The U.S. Supreme Court on Monday declined another appeal from Scholastic Book Clubs Inc. over tax treatment by the states of its catalog sales of books to students in the classroom.
This time, the book-club unit of educational publisher Scholastic Corp. was asking the justices to review a decision of a Tennessee court that the company owed back sales taxes because there was a substantial connection between Scholastic and its network of teachers who promote the catalog sales in the classroom.
Under the U.S. Supreme Court’s precedents, states may require out-of-state sellers such as mail-order companies (and, more recently, Web retailers) to collect sales or use taxes only when the seller has a physical presence in that state, such as a plant, office, or a sales force.
In the Tennessee case, a state appellate court found that Scholastic Book Clubs “utilizes Tennessee schools and teachers to facilitate sales to school children” in the state. “SBC has created a de facto marketing and distribution mechanism within Tennessee’s schools and utilizing Tennessee teachers to sell books to school children and their parents,” the court added in its 2011 ruling.
The court upheld a state tax bill for Scholastic Book Clubs of some $5.7 million in back sales and use taxes, penalties, and interest over a multi-year period.
The state’s highest court declined to hear Scholastic’s appeal, and the company appealed to the U.S. Supreme Court, citing disparate tax treatment in different states.
“In some states, Scholastic’s Commerce Clause rights have been upheld and assessments stricken,” the company’s appeal said. “In others, like [Tennessee], the company’s claim of Commerce Clause protection has been rejected. The net result is that direct marketers face the looming risk of state tax liability even in those states where they—like Scholastic—have carefully avoided establishing a physical presence and retained no third parties to act on their behalf.”
The company maintains that teachers act on behalf of their students in ordering books and are not a sales force for Scholastic.
The justices on Monday declined without comment to hear the company’s appeal in Scholastic Book Clubs Inc. v. Roberts (Case No. 12-374).
In October, the Supreme Court declined review of Scholastic’s appeal of a Connecticut Supreme Court ruling that teachers were in-state representatives of the publisher and that back taxes in the amount of some $3.3 million were owed.