Barnesandnoble.com llc

11-10

The Taxpayer is a limited liability company in good standing organized under the laws of Delaware, with all of its operations, facilities and personnel located outside of New Mexico.  The Taxpayer is a leading internet-based retailer of books, music, DVD/video and online courses.    During the audit period, the Taxpayer was a separate limited liability company owned by Barnes and Noble through its subsidiary.  During the period in question, the Taxpayer didn’t own or lease property of any kind in New Mexico or have any temporary or permanent employees in New Mexico.  All products sold by the Taxpayer to New Mexico residents were delivered by the postal service or another common carrier. The Taxpayer’s website included information about Barnes and Nobles physical locations in New Mexico, and was paid to include this on its site.  The physical stores did allow returns of merchandise purchased from the Taxpayer for in-store credit, but they did not have dealings with the Taxpayer regarding these returns.  During the audit period, the Taxpayer began to participate in a loyalty program that allowed customers to receive discounts on both the Taxpayer’s website and at Barnes and Noble locations.  The Taxpayer also stated that, during the audit period, it did not engage in solicitation of New Mexico customers by advertising, and only communicated by using the customer’s email address.  The matter to be determined at the hearing was whether the Taxpayer’s activities established nexus, and if so, whether the Taxpayer was required to file and remit gross receipts taxes.  The Department argued that many activities,  including the close corporate relationship, return policy, gift card policy, loyalty program, and establishment of a market through Barnes and Noble’s physical locations caused the Taxpayer to have nexus.  Using criteria set forth by previous court cases, the hearing officer found that the Department did not show that any of the Taxpayer’s activities were sufficient to establish “substantial nexus.”  For that reason, the Taxpayer’s protest was granted.  
NOTE: The New Mexico Court of Appeals has overruled this decision on the issue of the criteria used to establish nexus.  (Case No. 31,231)