Ken Dey
Idaho
Statesman
The Idaho Statesman | Edition Date: 09-12-2006
Idaho officials contend they were only following the law when the Tax
Commission ruled that Cabela's Inc. would not have to collect Idaho sales
taxes on its online and catalog sales.
But legal and legislative
efforts under way nationwide would tighten the tax laws and eliminate the
so-called gray area that allow companies like Cabela's to avoid collecting
state sales taxes from online customers.
The issue has caught the
attention of Idaho legislators.
"I definitely think we need to look at this in the next session. I'm
concerned about it, and others are too," said Sen. Brent Hill, R-Rexburg,
who will likely be the new chairman of the Senate's Local Government and
Taxation Committee when the Legislature convenes in January. "I don't want
people to think we're bending over backwards for the big outfits while
sacrificing our small businesses and putting them at a competitive
disadvantage."
Cabela's successfully argued that the company's online and catalog
divisions are separate companies from the company's retail operations and
therefore have no "nexus" — a physical presence, such as an office,
branch, warehouse or employees — in the state to require the collection of
taxes.
The Idaho Tax Commission denied the Idaho Statesman's public
records request for additional information about the Cabela's ruling and
rulings for other companies, citing the state's taxpayer confidentiality
laws.
Deputy Attorney General Ted Spangler, who represents the commission,
said rulings aren't required. If other companies are not collecting sales
taxes for online and catalog sales, they're doing so because they think
they're operating within the law, he said.
Time for a challenge
Idaho isn't alone in giving Cabela's a favorable ruling. The company
said it has received such rulings in 11 states where it has retail stores
and claimed no nexus for the online operations.
Cabela's says it
requests rulings because its customers don't like paying the taxes, and
the taxes put the company at a competitive disadvantage with other online
retailers with no presence in Idaho that don't collect taxes.
But
in Maine, where Cabela's hopes to build, a number of state and business
leaders are speaking out against Cabela's request for the tax break
because, they say, it would be unfair to other Maine companies that
collect sales taxes on online sales.
"States could easily say no," said Michael Mazerov, senior fellow with
the Washington, D.C.-based Center on Budget and Policy Priorities, a
nonpartisan organization that monitors tax policy and how it affects
low-income families. "But you never know when a big economic development
deal comes forward how much pressure will be bought to bear to get a
ruling like this."
Mazerov said it's a "murky" area of the law and,
if tested, he believes the Supreme Court would uphold a state's right to
require companies like Cabela's to collect sales taxes.
Idaho's sales tax collection policies are based on a 1992 U.S. Supreme
Court ruling in Quill Corp. v. North Dakota. North Dakota wanted the Quill
office-products company to collect state sales taxes from its customers
despite having no presence in the state.
The Supreme Court ruled
that the company must have a nexus before the company can be required to
collect sales taxes.
Cracks in Cabela's strategy
Cabela's declined to comment for this story. The company said in its
annual report with the U.S. Securities and Exchange Commission that it
would challenge any efforts to deny the sales tax exemption in states
where Cabela's has no online nexus but conceded that it might not
prevail.
California denied a similar exemption for Borders Books
and Music, which maintained that its online operation was separate and had
no presence in California. Borders appealed, but the denial was upheld by
the state's court of appeals. The court ruled in June 2005 that Borders
retail and Borders online were not separate companies and couldn't be
exempt from collecting sales tax for online purchases. The court cited
Borders practices such as allowing customers to return online items to
retail stores, imprinting its receipts with the company's online address,
referring retail customers to its online site, and using similar logos and
shared market and financial data between online and retail.
A similar case against Cabela's is now pending in Texas. Gander
Mountain Co., a competing sporting goods company based in Minnesota,
alleges that actions by Cabela's do not support the company's contention
that its retail operations are separate from online and catalog
operations.
The lawsuit alleges that online and catalog customers
can return items to a retail store, that catalogs are distributed at
retail stores, that retail store employees assist customers in placing
catalog orders at the store, and that Cabela's retail stores promote and
advertise the Cabela's Web site in the stores. Gander Mountain also
alleges that the company's Web site provides information about its retail
stores.
Mazerov said the allegations clearly show that Cabela's
retail sales representatives are acting as representatives of the Web
site.
"To me that should be a no-brainer for nexus," he said.
Changing
the laws
Although the Idaho Tax Commission ruled in favor of Cabela's, the
commission is supporting changes that would no longer allow Cabela's and
others to qualify for an exemption.
As a member of the Interstate
Tax Commission, Idaho last month voted in favor of a model statute for
states to clarify what actions establish a nexus. The Sales Tax Nexus
Provision would conclude that an out-of-state company with no physical
presence in a state would still be considered to have a nexus in the state
if an online company is related to a retail store within that state for
tax and financial purposes. The two also would have to share a similar
name, trade name or trademark.
The provision didn't pass but could
be brought up again.
Idaho has also been monitoring the Streamlined Sales Tax project, which
asks states to simplify sales-tax collection procedures to make it easier
for online and catalog sellers to collect the tax. Twenty states have
passed legislation to accomplish that, but Idaho hasn't yet pursued
legislation. A bill in the U.S. House would make streamlining sales tax
procedures a nationwide requirement, but few people believe it will pass
this session.
The Streamlined Sales Tax project indirectly
addresses the nexus question, but proponents hope that by streamlining
sales tax collection, online and catalog companies will be more receptive
to collecting the taxes. Many of the larger retailers, including Wal-Mart,
Target and Best Buy, support the Streamlined Sales Tax project and already
collect sales taxes in states where they have a presence.
