New Mexico: Online Bookseller Has Nexus
- Jun 5, 2013 | Gail Cole
It’s not unreasonable to assume that Barnes and Noble Booksellers and the Barnes and Noble online retailer (bn.com) are one and the same. After all, the “Our Company” page of Barnes & Noble Booksellers explains that Barnes & Noble, Inc. operates “nearly 700 Barnes & Noble bookstores in 50 states, and one of the Web’s largest e-commerce sites, BN.com.” (Emphasis mine). The website explains that “the BN.com website serves as the company’s largest store…” and that Barnes & Noble, Inc. “wholly owns all our stores.”
However, when the state of New Mexico handed BN.com a bill for unpaid gross receipts tax on its sales to New Mexico residents from January 1998 through July 2001, BN.com protested. The online retailer argued that “it lacked substantial nexus with the State of New Mexico, and therefore it could not constitutionally be required to pay the tax.” The case found its way to the NM Supreme Court.
Nexus or Not?
The case hinges on whether or not BN.com has nexus in New Mexico. Nexus, or the connection between a retailer and a state that obligates the retailer to collect and remit sales tax in that state, has historically been linked to physical presence. States have a right to tax businesses that have substantial nexus with the state, but may not tax states that don't have nexus.
Barnes and Noble is a Delaware corporation headquartered in New York. As of this writing, there are three Barnes and Noble stores located in New Mexico: two in Albuquerque and one in Las Cruces.
The Supreme Court of New Mexico determined that “…Booksellers’ in-state activities were sufficient to create substantial nexus between bn.com and the State of New Mexico….” In other words, New Mexico may “tax bns.com’s sales to customers in New Mexico….”
The court acknowledged that other courts have made different determinations in similar cases. However, the New Mexico Supreme Court found that “Booksellers and bn.com presented a single face to the public….” The online company offers a store locator so customers may go to physical stores. The bookstores sell gift cards encouraging online shopping. The physical and internet sellers share a logo and customer data. As a result of these and other connections, the court determined that the “Booksellers’ presence and activities in New Mexico gave bn.com an advantage over its competitors, which helped bn.com establish and maintain a market” in N.M.
Currently, states that hand sales tax bills to out-of-state sellers frequently find themselves in court. Bn.com is in good company. Yet the Marketplace Fairness Act of 2013 (MFA) may soon change that. If the House approves MFA as did the Senate, remote retailers like bn.com may find themselves collecting sales tax in many states where they are not currently required to do so.
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