Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-04-00503-CV

INOVA Diagnostics, Inc., Appellant

v.

Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas

and Greg Abbott, Attorney General of the State of Texas, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT

NO. GN302862, HONORABLE DARLENE BYRNE, JUDGE PRESIDING

OPINION

When INOVA, a California corporation, hired a salesperson in this state, the Texas

Comptroller informed the company that it was required to pay the state franchise tax. INOVA paid

the taxes under protest and filed suit in the district court for a refund. The trial court ruled in favor

of the Comptroller.

INOVA argues that Public Law 86-272 (15 U.S.C. §§ 381-84 (West 1997)) exempts

INOVA from paying any portion of the franchise tax measured by earned surplus and that the portion

of the franchise tax imposed on capital cannot be separated from the portion imposed on earned

surplus. Even if the franchise tax contains two distinct components, INOVA insists that net taxable

capital is measured in part by surplus earnings and it is thus exempt. In the alternative, INOVA

contends it lacks a substantial nexus with this state to be subject to the franchise tax under the

Commerce Clause. We reject all of INOVA’s challenges and affirm the district court’s judgment

denying the refund.

BACKGROUND

INOVA is a California corporation based in San Diego. It develops and manufactures

products used in medical testing. INOVA has only one employee in Texas, who was hired in 1996.

That employee is a salesperson who works an average of seven to ten days per month in Texas. His

activities in Texas are limited to visiting existing and prospective customers, providing promotional

materials, and demonstrating INOVA products. All orders are placed directly with INOVA in

California and delivered via mail or common carrier.

In 1998, INOVA completed a business tax questionnaire at the Comptroller’s request.

Based on the questionnaire, the Comptroller informed INOVA that it was required to pay the Texas

franchise tax for the years following INOVA’s employment of a salesperson in Texas. INOVA

initially refused to pay the tax but ultimately paid the taxes under protest when the Comptroller

notified INOVA that it had forfeited its corporate privileges in Texas. INOVA submitted claims for

refunds of franchise taxes paid for the years 1999 through 2003. The Comptroller denied these

claims and INOVA filed suit in the district court. After a bench trial, the district court entered

judgment in favor of the Comptroller. This appeal followed.

STATUTORY AND ADMINISTRATIVE PROVISIONS

Our resolution of INOVA’s issues involves the interaction of the Texas franchise tax,

Public Law 86-272, and the Comptroller’s rules for assessing the franchise tax. Accordingly, it is

useful to briefly review the relevant statutes and rules before discussing INOVA’s issues.

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The franchise tax

Texas imposes a tax on corporations for the privilege of doing business in the state.

See Tex. Tax Code Ann. § 171.001(a) (West Supp. 2004-05); Anderson-Clayton Bros. Funeral

Home, Inc. v. Strayhorn, 149 S.W.3d 166, 169 (Tex. App.—Austin 2004, pet. filed); Rylander v.

Fisher Controls Int’l, Inc., 45 S.W.3d 291, 293 (Tex. App.—Austin 2001, no pet.). The tax is

imposed annually on “each corporation that does business in the state or is chartered in the state.”

Tex. Tax Code Ann. § 171.001(a). Before 1991, the franchise tax had been assessed solely on a

corporation’s taxable capital. See General Dynamics Corp. v. Sharp, 919 S.W.2d 861, 863-64 (Tex.

App.—Austin 1996, writ denied) (discussing history of franchise tax). The tax code was amended

in 1991 to add taxation of a corporation’s taxable earned surplus or its taxable capital, whichever is

higher under the statutory formula. See Act of Aug. 12, 1991, 72d Leg., 1st C.S., ch. 5, § 8.02, 1991

Tex. Gen. Laws 134, 152.1 This amendment corrected an inequity of the prior law in which capital-

intensive industries bore the brunt of the tax, while less capital-intensive service industries did not

pay as much even when they generated large profits. See Anderson-Clayton Bros. Funeral Home,

149 S.W.3d at 169; General Dynamics Corp., 919 S.W.2d at 863. The tax on capital is set at the

lower rate of .25 percent of a corporation’s net capital, while franchise tax on earnings is set at 4.5

percent of net earned surplus.

