Amicus Curiae Brief — Wisconsin Dept. of Revenue v. William Wrigley, Jr., Co.
Supreme Court brief1992
Ask Donna
What actually matters in this document.
Text
Come an ot
Y FILED
KOV 12 1991
No. 91-119 |
wea
In The
Supreme Court of the United States
October Term, 1991
¢
WISCONSIN DEPARTMENT OF REVENUE,
Petitioner,
WILLIAM WRIGLEY, JR. COMPANY,
Respondent.
On Writ Of Certiorari To The Supreme Court Of
The State Of Wisconsin
°
BRIEF AMICUS CURIAE OF THE MULTISTATE
TAX COMMISSION IN SUPPORT OF PETITIONER
°
PauLt MINes
Counsel of Record
MuLttIstaTeE TAx COMMISSION
444 No. Capitol Street, N.W.
Suite 409
Washington, D.C. 20001
(202) 624-8699
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-283)
eT ae Te ae ee ee Oe ee, ee
QUESTIONS PRESENTED
In attempting to fairly apportion otherwise taxable
income from sales of tangible personal property within
their boundaries by foreign corporations, how are the
“solicitation” and “delivery” requirements in Pub. L. No.
86-272 to be applied by state taxing authorities in the face
of conflicting decisions from state courts of last resort as
to whether those requirements admit of a de minimis
exception and as to whether “solicitation” encompasses
post-sale activities “incidental” to the canvassing of retail
customers.
*.
TABLE OF CONTENTS
eh ge 1 >
EY CED so ccc cssercceccccsssiccss
INTEREST OF THE AMICUS CURIAE.............
SUMMARY OF ARGUMENT.......................
EEE ELL ESE
THE RELATIONSHIP OF PUB. L. NO. 86-272
TO STATE TAX APPORTIONMENT...........
THE DECISION OF THE WISCONSIN
SUPREME COURT IS ERRONEOUS, BECAUSE
THAT COURT’S CONSTRUCTION OF PUB. L.
NO. 86-272 WAS NOT INFORMED BY THE
JURISPRUDENCE OF THE TENTH AMEND-
MENT WHICH REQUIRES CONGRESS TO
STATE CLEARLY THE EXTENT TO WHICH
STATE TAXATION IS PREEMPTED AND BY
THE REQUIREMENTS OF MULTISTATE TAX-
ATION IN OUR FEDERAL SYSTEM THAT
INSTRUCT SENSITIVITY TO OTHER STATE
Cee eee ad ck ewes ees seecce.
A. The Jurisprudence of the Tenth Amend-
ment Requires Pub. L. No. 86-272 Be Inter-
preted In A Manner That Is The Least
Intrusive On The State Sovereign Taxing
Power While Remaining Faithful To The
Clearly Expressed Intent Of Congress ....
B. Pub. L. No. 86-272 Should Be Construed
With Sensitivity To Its Effect On The Opera-
tion of State Taxation of Interstate Business
oe Goer Pemeres Syetem ...................
12
12
III.
IV.
iii
TABLE OF CONTENTS - Continued
Page
AN INFORMED ANALYSIS OF THE LEGISLA-
TIVE HISTORY SURROUNDING THE DELE-
TION OF THE SALES OFFICE EXEMPTION
FROM S. 2524 INESCAPABLY LEADS TO THE
CONCLUSION THAT THE STATE TAX EXEMP-
TION AFFORDED BY PUB. L. NO. 86-272
SHOULD BE NARROWLY CONSTRUED AND
WRIGLEY HAS EXCEEDED THE LIMITS OF
THIS NARROW EXEMPTION................-
AN APPROPRIATE STANDARD OF SOLICITA-
TION IN LIGHT OF THE INTENT OF CON-
GRESS TO GRANT A NARROW STATE TAX
EXEMPTION BUT STILL OFFER SOME CER-
TAINTY IS TO LIMIT SOLICITATION TO
ACTIVITIES THAT DIRECTLY SEEK PLACE-
MENT OF AN ORDER OR ARE A NECESSARY
PART OF SUCH ACTIVITIES. .
ee wt! 8. Bee
Vie, . 5 | Ge eee oe
RESOLUTION OF THE MULTISTATE TAX COM-
20
MISSION ADOPTING THE PUB. L. NO. 86-272
I op ék cane os
MULTISTATE TAX COMMISSION PUBLIC LAW
86-272 GUIDELINES, At Str. Tax Guine 9789
(Max. Mac. 1991), St. Tax Guipe 9370a (CCH
ER aS wee e os |
App. |!
App. 1
App. 3
iv
TABLE OF AUTHORITIES
Page(s)
Cases:
Aloha Airlines, Inc. v. Director of Taxation of Hawaii, 464
ee Ce AsiseccneeedbaneNenee nesses tna: 16
Burlington Northern R. Co. v. Oklahoma Tax Comm'n,
re ae ee ee 16
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
on ee ee er ee eee ae nr ee 11
Coors Porcelain Co. v. State, 183 Colo. 325, 517 P.2d
838, cert. denied, 419 U.S. 874 (1974)............... 10
Exxon Corp. v. Hunt, 475 U.S. 355 (1986) ......... 14, 16
Garcia v. San Antonio Metropolitan Transit Author-
i Gar Gees Dee PME wh oenks che decacecedswess 15, 16
Gregory v. Ashcroft, 111 S.Ct. 2395 (1991) . 13, 14, 15, 16
Heublein, Inc. v. South Carolina Tax Comm'n, 409
Sk Es os cc kw cde wdbeccetekcuer 13, 14, 15, 20
Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.
Py Cn Soa ae 6 CREE CNC is bares Cea ee eeua ee 16
Miles Laboratories, Inc. v. Dept. of Revenue, 274 Or.
