OCTOBER TERM, 1991
Syllabus
WISCONSIN DEPARTMENT OF REVENUE
v.
WILLIAM WRIGLEY, JR., CO.
CERTIORARI TO THE SUPREME COURT OF WISCONSIN No. 91-119. Argued
January 22, 1992-Decided June 19, 1992
During 1973-1978, respondent chewing gum manufacturer, which is
based in Chicago, sold its products in Wisconsin through a sales
force consisting of a regional manager and various "field"
representatives, all of whom engaged in various activities in
addition to requesting orders from customers. Wisconsin orders were
sent to Chicago for acceptance, and were filled by shipment through
common carrier from outside the State. In 1980, petitioner
Wisconsin Department of Revenue concluded that respondent's
in-state business activities during the years in question had been
sufficient to support imposition of a franchise tax. Respondent
objected to the assessment of that tax, maintaining that it was
immune under 15 U. S. C. § 381(a), which prohibits a State from
taxing the income of a corporation whose only business activities
within the State consist of "solicitation of orders" for tangible
goods, provided that the orders are sent outside the State for
approval and the goods are delivered from out of state. Ultimately,
the State Supreme Court disallowed the imposition of the tax.
Held: Respondent's activities in Wisconsin fell outside
the protection of § 381(a). pp. 220-235.
(a) In addition to any speech or conduct that explicitly or
implicitly proposes a sale, "solicitation of orders" as used in §
381(a) covers those activities that are
entirely ancillary
to requests for purchases-those that serve no independent business
function apart from their connection to the soliciting of orders.
The statutory phrase should not be interpreted narrowly to cover
only actual requests for purchases or the actions that are
absolutely essential to making those requests, but includes the
entire process associated with inviting an order. Thus, providing a
car and a stock of free samples to salesmen is part of the
"solicitation of orders," because the only reason to do it is to
facilitate requests for purchases. On the other hand, the statutory
phrase should not be interpreted broadly to include all activities
that are routinely, or even closely, associated with solicitation
or customarily performed by salesmen. Those activities that the
company would have reason to engage in anyway but chooses to
allocate to its in-state sales force are not covered. For example,
employing salesmen to repair or service the company's products is
not part of the "solicitation of orders," since there is
215
good reason to get that done whether or not the company has a
sales force. Pp. 223-231.
(b) There is a
de minimis exception to the activities
that forfeit § 381 immunity. Whether a particular activity is
sufficiently
de minimis to avoid loss of § 381 immunity
depends upon whether that activity establishes a nontrivial
additional connection with the taxing State. Pp. 231-232.
(c) Respondent's Wisconsin business activities were not limited
to those specified in § 381. Although the regional manager's
recruitment, training, and evaluation of employees and intervention
in credit disputes, as well as the company's use of hotels and
homes for sales-related meetings, must be viewed as ancillary to
requesting purchases, the sales representatives' practices of
replacing retailers' stale gum without cost, of occasionally using
"agency stock checks" to sell gum to retailers who had agreed to
install new display racks, and of storing gum for these purposes at
home or in rented space cannot be so viewed, since those activities
constituted independent business functions quite separate from the
requesting of orders and respondent had a business purpose for
engaging in them whether or not it employed a sales force.
Moreover, the nonimmune activities, when considered together, are
not
de minimis. While their relative magnitude was not large
compared to respondent's other Wisconsin operations, they
constituted a nontrivial additional connection with the State. Pp.
232-235.
160 Wis. 2d 53, 465 N. W. 2d 800, reversed and remanded.
SCALIA, J., delivered the opinion of the Court, in which WHITE,
STEVENS, SOUTER, and THOMAS, JJ., joined, and in Parts I and II of
which O'CONNOR, J., joined. O'CONNOR, J., filed an opinion
concurring in part and concurring in the judgment,
post, p.
236. KENNEDY, J., filed a dissenting opinion, in which REHNQUIST,
C. J., and BLACKMUN, J., joined,
post, p.236.
F. Thomas Creeron III, Assistant Attorney General
of Wisconsin, argued the cause for petitioner. With him on the
briefs was
James E. Doyle, Attorney General.
E. Barrett Prettyman, Jr., argued the Cause for respondent. With
him on the brief were Andre M. Saltoun, H. Randolph Williams,
Barbara
J. Janaszek, and Richard
J. Sankovitz.
*
*Briefs of
amici curiae urging reversal were filed for
the State of Iowa et al. by
Bonnie J.
Campbell, Attorney General of Iowa,
Harry M. Griger,
Special Assistant Attorney General, and
Marcia Mason,
Assistant Attorney
216
WILLIAM WRIGLEY, JR.,
CO.
JUSTICE SCALIA delivered the opinion of the Court. Section
101(a) of Public Law 86-272, 73 Stat. 555, 15 U. S. C. § 381,
prohibits a State from taxing the income of a corporation whose
only business activities within the State consist of "solicitation
of orders" for tangible goods, provided that the orders are sent
outside the State for approval and the goods are delivered from out
of state. The issue in this case is whether respondent's activities
in Wisconsin fell outside the protection of this provision.
I
Respondent William Wrigley, Jr., Co., is the world's largest
manufacturer of chewing gum. Based in Chicago, it sells gum
nationwide through a marketing system that divides the country into
districts, regions, and territories. During the relevant period
(1973-1978), the midwestern district included a Milwaukee region,
covering most of Wisconsin and
General, and by the Attorneys General for their respective
States as follows:
Grant Woods of Arizona,
Daniel E.
Lungren of California,
Richard Blumenthal of
Connecticut,
Robert A. Butterworth of Florida,
Michael J. Bowers of Georgia,
Warren Price
III of Hawaii,
Larry EchoHawk of Idaho,
Linley E.
Pearson of Indiana,
Robert T. Stephan of Kansas,
Frederic J. Cowan of Kentucky,
William
J. Guste, Jr., of Louisiana,
J. Joseph
Curran, Jr., of Maryland,
Scott Harshbarger of
Massachusetts,
Hubert H. Humphrey III of Minnesota,
William L. Webster of Missouri,
Marc Racicot of
Montana,
Don Stenberg of Nebraska,
Tom Udall of New
Mexico,
Robert Abrams of New York, and
Lacy H.
