SAY NO TO OUTDOORS RETAIL SUBSIDIES

By JOHN MILLER Associated Press Writer

BOISE, Idaho (AP) _ A tax concession that allows some businesses to avoid collecting sales taxes from online and catalog sales to Idaho residents is unfair and should be dumped, a state lawmaker says.

The issue arose after the giant outdoor-goods retailer Cabela's Inc. won concessions from the State Tax Commission before opening its first Idaho store in Boise last August.

Nebraska-based Cabela's had not previously collected sales tax from Idaho residents who bought goods over the Internet or from its catalogs, and the Tax Commission allowed that to continue after the Boise store opened.

Sen. Brad Little, R-Emmett, says that isn't fair to other businesses here that do collect taxes on their so-called remote sales to Idaho residents.

Idaho residents who shop online from companies that don't collect the tax are required to send sales tax from those transactions to the state, but they rarely do.

``The Legislature should have a policy of not giving an unfair advantage to one company over another,'' Little said.

Sports Authority, another national sporting goods retailer with stores in Idaho, also doesn't collect sales taxes on its online transactions with customers from Idaho.

If Little's legislation to eliminate the tax exemption survives the state House and Senate and is signed by Gov. C.L. ``Butch'' Otter, it would boost the state's coffers by about $500,000 annually, he said.

Cabela's, which gets $1 billion of its $1.8 billion in annual revenue from online or catalog sales, often asks for such concessions when it expands its large stores in new states.

Nineteen states have approved similar exemptions. The company is now considering sites in Post Falls, Idaho, and neighboring Washington for more stores.

Some northern Idaho lawmakers fear eliminating the tax loophole could wind up chasing the company _ and the economic infusion it would provide to the local economy _ across state lines.

Recently, however, Cabela's has given up demands for the special tax status elsewhere in the United States.

In Maine, it's moving ahead with a $75 million development after dropping insistence on a sales tax waiver on catalog and online orders from in-state customers there. Like Little, critics in Maine contended such a waiver would have given Cabela's an unfair advantage over homegrown rivals, including L.L. Bean.

Cabela's spokesman James Powell didn't immediately return phone calls from The Associated Press seeking comment on the Idaho measure.

