1

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number:______________

Filing Date: June 3, 2013

Docket No. 33,627

NEW MEXICO TAXATION AND REVENUE

DEPARTMENT,

Plaintiff-Respondent, 

v.

BARNESANDNOBLE.COM LLC,

Defendant-Petitioner.

ORIGINAL PROCEEDING ON CERTIORARI

Monica M. Ontiveros, Administrative Hearing Officer

Brann & Isaacson

George S. Isaacson

David W. Bertoni

Lewiston, ME

Brownstein, Hyatt, Farber, Schreck, L.L.P.

Timothy R. Van Valen

Albuquerque, NM

for Petitioner

Gary K. King, Attorney General

Tonya Noonan Herring, Special Assistant Attorney General

Santa Fe, NM

for Respondent

Shirley K. Sicilian

Sheldon H. Laskin

Washington, DC

Bruce J. Fort
2

Santa Fe, NM

for Amicus Curiae

Multistate Tax Commission

Sutherland, Asbill & Brennan, L.L.P.

F. Barry McCabe

Atlanta, GA

Jeffrey A. Friedman

Michele Borens

Washington, DC

for Amicus Curiae

Amazon.com, Inc.

OPINION

CHÁVEZ, Justice.

{1} This case presents the question of whether an out-of-state internet retailer,

Barnesandnoble.com LLC (bn.com), which has no physical presence in New Mexico other

than through stores owned by a sister corporation, Barnes & Noble Booksellers, Inc.

(Booksellers), is subject to New Mexico gross receipts tax on its sales to New Mexico

residents without offending the federal Commerce Clause. The answer to this question

depends on whether Booksellers engaged in activities in this state on behalf of bn.com that

were significantly associated with bn.com’s ability to establish and maintain a market for its

sales in New Mexico, thus creating a substantial nexus between bn.com and New Mexico.

We conclude that Booksellers did engage in such activities, which include (1) Booksellers’

promotion of bn.com through sales of gift cards redeemable at bn.com and bearing bn.com’s

name, (2) Booksellers’ policy of sharing customers’ email addresses with bn.com, (3)

Booksellers’ implicit endorsement of bn.com through the companies’ shared loyalty program

and Booksellers’ return policy, and (4) Booksellers’ in-state use of Barnes & Noble logos

and trademarks, which bn.com also used. Therefore, we hold that Booksellers’ in-state

activities were sufficient to create a substantial nexus between bn.com and the State of New

Mexico, so that the state may tax bn.com’s sales to customers in New Mexico without

offending the federal Commerce Clause.

BACKGROUND

{2} The facts of this case are not in dispute. Bn.com is a Delaware corporation that sells

books, movies, and other media over the internet. In 2006, the New Mexico Taxation and

Revenue Department (the Department) assessed gross receipts tax against bn.com on its sales

to New Mexico residents during a period from January 1998 through July 2005. See NMSA
3

1978, §§ 7-9-1 to -114 (1966, as amended through 2012) (the Gross Receipts and

Compensating Tax Act). Bn.com protested the assessment, and a hearing officer granted

summary judgment to bn.com, finding that it lacked a substantial nexus with the State of

New Mexico, and therefore it could not constitutionally be required to pay the tax. The

Department appealed, and the Court of Appeals held that bn.com had a substantial nexus

with the state because of its use of Barnes & Noble trademarks and cross-marketing

activities with Booksellers’ stores. N.M. Taxation & Revenue Dep’t v. Barnesandnoble.com

LLC (In re Barnesandnoble.com LLC), 2012-NMCA-063, ¶¶ 34-35, 283 P.3d 298. We

granted certiorari and now affirm. Although we agree with the holding of the Court of

Appeals, we emphasize that our holding does not rest exclusively on bn.com’s use of Barnes

& Noble trademarks; we conclude that there are several additional reasons to hold that

bn.com had a substantial nexus with the State of New Mexico.

DISCUSSION

{3} The parties agree that this appeal concerns the application of the law to the

undisputed facts, and therefore the standard of review is de novo. Sonic Indus. v. State,

2006-NMSC-038, ¶ 7, 140 N.M. 212, 141 P.3d 1266.

{4} The federal constitutional issue in this case stems from the Commerce Clause, which

authorizes Congress “[t]o regulate Commerce . . . among the several States.” U.S. Const.

art. I, § 8, cl. 3. The Commerce Clause has been interpreted not only as an affirmative grant

of power to Congress, but also as a limitation on state actions that interfere with interstate

commerce. Quill Corp. v. N.D. ex rel. Heitkamp, 504 U.S. 298, 309 (1992). In this form,

it is known as “the ‘negative’ or ‘dormant’ Commerce Clause.” Id. State taxation of

interstate commerce may impose burdens that violate the dormant Commerce Clause. Id.