Thornburg of North Carolina; for the State of New Jersey et al.
by
Robert J. Del Tufo, Attorney General of New
Jersey, and
Mary R. Hamill and
Sarah T. Darrow,
Deputy Attorneys General,
Charles E. Cole, Attorney General
of Alaska, and
Winston Bryant, Attorney General of Arkansas;
for the City of New York by O.
Peter Sherwood, Edward F.
X. Hart, and
Stanley Buchsbaum; and for the
Multistate Tax Commission by
Paull Mines.
Briefs of
amici curiae urging affirmance were filed for
the Committee on State Taxation of the Council of State Chambers of
Commerce by
Amy Eisenstadt and
Paul H. Frankel; and
for the Direct Selling Association by
Mario Brossi, Joseph N.
Mariano, M. Douglas Adkins, Neil J. O'Brien, and
Camille R. Comeau.
217
parts of other States, which was subdivided into several
geographic territories.
The district manager for the midwestern district had his
residence and company office in Illinois, and visited Wisconsin
only six to nine days each year, usually for a sales meeting or to
call on a particularly important account. The regional manager of
the Milwaukee region resided in Wisconsin, but Wrigley did not
provide him with a company office. He had general responsibility
for sales activities in the region, and would typically spend
80-to-95% of his time working with the sales representatives in the
field or contacting certain "key" accounts. The remainder of his
time was devoted to administrative activities, including writing
and reviewing company reports, recruiting new sales
representatives, making recommendations to the district manager
concerning the hiring, firing, and compensation of sales
representatives, and evaluating their performance. He would preside
at full-day sales strategy meetings for all regional sales
representatives once or twice a year. The manager from 1973 to
1976, John Kroyer, generally held these meetings in the "office" he
maintained in the basement of his home, whereas his successor, Gary
Hecht, usually held them at a hotel or motel. (Kroyer claimed
income tax deductions for this office, but Wrigley did not
reimburse him for it, though it provided a filing cabinet.) Mr.
Kroyer also intervened two or three times a year to help arrange a
solution to credit disputes between the Chicago office and
important local accounts. Mr. Hecht testified that he never engaged
in such activities, although Wrigley's formal position description
for regional sales manager continued to list as one of the assigned
duties "[r]epresent[ing] the company on credit problems as
necessary."
The sales or "field" representatives in the Milwaukee region,
each of whom was assigned his own territory, resided in Wisconsin.
They were provided with company cars, but not with offices. They
were also furnished a stock of gum
218
WILLIAM WRIGLEY, JR.,
CO.
(with an average wholesale value of about $1,000), a supply of
display racks, and promotional literature. These materials were
kept at home, except that one salesman, whose apartment was too
small, rented storage space at about $25 per month, for which he
was reimbursed by Wrigley.
On a typical day, the sales representative would load up the
company car with a supply of display racks and several cases of
gum, and would visit accounts within his territory. In addition to
handing out promotional materials and free samples, and directly
requesting orders of Wrigley products, he would engage in a number
of other activities which Wrigley asserts were designed to promote
sales of its products. He would, for example, provide free display
racks to retailers (perhaps several on any given day), and would
seek to have these new racks, as well as pre-existing ones,
prominently located. The new racks were usually filled from the
retailer's existing stock of Wrigley gum, but it would sometimes
happen-perhaps once a month-that the retailer had no Wrigley
products on hand and did not want to wait until they could be
ordered from the wholesaler. In that event, the rack would be
filled from the stock of gum in the salesman's car. This gum, which
would have a retail value of $15 to $20, was not provided without
charge. The representative would issue an "agency stock check" to
the retailer, indicating the quantity supplied; he would send a
copy of this to the Chicago office or to the wholesaler, and the
retailer would ultimately be billed (by the wholesaler) in the
proper amount.
When visiting a retail account, Wrigley's sales representative
would also check the retailer's stock of gum for freshness, and
would replace stale gum at no cost to the retailer. This was a
regular part of a representative's duties, and at any given time up
to 40% of the stock of gum in his possession would be stale gum
that had been removed from retail stores. After accumulating a
sufficient amount of stale product, the representative either would
ship it back to
219
Wrigley's Chicago office or would dispose of it at a local
Wisconsin landfill.
Wrigley did not own or lease real property in Wisconsin, did not
operate any manufacturing, training, or warehouse facility, and did
not have a telephone listing or bank account. All Wisconsin orders
were sent to Chicago for acceptance, and were filled by shipment
through common carrier from outside the State. Credit and
collection activities were similarly handled by the Chicago office.
Although Wrigley engaged in print, radio, and television
advertising in Wisconsin, the purchase and placement of that
advertising was managed by an independent advertising agency
located in Chicago.
Wrigley had never filed tax returns or paid taxes in Wisconsin;
indeed, it was not licensed to do business in that State. In 1980,
petitioner Wisconsin Department of Revenue concluded that the
company's in-state business activities during the years 1973-1978
had been sufficient to support imposition of a franchise tax, and
issued a tax assessment on a percentage of the company's
apportionable income for those years. Wrigley objected to the
assessment, maintaining that its Wisconsin activities were limited
to "solicitation of orders" within the meaning of 15 U. S. C. §
381, and that it was therefore immune from Wisconsin franchise
taxes. After an evidentiary hearing, the Wisconsin Tax Appeals
Commission unanimously upheld the imposition of the tax. CCH Wis.
Tax Rep. , 202-792 (1986). It later reaffirmed this decision, with
one commissioner dissenting, after the County Circuit Court vacated
the original order on procedural grounds. CCH Wis. Tax Rep. ,
202-926 (1987). The County Circuit Court then reversed on the
merits, CCH Wis. Tax Rep. , 203-000 (1988), but that decision was
in turn reversed by the Wisconsin Court of Appeals, with one judge
dissenting. 153 Wis. 2d 559, 451 N. W. 2d 444 (1989). The Wisconsin
Supreme Court, in a unanimous opinion, reversed yet once again,
thus finally disallowing the Wisconsin tax.
