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If enacted, recently passed California legislation would require retailers, who are not required to collect use tax, to provide notification on their retail Internet Web site or catalogue that tax is imposed on the storage, use, or other consumption in California of tangible personal property purchased from the retailer that is not exempt, and is required to be paid by the purchaser. Amendments to the bill over the last few months have eliminated but then returned the rebuttable presumption that any retailer that is part of a controlled group of corporations, and that controlled group of corporations has a component member that is a retailer engaged in business in California, is presumed to be a retailer engaged in business in the State. The original bill included a provision that requires every person who is not registered with the California Board of Equalization (BOE), who sells tangible personal property, the storage, use, or other consumption of which is subject to use tax, to file a use tax report with the BOE. However, at this time, this provision has been eliminated. If passed, this bill would be effective January 1, 2011. (A.B. 2078, passed by the California Assembly on May 6, 2010, Amended June 16, 2010 and June 24, 2010). (08/10)


Governor Schwarzenegger vetoed a majority vote tax increase passed by the California legislature after announced that it would pull its affiliate advertising from the State. California lawmakers had proposed a tax on affiliate advertising similar to New York’s “Amazon” laws. The new laws would have changed the definition of “retailer engaging in business in this state” to include any retailer entering into an agreement with a resident of California under which the resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property via a link on its website or otherwise to the retailer. Governor Schwarzenegger stressed his commitment to not raising taxes and his fight to keep and create jobs in California. will continue to do business with affiliates in California (Press Release, Governor Schwarzenegger Remains Committed to No New Taxes, Announces Will Continue to do Business in California (July 1, 2009).


A.B. 27 and A.B.178 have been introduced to include in the definition of a “retailer engaged in business in this state” any retailer entering into an agreement with a resident of California under which the resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property, whether by a link or Internet Web site or otherwise, to the retailer, if the cumulative gross receipts from sales to customers referred pursuant to these agreements is in excess of ten thousand dollars during the preceding four calendar quarters. If the retailer can demonstrate that during the four quarters in question, the resident did not engage in referrals in California on behalf of the retailer that would satisfy the requirements of the United States Constitution commerce clause, the proposed new definition is inapplicable to the retailer.

Additionally, A.B. 27 also seeks to include in the definition any retailer who has any representative, agent, salesperson, canvasser, independent contractor, or solicitor servicing or repairing tangible personal property in California under the authority of the retailer. (A.B. 27 as introduced in the third extraordinary session by the California Assembly on January 29, 2009, and A.B. 178, as introduced in the regular session by the California Assembly on February 2, 2009)


On May 29, 2008, a resolution was reached between the California State Board of Equalization (SBE) and Barnes &, canceling two tax determinations against Barnes & and waiving claims for past sales and use taxes, interest, and penalties. The company had filed a previous complaint in the U.S. District Court for the Easter District of California for relief against actions of the state in seeking to collect California sales and use tax. Barnes and voluntarily began collecting and remitting sales and use taxes to California on November 1, 2005. (Form 10-Q Quarterly Report, Barnes & Noble, Inc., September 11, 2008)


In a recent decision by the California District Court of Appeals, the court ruled that “brick and mortar” stores in the State of California were acting as agents for an online retailer giving the online retailer nexus in the state. The court found that the “brick and mortar” counterpart to the online retailer would accept returns and provide refunds, store credits or exchanges for goods sold from the online retailer, but would not offer the same services for goods from other online retailers. The internet store was selling and shipping goods to in-state customers. The cash register receipts in the “brick and mortar” store would also direct customers to the online retailer. The two entities also used similar logos and employees of the “brick and mortar” store were instructed to refer people to the online retailer. These facts supported the conclusion that the online retailer indeed did have nexus in the state and was responsible for registering in the state and collecting sales and use tax. (Borders Online, LLC v. State Board of Equalization, California Court of Appeals)



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