_ es - ff ff Serpe ee 10
South Carolina v. Baker, 485 U.S. 505 (1988)........ 3, 15
Trinova Corp. v. Michigan Dept. of Treasury, 111
A arin ag Sls raed Ge 2 18
U.S. Steel Corp. v. Multistate Tax Commission, 434
ERNE PPR ere Lk 202, 2
U.S. Tobacco Co. v. Commonwealth, 478 Pa. 125, 386
A.2d 471, cert. denied, 439 U.S. 880 (1978)......... 10
U.S. Tobacco Co. v. Martin, 304 Ark. 119, 801 S.W.2d
RIT el A cco oie ER UKE el el ec ee 11
TABLE OF AUTHORITIES - Continued
Page(s)
U.S. COoNsTITUTION:
U.S. Const., art. I, §8, cl. 3 (Commerce Clause)...11, 18
U.S. Const., amend XIV, §1 (Due Process Clause) .... 11
STATUTES:
Pub. L. No. 86-272, 73 Stat. 55 (1959), codified at
SP es Se Oe OS GUD anos ese nccccsases passim
49 U.S.C.A. §1315(f) (West Supp. 1991).............. 16
Multistate Tax Compact, Att St. Tax Guipe 701 et
seq. (Max. Mac. 1991), St. Tax Guipe 4351 (CCH
BARBARA Hate RS rae Really Ya ree ee gO OE 1
Dank neennd his S0ehiensaneeeeesege see caueeween 1
a ices eave kcaGARad ek beeeaeerkessueaeeden? 2
Ill. Rev. Stat. ch. 120, §3-303(f) (1975) ................ 8
Ill. Rev. Stat. ch. 120, §3-304 (1975) ...............-.. 6
Ill. Rev. Stat. ch. 120, §3-304(a) (1975). ............. 6, 8
Ill. Rev. Stat. ch. 120, §3-304(a)(1)(A) (1975) .......... 7
Ill. Rev. Stat. ch. 120, §3-304(a)(2)(A) (1975) .......... 7
Ill. Rev. Stat. ch. 120, §3-304(a)(3)(A) (1975) .......... 7
Ill. Rev. Stat. ch. 120, §3-304(a)(2)(A) (1975) .......... 7
Ill. Rev. Stat. ch. 120, §3-304(a)(2)(B)(i) (1975). ........ 7
Ill. Rev. Stat. ch. 120, §3-304(a)(2)(B)(ii) (1975)........ 7
Ill. Rev. Stat. ch. 120, §3-304(a)(2)(B)(iii) (1975) ....... 7
Ill. Rev. Stat. ch. 120, §3-304(a)(3)(B) (1975). .......... 8
vi
TABLE OF AUTHORITIES - Continued
Page(s)
Ill. Rev. Stat. ch. 120, §3-304(a)(3)(B)(ii) (1975)........ 8
Uniform Division of Income for Tax Purposes Act
(“UDITPA”), 7A Unirorm Laws ANNoTaATED 331
Ld crit k's ipa soe dekebareead pees ees skees 2, 5
= £ WRPrerrerrrrrcerrrr cere error re TT ers ey eee 6
DT IGs Ge ued Lets e b hanes ehudths dhe baistabe Acadekewal 8
G55 8 56 Keds 642d CO bERERECS ORUKEROS SS ES SES WES ERON 8
SE rere e ry er rere ere rrr re ere mr 6
CAAA enced CAA SAUMES UNGNAWEREON GSO cubes KeKebaaens 7
GEE CCS65 4 4-5N<ROTO WKN Ge Kone e gene beleharecesrcares 7
CIWS de tacigh eb besh tine ova cae ieros eae: 7
Piet caus win oth aR eeWS ChAnecdaak berdaweereewes 7
DTS ii te kana naa nid ROMERO NATE AE EES 7
RTECS 6 banek 6s 45 dd SELES ORe OSE ORL RK CESS 7
RE RODS EEA? RIE nn Teo Reg ne 8
LAE nt serene deen Rohs de katenetesnindadans 8
om Ne re ae 6
ne 8
co ee 6, 8
Wis. Stat. §71.07(2)(a)1. (1973-1977). ...............4.. 7
Wis. Stat. §71.07(2)(b)1. (1973-1977). ...............4.. 7
Wis. Stat. §71.07(2)(b)4. (1973-1977). .................. 7
vii
TABLE OF AUTHORITIES - Continued
Page(s)
Wis. Stat. GTUBITAMEII. (9S7D-B077)..... 0 orc ccccnceens 7
Wis. Stat. §71.07(2)(c)2. (1973-1977). . 0.2.2... eee ee eee 8
MISCELLANEOUS:
S. 2524 as reported in S. Rep. 658, 86th Cong.,
Ist Sess.
A one koa Aka hh RAKE CR EDO NUNKAN Se HESS ORE 22
SR tektean cndkeendecsrdhsnsdeseavurssaga 21, 22
er een ee Te ee rae 18, 20, 21
S. Rep. 658, 86th Cong., Ist Sess. ...............-4-- 18
MTC Public Law 86-272 Guidelines, Ait St. Tax
Guipe 9789 (Max. Mac. 1991), St. Tax Guipe
po oe Ore Terr riety 4, 3, 2,
MTC Regs., Att St. Tax Guipe 7600 et seq. (Max.
PE EE bc 6S ches enieenevesindereeedeseesovesses 2
Christopher & Janaszek, The Scope of Protected
Solicitation Under Section 381 After Wrigley, 10 J.
ey PO I occ vanes Chdancewendacwees ta 19
Corrigan, A Final Review, 1989 Muttistate Tax
SE Seco 5 ah pesnntsckerneneenssecsen ¢6- 6 2
Hartman, Feperat Limitations ON STATE AND LOCAL
EE SI eb. n 00 k.s'0.00 30 pareewnvnepenedc 19
Lockhart, The Sales Tax in Interstate Commerce, 52
rr eC Da ce ec euekadeneeneevees 18
Mines, Congress Disrupts State Taxation of Air Car-
riers Through Passage of 49 U.S.C. §1513(f), 1991
Muttistate Tax Comm’N Rev. 1............0005 200s 16
viii
TABLE OF AUTHORITIES - Continued
Page(s)
Tribe, American ConsTITUTIONAL Law §6-25 pp.
re ee i bein Coed eh alee nosny os 15
Warren, Principles of Formulary Apportionment, Tue
State & Loca Tax Portro.io Series ¥200 p. 205
SSS oe concn sedeceeeuadenbsvanweneleetedess 6, 9
No. 91-119
S
In The
Supreme Court of the United States
October Term, 1991
°
WISCONSIN DEPARTMENT OF REVENUE,
Petitioner,
v.
WILLIAM WRIGLEY, JR. COMPANY,
Respondent.
¢
On Writ Of Certiorari To The Supreme Court Of
The State Of Wisconsin
¢
BRIEF AMICUS CURIAE OF THE MULTISTATE
TAX COMMISSION IN SUPPORT OF PETITIONER
¢
INTEREST OF AMICUS CURIAE
The Multistate Tax Commission is the administrative
arm of the Multistate Tax Compact (the “Compact”). Att
St. Tax Guipe 4701 et seq. (Max. Mac. 1991); St. Tax Guide
7351 (CCH 1991). Nineteen States, including the District
of Columbia, have adopted the Compact. In addition,
fourteen States are associate members. The Compact
seeks to facilitate proper determinations of state and local
tax liability of multistate taxpayers, promote uniformity
or compatibility of state tax systems, facilitate taxpayer
convenience and compliance, and avoid duplicative state
taxation. Article 1, Compact, Aut St. Tax Guiwe 4701 (Max.
Mac. 1991), St. Tax Guipe 9351 (CCH 1991). The Court
recognized the validity of the Compact in United States
Steel Corp. v. Multistate Tax Comm'n, 434 U.S. 452 (1978).
The Compact was developed by cooperation among
States and taxpayers in response to the findings and
recommendations of the Willis Committee. See Corrigan,
A Final Review, 1989 Muttistate Tax Comm’N Rev. 1, 1 and
23. Specifically, member States of the Compact are com-
mitted to strengthening Our Federalism by resolving the
inherent conflict of our federal form of government that
presupposes both a single national economy and States
with separate taxing authority. The member States of the
Commission have accepted the challenge of federalism by
developing uniform state tax rules of apportionment and
allocation.
In furtherance of uniformity, the Multistate Tax Com-
pact utilizes the Uniform Division of Income for Tax
Purposes Act (“UDITPA”), 7A Unirorm Laws ANNOTATED
331 (West 1985), as the core rules for the apportionment
and allocation of income of a multijurisdictional business.
Article IV, Compact, Att St. Tax Guipe 9711 (Max. Mac.
1991), St. Tax Guiwe 9351 (CCH 1991). The Multistate Tax
Commission has further developed regulations interpret-
ing UDITPA. See MTC Regs., Att St. Tax Guipe $600 et seq.
(Max. Mac. 1991). Fostering state tax uniformity through
voluntary state cooperation remains central to the Com-
mission.
