How is it that Cabela’s, the sporting goods retailer, could have gotten a ruling from the Idaho Tax Commission that it doesn’t have to charge sales tax on its Internet and catalog sales to Idaho residents even though it now has a store in Idaho, which usually triggers the sales tax requirement? When there’s no such ruling for other Idaho retailers such as Coldwater Creek in Sandpoint?
Here’s how: A 1992 U.S. Supreme Court decision, Quill Corp. vs. North Dakota, laid out the standard that companies have to collect state sales taxes if they have a “nexus,” or a physical presence, in the state. Idaho Gov. Jim Risch, a lawyer, says based on that decision, some companies have set up their corporate structures to show no connection between their remote sales and their in-state retail stores. “They used the U.S. Supreme Court decision to construct entities,” Risch said. “They have been successful in disconnecting the nexus of catalog sales. I’m not saying that’s right, but that’s what they have done.” He added, “The solution … lies not within the state of Idaho, it lies within the halls of Congress and the Supreme Court.”
However, a 2005 appeals court decision in California, Borders Online vs. State Board of Equalization, narrowed the loophole. In that case, the court held that because Borders Online let its customers return or exchange merchandise at their local stores, there was, in fact, a “nexus” between the two companies, and sales tax had to be charged.
This whole area is in hot dispute these days, and only a new federal law or another U.S. Supreme Court ruling will put it to rest.