{5} In the absence of specific federal authorization, the Commerce Clause allows a state

to tax an actor in interstate commerce “when the tax is applied to an activity with a

substantial nexus with the taxing State, is fairly apportioned, does not discriminate against

interstate commerce, and is fairly related to the services provided by the State.” Complete

Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). Of these requirements, the only issue

in this case is in the substantial nexus. If bn.com’s actual sales have a substantial nexus with

New Mexico, New Mexico may constitutionally tax those sales.

{6} A vendor that has a physical presence in the taxing state has a substantial nexus with

the state. Quill Corp., 504 U.S. at 315, 317-18. The key distinction is “between mail-order

sellers with [a physical presence in the taxing] State and those . . . who do no more than

communicate with customers in the State by mail or common carrier as part of a general

interstate business.” Id. at 311 (alterations in original) (quoting Nat’l Geographic Soc’y v.

Cal. Bd. of Equalization, 430 U.S. 551, 559 (1977) (internal quotation marks omitted)). The

facts in Quill Corp. concern a vendor that did not have a physical presence in the taxing state

of North Dakota and Quill Corp. sold its products by mail; it had no offices, employees, or

significant property in North Dakota. 504 U.S. at 302. Therefore, the U.S. Supreme Court
4

held that the company lacked a substantial nexus with North Dakota, and North Dakota

could not require the company to pay a use tax to the state on its sales. Id. at 301-02. The

Court explained that there is a “safe harbor for vendors ‘whose only connection with

customers in the [taxing] State is by common carrier or the United States mail’ . . . [and]

such vendors are free from state-imposed duties to collect sales and use taxes.” Id. at 315

(first alteration in original) (quoting Nat’l Bellas Hess, Inc. v. Dep’t of Revenue of Ill., 386

U.S. 753, 758 (1967), overruled on other grounds by Quill Corp., 504 U.S. at 306-08). 

{7} In this case, the parties agree that bn.com itself has no employees or property in New

Mexico, but that is not the end of our inquiry. The U.S. Supreme Court has consistently

taken a functional approach to the substantial nexus analysis, and it has been willing to find

a substantial nexus even where the business in question had neither property nor regular

employees in the taxing state. In Scripto, Inc. v. Carson, 362 U.S. 207, 208-09, 211 (1960),

the Court rejected a business’s argument that it had no substantial nexus with Florida

because it had no full-time employees in the state. The business had contracted with ten

independent “wholesalers or jobbers” in Florida to solicit orders on its behalf. Id. at 209.

The Court held that the designation of the agents as independent contractors, rather than

employees, was “without constitutional significance,” and what mattered was “the nature and

extent” of the taxpayer’s business in the state. Id. at 211-12.

{8} The Supreme Court reaffirmed and expanded Scripto in Tyler Pipe Industries, Inc.

v. Washington State Dep’t of Revenue, 483 U.S. 232 (1987) (Tyler Pipe U.S.). In Tyler Pipe

U.S., an out-of-state manufacturer challenged the authority of the State of Washington to

impose a tax on its sales within the state. 483 U.S. at 234. The manufacturer “maintain[ed]

no office, own[ed] no property, and ha[d] no employees residing in the State of

Washington.” Id. at 249. However, the manufacturer hired sales representatives within the

state who called on customers, solicited orders, and “maintain[ed] and improve[d] the

[manufacturer’s] name recognition, market share, goodwill, and individual customer

relations” in Washington. Id. (quoting Tyler Pipe Indus., Inc. v. State, Dep’t of Revenue, 715

P.2d 123, 127 (Wash. 1986) (Tyler Pipe Wash.) (en banc) (internal quotation marks omitted),

holding modified on other grounds by Digital Equip. Corp. v. State, Dep’t of Revenue, 916

P.2d 933, 941 (Wash. 1996) (en banc)). The U.S. Supreme Court held that even though the

manufacturer formally had no property or employees within the state, the sales

representatives’ in-state activities created a nexus sufficient to allow the state to tax the

manufacturer. Tyler Pipe U.S., 483 U.S. at 249-51. The Court held that “the crucial factor

governing nexus is whether the activities performed in this state on behalf of the taxpayer

are significantly associated with the taxpayer’s ability to establish and maintain a market in

this state for the sales.” Id. at 250 (quoting Tyler Pipe Wash., 715 P.2d at 126 (internal

quotation marks omitted)). Therefore, the question in this case is whether Booksellers

performed activities on behalf of bn.com that are significantly associated with bn.com’s

ability to establish and maintain a market for its sales in New Mexico.