The Commission’s uniformity effort relevant here is
its Public Law 86-272 Guidelines, Att St. Tax Guipe 9789
(Max. Mac. 1991), St. Tax Guipe 9370a (CCH 1991)
(“Guidelines”).! The Guidelines reflect the Commission’s
best understanding of congressional intent as expressed
in Pub. L. No. 86-272. Consonant with the Commission's
understanding of Tenth Amendment jurisprudence,? the
Guidelines embraced a narrow interpretation of the state
tax exemption so that the exemption would apply only in
“those limited circumstances clearly and reasonably
intended by Congress.” App. 4.
The Multistate Tax Commission invited all states to
adopt the Guidelines. App. 3. The Wisconsin Tax Appeal
Commission accepted the invitation. Pet. for Cert. A-249 -
A-253. From the undisputed facts of this case it seems
clear that Wrigley’s activities would violate several of the
thresholds of the Guidelines. The Wisconsin Supreme
Court surprisingly forewent application of the Guidelines
by adopting an expansive interpretation of the state tax
exemption. The Wisconsin Supreme Court’s decision is
surprising because it occurs in the face of the com-
plaining taxpayer’s characterization of Pub. L. No. 86-272
as unclear.*
By foregoing the Guidelines, the Wisconsin Supreme
Court has unnecessarily frustrated the States’ goal of
preserving state tax jurisdiction to the maximum extent
possible in the face of the requirements of, and the
' The Guidelines as well as the Commission's adopting
resolution are reproduced in the Appendix.
2 See South Carolina v. Baker, 485 U.S. 505, 510 n.4 (1988).
3 See Pet. Wrigley Br. before the Wisconsin Supreme Court
at 14, 16-17. In contrast, Petitioner Wisconsin Department of
Revenue argues that Pub. L. No. 86-272 is unambiguous. See
Arguments I.C. and D. of Pet. for Cert.
q
policies reflected in, the U.S. Constitution and applicable
-_____ federal law. The Wisconsin Supreme Court's decision also
disconcertingly undermines the uniformity that the Mul-
tistate Tax Commission sought. The Wisconsin Supreme
Court failed to recognize the opportunity and respon-
sibility that States have to strengthen federalism through
voluntary cooperative action.
e
SUMMARY OF ARGUMENT
The Wisconsin Supreme Court reached its erroneous
determination because it failed to apply the Tenth
Amendment jurisprudence of the Court and failed to be
sensitive to the effect that its decision would have on the
operation of all state tax systems. The Tenth Amendment
jurisprudence of the Court and sensitivity to multistate
taxation counsel that the state tax exemption of Pub. L.
No. 86-272 be construed very limitedly to avoid unneces-
sary intrusion on the traditional state sovereignty. The
Wisconsin Department of Revenue must prevail either if
the legislative history of Pub. L. No. 86-272 clearly sup-
ports the taxing jurisdiction of the States or if the legisla-
tive history is unclear. Wrigley may prevail only if there
is a single clear statement from Congress that supports an
expansive state tax exemption.
Wrigley cannot satisfy the plain statement rule stan-
dard, because it is clear from the legislative history of
Pub. L. No. 86-272 that Congress did not intend to do
anything more than to protect mere solicitation as a stop-
gap, temporary measure. Congress was unwilling to do
anything further until it had studied state taxation of
interstate commerce. See Title II of Pub. L. No. 86-272.
Even if Wrigley is able to cite snippets of legislative
history in its favor, such isolated references do not over-
come the clear statements of Congress to the contrary.
The most appropriate construction of “solicitation” in
Pub. L. No. 86-272 is that it is limited to those activities
that directly seek the placement of an order and those
collateral activities that are a necessary part of such activ-
ities. There is no room within the narrow construction of
solicitation to allow activities that indirectly promote the
sales business of a seller of tangible personal property in
interstate commerce or to ignore activities clearly exceed-
ing solicitation as de minimis. The member States of the
Commission do not support as their primary position any
relaxation of this very restrictive standard. Even the pos-
sible use of a pre-sale and post-sale test, as suggested by
the State of lowa, should be viewed as a next-best alter-
native to the position here stated.
6
ARGUMENTS
I. THE RELATIONSHIP OF PUB. L. NO. 86-272 TO
STATE TAX APPORTIONMENT.
Understanding the relationship of Pub. L. No. 86-272
and the state tax rule for the apportionment of income
derived from an interstate business should aid the review
of this case. References are given to applicable provisions
of the laws of the States of Wisconsin and Illinois (the
State in which Wrigley based its operations), as they
existed in the 1970’s, and UDITPA, which has remained
unchanged since its adoption by the National Conference
of Commissioners on Uniform State Laws in 1957.4 Ill.
Rev. Stat. ch. 120, §3-304 (1975); Wis. Stat. §71.07
(1973-1977); UDITPA §1, et seq. The basic understanding
of the rules of apportionment have not changed substan-
tially.
Income of a business engaged in interstate commerce
is attributed to the various States which have contributed
to its realization by the use of formula apportionment.
Formula apportionment determines the actual apportion-
ment factor that is used to attribute the income of a
multijurisdictional business to each taxing State. The
form of formula apportionment in most prevalent use
among the States is a formula based upon three factors:
the property factor, the payroll factor and the sales factor.
The specific apportionment factor of each taxing State is
determined by averaging the ratios of the in-state compo-
nent to the everywhere component of the property, pay-
roll, and sales of the business. Ill. Rev. Stat. ch. 120,
§3-304(a) (1975); Wis. Stat. §71.07(2) (1973-1977); UDITPA
§9. The resulting apportionment factor is then applied to
the income of the multistate business to determine how
much of the income of the entire business is attributable
to and taxable by each taxing State. As is subsequently
explained, attribution of business income arising from
sales of tangible personal property made in interstate
commerce by the use of formula apportionment (which
has the potential, depending upon the circumstances,
4 Only four States employ income tax statutes that differ
widely from UDITPA. Warren, Principles of Formulary Appor-
tionment, THe State & Locat Tax Portrouio Series 4200, 4205 p.
207 (1989) (“Warren”).
either to benefit or to disadvantage a taxpayer) is
restricted to companies that are “taxable” in more than a
single State.
The basic rules for determining the numerators and
denominators of the ratios of the three factors are as
follows. The denominators of each factor are equal to the
total amount of the respective factors everywhere, 1.e.,
total property, total payroll and total sales. Ill. Rev. Stat.
ch. 120, §3-304(a)(1)(A), 2(A), and 3(A) (1975); Wis. Stat.
§71.07(2)(a)1., (b)1., and (c)1. (1973-1977); UDITPA §10,
13, and 15. The numerators of each factor are determined
by reference to the extent of the presence of each respec-
tive factor in the taxing State, whether that State is the
base State or another State. Thus, the numerator of the
property factor for a State apportioning the income of a
multistate business is equal to the amount of property
present in that State. Ill. Rev. Stat. ch. 120, §3-304(a)(1)(A)
(1975); Wis. Stat. §71.07(2)(a)1. (1973-1977); UDITPA §10.
The numerator of the payroll factor is equal to the
amount of payroll that is attributed to the taxing State. III.
Rev. Stat. ch. 120, §3-304(a)(2)(A) (1975); Wis. Stat.
§71.07(2)(b)1. (1973-1977); UDITPA §13. Payroll is gener-
ally attributabie to the taxing State if the employee per-
forms all of his/her services in the taxing State or all, but
incidental, services in the taxing State. Ill. Rev. Stat. ch.
