Should Sherri have gone to the mattresses with Olympia?
Our strange fascination with Mattress World hasn't waned with its demise as a going concern. We've been thinking pretty hard all week about the company's problems with the Washington State sales tax, which its owner, Sherri Hiner, says is driving the firm out of business. We're no expert on Washington State taxes, but we sense that there's a lot of public misunderstanding about her situation.
Here's our sense of what's going on. Readers with a greater knowledge than ours, correct us if we're getting any of this wrong:
The issue is whether Mattress World should have collected sales tax on beds that it sold to residents of Clark County, Washington. If the customers had themselves taken the beds home to Clark County from the Oregon showrooms, it is clear that no sales tax would be due. Thus, the suggestion that Washington is requiring Oregon businesses to see every customer's identification is inaccurate. When Washington State residents buy goods in Oregon and take them home to the 'Couv themselves, use tax is due, but that is the customers' responsibility, not the seller's. (And except with big ticket items like cars, the customers just laugh that one off, and the state looks the other way.)
But most mattresses are delivered to the customer's residence; this changes the picture. Since Mattress World products are delivered to (and installed in) Clark County homes, under Washington State statutes, sales tax is due, and it's the seller's duty to collect it. As we understand it, this is because Washington, like many other states, imposes a "destination-based" sales tax. As the state sees it, the sale takes place for sales tax purposes where the delivery occurs, not where the credit card is swiped.
But the federal constitution -- the due process clause, the commerce clause, or both -- prohibits forcing the seller to collect the tax in such a case unless the seller (here, Mattress World) has what they call a "nexus" with Washington State.
If the company had used UPS or FedEx to make its deliveries, would it have had a "nexus" with Washington State? To our non-expert eye, probably not. To establish a "nexus," it would probably need to have some sort of presence in the state. Would advertising on Portland broadcast media, which reach into Clark County, be enough? Probably not. Would adding the internet, which goes everywhere, into the equation make a difference? Probably not. Would advertising in the Columbian or other Washington State-based publications tip the balance? Maybe.
But the plot thickens when one considers the fact that Mattress World mattresses were not delivered by a common carrier such as UPS or FedEx. Moreover, customers' old mattresses were probably picked up and hauled off by the people who made the deliveries. The key question, then, and perhaps the only significant question, is whether the delivery people who journeyed into Clark County were sufficiently affiliated with Mattress World to give that company the required "nexus." Did they drive Mattress World trucks? Did they wear Mattress World uniforms? Exactly what services did they provide, and for whom? What were the customers' understanding of those relationships?
With all the public discussion that's gone on about the case, those factual questions haven't, to our knowledge, been covered.
If Washington State revenue officials are claiming that having an internet site and advertising on Portland TV and radio is enough to create a "nexus" to their state, then somebody should take them to court and battle it out as high as they can go. Of course, a cash-strapped business doesn't have the kind of dough that it would take to wage such a fight. And besides, depending on the facts, Mattress World may have had a lousy case. But it's hard to tell from what's been published in the media how bad a case it had.
It would be interesting to know how many other Oregon businesses are hearing from Washington State these days, and how aggressive that state is being with its constitutional theories about sales tax "nexus." It sounds like one more thing to worry about if one decides to open a retail sales business in Portlandia. Maybe a local trade group on the south side of the river should take up a collection and give the folks in Olympia a run for their money.