Some retail chains have separated their online operations from their stores in order to avoid having to collect sales tax online. But that strategy may not work in New Mexico for books retailer Barnes & Noble Inc.
The New Mexico State Court of Appeals has found that Barnes & Noble owes the state more than a half-million dollars in uncollected sales tax and interest for a 7 1/2-year period during which the retailer was audited between 1998 and 2005.
The court’s action came in a case brought by the New Mexico Department of Taxation and Revenue against BarnesandNoble.com LLC, a subsidiary of B&N Holding Corp., which was being audited. B&N Holding Corp. is itself a subsidiary of the retail chain Barnes & Noble Inc.
The state taxation department had contended that the parent retail company’s presence of three bricks-and-mortar stores in the state established a physical presence in the state requiring the online retailer to collect and remit sales tax on sales to state residents. Under federal law, states can require retailers to collect sales tax only if a retailer maintains an in-state physical presence, or nexus in legal terms, such as stores or distribution centers.
Although the court said the presence of the parent company’s stores did not alone create a nexus for its subsidiary’s e-commerce sales, it found that the shared trademark between the online and offline operations did create nexus.