120, §3-304(a)(2)(B)(i) and (ii) (1975); Wis. Stat.
§71.07(2)(b)4. (1973-1977); UDITPA §14(a) and (b). Special
rules apply if the employee performs more than inciden-
tal services outside the taxing State. III. Rev. Stat. ch. 120,
§3-304(a)(2)(B)(iii) (1975); Wis. Stat. §71.07(2)(b)4.
(1973-1977); UDITPA §14(c). Sales for purposes of deter-
mining the numerator of the sales factor of the taxing
State are sitused on a destination basis, i.e., on a basis of
the State to which the goods are shipped. Ill. Rev. Stat. ch.
120, §3-304(a)(3)(B) (1975); Wis. Stat. §71.07(2)(c)2.
(1973-1977); UDITPA §16. Unlike the property factor and
the payroll factor, the sales factor has a throwback provi-
sion. The throwback provision of the sales factor attrib-
utes sales that otherwise would be attributed to a State in
which the multistate business is not “taxable” to the State
from which the goods are shipped. Ill. Rev. Stat. ch. 120,
§3-304(a)(3)(B)(ii) (1975); Wis. Stat. §71.07(2)(c)2.
(1973-1977); UDITPA §16(b). Taxability for purposes of
the sales factor throwback rule is defined in terms of
jurisdiction to tax, including consideration of the effect of
Pub. L. No. 86-272. Id. |
As earlier noted, use of formula apportionment to
attribute the income of a business engaged in interstate
commerce is restricted. Formula apportionment is used
only when the multistate business is “taxable” in more
_ than a single State. Ill. Rev. Stat. ch. 120, §3-304(a) (1975);
Wis. Stat. §71.07(2) (1973-1977); UDITPA §2. If a business
is not taxable in more than a single State, all the income
of a multistate business is attributed to the single State in
which the business is taxable. Ill. Rev. Stat. ch. 120,
§3-304(a) (1975); Wis. Stat. §71.07(1) (1973-1977) (special
allocation rules applied); UDITPA §2. A business is
deemed taxable in another State when that other State has
jurisdiction to impose a tax, regardless of- whether the
other State does in fact impose an income tax. Ill. Rev.
Stat. ch. 120, §3-303(f) (1975); Wis. Stat. §71.07(2)
(1973-1977); UDITPA §3. As is the case under the sales
throwback rule, Pub. L. No. 86-272 is used to determine
the extent to which a multistate business is taxable in
another State in the jurisdictional sense for purposes of
determining eligibility to use formula apportionment.
Thus, to the extent Pub. L. No. 86-272 bars a State from
imposing an income tax, a business will not be treated as
being subject to an income tax in the other State.
Because of differing state tax rates and other features
of state income taxes, one cannot generalize whether a
multistate business will desire to be subject to income tax
in more than a single State. To illustrate this point, if a
multistate business is based in a State with a high income
tax rate, that business may wish to apportion its income
out of the base State to another State with a low income
tax rate or with no income tax in order to decrease the
amount of income that is subject to tax in the base State.
Conversely, if the base State has no income tax or a low
income tax rate, the business may not wish to apportion
its income out of the base State in order to preserve the
advantage of this lower tax burden in the base State.
An aggressive taxpayer based in a State with a low
income tax rate may still wish to be subject to income tax
in at least one other State, however. The reason for desir-
ing taxability in at least one additional State stems from
the fact that a taxpayer will thereby be permitted to
apportion its income by using the three apportionment
factors, property, payroll, and sales, to determine its tax-
able income in the base State. Because only the sales
factor has a throwback provision, a taxpayer may believe it
can lessen its overall tax burden by being able to attribute
some of its income to States in which it has property and
payroll but is not subject to tax. See Warren, supra n.4 at
1230.6 p. 224. Thus, to the extent a business has payroll
10
and/or property located in other States in which it is not
subject to tax, the aggregate of the numerators of the
payroll and property factors in the States in which it is
subject to tax will be less (and the resulting aggregate
state taxable income and state tax will be less). This
possibility arises because specific items of property and
payroll that are sitused to States not having the jurisdic-
tion to tax are not thrownback to any other State in which
the business is subject to tax. This result, if it is obtainable
through carefully tax planning, is known as creating “no-
where income,” income that is not taxable by any State
because of the operation of the apportionment factors. If
the multistate business were only taxable in the base State
and was not taxable in at least one other State, the busi-
ness would be ineligible to apportion its income and
would be subject to tax on one hundred percent of its
income in the base State.
It should be clear from this review that the result
obtained from the use of Pub. L. No. 86-272 to determine
whether a multistate business is taxable in another State
(and hence subject to the use of formula apportionment)
is directly affected by whether the state tax exemption of
that law is narrowly or expansively construed.°
> Litigated cases involving Pub. L. No. 86-272 can illus-
trate the point. Compare U.S. Tobacco Co. v. Commonwealth, 478
Pa. 125, 386 A.2d 471, cert. denied, 439 U.S. 880 (1978) (taxpayer
wins with broad construction), with Coors Porcelain Co. v. State,
183 Colo. 325, 517 P.2d 838, cert. denied, 419 U.S. 874 (1974)
(taxpayer loses with broad construction); compare also Miles
Laboratories, Inc. v. Dept. of Reveriue, 274 Or. 395, 546 P.2d 1081
(Continued on following page)
11
Although one cannot generalize about the revenue
affect of a narrow or a broad construction of the state tax
exemption of Pub. L. No. 86-272, this fact does not make
the operation of Pub. L. No. 86-272 potentially any less
intrusive upon the state sovereign taxing pdwer. This is
plainly apparent from the fact that Pub. L. No. 86-272 has
the potential to prohibit the State into which the goods
are sold (i.e., the market state) from taxing a multistate
enterprise that would otherwise be subject to tax under
the Due Process Clause and the Commerce Clause. See
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). An
extreme example illustrates the point: A business based
in a single State can sell all of its goods into another State
and yet avoid any liability for income tax in the market
State if it carefully limits its activities in the market State
to mere solicitation. Even if the circumstances of the
example are not so extreme, the intrusive nature of Pub.
L. No. 86-272 is embodiec in the fact that Pub. L. No.
86-272 allows goods to be sold into a market State by a
multistate business that will not necessarily be subject to
the market State’s income tax. The intrusive nature of
Pub. L. No. 86-272 is further observed in Argument II.B.,
infra.
(Continued from previous page)
(1976) (taxpayer seeks narrow construction to attribute income
to State with no income tax) with U.S. Tobacco Co. v. Martin, 304
Ark. 119, 801 S.W.2d 256 (1990) (taxpayer loses with narrow
construction). It should also be noted that when a taxpayer has
a loss, the taxpayer’s objectives are likely to be achieved with
treatment that is the opposite of what the taxpayer would want
if the taxpayer has income.
12
Il. THE DECISION OF THE WISCONSIN SUPREME
COURT IS ERRONEOUS, BECAUSE THAT
COURT’S CONSTRUCTION OF PUB. L. NO.
86-272 WAS NOT INFORMED BY THE JURISPRU-
DENCE OF THE TENTH AMENDMENT WHICH
REQUIRES CONGRESS TO STATE CLEARLY THE
EXTENT TO WHICH STATE TAXATION IS PRE-
EMPTED AND BY THE REQUIREMENTS OF
MULTISTATE TAXATION IN OUR FEDERAL SYS-
TEM THAT INSTRUCT SENSITIVITY TO OTHER
STATE TAXING SYSTEMS.
