Donald Satz wrote:

>This is news to me concerning CDNOW.  I realize that their prices are
>higher than Towers, but I've never found any reason to think CDNOW charges
>tax.

I began to notice last year that some business I ordered from on the
Internet, who had not previously charged "tax", were starting to charge
"tax".  The first was Daytimers.  I was going to order renewals and I
noticed they were charging tax.  I wrote an E-mail and got back a reply
that they had a "related business" in Texas and that was why they were
charging tax.  I wrote back asking what was the name and nature of the
"related business" they had in Texas, and never got a reply.  I did not
renew my subscription.

I used to order Turbo Tax from Intuit over the Internet.  This year they
charged "tax" They responded to my letter by saying that had a "presence"
in Texas - called Nexus - and they had to charge tax.  I cancelled that
order because if I have to pay "tax", I'll buy TurboTax from CompUSA and
pay the usual retail sales tax.

When I wrote Daytimers and Intuit I mentioned that it didn't make sense
to me how they could charge tax when Tower Records did not charge tax on
Internet purchases and neither did Barnes and Noble.  I mentioned those
business because they have retail outlets in Texas and you would think that
if anyone HAD to charge tax on internet purchases, it would be them.
Neither Daytimers and Intuit tried to explain the difference.

I made inquiries of the Texas Tax authority and they were really quite
helpful.  They sent me a lengthy e-mail stating the conditions when "tax"
has to be collected.  Briefly, they state that if you have an actual place
of business in Texas, you have to collect tax.  But if you are not engaged
in business in Texas and merely ship a taxable item by a common carrier
from a point outside of Texas, you don't have to collect sales tax.
Further, if you sell over the Internet only, and don't have a place of
business in Texas, you also don't have to collect tax.

>Why would they do this if not required by law? How can Tower avoid
>the law?

The point is, according to what the Texas Tax Authority wrote me, neither
Daytimers, not Intuit are required to collect tax.

CDNOW told me the reason they were charging tax was because they had
set up a warehouse in Texas, and Texas law says if you maintain, occupy,
or use an office, place of distribution, or warehouse, you are a retailer
engaged "in business " in Texas and must charge tax.  However, as I pointed
out to CDNOW, the CD's I received were shipped from Skokie Il, NOT anywhere
in Texas.  "How", I asked, "can you charge me Texas state tax on an item
which was NOT shipped from a Texas place of distribution?" At this point,
CDNOW sent me another E-mail wherein they stated they were going to refund
me the tax amount they had collected - on a ONE TIME ONLY basis and if I
bought from them in the future, the "tax" amount would stand.

I suspect the reason Tower does NOT charge tax is becasue it created a
separate entity to sell over the Internet only (as I referenced above) and
by Texas rules, does not have to charge Tax.  I think the same may be true
of Barnes and Noble.

I also suspect that companies who DO charge tax on internet purchases, make
a calculated risk as to what customers will pay the tax becasue they're use
to paying tax, and those who will object and possibly not do further
business with them.

>Could Dave please indicate how he knows that CDNOW charges a tax?
>I charge tax for my services but only because I have no legal choice.

I started buying from CDNOW about 2 years ago and they didn't charge
tax at that time.  Then I didin't buy from them for about 9 months until
last month when I bought Marc-Andre Hamelin's Godowsky CD.  There on the
confirmation E-mail was "tax".  I wrote them an E-mail asking why - and
again using Tower Records and Barnes and Noble as my example of business
who have retail stores in Texas, sell over the Internet, and do NOT charge
"tax".  That's when they replied about the "Texas warehouse".  To their
credit, CDNOW responded to my inquiries a number of times - unlike the
others who basically stonewalled me.

>Traditionally, no company is going to tax customers unless mandated by law
>to do so.  What's going on?

What these business are charging is a "use tax".  How can they do it?
Here's what Texas says "While we are not generally able to collect use
tax on out of state purchases because of the costs of doing so, we
routinely audit and enforce use tax on out of state purchases against
companies that have a permit".

In other words, as long as they're not caught, CDNOW and others
will collect the tax and pocket it.  Unlike retail sales in the state,
companies like CDNOW do not have to report their sales to the state, so
there is no way the state can KNOW how much tax is actually owed them.

Finally, if it really were the law that CDNOW had to collect tax, why did
they refund me the tax they had charged?

Dave Harman
El Paso, TX