1

A corporation’s taxable capital or taxable earned surplus is apportioned to the state by

dividing the corporation’s gross receipts generated in Texas by the corporation’s total world-wide

gross receipts. See Tex. Tax Code Ann. § 171.106 (West Supp. 2004-05); General Dynamics, 919

S.W.2d at 863. This percentage is then multiplied by the total tax base to calculate the amount of

tax base apportionable to Texas. General Dynamics, 919 S.W.2d at 863; see Tex. Tax Code Ann.

§ 171.106.

3

Public Law 86-272

Congress enacted Public Law 86-272 in 1959 in response to a United States Supreme

Court decision that indicated that the federal constitution does not prohibit individual states from

imposing an income tax on out-of-state corporations, even when their only business activity in the

state is solicitation of purchases. See Wisconsin Dep’t of Revenue v. William Wrigley, Jr. Co., 505

U.S. 214, 220-21 (1992) (discussing opinion in Northwestern States Portland Cement Co. v.

Minnesota, 358 U.S. 450, 452 (1959)). Less than a year after the Northwestern States Portland

Cement opinion, Public Law 86-272 was passed to create minimum standards for business activity

required within a state before that state may impose state income tax on an out-of-state corporation.

See William Wrigley, Jr. Co., 505 U.S. at 223. Specifically, the statute prohibits a state from

imposing a net income tax if the foreign taxpayer’s only business activity in the state is the

solicitation of orders. See 15 U.S.C. § 381(a). The statute defines net income tax as “any tax

imposed on, or measured by, net income.” Id. § 383.

Administrative rules

The Comptroller agrees that it may not impose the net earned surplus component of

the franchise tax on an out-of-state corporation whose only activity in the state is solicitation of

orders. See 34 Tex. Admin. Code §§ 3.546, 3.554 (2005). However, for more than ten years, the

Comptroller has held that Public Law 86-272 does not exempt an out-of-state corporation from the

payment of franchise tax based on its net taxable capital. See id. § 3.546 (adopted 1992); id. § 3.554

(adopted 1994). Section 3.546 of the rules explains that “a corporation may be subject to the taxable

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capital component [of the franchise tax], but not subject to the earned surplus component, because

of Public Law 86-272.” 34 Tex. Admin. Code § 3.546(b). Section 3.554 provides that:

If the only business activity within this state is the solicitation of orders for sales of

tangible personal property . . . then the corporation is not subject to the earned

surplus component of the franchise tax, even if the corporation has obtained a

certificate of authority. Only the sale of tangible personal property is afforded

immunity under Public Law 86-272; therefore, the leasing, renting, licensing, or other

disposition of tangible personal property, intangibles, or any other type of property

is not immune from taxation by reason of Public Law 86-272. This subsection does

not apply to a corporation chartered in Texas.

Id. § 3.554(b). Section 3.554 also contains detailed provisions defining solicitation and discussing

what business activities will subject a corporation to the earned surplus component of the franchise

tax. See id. § 3.554(c), (d), (e), and (f).

DISCUSSION

The parties do not dispute the underlying facts of the case; they agree that INOVA

only engages in the solicitation of orders in Texas for the purposes of Public Law 86-272. The

resolution of this case turns on questions of law that we review de novo. See Tex. Dep’t of Transp.

v. Needham, 82 S.W.3d 314, 318 (Tex. 2002). INOVA raises two issues contending that Public Law

86-272 prevents the Comptroller from imposing the taxable capital component of the state franchise

tax. First, it contends that the franchise tax is a single integrated tax and may not be separated into

components for the purpose of avoiding the application of Public Law 86-272. Second, INOVA

contends that even if the taxable capital component stands alone, INOVA is exempted from that

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portion of the franchise tax as well because the capital component is imposed on, or measured by,

net income. Finally, INOVA contends that it lacks a substantial nexus with Texas under the

Commerce Clause to permit state taxation.

May the Comptroller impose franchise tax on net capital alone?

Although the practical effect of the present franchise tax is to assess the greater of a

4.5 percent tax on net taxable earned surplus or a .25 percent tax on net taxable capital, the

legislature chose to express this tax in a more complicated formula. See Tex. Tax Code Ann.

§ 171.002(b). The tax is calculated by adding the tax on net taxable capital and the difference

between the tax on net taxable earned surplus and the tax on net taxable capital. See id.2 INOVA

contends in its first issue that the Comptroller may not ignore that formula and assess only the capital

taxable component of the tax in order to avoid the application of Public Law 86-272.

