The Pennsylvania Department of Revenue is looking into whether Republican gubernatorial candidate Lynn Swann should be collecting state sales tax on memorabilia he sells on his company’s Web site.
On Monday, the agency sent Swann, who sells autographed footballs, photographs and other mementos on a Web site run by his company, Swann Inc., a five-page questionnaire asking for details of the company’s mission and business activities.
The questionnaire is the first step in determining whether Swann Inc. should be collecting sales tax on that merchandise, Revenue Department spokesman Steve Kniley said.
The Business Activity Questionnaire seeks details about when the company was formed, whether it’s registered with the Pennsylvania Department of State, the annual wages it pays employees who work in the state, and its annual total sales in Pennsylvania.
Swann has 15 days to respond to the inquiry, according to a form letter sent out with the questionnaire. Failing to respond could “result in estimated taxes being imposed against your business,” the letter reads.
The Swann campaign did not return three telephone phone calls Monday seeking comment for this story.
The Revenue Department regularly sends such documents to companies it believes might have failed to collect the 6 percent sales tax from customers, Kniley said. The agency sent the letter to Swann after an inquiry by The Morning Call about the company’s tax records in Pennsylvania.
“This is what we routinely do when we find out that something like this is going on,” Kniley said.
According to business lobbyists and policy experts, Swann is hardly alone when it comes to navigating the murky and uncertain waters of the new economy.
Retailers can face rules that differ from jurisdiction to jurisdiction. And state governments have been wrestling for years with the best way to get their piece of the exploding online marketplace.
“It is literally an ongoing battleground,” said Carl Back, a suburban Philadelphia accountant who serves on the state tax committee of the Pennsylvania Institute of Certified Public Accountants. “It’s an area where each case is fact-specific and states take varying positions.”
According to Back, Pennsylvania has been vigorous in its pursuit of sales tax scofflaws. Last year, the Revenue Department sent 7,700 of those business questionnaires, collecting about $614,000 in back sales taxes, Kniley said.
Although Swann Inc. is registered as a corporation in Sherman Oaks, Calif., the company has an office in Sewickley Township, Allegheny County. Swann lives in nearby Sewickley Heights.
A person answering the phone at Swann Inc. on Monday afternoon referred all questions about the business to Swann’s gubernatorial campaign. The Sewickley office could be enough to give Swann Inc. what’s known as a “nexus” in Pennsylvania, requiring it to remit sales tax to the state. That’s what the state’s questionnaire will determine, Kniley said.
Swann Inc. “does not appear” to have a sales tax license in Pennsylvania, Kniley said, and “any retailer who makes taxable sales in the state, and has a nexus in the state, is required to have a sales tax license and collect and remit sales taxes to the state.”
But exactly what constitutes a nexus is a matter of debate. In 1992, the U.S. Supreme Court ruled that businesses had to have a “physical presence” in a state to collect sales tax. States also have taken the view that the presence of a third party acting on a company’s behalf is enough to create that nexus.
“Really, the issue now is whether you have agents or representatives in the state,” accountant Back said.
To resolve those conflicts, a number of states have begun working together to standardize their tax collection rules, so that Congress will overturn that 1992 court decision and “get all vendors to collect [sales tax] regardless of whether they have a physical presence or not,” Back said.
Without commenting directly on Swann’s company or the Revenue Department’s action Monday, Pennsylvania Manufacturers Association spokesman David Taylor questioned the wisdom of leaving a business open to potentially massive tax liability. “You wouldn’t want to do it like that,” Taylor said.
Visitors to the LynnSwann.com Web page can purchase autographed footballs for $200, an autographed miniature football helmet for $125, autographed photographs for as much as $150, and limited edition plaques for as much as $225.
A portion of the proceeds from those sales goes to Big Brothers/Big Sisters, on whose national board of directors Swann sits, and to the Pittsburgh Ballet, where Swann endows a scholarship, according to the Web page.
Press accounts and various official biographies alternately describe the company as a consulting firm or a community service organization. But according to financial disclosure papers filed with the Department of State, Swann Inc. is designed to look after Swann’s interests.
Besides running the Web site and trafficking in souvenirs, the company also is responsible for arranging Swann’s speaking engagements and broadcast contracts. Until January, Swann was a college football sideline reporter for ABC Sports.
Swann organized the company in 1976, two years after the start of his professional football career, according to records obtained from the California Secretary of State’s office. The company’s organizing documents list Swann as chief executive officer. The documents also list a woman named Judy Selnick as its agent.
Swann Inc. is not registered with the Pennsylvania Department of State’s corporation bureau, spokesman Brian McDonald said. There is no penalty for not registering, he said, but companies cannot set up their tax arrangements with the Revenue Department without doing so.
Citing confidentiality requirements, spokesmen for California’s three taxing agencies declined to comment on whether, or how much, Swann Inc. paid in taxes in 2004.
Patrick Hill, a spokesman for California’s Franchise Tax Board, which collects business taxes, would only say that Swann Inc. is an “active corporation” in the state and that it was “operating lawfully.”
john.micek@mcall.com
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