The impression left by the Wisconsin Supreme
Court’s analysis of Pub. L. No. 86-272 is one of an iso-
lated jurisdiction wrestling with the construction of a
statute that could easily have been passed by the State’s
own legislature instead of a statute passed by Congress
that regulates state taxation of interstate commerce in our
federal system. Specifically, the Wisconsin Supreme
Court’s decision in this case is devoid of any consider-
ation of the rule of construction that applies to unclear
congressional legislation that preempts fundamental state
sovereign powers and of the effect that the construction
of Pub. L. No. 86-272 would have on other state tax
systems. This erroneous interpretative stance precipitated
the Wisconsin Supreme Court's misinterpretation of Pub.
L. No. 86-272.
A. The Jurisprudence of the Tenth Amendment
Requires Pub. L. No. 86-272 Be Interpreted In A
Manner That Is The Least Intrusive On The
State Sovereign Taxing Power While Remain-
ing Faithful To The Clearly Expressed Intent
Of Congress.
The assumption of this alternative argument is that
Pub. L. No. 86-272 cannot be interpreted by the plain
13
meaning of its statutory language and that resort to the
collateral indications of congressional intent is required.
Under the Court’s Tenth Amendment jurisprudence, this
statutory construction environment does not license a
state supreme court to surmise congressional intent.
Rather, the Wisconsin Supreme Court should have been
informed that “Congress had rather limited purposes” in
enacting Pub. L. No. 86-272. Heublein, Inc. v. South Caro-
lina Tax Comm'n, 409 U.S. 275, 279 (1972). It should have
been apparent that the seven Justices joining in the opin-
ion in Heublein endorsed use of the plain statement rule
to determine the reach of Pub. L. No. 86-272. Id., 409 U.S.
at 281-82. The Wisconsin Supreme Court should have
been sensitive to the important “Federal-State balance.”
Id. The Court has reiterated most recently the need for
this sensitivity. Gregory v. Ashcroft, 111 S.Ct. 2395 (1991)
(plain statement rule used). Gregory for five Justices of the
Courtiestablishes a definite analytical framework for con-
struing unclear terms of expressly preemptive law.
Having noted the foregoing, it appears that the plain
statement rule can be limited'y applied in this case to the
following effect. If the statutory language of Pub. L. No.
86-272 is unclear, as conceded by Wrigley,® then the Court
should resolve any ambiguity as to congressional intent
6 See n.3, supra.
14
by adopting the reasonably permitted statutory construc-
tion that is the least intrusive. Therefore all that the plain
statement rule requires here is that the Court must
reverse the Wisconsin Supreme Court unless it is satisfied
that (i) Pub. L. No. 86-272 has oniy one plausible congres-
sional intent; and (ii) the single plausible congressional
intent supports an expansive construction of the state tax
exemption. If the legislative history of Pub. L. No. 86-272
additionally evidences a plausible congressional intent
that supports a narrow construction of the state tax
exemption, the decision of the Wisconsin Supreme Court
must be reversed because Congress has not clearly spo-
ken.
Under the plain statement rule, the Wisconsin
Supreme Court must be reversed. Reversal is appropriate,
because the legislative history of Pub. L. No. 86-272 is
affirmatively inconsistent with Wrigley’s position. One
may conclude, therefore, that reliance on the plain state-
ment rule here need not be very heavy. Yet three Justices
of the Court may find even this limited utilization of the
plain statement rule unacceptable. The remainder of this
Argument responds to these three Justices’ expressed
objections.
One objection is that the plain statement rule should
be used only when the question is whether the statute
applies to the States at alk (i.e., in this context, whether
the statute is intended to preempt the States). Gregory, 111
S.Ct. at 2409. That observation, however, did not operate
in Heublein. It also does not seem to have affected one
Justice in another case involving a clearly preemptive
statute. See Exxon Corp. v. Hunt, 475 U.S. 355, 382-83
(1986) (dissenting opinion).
15
Distinguishing Heublein as involving an issue not
expressly covered by Pub. L. No. 86-272 (i.e., the absence
of statutory language prohibiting inconsistent state alco-
hol regulation) is without substance. The Heublein Court
accepted the premise that a State could not circumvent
Pub. L. No. 86-272 by imposing doing business require-
ments that would preclude protection under Pub. L. No.
86-272. 409 U.S. at 282. The Heublein Court necessarily
determined, therefore, whether liquor regulations were
the type explicitly prohibited under this premise. In addi-
tion, determination of the preemptive reach of an ambig-
uous law necessarily resolves whether Congress intended
preemption. To the extent that Congress does not clearly
state the extent of its preemptive intent, Congress has not
expressed preemption. See Tribe, American Constitu-
TIONAL Law §6-25 pp. 479-80 (2d ed. 1988).
Another objection voiced is that the rule contravenes
Garcia v. San Antonio Metropolitan Transit Authority, 469
U.S. 528 (1985), and South Carolina v. Baker, 485 U.S. 505
(1988). Gregory, 111 S.Ct. at 2410. This objection is surpris-
ing, because the plain statement rule is a natural corollary
to the protection of federalism through the political pro-
cess. Requiring the political process to speak clearly
affords the political process guarantee substance. The
power of Congress is not denied, because Congress can
always act.
Any other approach transfers the guarantee of feder-
alism through the political process to the ad hoc adver-
sarial contentions of litigants of varying skills, resources
of time and assets, and litigation strategy adopted to win
16
the case. The Commerce Clause grants Congress, and not
the courts, the power to make fundamental boundary line
determinations affecting federalism.”
In addition, the Court’s use of the presumption
against preemption for even expressly preemptive stat-
utes after Garcia suggests some flexibility. See Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740-41 (1985)
(preemption not presumed as to unclear, but expressly
preemptive, provision of the Employee Retirement
Income Security Act of 1974). But see Aloha Airlines, Inc. v.
Director of Taxation of Hawaii, 464 U.S. 7 (1983).*
The final objection is that the assertion that the plain
statement rule will confuse the law by unsettling prior
cases that have based preemption on something other
than express statutory language. Gregory, 111 S.Ct. at
2410. This reading of Gregory appears to be too expansive.
If Congress does speak clearly by these indirect methods,
7 Newly enacted 49 U.S.C.A. 1513(f) (West Supp. 1991)
well illustrates the need for requiring Congress to speak
clearly. Section 1513(f) was adopted in the waning hours of the
101st Congress without any legislative history or prior public
exposure. Section 1513(f) raises innumerable construction
issues that seriously impact the state taxation of the air carrier
industry. See Mines, Congress Disrupts State Taxation of Air
Carriers Through Passage of 49 U.S.C. §1513(f), 1991 Mucristar
Tax Comm'n Rev. 1.
8 Aloha Airlines interpreted a statute that the Court deter-
mined was expressly preemptive of the type of tax in issue
from the statute’s plain language. See also Burlington Northern
R. Co. v. Oklahoma Tax Comm'n, 481 U.S. 454, 461 (1987) (statu-
tory language “plainly declares the congressional purpose”)
and Exxon Corp. v. Hunt, 475 U.S. 355, 370-71 (1986) (plain
meaning standard applied to entire statutory scheme).
