The world’s largest retailer, Wal-Mart Stores Inc., has been leading the attack against Internet giant Amazon.com Inc. for refusing to collect sales taxes on online purchases. But Wal-Mart doesn’t always collect sales tax on items sold on its site, either.
The Walmart.com site, based in Brisbane near San Francisco International Airport, offers hundreds of products from a third-party retailer, CSN Stores in Boston, that are sold without collecting taxes when state residents buy them.
Wal-Mart insists that it’s not its responsibility to require companies that sell products through its site’s Marketplace Retailers program to collect California sales tax, even though the billing and the credit card transactions take place on Walmart.com.
But state Board of Equalization board member Betty Yee said she believes that Wal-Mart does have an obligation under the California law that took effect July 1 to collect the taxes.
“As a leader in trying to enforce the new [law], they also should be leading the charge in terms of being very clear about the application of the tax on all transactions with California consumers,” Yee said.
Yee has asked board staff to determine whether Wal-Mart should be collecting the tax. Wal-Mart spokesman Daniel Morales said that if a vendor doesn’t ask the company to collect the tax, it doesn’t do so.
“Marketplace Retailers are responsible for requesting us to collect and remit the sales tax,” he said in an emailed statement. “We collect for them upon their request and they are responsible for remitting it to the states.”
Morales referred all questions about sales tax collection to CSN, a privately held company, which says on its website that it has annual sales of more than $380 million. CSN did not respond to requests for comment.
On its site, CSN states that “one of the best things about buying through CSN Stores is that we do not have to charge sales tax” except for sales shipped to Massachusetts and Utah.
CSN has not obtained a permit to collect California sales taxes, state officials said.
According to a 1992 U.S. Supreme Court ruling, a brick-and-mortar presence, known as a “nexus,” is the only basis for a legal requirement to collect sales taxes. Amazon and other Internet sellers cite the lack of such facilities as a legal reason for not collecting hundreds of millions of dollars in California sales taxes each year.
The new California law, being challenged in a referendum campaign by Amazon, broadens the nexus definition so that Amazon and others would be required to collect taxes on sales in the Golden State.
Nexus also is created, under the law, if a firm has a related business operation in the state. For example, Amazon runs an affiliated lab in the Silicon Valley that develops its Kindle e-reader.
Wal-Mart’s obligation to collect sales tax for CSN sales appears to be at least as strong as Amazon’s obligation, said Richard D. Pomp, an expert in state taxes at the University of Connecticut law school.
“What you’ve got is a company with nexus, physical presence in California, acting as an agent for an out-of-state seller,” Pomp said. “That certainly seems to create nexus in my mind.”
Legal theories aside, Pomp said he was surprised that Wal-Mart would try to avoid the same California law it’s been campaigning to pass and enforce against its Internet rivals.
Wal-Mart should avoid getting into a dispute with California “at the same time it is at war with Amazon,” he said.