Consulting Firm Urges States to Require Retailer to Collect Sales Tax by John Buhl
In response to agreements that outdoor sporting goods retailer Cabela's has with 19 states to remove its sales tax collection obligation in spite of having nexus, a consulting firm is calling on states to enact legislation that would prevent multistate retail chains from avoiding tax collections on remote sales. Date: Feb. 22, 2007 Full Text Published by Tax AnalystsTM A government relations consulting firm is advising state lawmakers to adopt sales tax nexus legislation that would prevent multistate retail chains from avoiding tax collections on remote sales. "The Secret Tax Break: How Cabela's Short Changes States for Profit" -- written by Ewald Consulting of St. Paul, Minn. -- examines the outdoor sporting goods retailer Cabela's, which obtained waivers from the requirement to collect the tax for online and catalog purchases in all 19 states where its bricks-and-mortar stores are located. Ewald Consulting completed the study on behalf of Oppidan Investment Company, a business partner with Cabela's competitor Gander Mountain. Cabela's also sells via the Internet and catalogs. In 2005 the retailer reported over $1 billion in catalog and Internet sales, according to the report. "We may need state legislation to clarify sales tax laws [regarding] nexus," David Ewald, president and CEO of Ewald Consulting, told Tax Analysts. "We need to make sure there is a level playing field." According to the study, the waivers offered to Cabela's give the company an unfair advantage over other online retailers with bricks- and-mortar stores. The report also says that it sets a precedent for other multistate businesses to follow that could further reduce state revenues, putting the burden on the customer to remit sales taxes to the state department of revenue. Recent media coverage of the Cabela's sales tax agreements has led to mounting pressure from local politicians and retail competitors. Idaho state Sen. Brad Little (R) has introduced HB 67, which would overturn the Cabela's waiver in Idaho. Also, the company rescinded its waiver request in Maine, although it says it will still go ahead with plans to build a store there. (For prior coverage in Idaho, see State Tax Notes, Feb. 5, 2007, p. 295, 2007 STT 22-11 , or Doc 2007-2422 [ PDF]. For prior coverage in Maine, see State Tax Notes, Nov. 6, 2006, p. 357, 2006 STT 209-13 , or Doc 2006-22050 [ PDF].) "It gives [Cabela's] a big advantage over small businesses that can't [rearrange] their corporate structure," said David Clough, Maine director for the National Federation of Independent Business (NFIB). "And if you permit this, what's to stop other large, multistate corporations from doing the same thing?" Ewald said Cabela's has "badgered" states into complying with its request, lobbying governors and state officials for private letter rulings as a requirement before building a store. The consulting group's report includes excerpts from an anonymous e-mail sent from Cabela's to an unnamed state representative, in which a Cabela's representative declares that the company would no longer pursue a store in that particular state because its sales tax waiver request was denied. "In order that we can be profitable in any state, we feel that receiving these tax incentives are absolutely necessary," the e-mail says. In a written statement provided to Tax Analysts, Cabela's counters that the report's claims are poorly researched and an attempt by Gander Mountain to spread "misinformation for corporate gain" by attacking its competitors' expansion efforts. The statement also says the Ewald Consulting report overlooks the tourism, new jobs, and additional tax revenue provided by Cabela's retail stores. "Our ability to partner with local and state governments on our projects has been very successful," Cabela's President and CEO Dennis Highby says in the statement. "Given [Gander Mountain's] financial difficulties in recent years, this certainly seems like an attempt on their part to slow us down." The company defends the sales tax collection exemptions, arguing that Cabela's stores require significant improvements to surrounding public roadways, sewage, and utilities that can cost tens of millions of dollars. "Because surrounding businesses and the community as a whole share in the financial rewards from that construction, most believe the costs for those improvements also need to be shared," says Mike Callahan, Cabela's senior vice president for retail. "Gander Mountain has negotiated and accepted similar financing options in many communities." Does Cabela's Have Nexus? Cabela's has contended that its catalog, online, and retail store operations are sufficiently separate, so that building a store does not create sales tax nexus. However, the study counters that there is an "undeniable collaboration" between the affiliates, including cross-marketing and allowing returns from online purchases at retail stores. "A year ago we had people in [several different] states buy something taxable online without paying sales tax, and they were able to return the item to the store without any problem," Ewald told Tax Analysts. "All of their operations are conducted under the same company name, so there's no difference to the consumer." Ewald added that in Borders Online LLC v. Board of Equalization, a similarly structured corporation in where required to collect sales taxes on online purchases. (For the California Court of Appeal, First Appellate District decision, see Doc 2005-12108 [ PDF] or 2005 STT 107-8 .) But Diann Smith, general counsel for the Council On State Taxation, said that in SFA Folio Collections Inc. v. Tracy, the Ohio Supreme Court ruled that Saks Ohio could accept merchandise returns on behalf of the catalog company without creating nexus. (For the Ohio Supreme Court decision, see Doc 95-59911 or 95 STN 161-29.) "In that case, the sales staff accepted returns to help the customers and create goodwill for their store, not to benefit the mail order company," Smith said. Smith said the corporate name is relevant in "piercing the corporate veil," but other factors -- such as whether one corporate affiliate is undercapitalized or its operations are controlled by another affiliate -- have to be analyzed to determine whether sales tax nexus exists. Also, states have the option of making policy decisions to attract businesses, Smith said. "If a state were to say, 'We want [to attract] this business here because we want those new jobs,' that would be a legitimate position." Future of the Nexus Debate In August 2006 the Multistate Tax Commission rejected a model statute to clarify when out-of-state vendors with in-state affiliates have sales tax nexus. Nevertheless, Ewald said he was hopeful that with additional public scrutiny, either public pressure or new legislation would put an end to the practice of granting sales tax collection waivers behind closed doors. "This is about public tax dollars, and it should be discussed openly," said Ewald. Addressing the confidentiality of the letter rulings Cabela's received, the Maine NFIB's Clough said: "It would be helpful to at least know what is going on with [these rulings] in a general sense, without naming the company." Sheldon Laskin, the MTC's national nexus program director, told Tax Analysts that pressure from other taxpayers could play a significant role. "Other competitors, like Lands' End, had used the same argument, but they eventually started collecting [sales taxes]," Laskin said. "One of the big reasons Maine [eventually] turned [Cabela's] down was because of Lands' End's objection." John Buhl jbuhl@tax.org