Tax News

CCH (cch.taxgroup.com) reports:

  School teachers did not rise to the level of representatives of a bookseller for purposes of establishing nexus to justify the imposition of Connecticut sales and use taxes. After the taxpayer protested two notices of assessment issued by the commissioner of revenue against the out-of-state taxpayer for its activities in marketing and selling books and other educational products, the commissioner upheld the deficiencies based on the taxpayer's use of teachers. The commissioner indicated that the taxpayer was subject to sales and use taxes because it had engaged in business in the state through the use of its in-state representatives (i.e., the teachers). The court found that the taxpayer: (1) does not own or lease any real or personal property in the state; (2) has no place of business in the state; (3) has no employees, representatives, independent contractors, salesmen, agents, canvassers, or solicitors in the state; (4) has no franchisees or licensees operating in Connecticut; (5) had not communicated with Connecticut residents by means other than mail or the Internet from locations outside the state; and (6) did not use Connecticut vendors to design, prepare, print, store, or mail catalogs. The court also found that Connecticut teachers play a role in the taxpayer's sales and distribution process solely as a result of their academic interest in choosing books and other items for their students and themselves.

  Noting that no Connecticut cases interpret the term "representative," the court held that the term is defined as a person who participates in an in-state sales force to sell, deliver, or take orders to generate revenue. "Representatives" in statutory definitions of Connecticut and other states are in the same class as salesmen, canvassers, or solicitors. Although the teachers provide the taxpayer with an important administrative role by distributing catalogs to the students and collecting student orders, their administrative functions do not rise to the level of a sales force. Moreover, the teachers are not in-state order takers who seek to produce revenue for themselves or the taxpayer, and as such, the Connecticut school teachers are not representatives of the taxpayer for purposes of being engaged in business in the state. In addition, despite the commissioner's argument that nexus was established by the teacher's activities, the court held that basing the imposition of tax on the taxpayer's use of teachers as its representatives would violate constitutional restraints. The court noted that while the taxpayer and the participating teachers have a symbiotic relationship, that relationship did not make the teachers the taxpayer's in-state representatives.

  Subscribers can view the Memorandum of Decision.

  Scholastic Book Clubs, Inc. v. Commissioner of Revenue Services , Connecticut Superior Court, Nos. CV 07 4013027 S and CV 07 4013028 S, April 9, 2009