Bill aims to plug tax hole

BOISE – A leading senator wants to eliminate the tax loophole that’s allowing sporting goods retailer Cabela’s to not charge sales tax on Internet sales even though it has an Idaho store now, which usually triggers the sales tax requirement.

Senate Majority Caucus Chairman Brad Little says his measure isn’t an anti-Cabela’s bill; he’s found that other big companies are doing the same, and he said that’s not fair to small Idaho businesses that must charge the tax. A House committee agreed unanimously on Monday to introduce Little’s bill.

Little, R-Emmett, said his bill “plugs a hole that some sophisticated tax counsel has found in our sales and use tax laws.”

If a small Idaho business such as a tackle shop starts selling over the Internet, Little said, it has to charge sales tax on its online sales to Idaho residents. Big, multi-state companies should play by the same rules, he said.

A 1992 U.S. Supreme Court decision laid out the standard that companies have to collect state sales taxes on catalog or online sales in a state if they have a physical presence in the state. Since that decision, some companies have set up their corporate structures to show no connection between their remote sales and their in-state retail stores.

“Several companies with sophisticated tax counsel have taken their companies and split them into pieces and parts and said they’re different companies to get around the requirement in Idaho law,” Little told the House Revenue and Taxation Committee.

A 2005 appeals court decision in California narrowed the loophole somewhat. In that case, the court held that because Borders Online let its customers return or exchange merchandise at their local Borders stores, there was, in fact, a “nexus” between the two companies, and sales tax had to be charged.

When Cabela’s opened in Boise last year – another one now is planned in Post Falls – the company obtained a ruling from the state Tax Commission saying it doesn’t have to charge sales tax on its catalog or online sales to Idaho customers because its remote sales operation is a separate company from its retail stores.

Ted Spangler, deputy attorney general at the state Tax Commission, said in August that he wasn’t aware of Idaho having any other such rulings being requested or granted. But other companies could be operating under the same approach without seeking a formal ruling, he said.

Little said that in researching the issue through a Washington, D.C., think tank, he found that other companies with stores in Idaho aren’t charging sales tax on their remote sales to Idaho residents. One, the retailer Sports Authority, tells its Web customers, “Remember, no sales tax except in CA, GA, KY, MA and PA.”

“Sports Authority has a physical presence here, and they don’t collect it,” Little said. “At least Cabela’s was maybe more forthright about it.”

A Sports Authority corporate spokesman in Englewood, Colo., couldn’t be reached for comment late Monday.

Little said Idaho’s sales tax code needs updating to accurately reflect the current sales environment, including Internet sales. He estimated that his bill would bring the state an additional $500,000 a year in tax revenue.

The bill’s next step is a full public hearing in the committee.