This contention requires us to construe section 171.002 of the tax code to determine

whether the legislature intended for the franchise tax to be imposed on net taxable capital when a

corporation is exempt from paying tax on earned surplus under Public Law 86-272.3 Our primary

2

If the difference between net taxable earned surplus and net taxable capital is less than zero,

the difference should be computed as zero. See Tex. Tax Code Ann. § 171.002(c) (West 2002).

This provision ensures that the full tax on net taxable capital is collected when the tax on net taxable

earned surplus is less than the tax on net taxable capital.

3

We have previously recognized that Public Law 86-272 has been incorporated in the

Comptroller’s rules, see Rylander v. Fisher Controls Int’l, Inc., 45 S.W.3d 291, 297 (Tex.

App.—Austin 2001, no pet.), but we have never considered a challenge to the Comptroller’s

longstanding practice of assessing only the taxable capital component of the franchise tax against

qualifying out-of-state corporations.

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goal in statutory construction is to ascertain and effectuate the legislature’s intent. Albertson’s, Inc.

v. Sinclair, 984 S.W.2d 958, 960 (Tex. 1999). When construing a statute, we ascertain the intent of

the legislature from the plain meaning of the actual language used. Lenz v. Lenz, 79 S.W.3d 10, 19

(Tex. 2002). Every word, phrase, clause, and sentence of a statute should be given effect.

Strasburger Enters., Inc. v. TDCT Ltd. P’ship, 110 S.W.3d 566, 570 (Tex. App.—Austin 2003, no

pet.). Additionally, the primary rule in statutory interpretation is that a court must give effect to

legislative intent, considering the language of the statute, as well as its legislative history, the

objective sought, and the consequences that would flow from alternative constructions. Crown Life

Ins. Co. v. Casteel, 22 S.W.3d 378, 383 (Tex. 2000) (op. on reh’g). Although we are not bound by

the Comptroller’s interpretation, see Rylander v. Fisher Controls Int’l, Inc., 45 S.W.3d 291, 302

(Tex. App.—Austin 2001, no pet.), “[t]he consistent construction by an administrative agency

charged with effectuating the policy of an enactment carries very considerable weight.” Sergeant

Enters. v. Strayhorn, 112 S.W.3d 241, 250-51 (Tex. App.—Austin 2003, no pet.) (citing Felix

Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L. Rev. 527, 543 (1947)).

Viewing the Comptroller’s rules in the context of the language of the statute, we find

that the Comptroller has not ignored the statutory formula for calculating the franchise tax. When

the legislature amended the franchise tax to add a tax based on income, it referred to that component

as “taxable earned surplus.” See Anderson-Clayton Bros. Funeral Home, 149 S.W.3d at 169. We

find the legislature’s use of the term taxable to be significant. Inherent in the term is the premise that

the earned surplus is indeed taxable. Here, the parties agree that Public Law 86-272 prohibits the

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imposition of a tax on INOVA’s earned surplus. Accordingly, INOVA’s earned surplus cannot be

considered a taxable earned surplus under the statute.

The Comptroller’s rule recognizes this fact by stating that a corporation may be

subject to the taxable capital component, but not the taxable earned surplus component in light of

Public Law 86-272. See 34 Tex. Admin. Code § 3.554. The rule acknowledges that an out-of-state

corporation that only solicits orders in Texas has no taxable earned surplus. Thus, applying Public

Law 86-272 to the formula in section 171.002 of the tax code, an out-of-state corporation’s net

taxable earned surplus will always be zero, and the tax on capital will always be greater.4 When the

statutory formula is applied to taxable earned surplus, the franchise tax will always be based on the

foreign corporation’s net taxable capital.

We agree that the franchise tax is one integrated tax. However, Public Law 86-272

exempts INOVA’s earned surplus from taxation. Because INOVA has no taxable earned surplus,

the calculation of its franchise tax is based solely on net taxable capital. Thus, the Comptroller’s rule

is not inconsistent with the statute. We uphold the Comptroller’s rule and overrule INOVA’s first

issue.

Is the taxable capital component measured by net income?