220
WILLIAM WRIGLEY, JR.,
CO.
160 Wis. 2d 53, 465 N. W. 2d 800 (1991). We granted the State's
petition for certiorari, 502 U. S. 807 (1991).
II
In
Northwestern States Portland Cement Co. v.
Minnesota, 358
U. S. 450, 454 (1959), we considered Minnesota's imposition of
a properly apportioned tax on the net income of an Iowa cement
corporation whose "activities in Minnesota consisted of a regular
and systematic course of solicitation of orders for the sale of its
products, each order being subject to acceptance, filling and
delivery by it from its plant [in Iowa]." The company's salesmen,
operating out of a threeroom office in Minneapolis rented by their
employer, solicited purchases by cement dealers and by customers of
cement dealers. They also received complaints about goods that had
been lost or damaged in shipment, and forwarded these back to Iowa
for further instructions.
Id., at 454-455. The cement
company's contacts with Minnesota were otherwise very limited; it
had no bank account, real property, or warehoused merchandise in
the State. We nonetheless rejected Commerce Clause and due process
challenges to the tax:
"We conclude that net income from the interstate operations of a
foreign corporation may be subjected to state taxation provided the
levy is not discriminatory and is properly apportioned to local
activities within the taxing State forming sufficient nexus to
support the same." Id., at 452.
The opinion in
Northwestern States was handed down in
February 1959. Less than a week later, we granted a motion to
dismiss (apparently on mootness grounds) the appeal of a Louisiana
Supreme Court decision that had rejected due process and Commerce
Clause challenges to the imposition of state net-income taxes based
on local solicitation of orders that were sent out of state for
approval and shipping.
Brown-Forman Distillers Corp. v.
Collector of Revenue, 234
221
La. 651, 101 So. 2d 70 (1958), appeal dism'd,
359 U. S. 28 (1959). That
decision was particularly significant because, unlike the Iowa
cement company in
Northwestern States, the Kentucky liquor
company in
Brown-Forman did
not lease (or own) any
real estate in the taxing State. Rather, its activities were
limited to
"the presence of 'missionary men' who call upon wholesale
dealers [in Louisiana] and who, on occasion, accompany the salesmen
of these wholesalers to assist them in obtaining a suitable display
of appellant's merchandise at the business establishments of said
retailers .... " 234 La., at 653-654, 101 So. 2d, at 70.
Two months later, we denied certiorari in another Louisiana case
upholding the imposition of state tax on the income of an
out-of-state corporation that neither leased nor owned real
property in Louisiana and whose only activities in that State
"consist[ed] of the regular and systematic solicitation of orders
for its product by fifteen salesmen."
International Shoe Co.
v.
Fontenot, 236 La. 279, 280, 107 So. 2d 640 (1958), cert.
denied, 359 U. S. 984 (1959).
Although our refusals to disturb the Louisiana Supreme Court's
decisions in
Brown-Forman and
International Shoe did
not themselves have any legal significance, see
Hopfmann v.
Connolly, 471
U. S. 459, 460-461 (1985);
United States v.
Carver, 260 U.
S. 482, 490 (1923), our actions in those cases raised concerns
that the broad language of
Northwestern States might
ultimately be read to suggest that a company whose only contacts
with a State consisted of sending "drummers" or salesmen into that
State could lawfully be subjected to (properly apportioned) income
taxation based on the interstate sales those representatives
generated. In
Heublein, Inc. v.
South Carolina Tax
Comm'n, 409 U. S.
275 (1972), we reviewed the history of § 381 and noted that the
complaints of the business community over
222
WILLIAM WRIGLEY, JR.,
CO.
the uncertainty created by these cases were the driving force
behind the enactment of § 381:
"'Persons engaged in interstate commerce are in doubt as to the
amount of local activities within a State that will be regarded as
forming a sufficient ... connectio[n] with the State to support the
imposition of a tax on net income from interstate operations and
'properly apportioned' to the State.'" Id., at 280, n. 5
(quoting S. Rep. No. 658, 86th Cong., 1st Sess., 2-3 (1959)).1
Within months after our actions in these three cases, Congress
responded to the concerns that had been expressed by enacting
Public Law 86-272, which established what the relevant section
heading referred to as a "minimum standard" for imposition of a
state net-income tax based on solicitation of interstate sales: "No
State ... shall have power to impose, for any taxable year ... , a
net income tax on the income derived within such State by any
person from interstate commerce if the only business activities
within such State by or on behalf of such person during such
taxable year are either, or both, of the following:
"(1) the solicitation of orders by such person, or his
representative, in such State for sales of tangible personal
property, which orders are sent outside the State for approval or
rejection, and, if approved, are filled by shipment or delivery
from a point outside the State; and
"(2) the solicitation of orders by such person, or his
representative, in such State in the name of or for the
1 See also H. R. Rep. No. 936, 86th Cong., 1st Sess., 2 (1959)
("While it is true that the denial of certiorari is not a decision
on the merits, and although grounds other than the preceden[t] of
the
Northwestern [States] cas[e] were advanced as a basis
for sustaining the
Brown-Forman and
International
Shoe decisions, the fact that a tax was successfully imposed in
those cases has given strength to the apprehensions which had
already been generated among small and moderate size
businesses").
223
benefit of a prospective customer of such person, if orders by
such customer to such person to enable such customer to fill orders
resulting from such solicitation are orders described in paragraph
(1)." 73 Stat. 555, 15 U. S. C. § 381(a).
Although we have stated that § 381 was "designed to define
clearly a lower limit" for the exercise of state taxing power, and
that "Congress' primary goal" was to provide "[c]larity that would
remove [the] uncertainty" created by
Northwestern States,
see
Heublein, supra, at 280, experience has proved § 381's
"minimum standard" to be somewhat less than entirely clear. The
primary sources of confusion, in this case as in others, have been
two questions: (1) what is the scope of the crucial term
"solicitation of orders"; and (2) whether there is a
de
minimis exception to the activity (beyond "solicitation of
orders") that forfeits § 381 immunity. We address these issues in
turn.
