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  • In a move that conceivably could set a precedent for the collection of sales taxes for goods purchased over the Internet, a California appellate court has ruled that the state of California can collect such taxes from Borders for products sold online to the state’s residents.

    The US Supreme Court ruled in 1992 that sales taxes cannot be collected if the online retailer does not have a brick-and-mortar presence in the state. Borders has more than a hundred stores in California, and the state’s Attorney General – seeing the opportunity to generate revenue for the state’s troubled coffers – went after the company.

    Borders argued that its online division had no physical California presence and therefore was not liable for sales taxes. Since then the company has outsourced its online business to, but the courts have ruled that the physical and online stores are co-marketed and therefore liable.

    The implications of the ruling are considerable if California decides to go after other online retailers on the same grounds, and if other states are emboldened and decide to take similar steps. There are some estimates that state governments may have lost more than $15 billion in revenue because of lost sales taxes.

    Independent book retailers, who have long argued that the lack of sales taxes on goods sold over the Internet puts them at a competitive disadvantage, cheered the California ruling, according to various press reports.

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