INOVA contends in its second issue that the taxable capital component of the

franchise tax is “imposed on, or measured by, net income,” and, therefore, may not be imposed under

4

This calculation is also reflected by the placement of a zero in the entry for net taxable

earned surplus on INOVA’s franchise tax reports.

8

Public Law 86-272. INOVA points to the method of computing taxable capital that includes a

corporation’s retained earnings as evidence that the tax is imposed on net income. INOVA also

relies on case law discussing the Buck Act (4 U.S.C. § 106 (West 2005)) in which the franchise tax

is considered an income tax. See General Dynamics Corp. v. Bullock, 547 S.W.2d 255 (Tex. 1976).

INOVA first argues that net income is an integral part of the taxable capital

component of the franchise tax. The taxable capital component of the franchise tax is the stated

stock value of the corporation plus its surplus. Tex. Tax Code Ann. § 171.101(a)(1) (West 2002).

Surplus is defined as the net assets of a corporation minus its stated capital. Id. § 171.109(a)(1)

(West Supp. 2004-05). INOVA points out that, under generally accepted accounting principles, the

tax code’s definition of surplus is also equal to a corporation’s retained earnings. Retained earnings

consist of a corporation’s current net income plus its net income over time. See 34 Tex. Admin.

Code Ann. § 3.547(c)(6) (retained earnings represent accumulated gains and losses of corporation

to date). INOVA asserts that, because net income is included in the calculation of a corporation’s

taxable capital, the franchise tax is a “tax imposed on, or measured by net income” for the purposes

of Public Law 86-272. However, other courts have rejected similar arguments.

In Gillette Co. v. Michigan Dept. of Treasury, the Michigan Court of Appeals

considered whether Michigan’s single business tax was a net income tax for the purposes of Public

Law 86-272. See 198 Mich. App. 303, 306-07, 497 N.W.2d 595 (Mich Ct. App. 1993). The

calculation of Michigan’s single business tax begins with a corporation’s federal taxable income,

see Gillette, 198 Mich. App. at 309-310, which is then adjusted by a number of factors to arrive at

9

the tax base. This base is then apportioned, subjected to other adjustments, and multiplied by the

appropriate rate to arrive at the tax. Id.

Applying Public Law 86-272, the court concluded that Michigan’s single business

tax, calculated in this manner, is not imposed on net income; rather it is imposed on the privilege of

doing business. Id. at 308. Furthermore, the court held that the tax is not measured by net income

because federal taxable income is only the starting point of the extensive adjustments required to

compute the tax. Id. at 310-11.5

Similarly, a New Jersey court has held that the net worth component of New Jersey’s

business tax is not “imposed on, or measured by, net income” under Public Law 86-272. See

Clairol, Inc. v. Kingsley, 262 A.2d 213, 216-17 (N.J. Super. Ct. App. Div. 1970). The New Jersey

tax on net worth is measured by stockholder’s book equity value. See Roadway Express, Inc. v.

Director, Division of Taxation, 236 A.2d 577, 580 (N.J. 1967). One component of net worth or

stockholder’s book equity value is a corporation’s retained earnings. See Black’s Law Dictionary

1131 (7th ed. 2001) (stockholder’s equity is capital contributed plus retained earnings). By

implication, the court rejected the argument that a tax that is based in part on retained earnings is a

tax imposed on or measured by net income under Public Law 86-272.

5

The Supreme Court of Ohio also concluded that Michigan’s single business tax is not

“imposed on, or measured by, net income” in determining whether an Ohio taxpayer was entitled

to an income tax credit for its single business tax paid to Michigan. See Ardire v. Tracy, Tax

Comm’r, 674 N.E.2d 1155, 1156 (Ohio 1997). The court cited the Gillette opinion extensively and

adopted its reasoning. Id. at 1158.

10

The legislative history of Public Law 86-272 also supports the conclusion that the law

does not exempt the taxable capital component of the Texas franchise tax. INOVA argues that the

purpose of Public Law 86-272 was to respond to the “creation of sprawling diverse [state] revenue

systems” and that a narrow interpretation of the law would frustrate that objective. See S. Rep. No.

86-658, at 4 (1959). A review of the House and Senate conference reports on the legislation

confirms that Congress was concerned about the burden imposed on interstate commerce by the lack

of uniformity in state taxation of businesses and the growing cost of compliance. See id.; H.R. Conf.