A
Section 381(a)(1) confers immunity from state income taxes on
any company whose "only business activities" in that State consist
of "solicitation of orders" for interstate sales. "Solicitation,"
commonly understood, means "[a]sking" for, or "enticing" to,
something, see Black's Law Dictionary 1393 (6th ed. 1990);
Webster's Third New International Dictionary 2169 (1981) ("solicit"
means "to approach with a request or plea (as in selling or
begging)"). We think it evident that in this statute the term
includes, not just explicit verbal requests for orders, but also
any speech or conduct that implicitly invites an order. Thus, for
example, a salesman who extols the virtues of his company's product
to the retailer of a competitive brand is engaged in "solicitation"
even if he does not come right out and ask the retailer to buy
some. The key question in this case is whether, and to what extent,
"solicitation of orders" covers activities that neither explicitly
nor implicitly propose a sale.
224
WILLIAM WRIGLEY, JR.,
CO.
In seeking the answer to that question, we reject the
proposition put forward by Wisconsin and its
amici that we
must construe § 381 narrowly because we said in
Heublein
that "'unless Congress conveys its purpose clearly, it will not be
deemed to have significantly changed the Federal-State balance,'"
409 U. S., at 281-282 (citation omitted). That principle-which we
applied in
Heublein to reject a suggested inference from §
381 that States cannot regulate solicitation in a manner that might
cause an out-of-state company to forfeit its tax immunity-has no
application in the present case. Because § 381 unquestionably
does limit the power of States to tax companies whose only
in-state activity is "the solicitation of orders," our task is
simply to ascertain the fair meaning of that term.
FMC Corp.
v.
Holliday, 498 U. S. 52, 57
(1990).
Wisconsin views some courts as having adopted the position that
an out-of-state company forfeits its § 381 immunity if it engages
in "any activity other than requesting the customer to purchase the
product." Brief for Petitioner 21; see also
id., at 19, n. 8
(citing
Hervey v.
AMF Beaird, Inc., 250 Ark. 147, 464
S. W. 2d 557 (1971);
Clairol, Inc. v.
Kingsley, 109
N. J. Super. 22, 262 A. 2d 213, aff'd, 57 N. J. 199, 270 A. 2d 702
(1970), appeal dism'd, 402 U. S. 902 (1971)).2 Arguably supporting
this interpretation is subsection (c) of § 381,
2 Amici New Jersey et al. contend that our summary
disposition of
Clairol binds us to this narrow construction
of § 381(a). Though
Clairol is frequently cited for this
construction, the opinion in the case does not in fact recite it.
In any event, our summary disposition affirmed only the
judgment below, and cannot be taken as adopting the
reasoning of the lower court.
Anderson v.
Celebrezze,
460 U. S. 780,
784, n. 5 (1983);
Fusari v.
Steinberg, 419 U. S. 379, 391-392
(1975) (Burger, C. J., concurring). The judgment in
Clairol
would have been the same even under a broader construction of
"solicitation of orders," since the company's in-state activities
included sending nonsales representatives to provide customers
technical assistance in the use of Clairol products. 109 N. J.
Super., at 29-30, 262 A. 2d, at 217. See
United States Tobacco
Co. v.
Commonwealth, 478 Pa. 125, 136-137,386 A. 2d 471,
476-477, cert. denied, 439 U. S. 880 (1978);
Gillette Co. v.
State Tax Comm'n, 56 App. Div. 2d 475, 479, 393 N. Y. S. 2d
186, 189 (1977), aff'd, 45 N. Y. 2d 846, 382 N. E. 2d 764
(1978).
225
which expands the immunity of subsection (a) when the
outof-state seller does its marketing through independent
contractors, to include not only solicitation of orders for sales,
but also actual sales, and
in addition "the maintenance ...
of an office ... by one or more independent contractors whose
activities ... consist solely of making sales, or soliciting orders
for sales .... "3 The plain implication of this is that without
that separate indulgence the maintenance of an office for the
exclusive purpose of conducting the exempted solicitation and sales
would have provided a basis for taxation-i.
e., that the
phrase "solicitation of orders" does not embrace the maintenance of
an office for the exclusive purpose of soliciting orders. Of course
the phrase "solicitation of orders" ought to be accorded a
consistent meaning within the section, see
Sorenson v.
Secretary of Treasury, 475 U. S. 851, 860
(1986), and if it does not embrace maintaining an office for
soliciting in subsection (c), it does not do so in subsection (a)
either. One might argue that the necessity of special permission
for an office establishes that the phrase "solicitation of orders"
covers only the actual requests for purchases or, at most, the
actions absolutely essential to making those requests.
We think, however, that would be an unreasonable reading of the
text. That the statutory phrase uses the term "solicitation" in a
more general sense that includes not merely the ultimate act of
inviting an order but the entire process associated with the
invitation is suggested by the fact that § 381
3 Title 15 U. S. C. § 381 (c) reads in its entirety as
follows:
"For purposes of subsection (a) of this section, a person shall
not be considered to have engaged in business activities within a
State during any taxable year merely by reason of sales in such
State, or the solicitation of orders for sales in such State, of
tangible personal property on behalf of such person by one or more
independent contractors, or by reason of the maintenance, of an
office in such State by one or more independent contractors whose
activities on behalf of such person in such State consist solely of
making sales, or soliciting orders for sales, or
[sic]
tangible personal property."
