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Despite the Internet Tax Freedom Act’s moratorium on Internet taxes passed by Congress in 1998, taxing authorities are nevertheless finding ways to impose taxes on Internet transactions. In a creative taxing approach, the California Board of Equalization has ruled that online Barnesandnoble.com is subject to state use taxes based on the distribution of coupons by brick-and-mortar Barnes and Noble Booksellers stores in California. BARNESANDNOBLE.COM Barnesandnoble.com is a Delaware limited liability company that makes retail sales of books, videos, music and computer software on the Internet. Some of these goods are purchased by consumers in California, and the goods are delivered by common carrier or mail from outside of California. Barnesandnoble.com claims that it has not maintained a place of business in California, and it has not filed California sales and use tax returns. BARNES AND NOBLE BOOKSELLERS Barnes and Noble Booksellers is a separate legal entity from Barnesandnoble.com, and it sells similar goods in brick-and-mortar stores throughout the United States, including California. THE POSITION OF THE CALIFORNIA SALES AND USE TAX DEPARTMENT The California Sales and Use Tax Department took the position that Barnesandnoble.com is a retailer engaged in business in the state, and for that reason is subject to California use taxes, for the following reasons:

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

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