Cabela’s wins sales tax exemption

BOISE – Cabela’s has 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 even though it now has a store in Idaho – which usually triggers the sales tax requirement.

The reason? The sporting goods retailer successfully argued that its remote sales operation is a separate company from its retail stores.

That’s not the case for some other Idaho companies – such as Coldwater Creek, the Sandpoint-based catalog and Internet retailer that sells women’s clothing, jewelry, gifts and housewares.

“It just makes sense for us from a business model standpoint to charge sales tax,” said David Gunter, spokesman for Coldwater Creek. He said the Sandpoint retailer wants its customers to be able to buy or exchange at any of its selling outlets, whether that’s in a store, by mail or online.

Cabela’s, however, has sought and received such rulings to avoid collecting sales tax on online or catalog sales in 19 states.

“Generally speaking, when we build a store in a state, and based on the economic benefit we’re bringing to the state, we ask to receive a ruling that we don’t have to collect sales taxes from residents,” said Joe Arterburn, a Cabela’s spokesman.

That’s proven controversial in Maine, where such a request is now pending. The Portland Press Herald reported Monday that Maine-based L.L. Bean, a major online and catalog retailer of outdoor gear, is opposing the move, saying it would give Cabela’s an unfair advantage over the home-state company.

Cabela’s corporate spokesman James Powell, at the company’s headquarters in Sidney, Neb., confirmed Thursday that the company has successfully sought similar rulings in other states, but declined to comment further.

A 1992 U.S. Supreme Court decision, Quill Corp. v. North Dakota, laid out the standard that companies have to collect state sales taxes on catalog or online sales in a state 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 v. 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.

Ted Spangler, deputy attorney general at the state Tax Commission, said he wasn’t aware of Idaho having any other such rulings requested or granted, but other companies could be operating under the same approach without seeking a formal ruling. “There are so many people doing business on the Internet either with or without bricks-and-mortar stores, which may or may not be in Idaho, that it’s hard to make any generalized statement,” Spangler said.

Marc Baldwin, an executive policy adviser for Washington Gov. Chris Gregoire, said that Cabela’s raised the issue of sales tax in meetings with state officials several months ago. “That came up early in the discussions,” he said. The outdoor retailer also was interested in tax-increment financing programs that could pay for infrastructure at a new store. The company is considering multiple stores in Washington, he said.

Mike Gowrylow, a spokesman for Washington’s Department of Revenue, said agency rules prevent discussion of the agency’s interactions with individual companies. But, he said, “Our tax position is the same as Idaho’s: If a dot-com company has some relationship with a brick-and-mortar store, then they have to collect sales tax.”

Brad Hoaglun, Risch’s communications director, said he checked on whether Cabela’s could forgo charging the sales tax on its Idaho catalog and online sales. “I talked to the Tax Commission, and what they’re doing is perfectly legal,” Hoaglun said. But the issues in the Borders case could apply, he said. “That’s something the Tax Commission will keep an eye on. It’s too soon with Cabela’s because they just opened a week ago.”

Cabela’s opened its first Idaho store last Friday in Boise.

The Associated Press contributed to this report, as did Spokesman-Review reporter Rich Roesler in Olympia.