226
WILLIAM WRIGLEY, JR.,
CO.
describes "the solicitation of orders" as a subcategory, not of
in-state
acts, but rather of in-state
"business
activities"-a term that more naturally connotes courses of
conduct. See Webster's Third New International Dictionary 22 (1981)
(defining "activity" as "an occupation, pursuit, or recreation in
which a person is active-often used in pI. <business
activities>"). Moreover, limiting "solicitation of
orders" to actual requests for purchases would reduce § 381(a)(1)
to a nullity. (It is obviously impossible to make a request without
some accompanying action, such as placing a phone call or driving a
car to the customer's location.) And limiting it to acts
"essential" for making requests would engender endless uncertainty,
contrary to the whole purpose of the statute. (Is it "essential" to
use a company car, or to take a taxi, in order to conduct in-person
solicitation? For that matter, is it "essential" to solicit in
person?) It seems to us evident that "solicitation of orders"
embraces request-related activity that is not even, strictly
speaking, essential, or else it would not cover salesmen's driving
on the State's roads, spending the night in the State's hotels, or
displaying within the State samples of their product. We hardly
think the statute had in mind only day-trips into the taxing
jurisdiction by emptyhanded drummers on foot. See
United States
Tobacco Co. v.
Commonwealth, 478 Pa. 125, 140,386 A. 2d
471,478 ("Congress could hardly have intended to exempt only
walking solicitors"), cert. denied, 439 U. S. 880 (1978). And
finally, this extremely narrow interpretation of "solicitation"
would cause § 381 to leave virtually unchanged the law that existed
before its enactment. Both
Brown-Forman (where the salesman
assisted wholesalers in obtaining suitable displays for whiskey at
retail stores) and
International Shoe (where hotel rooms
were used to display shoes) would be decided as they were before,
upholding the taxation.
At the other extreme, Wrigley urges that we adopt a broad
interpretation of "solicitation" which it describes as having been
adopted by the Wisconsin Supreme Court based on that
227
court's reading of cases in Pennsylvania and New York, see 160
Wis. 2d, at 82, 465 N. W. 2d, at 811-812 (citing
United States
Tobacco Co. v.
Commonwealth, supra; Gillette Co. v.
State Tax Comm'n, 56 App. Div. 2d 475,393 N. Y. S. 2d 186
(1977), aff'd, 45 N. Y. 2d 846, 382 N. E. 2d 764 (1978)). See also
Indiana Dept. of Revenue v.
Kimberly-Clark Corp., 275
Ind. 378, 384, 416 N. E. 2d 1264, 1268 (1981). According to
Wrigley, this would treat as "solicitation of orders" any
activities that are "ordinary and necessary 'business activities'
accompanying the solicitation process" or are "routinely associated
with deploying a sales force to conduct the solicitation, so long
as there is no office, plant, warehouse or inventory in the State."
Brief for Respondent 9, 19-20; see also J. Hellerstein, State
Taxation , 6.11[2], p. 245 (1983) ("[S]olicitation ought to be held
to embrace other normal incidents of activities of salesmen" or the
"customary functions of sales representatives of out-of-state
merchants"). We reject this
"routinely-associated-with-solicitation" or
"customarily-performed-by-salesmen" approach, since it converts a
standard embracing only a particular activity ("solicitation") into
a standard embracing all activities routinely conducted by those
who engage in that particular activity ("salesmen"). If, moreover,
the approach were to be applied (as respondent apparently intends)
on an industry-byindustry basis, it would render the limitations of
§ 381(a) toothless, permitting "solicitation of orders" to be
whatever a particular industry wants its salesmen to do.4
4 The dissent explicitly agrees with our rejection of the
"ordinary and necessary" standard advocated by Wrigley.
Post, at 236. It then proceeds, however, to adopt that very
standard. It states that the test should be whether a given
activity is one that "reasonable buyers would consider ... to be a
part of the solicitation itself and not a significant and
independent service or component of value."
Post, at 237. It
is obvious that those activities that a reasonable buyer would
consider "part of the solicitation itself" rather than an
"independent service" are those that are
customarily
performed in connection with solicitation. Any doubt that this is
what the dissent intends is removed by its later elaboration of
its
228
WILLIAM WRIGLEY, JR.,
CO.
In any case, we do not regard respondent's proposed approach to
be an accurate characterization of the Wisconsin Supreme Court's
opinion. The Wisconsin court construed "solicitation of orders" to
reach only those activities that are "closely associated" with
solicitation, industry practice being only one factor to be
considered in judging the "close[ness]" of the connection between
the challenged activity and the actual requests for orders. 160
Wis. 2d, at 82, 465 N. W. 2d, at 811-812. The problem with that
standard, it seems to us, is that it merely reformulates rather
than answers the crucial question. "What constitutes the
'solicitation of orders'?" becomes "What is 'closely related' to a
solicitation request?" This fails to provide the "[c]larity that
would remove uncertainty" which we identified as the primary goal
of § 381.
Heublein, 409 U. S., at 280.
We proceed, therefore, to describe what we think the proper
standard to be. Once it is acknowledged, as we have concluded it
must be, that "solicitation of orders" covers more than what is
strictly
essential to making requests for purchases, the
next (and perhaps the only other) clear line is the one between
those activities that are
entirely ancillary to requests for
purchases-those that serve no independent
test in the context of the facts of this case. The dissent
repeatedly inquires whether an activity is a
"normal ac[t]
of courtesy from seller to buyer,"
post, at 242 (emphasis
added); whether it is a
"common solicitation practic[e],"
post, at 244 (emphasis added); and whether Wrigley
"exceed[ed] the
normal scope of solicitation,"
post,
at 242 (emphasis added). Of course, given Wrigley's significant
share of the Wisconsin chewing gum market,
most activities
it chooses to "conduc[t] in the course of solicitation,"
post, at 246, will be viewed as a normal part of the
solicitation process itself. Had Wrigley's sales representatives
routinely approved orders on the spot; or accepted payments on
past-due accounts; or even made outright sales of gum, it is
difficult to see how a reasonable buyer would have thought that was
not "part of the solicitation itself"-it certainly has no
"independent value" to
him. Nothing in the text of the
statute suggests that it was intended to confer tax immunity on
whatever activities are engaged in by sales agents in a particular
industry.
229
business function apart from their connection to the soliciting
of orders-and those activities that the company would have reason
to engage in anyway but chooses to allocate to its in-state sales
force.5 Cf.
National Tires, Inc. v.
