Retailer Liable for Calif. Sales Tax on Internet Sales

SAN FRANCISCO — A little-noticed California legal opinion may impact online retailers in a very big way — by forcing them to pay sales tax for products sold to state residents.

The ruling has a direct impact on mainstream, as well as adult, companies that have both online and offline businesses.

By accepting returns through Borders Group Inc. bookstores in California, Borders Online became obligated to collect state tax on merchandise sold to California residents, the state’s 1st District Court of Appeal ruled earlier this month.

The “cross-selling synergy” created by the connection between the Borders bookstores and the online retailer were sufficient to support the state’s taxing authority under the Commerce Clause of the U.S. Constitution, the court said, which pointed out that the two companies also used similar logos, had linked websites and shared some market and financial data.

The court affirmed a summary judgment in favor of the State Board of Equalization concluding that Borders Inc. was acting as an agent for Borders Online LLC, bringing the transactions within the sphere of Revenue and Taxation Code Sec. 6203(c)(2).

Both Borders and Borders Online are division of Borders Group Inc. Borders Online had California sales of more than $1.5 million in 1998 and 1999, the period at issue in the litigation.

Borders Online paid California use tax of nearly $168,000 for that period, but sought a refund, claiming that it was not “engaged in business in” the state within the language of Sec. 6203(a).

Sec. 6203(c)(2) defines a retailer as engaged in business in California if it has a “representative [or] agent...operating in this state ... for the purpose of selling ... any tangible personal property.”

Borders also contended that requiring it to collect the tax would violate the Commerce Clause.

The appellate court rejected both arguments.

“By accepting online merchandise under the terms of Border’s online’s return policy, Borders was effectuating its online’s policy, even if it was also Borders’ own policy. The undisputed facts show Borders acted as online’s agent,” the court said.

“Whatever the subjective intent of [Borders] online or its individual customers, the [tax] board’s conclusion that [Borders] online’s return policy is integral to making sales because of its attractiveness, convenience and trustworthiness is persuasive, especially in the context of e-commerce.”

Though Borders Online later eliminated all reference to its return policy at Borders bookstores from its website, the court said that made no difference, especially since the stores continued to make the refunds or exchanges when asked to do so.

The case is Borders Online LLC vs. State Board of Equalization, No. A105488.

Copyright © 2025 Adnet Media. All Rights Reserved. XBIZ is a trademark of Adnet Media.
Reproduction in whole or in part in any form or medium without express written permission is prohibited.

More News

Sexpo Australia Relaunches as SexEx

Sexpo Australia founder David Ross has relaunched his adult lifestyle expo as SexEx.

Private Releases 'The Love Hotel 2'

Private has released “The Love Hotel 2,” directed by Dave Menich.

Orion Unveils New Styles From 'Svenjoyment Bondage' Line

Orion Wholesale has released two new styles from its Svenjoyment Bondage line.

Ember Fiera, Jesse Pony Headline 'TS Girls Do It Best' Sequel From TransSensual

Ember Fiera and Jesse Pony topline the sequel to “TS Girls Do It Best” from Mile High Media studio imprint TransSensual.

Khloe Kapri, Melissa Stratton Topline 'Lesbian Trainer 3' From Sweetheart Video

Khloe Kapri and Melissa Stratton headline the third volume of “Lesbian Trainer” from Mile High Media studio imprint Sweetheart Video.

NYC Adult Stores Lose Challenge to Zoning Law, May Face Relocation

The U.S. Court of Appeals for the 2nd Circuit on Tuesday upheld a lower court’s decision to allow enforcement of a 2001 zoning law aimed at forcing adult retail stores out of most parts of New York City.

FSC Drops Florida AV Lawsuit in Wake of SCOTUS Decision

A U.S. district court judge granted on Tuesday a motion by Free Speech Coalition to dismiss the trade association’s lawsuit over Florida’s age verification law, a case that had been on hold pending the Supreme Court’s recent ruling on the constitutionality of state AV laws.

Gal Ritchie Toplines Dorcel's 'Pigalle'

2025 XMAs winner Gal Ritchie stars with Clara Mia in the latest feature from Dorcel, titled “Pigalle.”

B-Vibe Spotlighted in Glamour Magazine

B-Vibe has been named Best for Anal Toys in a Glamour Magazine article on pleasure brands.

Ukrainian President Responds to Porn Legalization Petition

President Volodymyr Zelensky responded Tuesday to an OnlyFans model’s petition to decriminalize pornography in Ukraine, stating that he would wait for the legislative process to play out “in accordance with established procedure.”

Show More