Tax "Paperwork Snafu" Results in Bad Pubilicity

Just about the last thing a tax department wants is something they are responsible for to result in bad publicity for their publicly-held company. Here's an example of something that my guess is not the tax department's mistake, but was a major crisis to deal with for a well-known company.

Tax Department Pays $38,569 for a 12 Pack of Toilet Paper

You've seen the headline that goes something like this: "Federal Government Pays $735 for a Hammer". Well, here's a case where a retailer probably had to spend many thousands dealing with a customer who filed what she called a "message lawsuit". The question you have to ask yourself is "what's the message?"


You try to get the tax rates right on the right items taking into account crazy tax laws all over the nation, and you get it wrong a 12-pack of toilet paper and you get sued over that? Give me a break. We must have bigger problems to fight than this.

Check out this article in the Pittsburgh Tribune-Review.

And I quote: "A Murrayville homemaker has won another legal battle against a retail giant.
Mary Bach, 63, sued Kmart after its store on Mall Boulevard in Monroeville charged her 7 percent sales tax on two 12-pack rolls of Angel Soft toilet paper -- a non-taxable item, according to the state Department of Revenue. On Thursday, Monroeville District Judge Herbst ruled in Bach's favor, finding Kmart twice levied the tax improperly. She gets $100, plus court costs.
Company spokeswoman Kim Freely said the tax was charged in error that the problem has been fixed. The Tribune-Review bought the same toilet paper yesterday tax-free.

"Bach, a self-proclaimed consumer advocate, has successfully sued other retailers including Wal-Mart and Radio Shack for incorrectly taxing items. Bach calls them "message lawsuits."

"I want to be in a position to educate consumers," Bach said. "The only thing retailers understand is a message lawsuit."

What's the message?

Do People Shop Online to Avoid the Tax -- Looks Like the Answer is No

According to this article in Forbes magazine, 17 out of the top 20 Internet retailers are brick and mortar operations that collect tax. Also, it is estimated that consumers paid sales tax on half of their online purchases this Christmas.


So maybe avoiding sales taxes isn't the main lure of shopping online. Even though you wouldn't be surprised people would try to avoid the tax which now averages more than 8.5% in the taxing states.


This estimate that half the sales taxes owed by consumers on the purchases of goods online are being collected anyway was made by William Fox, director of the Center for Business and Economic Research at the University of Tennessee. He bases that estimate on surveys of Web sites he and his students have conducted over the last two years.

"I was surprised to find it was so high. And if anything, it's growing," says Fox.


Only three of the 20 largest online merchants in 2006 were pure online operations, according to Internet Retailer's annual rankings. Staples (nasdaq: SPLS - news - people ), Office Depot (nyse: ODP - news - people ), Sears Holdings (nasdaq: SHLD - news - people ), Best Buy (nyse: BBY - news - people ), J.C. Penney (nyse: JCP - news - people ), Wal-Mart Stores (nyse: WMT - news - people ), Circuit City (nyse: CC - news - people ) and Target (nyse: TGT - news - people ) all made the top 20. All collect sales tax. Limited Brand's (nyse: LTD - news - people ) Victoria's Secret, which collects taxes, sold more online last year than did Overstock.com (nasdaq: OSTK - news - people ), which only applies tax to shipments bound for Utah.

As the article in Forbes states, even non-traditional retailers have started moving into the tax line, too. Dell (nasdaq: DELL - news - people ) began collecting sales tax nationwide last year, prompting some grumbling online by surprised shoppers. CDW (nasdaq: CDWC - news - people ) began collecting in 2005.

Retailers are finding that customers like being able to return a defective DVD player purchased online to a local store.

We've blogged before about it being pretty well-settled that if you are a retailer that allows people to return items to a brick and mortar location, you have nexus -- even if the online retailer and the brick/mortar one are in separate legal entities.