Lindley, 68 Ohio
App. 2d 71, 78-79, 426 N. E. 2d 793, 798 (1980) (company's
activities went beyond solicitation to "functions more commonly
related to maintaining an on-going business"). Providing a car and
a stock of free samples to salesmen is part of the "solicitation of
orders," because the only reason to do it is to facilitate requests
for purchases. Contrariwise, employing salesmen to repair or
service the company's products is not part of the "solicitation of
orders," since there is good reason to get that done whether or not
the company has a sales force. Repair and servicing may help to
increase purchases; but it is not ancillary to
requesting
purchases, and cannot be converted into "solicitation" by
merely being assigned to salesmen. See,
e. g., Herff Jones
Co. v.
State Tax Comm'n, 247 Ore. 404, 412, 430 P. 2d
998, 1001-1002
5 The dissent states that ancillarity should be judged, not from
the perspective of the seller, but from the persective of the
buyer. Post, at 237 (test is whether "reasonable
buyers would consider [the activities] to be a part of the
solicitation itself") (emphasis added);
post, at 243 ("The
test I propose ... requires an objective assessment from the
vantage point of a reasonable
buyer") (emphasis added);
post, at 246 (question is whether the activities "possess
independent value to the
customer") (emphasis added). As
explained earlier, see n. 4,
supra, this rule inevitably
results in a whatever-the-industry-wants standard, despite the
dissent's unequivocal disavowal of such a test.
The dissent also suggests that ancillarity should be judged by
asking whether a particular challenged activity is
"related
to a
particular sales call or to a particular sales
solicitation,"
post, at 244 (emphasis added). This standard,
besides being amorphous, cannot be correct. Those activities that
are most clearly
not immunized by the statute--e.
g.,
actual sales, collection of funds-would seem to be the ones
most closely "related" to particular acts of actual
solicitation. And activities the dissent finds immunized in the
present case-maintenance of a storage facility and use of a home
office-are extremely remote.
230
WILLIAM WRIGLEY, JR.,
CO.
(1967) (no § 381 immunity for sales representatives' collection
activities).6
As we have discussed earlier, the text of the statute (the
"office" exception in subsection (c)) requires one exception to
this principle: Even if engaged in exclusively to facilitate
requests for purchases, the maintenance of an office within the
State, by the company or on its behalf, would go beyond the
"solicitation of orders." We would not make any more generalized
exception to our immunity standard on the basis of the "office"
provision. It seemingly represents a judgment that a company office
within a State is such a significant manifestation of company
"presence" that, absent a specific exemption, income taxation
should always be allowed.
Jantzen, Inc. v.
District of
Columbia, 395 A. 2d 29, 32 (D. C. 1978); see generally
Hellerstein, State Taxation , 6.4.
Wisconsin urges us to hold that no
postsale activities
can be included within the scope of covered "solicitation." We
decline to do so. Activities that take place after a sale will
ordinarily not be entirely ancillary in the sense we have
described, see,
e. g., Miles Laboratories v.
Department
of Revenue, 274 Ore. 395, 400, 546 P. 2d 1081, 1083 (1976)
(replacing damaged goods), but we are not prepared to say that will
invariably be true. Moreover, the presale/postsale distinction is
hopelessly unworkable. Even if one disregards the confusion that
may exist concerning when a sale takes place, cf. Uniform
Commercial Code § 2-401, 1A U. L. A. 675 (1989), manufacturers and
distributors ordinarily have ongoing relationships that involve
continuous sales, making it often im-
6 Contrary to the dissent's suggestion,
post, at 242,
246, both
BrownForman Distillers Corp. v.
Collector of
Revenue, 234 La. 651, 101 So. 2d 70 (1958), and
International Shoe Co. v.
Fontenot, 236 La. 279, 107
So. 2d 640 (1958), would have been decided differently under these
principles. The various activities at issue in those cases (renting
a room for temporary display of sample products; assisting
wholesalers in obtaining suitable product display in retail shops)
would be considered merely ancillary to either wholesale
solicitation or downstream (consumer or retailer) solicitation.
231
possible to determine whether a particular incidental activity
was related to the sale that preceded it or the sale that followed
it.
B
The Wisconsin Supreme Court also held that a company does not
necessarily forfeit its tax immunity under § 381 by performing
some in-state business activities that go beyond
"solicitation of orders"; rather, it said, "[c]ourts should also
analyze" whether these additional activities were "'deviations from
the norm'" or
"de minimis activities." 160 Wis. 2d, at 82,
465 N. W. 2d, at 811 (citation omitted). Wisconsin asserts that the
plain language of the statute bars this recognition of a
de
minimis exception, because the immunity is limited to
situations where "the
only business activities within [the]
State" are those described, 15 U. S. C. § 381 (emphasis added).
This ignores the fact that the venerable maxim
de minimis non
curat lex ("the law cares not for trifles") is part of the
established background of legal principles against which all
enactments are adopted, and which all enactments (absent contrary
indication) are deemed to accept. See,
e. g., Republic of
Argentina v.
Weltover, Inc., 504 U. S. 607, 618 (1992);
Hudson v.
McMillian, 503 U. S. 1, 8-9
(1992);
Ingraham v.
Wright, 430 U. S. 651, 674
(1977);
Abbott Laboratories v.
Portland Retail Druggists
Assn., Inc., 425 U.
S. 1, 18 (1976);
Industrial Assn. of San Francisco v.
United States, 268 U. S. 64, 84 (1925).
It would be especially unreasonable to abandon normal application
of the
de minimis principle in construing § 381, which
operates in such stark, all-or-nothing fashion: A company either
has complete net-income tax immunity or it has none at all, even
for its solicitation activities. Wisconsin's reading of the statute
renders a company liable for hundreds of thousands of dollars in
taxes if one of its salesmen sells a 10-cent item in state.
Finally, Wisconsin is wrong in asserting that application of the
de minimis principle "excise[s] the word 'only' from the
statute." Brief for Petitioner 27. The word "only" places
232
WILLIAM WRIGLEY, JR.,
CO.
a strict limit upon the
categories of activities that are
covered by § 381, not upon their
substantiality. See,
e.
g., Drackett Prods. Co. v.