17
then the clear statement standard has been met. As so
applied, Congress should not be any more burdened.?
B. Pub. L. No. 86-272 Should Be Construed With
Sensitivity To Its Effect On The Operation of
State Taxation of Interstate Business In Our
Federal System.
How one state construes Pub. L. No. 86-272 neces-
sarily impacts other States. The interaction suggests a
court should note the effect of its decision on other States.
This recognition of the principles of multistate taxation of
interstate commerce in the decision matrix will further
the preservation of federalism. The Court should not be
viewed as the sole protector of federalism in the constitu-
tional system. From this perspective there are several
matters the Wisconsin Supreme Court should have con-
sidered.
The Wisconsin Supreme Court should have noted
that the majority of States faced with the issue have
interpreted the state tax exemption of Pub. L. No. 86-272
more narrowly. Additionally, the Wisconsin Supreme
Court should have considered the uniformity efforts of
the Multistate Tax Commission. Consideration of these
factors of course would not excuse the Wisconsin
Supreme Court from making the correct determination
% In those rare instances where Congress is unable to state
definitively the extent of its preemptive intent, it can adopt a
statutory policy statement. The policy statement would inform
a court as to the limit of the congressional preemptive intent.
18
but deviating from them would suggest that the decision
is on the warning path.
Unfortunately, the Wisconsin Supreme Court was
unwilling to analyze the prevailing view seriously, dis-
missed the Multistate Tax Commission as a “group of
state revenue agents,” and made no substantial attempt
to identify congressional intent. The Wisconsin Supreme
Court's reliance on S. Rep. 658, 86th Cong., Ist Sess., was
misplaced, because it reported a bill that was different
from the enacted legislation. See Argument III, infra.
The Wisconsin Supreme Court’s decision has frus-
trated state tax uniformity. This departure from unifor-
mity also frustrates Congress, because any congressional
law that regulates state taxation ipso facto seeks unifor-
mity. Closer examination of the legislative history of Pub.
L. No. 86-272 would have reflected an intent not to grant
a broad tax state exemption.
As is developed in Argument III, infra, the deletion of
the sales office exemption of section 101(a)(3) of S. 2524 as
reported in S. Rep. 658, supra, reflects considerable con-
gressional sensitivity that Pub. L. No. 86-272 not unneces-
/“sarily upset market state taxation which can cause unfair
competition. The decisions of the Court even during the
period it construed state taxing power restrictively under
the Commerce Clause display this kind of sensitivity. See
Lockhart, The Sales Tax in Interstate Commerce, 52 Harv. L.
Rev. 617, 629 (1939); see also Trinova Corp. v. Michigan Dept.
of Treasury, 111 S.Ct. 818 (1991) (value added in market
State). A broad construction of the state tax exemption of
Pub. L. No. 86-272 flies in the face of this basic policy.
19
The Wisconsin Supreme Court should have recog-
nized that a broad construction of the state tax exemption
of Pub. L. No. 86-272 increase the potential for no-where
income. Among other things, a broad state tax exemption
increases the likelihood of having increased activities
(including property and payroll) in the market State that
are protected by Pub. L. No. 86-272 but not by the Due
Process Clause. Apart from having apportionment factors
that may be attributed to a State without jurisdiction to
tax, some imply there may be an issue whether Pub. L.
No. 86-272 may be used by a State having jurisdiction to
tax to increase the amount of income apportioned to it.
See Hartman, Feperat Limitations ON STATE AND Loca. Tax-
ATION §9:12 p. 498 (1981). The potential for using Pub. L.
No. 86-272 as a tax planning tool was not lost on Wrigley
(JA 7-8; T,: 31) or its counsel. Christopher & Janaszek, The
Scope of Protected Solicitation Under Section 381 After
Wrigley, 10 J. State Tax. 47 (1991).
Finally, a court should recognize that any prevailing
construction Congress considers wrong can be corrected
by that institution. The burden of correction is appro-
priately placed on business, given the limited purpose
Congress had with this stopgap, temporary legislation
that seeks to reguiate one of the most basic of state
sovereign rights.
20
Ill. AN INFORMED ANALYSIS OF THE LEGISLA-
TIVE HISTORY SURROUNDING THE DELE-
TION OF THE SALES OFFICE EXEMPTION
FROM S. 2524 INESCAPABLY LEADS TO THE
CONCLUSION THAT THE STATE TAX EXEMP-
TION AFFORDED BY PUB. L. NO. 86-272
SHOULD BE NARROWLY CONSTRUED AND
WRIGLEY HAS EXCEEDED THE LIMITS OF
THIS NARROW EXEMPTION.
The Court has recognized that the breadth of the
exemption for activities embraced by the statutory term
“solicitation” is narrow. Heublein, 409 U.S. at 280, 282 and
283 (mere solicitation). The narrow scope of the protec-
tion afforded by the term “solicitation” is well illustrated
in more concrete terms by consideration of the legislative
history that accompanied the approval of Senator Tal-
madge’s amendment (105 Conc. Rec. 16,477 (1959)) that
deleted the sales office exemption, section 101(a)(3) of S.
2524 as reported in S. Rep. 658, supra.
The sales office exemption as contained in S. 2524
protected not only a sales office maintained by the multi-
state business but also a sales office maintained by a in-
state resident sales representative. When Senator Tal-
madge’s amendment to strike the sales office exemption
was under floor consideration in the Senate, 105 Conc.
Rec. 16,469-16,477 (1959), considerable effort was made to
understand the effect of deleting the provision from the
enacted law. The overriding consideration in deleting the
sales office exemption appears to have been the preserva-
tion of market state taxation. 105 Conc. Rec. 16,472 (1959)
(Exchange between Senators Holland and Talmadge.)
21
Beyond the concern of preserving market state taxa-
tion, the Senate floor debate reflects a clear understand-
ing that deletion of the sales office exemption would
severely limit the breadth of the state tax exemption. The
following noted statements of participating Senators are
telling.
e Senator Talmadge, the sponsor of the amend- .
ment, in effect declared that deletion of the sales
office exemption would ensure that an out-of-
state company with representatives who main-
tained an office would be taxable. 105 Conc.
Rec. 16,470-16,472 (1959) (Statements of Senator
Talmadge, including the observation that strik-
ing section 101(a)(3) from the bill was intended
to accomplish exactly what was sought by Sena-
tor Sparkman’s amendment that would have
added language to the bill, 105 Conc. Rec.
16,472 (1959).)
e Senator Bennett of Utah indicated that dele-
tion of the sales office exemption of section
101(a)(3) would result in a loss of the tax exemp-
tion as soon as the out-of-state business put a
sales representative in the taxing State and sup-
plied the representative with the minimum
equipment necessary to handle the business.
Senator Bennett viewed section 101(a)(2), which
was enacted, as permitting a business to have a
representative come in, and section 101(a)(3) as
allowing the business to have a domiciled repre-
sentative with an office. 105 Conc. Rec. 16,361
(1959).
e Senator Saltonstall of Massachusetts, a strong
supporter of S. 2524, confirmed these under-
standings, 105 Conc. Rec. 16,471 (1959) (The
purpose of section 101(a)(2) is to allow a sales
representative to come into a State and merely
solicit orders.), as did Senator Kerr of Okla-
homa, also a strong supporter. 105 Conc. Rec.
