Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2012

Sales And Use Tax Court Decisions

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National Geographic Society v. State Board of Equalization . . . (1977)

Mail Order Vendors Liable for Collection of Use Tax if They Have Offices in California, Even if the Activities Conducted at Those Offices Are Unrelated to Mail-Order Sales

Plaintiff distributes magazines to subscribers within California and also sells maps, atlases, globes, and books by mail order to California consumers. Plaintiff maintains two offices in California for the purpose of soliciting advertising in the magazine. During a portion of the period in question, sales of the maps, atlases, globes, and books were also made from these offices, but during the remainder of the period, the activity of the offices was limited to solicitation of advertising. The Board collected use tax from plaintiff for the mail order sales on the basis that the plaintiff was liable for tax that it should have collected from its California customers. Plaintiff then sued for a refund of these amounts on the basis that the requirement for it to collect use tax on its sales to California residents was a violation of due process and an unconstitutional burden on interstate commerce, particularly since the offices maintained in the state were not associated with the sales of its products within the state for a portion of the period.

The California Supreme Court upheld the Board, basing its decision on the principle that where a state has given something for which it may ask a return, the requirement for collecting use tax is not unconstitutional. The court ruled that where an out-of-state seller conducts a substantial mail order business with residents of this state, and the seller's connection with the state is not exclusively by means of interstate commerce, the slightest presence of the seller within the state independent of the interstate commerce connection will permit the state constitutionally to impose on the seller the duty of collecting the use tax from mail order purchasers and the liability for failure to do so. The court stated that the mail orders were part of the plaintiff's business in California and rejected as of no constitutional significance its claim that its in-state activities are "dissociated" from its mail order activities. The United States Supreme Court affirmed, but made it clear that it did not necessarily agree with the California Supreme Court's "slightest presence" standard of constitutional nexus. The U.S. Supreme Court held that National Geographic's maintenance of two offices in California, and solicitation by employees of advertising copy in the range of $1 million annually, establish a much more substantial presence than the expression "slightest presence" connotes. National Geographic Society v. State Board of Equalization (1977) 430 U.S. 551, 51 L.Ed.2d 631.