Conrad, 370 N. W. 2d 723, 726
(N. D.
1985); Kimberly Clark, 275 Ind., at 383-384, 416 N.
E. 2d, at 1268.
Whether a particular activity is a
de minimis deviation
from a prescribed standard must, of course, be determined with
reference to the purpose of the standard. Section 381 was designed
to increase-beyond what
Northwestern States suggested was
required by the Constitution-the connection that a company could
have with a State before subjecting itself to tax. Accordingly,
whether in-state activity other than "solicitation of orders" is
sufficiently
de minimis to avoid loss of the tax immunity
conferred by § 381 depends upon whether that activity establishes a
nontrivial additional connection with the taxing State.
III
Wisconsin asserts that at least six activities performed by
Wrigley within its borders went beyond the "solicitation of
orders": the replacement of stale gum by sales representatives; the
supplying of gum through "agency stock checks"; the storage of gum,
racks, and promotional materials; the rental of space for storage;
the regional managers' recruitment, training, and evaluation of
employees; and the regional managers' intervention in credit
disputes.7 Since none of
7Wisconsin has also argued that the scope of the regional
managers' activities caused their residences to be, "[in] economic
reality," Wrigley offices in the State. Brief for Petitioner 32. If
this means that having resident salesmen without offices can
sometimes be as commercially effective as having nonresident
salesmen with offices, perhaps it is true. But it does not
establish that Wrigley "maintained an office" in the sense
necessary to come within the exception to the "entirely ancillary"
standard we have announced. See
supra, at 230. Nor does the
regional managers' occasional use of their homes for meetings with
salesmen, or Kroyer's uncompensated dedication of a portion of his
home basement to his own office. The maintenance of an office
necessary to trigger the exception
233
these activities can reasonably be viewed as requests for orders
covered by § 381, Wrigley was subject to tax unless they were
either ancillary to requesting orders or
de minimis.
We conclude that the replacement of stale gum, the supplying of
gum through "agency stock checks," and the storage of gum were not
ancillary. As to the first: Wrigley would wish to attend to the
replacement of spoiled product whether or not it employed a sales
force. Because that activity serves an independent business
function quite separate from requesting orders, it does not qualify
for § 381 immunity.
Miles Laboratories, 274 Ore., at 400,546
P. 2d, at 1083. Although Wrigley argues that gum replacement was a
"promotional necessity" designed to ensure continued sales, Brief
for Respondent 31, it is not enough that the activity facilitate
sales; it must facilitate the
requesting of sales,
which this did not.8
The provision of gum through "agency stock checks" presents a
somewhat more complicated question. It appears from the record that
this activity occurred only in connection with the furnishing of
display racks to retailers, so that it was arguably ancillary to a
form of
consumer solicitation. Section 381(a)(2) shields a
manufacturer's "missionary" request that an indirect customer (such
as a consumer) place an order, if a successful request would
ultimately result in an order's being filled by a § 381
"customer" of the manufac-
must be more formally attributed to the out-of-state company
itself, or to the agents of that company in their agency
capacity-as was, for example, the rented office in
Northwestern
States.
8 The dissent argues that this activity must be considered part
of "solicitation" because,
inter alia, it was "minimal," and
not "significant."
Post, at 243. We disagree. It was not, as
the dissent suggests, a practice that involved simple "acts of
courtesy" that occurred only because a salesman happened to be on
the scene and did not wish to "harm the company."
Post, at
242, 244. Wrigley deliberately chose to use its sales force to
engage in regular and systematic replacement of stale product on a
level that amounted to several thousand dollars per year, which is
a lot of chewing gum.
234
WILLIAM WRIGLEY, JR.,
CO.
turer, i.
e., by the wholesaler who fills the orders of
the retailer with goods shipped to the wholesaler from out of
state. Cf.
Gillette, 56 App. Div. 2d, at 482, 393 N. Y. S.
2d, at 191 ("Advice to retailers on the art of displaying goods to
the public can hardly be more thoroughly solicitation ... "). It
might seem, therefore, that setting up gum-filled display racks,
like Wrigley's general advertising in Wisconsin, would be immunized
by § 381(a)(2). What destroys this analysis, however, is the fact
that Wrigley
made the retailers pay for the gum, thereby
providing a business purpose for supplying the gum quite
independent from the purpose of soliciting consumers. Since
providing the gum was not entirely ancillary to requesting
purchases, it was not within the scope of "solicitation of orders."
9 And because the vast majority of the gum stored by Wrigley in
Wisconsin was used in connection with stale gum swaps and agency
stock checks, that storage (and the indirect rental of space for
that storage) was in no sense ancillary to "solicitation."
By contrast, Wrigley's in-state recruitment, training, and
evaluation of sales representatives and its use of hotels and homes
for sales-related meetings served no purpose apart from their role
in facilitating solicitation. The same must be said of the
instances in which Wrigley's regional sales manager contacted the
Chicago office about "rather nasty" credit disputes involving
important accounts in order to "get the account and [Wrigley's]
credit department communicat-
9 The dissent speculates, without any basis in the record, that
Wrigley might have chosen to charge for the gum, not for the
profit, but because giving it away would "lower the per unit cost
of all goods purchased," which "could create either the fact or the
perception that retailers were not receiving the same price."
Post, at 245. Though Wrigley's
motive for choosing to
make a profit on these items seems to us irrelevant in any event,
we cannot avoid observing how unlikely it is that this was the
reason Wrigley did not include free gum in its
(per-unit-cost-distorting) free racks, although it did, as the
record shows, regularly give away
other (presumably
per-unit-cost-distorting) free gum. Wrigley itself did not have the
temerity to make this argument.
235
ing." App. 71, 72. It hardly appears likely that this mediating
function between the customer and the central office would have
been performed by some other employee-some company ombudsman, so to
speak-if the on-location sales staff did not exist. The purpose of
the activity, in other words, was to ingratiate the salesman with
the customer, thereby facilitating requests for purchases.