{9} Although bn.com had no property in New Mexico, Booksellers performed activities

in New Mexico for bn.com’s benefit. Booksellers operated three stores in New Mexico
5

during the audit period. Bn.com and Booksellers are separate corporations, but they share

a parent company, Barnes & Noble, Inc., which owned 100% of Booksellers and between

40% and 100% of bn.com throughout the audit period. During the audit period, Booksellers

displayed bn.com’s web address on gift cards (usable at either Booksellers or bn.com) that

they sold in stores during part of the audit period, providing bn.com with advertising.

Booksellers sold memberships in a loyalty program that also gave customers a discount at

bn.com, and Booksellers shared customers’ email addresses with bn.com.

{10} In addition, bn.com and Booksellers both used Barnes & Noble trademarks. A

reasonable inference is that consumers would likely have thought of the two corporations

as one company. Because of customers’ association of Booksellers with bn.com, bn.com

benefitted from brand loyalty established by local branches of Booksellers. Bn.com’s parent

company recognized the benefits of such customer associations in a filing with the Securities

and Exchange Commission during the audit period, in which it wrote that “the Barnes &

Noble trade name . . . is a strong motivating factor in attracting customers, especially with

regard to the post-early adopter market of consumers who have yet to make an online

purchase.” The Court of Appeals observed that “Booksellers’ customers had no way of

knowing . . . that different corporate entities represented the goodwill of . . . Barnes & Noble

trademarks on the internet and in physical stores. In fact, consumers saw only one entity:

Barnes & Noble.” In re Barnesandnoble.com LLC, 2012-NMCA-063, ¶ 33 (internal

quotation marks and citation omitted). By using the name “Barnes & Noble” and other

Barnes & Noble trademarks, bn.com benefitted from the goodwill associated with

Booksellers. We therefore hold that Booksellers’ in-state activities assisted bn.com’s efforts

to establish and maintain a market in New Mexico.

{11} The California Court of Appeal applied similar logic in Borders Online, LLC v. State

Board of Equalization, 29 Cal. Rptr. 3d 176, 178, 186 (Ct. App. 2005), to hold that

California could tax sales by Borders Online because of its affiliation with brick-and-mortar

Borders stores in the state. Borders Online and Borders, Inc., which owned Borders stores,

were separate corporations, id. at 178-79, as bn.com and Booksellers are in this case. Some

Borders stores advertised Borders Online on their receipts. Id. at 179. Borders Online’s

website contained links to the website for Borders stores, which included a list of store

locations. Id. Like bn.com and Booksellers, Borders and Borders Online shared some

market data and used similar logos. Id.

{12} We note briefly that Borders and Borders Online were wholly-owned subsidiaries of

the same parent, id., while Booksellers and bn.com shared only partial ownership during

much of the audit period. However, the case law does not require the in-state actor to have

any particular relationship to the out-of-state taxpayer, so long as the in-state actor engages

in activities on behalf of the taxpayer. See Tyler Pipe U.S., 483 U.S. at 250 (holding that

nexus determination was unaffected by local representatives’ status as employees or

independent contractors, and that the proper inquiry focused on the activities performed in

the state on behalf of the taxpayer). For this reason, we conclude that ownership of the

corporations is not dispositive of the substantial nexus inquiry.
6

{13} The New Mexico Court of Appeals distinguished Borders Online, LLC because,

unlike Booksellers, Borders store policies treated Borders Online customers preferentially.

In re Barnesandnoble.com LLC, 2012-NMCA-063, ¶¶ 20-21. Borders stores gave refunds

for purchases from Borders stores or Borders Online, but gave only store credit for returns

from competitors. Borders Online, LLC, 29 Cal. Rptr. 3d at 179-80. In contrast, during the

audit period in this case, Booksellers issued refunds only for items purchased from

Booksellers; it would accept returns from other retailers, including bn.com, in exchange for

store credit. On that basis, the Court of Appeals determined that “Booksellers’ return policy

did not give preference to [bn.com],” and therefore Borders was inapplicable. In re

Barnesandnoble.com LLC, 2012-NMCA-063, ¶¶ 20-21.

{14} Despite the differences in the stores’ formal return policies, we conclude that bn.com

received a benefit from Booksellers’ return policy similar to the benefit Borders Online

received from Borders stores’ return policy. Even though Booksellers accepted returns of

purchases from bn.com on the same basis as returns from its competitors, bn.com advertised

its return policy to customers as follows: “You can return your online purchases of most

products to us for a full refund or to any Barnes & Noble Store for an in-store credit.” Near

its “Easy Returns” link, bn.com also provided a link to a Booksellers store locator.