Rep. No. 86-1103 (1959). But both reports also recognize the limited nature of Public Law 86-272

and express the need for further study of the problem. See S. Rep. No. 86-658, at 4; H.R. Conf. Rep.

No. 86-1103. The language of Public Law 86-272 and the conference reports indicate that the

legislation was intended only to govern the narrow category of state net income taxes.6 In fact, the

language regarding “sprawling diverse revenue systems” cited by INOVA is contained in the section

of the Senate report discussing the need for a committee to study the broader tax problem at a later

date and does not state the specific purpose of Public Law 86-272. See S. Rep. No. 86-658, at 4-5.

Next, INOVA relies on the Texas Supreme Court’s discussion of another federal law,

the Buck Act, to insist that the capital component of the franchise tax is a net income tax under

6

The section of the Senate report discussing minority views emphasized the limited nature

of Public Law 86-272:

It should be borne in mind that the subject of the bill is a tax on net income or a

tax measured by net income. We are not here considering licensing or franchise

regulations or fees which might truly set up barriers to interstate commerce.

S. Rep. No. 86-658, at 9 (1959).

11

Public Law 86-272. The Buck Act is a federal statute that allows a state to levy and collect state

income taxes on persons residing in a federal area within the state. See 4 U.S.C. § 106(a). It defines

an income tax as “any tax levied on, with respect to, or measured by net income, gross income, or

gross receipts.” Id. § 110(c). In General Dynamics Corp. v. Bullock, the supreme court held that

the Texas franchise tax is an income tax for the purposes of the Buck Act. See 547 S.W.2d 255, 259

(Tex. 1976). The supreme court cited a Senate Finance Committee report explaining that Congress

intended a broad definition for income tax under the Buck Act:

The Congressional intent is strongly stated in the bill’s Senate Report where it is

stated that “[t]his definition [of income tax] . . . must of necessity cover a broad field

because of the great variations to be found between the different State laws. The

intent of your committee in laying down such a broad definition was to include

therein any State tax (whether known as a corporate-franchise tax, or

business-privilege tax, or any other name) if it is levied on, with respect to, or

measured by net income, gross income, or gross receipts.”

General Dynamics, 547 S.W.2d at 257 (quoting Report of the Senate Finance Committee of May

16, 1940 at page 5; 76th Congress, 3rd Session; Report No. 1625, Calendar No. 1692, as stated in

Humble Oil & Refining Co. v. Calvert, 478 S.W.2d 926, 929 (Tex. 1972)).

Unlike the Buck Act, which broadened the states’ authority to tax, Public Law 86-272

limits the states’ power to tax. Where a federal law explicitly supercedes a state’s powers, we

construe the preemption provision more narrowly than an identical phrase in another context. Moore

v. Brunswick Bowling & Billiards Corp., 889 S.W.3d 246, 249 (Tex. 1994). When Congress enacted

Public Law 86-272, the Buck Act had been on the books for nineteen years. Had Congress intended

Public Law 86-272 to be as broad as the Buck Act, it would have used similar language. Instead,

12

Congress omitted any reference to gross income or gross receipts and only extended an exemption

to net income taxes.7 In light of the differences in language, history, and purpose of the two statutes,

we cannot conclude that Congress intended Public Law 86-272 to cover as broad an array of state

taxes as the Buck Act.

Thus, we read Public Law 86-272 to do exactly what it says. It exempts certain

businesses from state taxes imposed on net income or measured by net income. Extending the

exemption in Public Law 86-272 to taxes that only use net income as a factor in calculating another

tax would be inconsistent with the stated intent of the law, the longstanding interpretation by the

Comptroller, as well as the decisions of all of the courts that have considered this issue. Because we

interpret the definition of net income in Public Law 86-272 narrowly, we hold that the capital

component of the franchise tax is not a net income tax under Public Law 86-272 and therefore

INOVA is not exempt from paying franchise tax on its net taxable capital.

Commerce Clause

In its final issue, INOVA contends that the corporation is not subject to the state

franchise tax because it lacks a substantial nexus with Texas. Those engaged in interstate commerce

may be required to pay their fair share of state taxes consistent with the Commerce Clause so long

as the tax (1) is applied to an activity with a substantial nexus with the taxing state, (2) is fairly

7

We note that the concept of gross receipts or gross income is quite distinct from net

income. Gross income or gross receipts do not take a corporation’s expenses into account, while net

income is defined as the “excess of all revenues and gains for a period over all expenses and losses

of the period.” Black’s Law Dictionary 1040 (6th ed. 1990). Thus, a corporation may have

considerable gross receipts or gross income, yet have no net income.

