In mid-November 1999, Barnes and Noble Booksellers began distributing in California discount coupons for purchases made through the Web site. 

� Barnes and Noble Booksellers customers received the coupons as inserts in shopping bags at the stores in California. The coupons offered a $5 discount on purchases from of $25 or more. 

� The coupons contained a coupon claim code that customers had to enter online to receive the discounted price. The coupons were limited to transactions with over the Internet and could not be redeemed for purchases at Barnes and Noble Booksellers stores. paid for the printing of the coupons that were distributed at the Barnes and Noble Booksellers stores and for the logo on the side of the shopping bags in which the coupons were placed.

THE OPINION OF THE CALIFORNIA BOARD OF EQUALIZATION filed a petition with the California Board of Equalization contesting the determination by the Sales and Use Tax Department. In a nutshell, argued that it was separate and distinct from Barnes and Noble Booksellers, such that the activities of the latter should not trigger tax liability on the part of the former. And, even if somehow intertwined for tax purposes, asserted that the distribution of the coupons in California was not “selling” under state tax law, but instead constituted nothing more than “advertising.” Unfortunately for, the California Board of Equalization agreed with and affirmed the determination made by the Sales and Use Tax Department.

The board was called upon to interpret California Revenue and Taxation Code � 6203, which imposes a use tax collection on “every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state. …” Two central questions to be answered by the Board emerged: 1) was Barnes and Noble Booksellers an authorized representative in California for purposes of distributing’s coupons?; and 2) did the distribution of the coupons constitute “selling” under � 6203?

As to the first question, the board found as a matter of fact that Barnes and Noble Booksellers indeed was the authorized representative for when distributing the coupons in California. The board came to this conclusion because paid for the printing and distribution of the coupons, controlled when and how Barnes and Noble Booksellers passed out the coupons, and honored the redemption of coupons distributed by Barnes and Noble Booksellers.

With respect to the second question, the board concluded as a matter of law that the distribution of the coupons constituted “selling” under � 6203. The board reached this result by broadly reasoning that “selling” is “inclusive of all activities that are an integral part of making sales.”


Taxing authorities appear to be willing to get somewhat creative in an effort to tap into the revenue stream flowing across the Internet. In this particular case, the California Sales and Use Tax Department and the California Board of Equalization wrapped online within the cloak of brick-and-mortar Barnes and Noble Booksellers and then determined that promotional coupons constitute “selling.” Be prepared for further tax efforts to grab a piece of the Internet wallet.

Eric J. Sinrod is a partner in the San Francisco office of Duane Morris, where he focuses on technology and litigation matters. His Web site is sinrodlaw.comand his firm’s site is He may be reached by e-mail at [email protected].