," she said. Jennings added that she's even dealt with out-of-state customers, who come from places where there is no sales tax, and who therefore assume they won't have to pay it. Her feeling is that, until consumers in general recognize B&N.com is charging sales tax, little will change. "The whole impact of it will take some time," she said.

As for rumblings that B&N's actions could further the ABA's ultimate goal—a possible case against Amazon.com for its policy of collecting taxes only where it has a physical presence—they remain just that: rumblings. Robert J. Giordanella, an attorney who specializes in tax law, said that if B&N.com loses its appeal, it could potentially "arm the taxing authority." But because of significant differences between Amazon's business model and B&N.com's, such a case would be very difficult to make, and even harder to win.