Customers visiting bn.com’s website would likely have seen the ability to return items to

Booksellers’ stores as a benefit of purchasing from bn.com. Nothing on the site suggests that

customers could return purchases from Amazon.com or any other bn.com competitor on

identical terms, even though that was apparently the case.

{15} In Borders Online, LLC, the California Court of Appeal held that easy returns

“undoubtedly made purchasing merchandise on [the Borders Online] website more attractive

to California customers, as they would know that returning or exchanging any unwanted

items would be far simpler than if they purchased items from an e-commerce retailer with

no presence in California.” 29 Cal. Rptr. 3d at 186. The court noted that at least some

customers would not place orders online without a solid return policy, and Borders Online’s

offer of “convenient returns and exchanges at nearby reputable brick-and-mortar stores . . .

would assuredly help promote [customers’] confidence.” Id. (internal quotation marks and

citation omitted). The essential issue in Borders Online, LLC was the effect that Borders

Online’s affiliation with Borders stores would have on potential customers, and its reasoning

is equally applicable here. New Mexico customers who lived near a Booksellers location

and preferred to return items in person would have thought it in their interest to order from

bn.com rather than a different online retailer.

{16} We recognize that courts in several states have reached a different conclusion,

holding that the presence of affiliated brick-and-mortar stores in a state does not create a

nexus that would allow the state to tax catalogue or online sales. See SFA Folio Collections,

Inc. v. Bannon, 585 A.2d 666, 668 (Conn. 1991) (refusing to impute in-state presence of

Saks Fifth Avenue stores to affiliated SFA Folio catalogue corporation); SFA Folio

Collections, Inc. v. Tracy, 652 N.E.2d 693, 695 (court’s fact description outside body of

opinion), 698 (Ohio 1995) (per curiam) (same); Bloomingdale’s By Mail, Ltd. v.
7

Commonwealth, Dep’t of Revenue, 567 A.2d 773, 778-79 (Pa. Commw. Ct. 1989) (refusing

to impute activities of Bloomingdale’s stores to Bloomingdale’s by Mail catalogue sales).

However, we must follow the standard set forth by the U.S. Supreme Court in Tyler Pipe

U.S., 483 U.S. at 250. Bannon, Tracy, and Bloomingdale’s do not cite Tyler Pipe U.S. or

attempt to apply its rule. See generally Bannon, 585 A.2d 666; Tracy, 652 N.E.2d 693;

Bloomingdale’s, 567 A.2d 773.

{17} We also recognize that one federal district court considered a case almost identical

to this one and found no substantial nexus. St. Tammany Parish Tax Collector v.

Barnesandnoble.com, 481 F. Supp. 2d 575, 582 (E.D. La. 2007). That court seems to have

imposed a standard higher than that required by Tyler Pipe U.S.—for example, by examining

whether Booksellers “solicited orders on behalf of” bn.com or produced revenue for bn.com.

St. Tammany Parish, 481 F. Supp. 2d at 581. Tyler Pipe U.S. does not require Booksellers

to act as sales agents for bn.com; it requires only that activities performed on bn.com’s

behalf be “significantly associated with [bn.com’s] ability to establish and maintain a

market” in New Mexico. 483 U.S. at 250 (quoting Tyler Pipe Wash., 715 P.2d at 126

(internal quotation marks omitted)). Booksellers and bn.com presented a single face to the

public, so we may infer that Booksellers’ New Mexico locations developed name recognition

and loyalty for bn.com. Booksellers sold gift cards that encouraged customers to shop at

bn.com,and bn.com advertised its connections to Booksellers by offering a store locator and

by promoting its return policy. Bn.com and Booksellers also shared customer data. None

of bn.com’s online competitors received these benefits. We conclude that Booksellers’

presence and activities in New Mexico gave bn.com an advantage over its competitors,

which helped bn.com establish and maintain a market in this state.

CONCLUSION

{18} Because Booksellers’ activities in New Mexico were significantly associated with

bn.com’s ability to establish and maintain a market here, bn.com had a substantial nexus

with the State of New Mexico. Therefore, New Mexico may collect gross receipts tax on

bn.com’s sales in the state without offending the Commerce Clause of the United States

Constitution. We affirm the opinion of the Court of Appeals and remand for further

proceedings consistent with this opinion.

{19} IT IS SO ORDERED.

_______________________________

EDWARD L. CHÁVEZ, Justice

WE CONCUR:

____________________________________

PETRA JIMENEZ MAES, Chief Justice
8

____________________________________

RICHARD C. BOSSON, Justice

___________________________________

CHARLES W. DANIELS, Justice

___________________________________

BARBARA J. VIGIL, Justice