22
16,473 (1959) (Section 101(a)(1) and (2) viewed
as only allowing salesmen to come in and solicit
orders and send them out of state.)
e Most importantly, Senator Byrd, the floor
manager of S. 2524, concurred in these restric-
tive interpretations of S. 2524 following the
deletion of the sales office exemption at the
critical point when the Senate voted on the
amended S. 2524. 105 Conc. Rec. 16,493 (bill
protects only traveling salesmen who do not
have any facilities) and 16,494 (bill only protects
a traveling salesman who goes in and sells
goods subject to consummation at the home
office) (1959).
The House of Representatives appears to have under-
stood that the Senate bill was very limited in scope in its
considerations of the conference report after these Senate
proceedings had concluded. 105 Conc. Rec. 17,770 (State-
ment of Rep. Celler: mere solicitation), 17,771 (Statement
of Rep. Miller: very narrow, indeed) and 17,774 (State-
ment of Rep. Monagan: mere solicitation) (1959).
It baffles your Amicus in the face of this very concrete
understanding, how Wrigley can argue for a broad con-
struction of solicitation and for a de minimis exception for
activities that clearly violate the clarity Congress sought.
A mere listing of a few of the activities undertaken by
Wrigley in Wisconsin make the point without the neces-
sity of argument.
e The Wrigley representatives were in-state
residents.
e At least one of the Wrigley sales managers
maintained an in-state office with equipment
supplied by Wrigley.
23
e The Wrigley representatives maintained in-
state inventory which they sold and delivered
in-state. See 105 Conc. Rec. 16,355 (1959) (State-
ment of Senator Byrd to effect that sale of a
[single] sample would result in the loss of the
state tax exemption); section 101(a)(1) of Pub. L.
No. 86-272 (delivery from out-of-state required).
¢ Wrigley rented warehouse space.
e The Wrigley field representatives performed
services within Wisconsin by being responsible
for the quality of salable inventory of retailers
and stocking new stands of gum. See 105 Conc.
Rec. 16,471 (1959) (Statements of Senators Salt-
onstall and Talmadge to the effect that services
not covered by S. 2524).
IV. AN APPROPRIATE STANDARD OF SOLICITA-
TION IN LIGHT OF THE INTENT OF CONGRESS
TO GRANT A NARROW STATE TAX EXEMP-
TION BUT STILL OFFER SOME CERTAINTY IS
TO LIMIT SOLICITATION TO ACTIVITIES THAT
DIRECTLY SEEK PLACEMENT OF AN ORDER
OR ARE A NECESSARY PART OF SUCH ACTIV-
ITIES.
The appropriate gloss to place on solicitation in Pub.
L. No. 86-272 is suggested not only by its limited scope
but also by the need to promote certainty, if possible.
Your Amicus believes that the standard utilized by the
Multistate Tax Commission to develop the Guidelines is
the appropriate standard. The Guidelines achieve as
much clarity as possible without expansively defining
solicitation in violation of the clearly stated intent of
Congress. Your Amicus suggests the following:
24
Solicitation constitutes activities that directly
seek the placement of an order and such collat-
eral activities that are a necessary part of that
effort. If an activity serves the out-of-state seller
beyond the direct attempt to secure the place-
ment of an order, the dual purpose prevents the
activity from constituting only solicitation.
Solicitation with respect to indirect accounts (so-
called missionary activities) is similarly limited
with the adjustment being that the test is
applied with respect to the seeking of the place-
ment of an order for a customer of the out-of-
state seller.
Under the proposed test, Wrigley’s broad activities
here in issue would not constitute solicitation, because
they either were too far removed from a direct seeking of
the placement of an order or because they also served a
purpose of Wrigley that was separate from the securing
of the placement of an order. Three brief observations
explain application of the proposed test.
e¢ The sales representatives’ replacement and
disposition of stale and unsalable gum and
stocking of new stands did not constitute solic-
itation, because neither activity sought the
direct placement of an order. In fact, such activ-
ities also served Wrigley’s independent purpose
other than the direct seeking of an order. Speci-
fically, free replacement of gum can hardly be
viewed as seeking an order. Further, proper dis-
position of unsalable product rids the mar-
ketplace of defective products. Similarly,
stocking of a new stand from in-state inventory
effected a quick delivery of the product when a
new stand was ready to open.
e The sales representatives’ assistance on
credit problems did not directly seek the place-
ment of a new order. Such activities furthered
al
25
Wrigley’s independent interest in collecting a
past due account.
e A collateral activity that is a necessary part
of an activity that directly seeks the placement
of an order is an activity that must occur in
order to engage in solicitation. Thus, protected
activities include a sales representative’s main-
tenance of catalogues, samples, and sales litera-
ture and the commuting to and from the
business being solicited.
The test proposed here by the Multistate Tax Com-
mission is reflected in its Guidelines. Such test is right-
fully a restrictive test that is consonant with the clearly
expressed intent of Congress. This test is proposed as the
most desirable standard to be established for the term
“solicitation” under Pub. L. No. 86-272. Even the pre-sale
and post-sale test being proposed by the State of lowa is
too expansive and therefore should be viewed as a next
best alternative should the Court not be inclined to accept
the test proposed.
26
CONCLUSION
For the foregoing reasons, your Amicus respectfully
requests that the decision of the Wisconsin Supreme
Court be reversed. In reversing the decision of the Wis-
consin Supreme Court, the Court should indicate that the
state tax exemption of Pub. L. No. 86-272 is to be nar-
rowly construed and that consistent with that limitation
the appropriate test of solicitation is whether the activ-
ities of the out-of-state company directly seek the place-
ment of an order or are a necessary part thereof.
Respectfully submitted,
Paull Mines
Counsel of Record
Multistate Tax Commission
444 No. Capitol, N.W.
Suite 409
Washington, D.C. 20001
(202) 624-8699
November 21, 1991
App. 1
APPENDIX
RESOLUTION OF THE MULTISTATE TAX COMMIS-
SION ADOPTING THE PUB. L. NO. 86-272 GUIDE-
LINES
WHEREAS, it is in the interest of effective tax admin-
istration for tax administrators from time to time to
examine their practices as to their application of nexus
standards to out-of-state business organizations with
respect to various state taxes; and
WHEREAS, the information regarding such practices,
if made generally available to tax administrators, may
result in increased uniformity in the states’ practices with
regard to various nexus issues; and
WHEREAS, the four primary goals of the Multistate
Tax Compact are to (1) facilitate proper determination of
state and local tax liability of multistate taxpayers,
including the equitable apportionment of tax bases and
settlement of apportionment disputes; (2) promote uni-
formity or compatibility in significant components of tax
systems; (3) facilitate taxpayer convenience and compli-
ance in the filing of tax returns and in other phases of tax
administration; and (4) avoid duplicative taxation; and
WHEREAS, the state members of the Commission
have earlier reviewed their practices with regard to the
application of nexus standards relating to sales and use
taxation; and ¢
WHEREAS, the state members of the Commission
now believe that it is in the best interest of promoting the
four primary goals of the Commission to describe gener-
ally their practices with regard to Public Law 86-272 and
state income taxation; and
App. 2
WHEREAS, the adoption of a document containing
such information describing the states’ practices under
Public Law 86-272 is one method by which to make
generally available such information relating to those
practices;
NOW, THEREFORE, the Multistate Tax Commission
hereby RESOLVES that a document to be entitled “Infor-
mation Concerning Practices of Multistate Tax Commis-
sion States Under Public Law 86-272” be published by the
tax administrators of the Multistate Tax Commission
states which impose a corporate income tax setting forth
information concerning the practices of said states in
applying Public Law 86-272 to various factual circum-
stances; and
BE IT FURTHER RESOLVED, that any member
state, if it so desires, may accept, in whole or in part, said
document and may otherwise dissent from any state-
ments contained therein, so that said document shall best
reflect the present practices of the states in applying
Public Law 86-272; and
BE IT FURTHER RESOLVED, that said document be
reviewed no less than once every three years by each of
the signatory states to confirm that its statement of prac-
tice is accurate; and, if not, said state shall amend the
document with regard to any such inaccuracy; and
BE IT FURTHER RESOLVED, that it is the intent of
this Resolution: (1) that the contemplated document is to
be informational only concerning each state’s practices in
regard to Public Law 86-272 and is not to serve as a basis
upon which any person may rely as to a nexus conclusion
App. 3
with respect to any particular set of factual circum-
stances; and (2) that that person should inquire of the
particular state for information as to that state’s position
concerning that specific set of factual circumstances.
