Tennessee Assesses Scholastic Book Club
- Feb 6, 2012 | Susan McLain
In a recent audit of the Scholastic Book Club (SBC), a Missouri corporation, Tennessee State determined that the educational book club company has nexus in the state and assessed over $5 million in sales tax, penalties and fines.
Upon appeal of “…whether Plaintiff Taxpayer’s connections with Tennessee constitute a ‘substantial nexus,’” it was determined that the relationship SBC shares with teachers does constitute nexus and thus requires collection and remittance of sales taxes. Teachers receive marketing materials, distribute them to students and then gather the orders, make their own and then provide them to SBC either via phone, mail or Internet. According to the ruling, “The Commissioner asserted that the facts established that teachers who participated in SBC’s program acted as agents for SBC.”
It was noted that two other jurisdictions have determined the same regarding participating teachers’ relationship with SBC, but three have “…concluded otherwise.” Originally, “[t]he trial court determined that the Commissioner of Revenue’s assessment of sales and use taxes against out-of-state Plaintiff for sales to customers in Tennessee was not permitted under the Commerce Clause of the United States Constitution, and entered judgment in favor of Plaintiff.” On January 27, 2012, a reversal of that judgment was made by the Court of Appeals of Tennessee at Nashville.