13

apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the

services provided by the state. Quill Corp. v. North Dakota, 504 U.S. 298, 314 (1993); Complete

Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). The Supreme Court has established and

followed a bright-line rule in determining whether a taxing state has a sufficient nexus with the

taxpayer to allow taxation. This bright-line rule states that physical presence in a state establishes

a sufficient nexus to allow taxation under the Commerce Clause. See Quill, 504 U.S. at 314;

National Bellas Hess, Inc. v. Dept. of Revenue of Ill., 386 U.S. 753, 759-60 (1967); Rylander v.

Bandag Licensing Corp., 18 S.W.3d 296, 299 (Tex. App.—Austin 2000, pet. denied). This line

draws a clear distinction between those companies that merely communicate with residents of the

taxing state by way of mail or common carrier, as part of a general interstate business, and those who

maintain retail outlets, solicitors, or property within the state. See Quill, 504 U.S. at 307; Bellas

Hess, 386 U.S. at 758. While the tax in question in Quill was a use tax, this Court has applied this

same bright-line test when determining whether the franchise tax is consistent with the Commerce

Clause. Bandag Licensing, 18 S.W.3d at 299.

Although it is undisputed that INOVA employs a Texas resident who spends seven

to ten days per month soliciting orders in the state, INOVA contends that this presence in the state

is de minimus. INOVA points to several cases in which no nexus was found after a company sent

employees into a state.8 However, in each of these cases, the company’s presence was much more

8

INOVA discusses Comptroller’s Decision No. 36,590 (2000), STAR Document No.

200001136H, stating that the Comptroller based its ruling on the Commerce Clause. This decision

does not mention the Commerce Clause; rather it is a determination that certain business activities

within the state were de minimus and did not amount to more than solicitation for the purposes of

Public Law 86-272. See id. at 13.

14

limited than INOVA’s. In In Re: Intercard, the Kansas Supreme Court held that, where an out-of-

state corporation’s only presence in the state was sending technicians into the state to install

equipment for a total of forty-four hours over one three-month period, that presence was not

sufficient to establish a substantial nexus under the Commerce Clause. See 14 P.3d 1111, 1113

(Kan. 2000). In Florida v. Share Inter’l, Inc., a Florida court of appeals held that the presence of

employees for three days per year at a national chiropractic seminar held in Florida did not establish

a substantial nexus with that state. See 667 So. 2d 226, 230 (Fla. Dist. Ct. App. 1995).9 These two

cases involving short visits to a state are distinguishable from the present facts. Here, INOVA has

a permanent sales presence in Texas. INOVA’s employee lives in Texas, works from his home in

Texas, and systematically solicits orders from new and existing customers in Texas. This sustained

activity is clearly encompassed by the bright-line rule equating physical presence in the state to a

substantial nexus. See Quill, 504 U.S. at 314; Bellas Hess, 386 U.S. at 759-60; Bandag Licensing,

18 S.W.3d at 299. Because INOVA has a physical presence in Texas, we hold that the Comptroller’s

imposition of the franchise tax does not violate the Commerce Clause of the federal constitution.

We overrule INOVA’s final issue.

CONCLUSION

We hold that the imposition of the franchise tax on INOVA’s net taxable capital alone

is consistent with the statute, that Public Law 86-272 does not exempt INOVA from paying the state

9

INOVA also cites Arkansas v. Troll Book Clubs, where a company provided incentives for

teachers to solicit orders on behalf of the company. See 871 S.W.2d 389, 390 (Ark. 1994).

However, this case is not relevant to our determination because it was decided based on the fact that

the teachers were not agents of the company. See id. at 392-93.

15

franchise tax on its taxable capital, and that INOVA has a substantial nexus with the state.

Accordingly, we affirm the judgment of the district court.

__________________________________________

Bea Ann Smith, Justice

Before Chief Justice Law, Justices B. A. Smith and Pemberton

Affirmed

Filed: May 26, 2005

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