Louisiana Appeal Court: Computer Retailer Has Nexus Through Third-Party Service Repair Provider

Louisiana Appeal Court: Computer Retailer Has Nexus Through Third-Party Service Repair Provider

The Louisiana Court of Appeal, First Circuit, has held that an out-of-state computer retailer had nexus with the state through its contractual agreement with an on-site repair company and therefore the computer retailer was subject to use tax.

The Louisiana Court of Appeal, First Circuit, has held that an out-of-state computer retailer had nexus with the state through its contractual agreement with an on-site repair company and therefore the computer retailer was subject to use tax (State et al. v. Dell Int'l Inc. et al., Feb. 15, 2006). Dell Int'l Inc. sells computers and related products nationwide through mail order, telephone, and the Internet. Dell has no offices, stores, property, bank accounts, or direct employees in the state. Dell entered into Service Contracts Sales Brokerage Agreements with BancTec USA Inc. to provide on-site computer repair services for its products. Dell sold the service contracts to customers either at the time the product was sold or anytime thereafter if the customer desired. Dell collected and paid sales tax on behalf of BancTec for the service contracts. The state and secretary of the Department of Revenue and Taxation (collectively department) filed suit in district court against Dell, seeking payment of unpaid use tax. The department argued that Dell had established physical presence in the state through BancTec's repair service activities. The district court found in favor of Dell, and the department appealed to the Louisiana Court of Appeal, First Circuit. The court held that Dell, through its contractual agreements with BancTec, had established substantial nexus with the state, and therefore it was subject to use tax. The court rejected Dell's argument that BancTec was not its contractual "agent" but rather was its "broker," concluding that these were "fine distinctions without constitutional significance." Citing the U.S. Supreme Court's decision in Scripto Inc. v. Carson (1960), the court explained that "contractual tagging" of a third party as an independent contractor is insufficient to change the function of the third party. The determinative factor in whether there is physical presence, the court concluded, is based on the nature and extent of Dell's activities and whether the activities are significantly associated with its ability to establish and maintain a market in the state. The court held that the record clearly established that Dell retained control over the significant aspects of the computer repair services to be provided by BancTec. Moreover, the court determined that Dell used the on-site repair service availability as part of its advertising and guaranteed the services to its customers. As a result, the court concluded that Dell's contractual agreement with BancTec to provide on-site repair services was crucial to its ability to establish and successfully maintain a market in the state. The district court's decision was reversed.

The Louisiana Court of Appeal, First Circuit, has held that an out-of-state computer retailer had nexus with the state through its contractual agreement with an on-site repair company and therefore the computer retailer was subject to use tax (State et al. v. Dell Int'l Inc. et al., Feb. 15, 2006). Dell Int'l Inc. sells computers and related products nationwide through mail order, telephone, and the Internet. Dell has no offices, stores, property, bank accounts, or direct employees in the state. Dell entered into Service Contracts Sales Brokerage Agreements with BancTec USA Inc. to provide on-site computer repair services for its products. Dell sold the service contracts to customers either at the time the product was sold or anytime thereafter if the customer desired. Dell collected and paid sales tax on behalf of BancTec for the service contracts. The state and secretary of the Department of Revenue and Taxation (collectively department) filed suit in district court against Dell, seeking payment of unpaid use tax. The department argued that Dell had established physical presence in the state through BancTec's repair service activities. The district court found in favor of Dell, and the department appealed to the Louisiana Court of Appeal, First Circuit. The court held that Dell, through its contractual agreements with BancTec, had established substantial nexus with the state, and therefore it was subject to use tax. The court rejected Dell's argument that BancTec was not its contractual "agent" but rather was its "broker," concluding that these were "fine distinctions without constitutional significance." Citing the U.S. Supreme Court's decision in Scripto Inc. v. Carson (1960), the court explained that "contractual tagging" of a third party as an independent contractor is insufficient to change the function of the third party. The determinative factor in whether there is physical presence, the court concluded, is based on the nature and extent of Dell's activities and whether the activities are significantly associated with its ability to establish and maintain a market in the state. The court held that the record clearly established that Dell retained control over the significant aspects of the computer repair services to be provided by BancTec. Moreover, the court determined that Dell used the on-site repair service availability as part of its advertising and guaranteed the services to its customers. As a result, the court concluded that Dell's contractual agreement with BancTec to provide on-site repair services was crucial to its ability to establish and successfully maintain a market in the state. The district court's decision was reversed.