An appeals court in California ruled against Borders Group, setting a precedent that could enable California to compel internet retailers, including Barnes & Noble and Amazon, to start paying state sales tax for goods they sell online to state residents, the AP reports. The ruling was welcomed by bricks-and-mortar retailer firms, which hope that it will be used to eliminate what they view as the internet-based competition's unfair advantage. Businesses can avoid paying sales taxes to states where they have no physical presence, according to a 1992 U.S. Supreme Court ruling.

Borders says it doesn't have to collect California sales taxes because its online division - outsourced to Amazon.com - doesn't own or lease property there, has no employees or bank accounts in the state and all online orders are received and processed outside California. But California's 1st District Court of Appeal in San Francisco rejected Borders' argument, ruling that Borders' website and retail stores, 129 of which do operate in California, were too intertwined to be considered separate companies.

Borders is also facing online sales tax disputes in Nevada and Illinois, according to documents filed with the Securities and Exchange Commission. State and local governments have lost $15.5 billion in sales tax revenues because of internet sales, according to estimates by the University of Tennessee, which projects that loss will increase to $21.5 billion by 2008.