BE IT FURTHER RESOLVED, that the Uniformity
Committee of the Multistate Tax Commission place upon
its agenda the issue of whether to promulgate a uniform
regulation in this regard to be proposed for adoption by
the member states.
Dated this 21st day of June, 1985
Multistate Tax Commission
PUBLIC LAW 86-272 GUIDELINES
[The Multistate Tax Commission has adopted the fol-
lowing guideline for use by its member states in deter-
mining whether a corporation has a taxable nexus within
a state’s borders for income tax purposes. It adopted this
guideline under the title “Information Concerning Prac-
tices of Multistate Tax Commission States under Public
Law 86-272.” It invites all states to adopt this guideline.]
Public Law 86-272, 15 U.S.C. 381-384, (hereafter “P.L.
86-272”) restricts a state from imposing a net income tax
on income derived within its borders from interstate com-
merce if the only business activity of the taxpayer within
the state consists of the solicitation of orders for sales of
tangible personal property, which orders are to be sent
outside the state for acceptance or rejection, and, if
accepted, are filled by shipment or delivery from a point
outside the state. For the purposes of this document, the
term “net income tax” shall also include a franchise tax
App. 4
measured by net income. If any sales are made into a
state which is precluded by P.L. 86-272 from taxing the
income of the seller, such sales remain subject to throw-
back to the appropriate state which does have jurisdiction
to impose its net income tax upon the income derived
from those sales.
It is the policy of the state signatories hereto to
impose their net income tax, subject to legislative limita-
tions, to the fullest extent constitutionally permissible.
Therefore, it is also the policy of those states to construe
the provisions of P.L. 86-272 narrowly so as tc apply that
law to only those limited circumstances clearly and rea-
sonably intended by Congress. The following information
reflects the signatory states’ current practices with regard
to: (1) whether a particular factual circumstance is con-
sidered either immune or not immune from taxation by
reason of P.L. 86-272; and (2) the jurisdictional standards
which will apply to sales made in another signatory state
for purposes of applying a throwback rule (if applicable)
with respect to such sales.
I
NATURE OF PROPERTY BEING SOLD
Only the sale of tangible personal property is afforded
immunity under P.L. 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 P.L. 86-272. The definition of tangible
personal property for this purpose is that to be found under
each state’s respective laws.
App. 5
II
SOLICITATION OF ORDERS
For the in-state activity to be immune, it must be
limited solely to solicitation (except for that activity con-
ducted by independent contractors described in Section
IIl below). If there is any other activity unrelated to
solicitation, the immunity shall be lost. Examples of activ-
ities presently treated by the signatory states (unless oth-
erwise stated as an exception or addition) as either non-
immune or immune are as follows:
A. Non-Immune Activities:
The following in-state activities will cause otherwise
immune sales to lose their immunity:
1. Making repairs or providing maintenance.
Collecting delinquent accounts.
2
3. Investigating credit worthiness.
4. Installation or supervision of installation.
5
Conducting training courses, seminars or
lectures.
Providing engineering functions.
Handling customer complaints.
Approving or accepting orders.
om N Oo
Repossessing property.
10. Securing deposits on sales.
11. Picking up or replacing damaged or
returned property.
12.
13.
14.
15.
16.
17.
18.
App. 6
Hiring, training, or supervising personnel.
Providing shipping information and coor-
dinating deliveries.
Maintaining a sample or display room in
excess of two weeks (14 days) during the
tax year.
Carrying samples for sale, exchange or dis-
tribution in any manner for consideration
or other value.
Owning, leasing, maintaining or otherwise
using any of the following facilities or
property in-state:
a. Repair shop.
b. Parts department.
Purchasing office.
a
Employment office.
e. Warehouse.
Y ia
Meeting place for directors, officers, or
employees.
g. Stock of goods.
h. Telephone answering service.
i. Mobile stores, i.e., trucks with driver
salesmen.
j. Real property or fixtures of any kind.
Consigning tangible personal property to |
any person, including an independent con-
tractor.
Maintaining, by either an in-state or an out-
of-state resident employee, of an office or
place of business (in-home or otherwise).
19
B.
The following in-state activities will not cause the
App. 7
Conducting any activity in addition to
those described in paragraph II.B. below
which is not an integral part of the solicita-
tion of orders.
Immune Activities:
loss of immunity for otherwise immune sales:
ie
Advertising campaigns incidental to mis-
sionary activities.
Carrying samples only for display or for
distribution without charge or other con-
sideration.
Owning or furnishing autos to salesmen.
Passing inquiries and complaints on to the
home office.
Incidental and minor advertising, i.e.,
notice in a newspaper that a salesman will
be in town at a certain time.
Missionary sales activities.
Checking of customers’ inventories (for re-
order, but not for other purposes).
Maintaining a sample or display room for
two weeks (14 days) or less during the tax
year.
Soliciting of sales by an in-state resident
employee of the taxpayer; provided the
employee maintains no in-state sales office
or place of business (in-home or other-
wise).
App. 8
Ill
INDEPENDENT CONTRACTORS
P.L. 86-272 provides immunity to certain in-state
activities if conducted by an independent contractor that
would not be afforded if performed by the taxpayer
directly. Independent contractors may engage in the fol-
lowing limited activities in the state without the tax-
payer’s loss of immunity:
1. Soliciting sales.
2. Making sales.
3. Maintaining a sales office.
Sales representatives who represent a single principal are
not considered to be independent contractors and are
subject to the same limitations as employees.
Maintenance of a stock of goods in the state by the
independent contractor under consignment or any other
type of arrangement with the principal shall remove the
immunity.
IV
MISCELLANEOUS PRACTICES
A. Interstate Commerce.
The only activity in the state must be in interstate
commerce. If there is any other activity (except that
described in II.B. or otherwise incidental to solicitation),
then the immunity shall be lost.
App. 9
Requisites are:
1. Approval of the sales must be made outside
the state (except for sales by independent
contractors).
2. Deliveries must be made from a point out-
side the state.
B. Incorporated
The immunity afforded by P.L. 86-272 does not apply
to any corporation incorporated within the taxing state.
C. Service vs. Sale
Sales of services are not immune under P.L. 86-272. If
a sale consists of a mixture of tangible personal property
and services, the immunity shall be lost. Examples of
such a mixture are:
1. Photographic development.
Fabrication of customer’s materials.
Installation of equipment.
> Y Pf
Architectural and engineering services.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.