Finally, Wrigley argues that the various nonimmune activities,
considered singly or together, are
de minimis. In
particular, Wrigley emphasizes that the gum sales through "agency
stock checks" accounted for only 0.00007% of Wrigley's annual
Wisconsin sales, and in absolute terms amounted to only several
hundred dollars a year. We need not decide whether any of the
nonimmune activities was
de minimis in isolation; taken
together, they clearly are not. Wrigley's sales representatives
exchanged stale gum, as a matter of regular company policy, on a
continuing basis, and Wrigley maintained a stock of gum worth
several thousand dollars in the State for this purpose, as well as
for the less frequently pursued (but equally unprotected) purpose
of selling gum through "agency stock checks." Although the relative
magnitude of these activities was not large compared to Wrigley's
other operations in Wisconsin, we have little difficulty concluding
that they constituted a nontrivial additional connection with the
State. Because Wrigley's business activities within Wisconsin were
not limited to those specified in § 381, the prohibition on
net-income taxation contained in that provision was
inapplicable.
***
Accordingly, the judgment of the Supreme Court of Wisconsin is
reversed, and the case is remanded for further proceedings not
inconsistent with this opinion.
It is so ordered.
236
WILLIAM WRIGLEY, JR.,
CO.
JUSTICE O'CONNOR, concurring in Parts I and II, and concurring
in the judgment.
I join Parts I and II of the Court's opinion. I do not agree,
however, that the replacement of stale gum served an independent
business function. The replacement of stale gum by the sales
representatives was part of ensuring the product was available to
the public in a form that may be purchased. Making sure that one's
product is available and properly displayed serves no independent
business function apart from requesting purchases; one cannot offer
a product for sale if it is not available. I agree, however, that
the storage of gum in the State and the use of agency stock checks
were not ancillary to solicitation and were not
de minimis.
On that basis, I would hold that Wrigley's income is subject to
taxation by Wisconsin.
JUSTICE KENNEDY, with whom THE CHIEF JUSTICE and JUSTICE
BLACKMUN join, dissenting.
Congress prohibits the States from imposing taxes on income
derived from "business activities" in interstate commerce and
limited to the "solicitation of orders" under certain conditions.
15 U. S. C. § 381(a). The question we face is whether Wrigley has
this important tax immunity for its business activities in the
State of Wisconsin. I agree with the Court that the statutory
phrase "solicitation of orders" is but a subset of the phrase
"business activities."
Ibid.; ante, at 225-226. I submit
with all respect, though, that the Court does not allow its own
analysis to take the proper course. The Court instead devises a
test that excludes business activities with a close relation to the
solicitation of orders, activities that advance the purpose of the
statute and its immunity.
The Court is correct, in my view, to reject the two polar
arguments urged upon us: one, that ordinary and necessary business
activities surrounding the solicitation of orders are
237
part of the exempt solicitation itself; and the other, that the
only exempt activities are those essential to the sale.
Ante, at 225, 227. Having done so, however, the Court exits
a promising avenue of analysis and adopts a test with little
relation to the practicalities of solicitation. The Court's rule
will yield results most difficult to justify or explain. My
submission is that the two polarities suggest the proper analysis
and that the controlling standard lies between. It is difficult to
formulate a complete test in one case, but the general rule ought
to be that the statute exempts business activities performed in
connection with solicitation if reasonable buyers would consider
them to be a part of the solicitation itself and not a significant
and independent service or component of value.
I begin with the statute. Section 381(a) provides as
follows:
"No State, or political subdivision thereof, shall have power to
impose, for any taxable year ending after September 14, 1959, a net
income tax on the income derived within such State by any person
from interstate commerce if the only business activities within
such State by or on behalf of such person during such taxable year
are either, or both, of the following:
"(1) the solicitation of orders by such person, or his
representative, in such State for sales of tangible personal
property, which orders are sent outside the State for approval or
rejection, and, if approved, are filled by shipment or delivery
from a point outside the State; and
"(2) the solicitation of orders by such person, or his
representative, in such State in the name of or for the benefit of
a prospective customer of such person, if orders by such customer
to such person to enable such customer to fill orders resulting
from such solicitation are orders described in paragraph (1)." 15
U. S. C. § 381(a).
238
WILLIAM WRIGLEY, JR.,
CO.
The key phrases, as recognized by the Court, are "business
activities" and "solicitation of orders."
Ante, at 225-226.
By using "solicitation of orders" to define a subset of "business
activities," the text suggests that the immunity to be conferred
encompasses more than a specific request for a purchase; it
includes the process of solicitation, as distinguished from
manufacturing, warehousing, or distribution. Congress could have
written § 381(a) to exempt "acts" of "solicitation" or
"solicitation of orders," but it did not. The decision to use the
phrase "business activities," while not unambiguous, suggests that
the statute must be read to accord with the practical realities of
interstate sales solicitations, which, after all, Congress acted to
protect.
The textual implication I find draws support from legal and
historical context. Even those who approach legislative history
with much trepidation must acknowledge that the statute was a
response to three specific court decisions:
Northwestern States Portland Cement Co. v.
Minnesota,
358 U. S. 450 (1959),
International Shoe Co. v.
Fontenot, 236 La. 279, 107 So. 2d 640 (1958), cert. denied,
359 U. S. 984 (1959), and
Brown-Forman Distillers Corp. v.
Collector of Revenue, 234 La. 651, 101 So. 2d 70 (1958),
appeal dism'd,
359 U.
S. 28 (1959). S. Rep. No. 658, 86th Cong., 1st Sess., 2-3
(1959) (hereinafter S. Rep.); H. R. Rep. No. 936, 86th Cong., 1st
Sess., 1-2 (1959) (hereinafter H. R. Rep.). See
ante, at
220223, and n. 1. These decisions departed from what had been
perceived as a well-settled rule, stated in
Norton Co. v.
Department of Revenue of Ill., 340 U. S. 534 (1951),
that solicitation in interstate commerce was protected from
taxation in the State where the solicitation took place.
"Where a corporation chooses to stay at home in all respects
except to send abroad advertising or drummers to solicit orders
which are sent directly to the home office for acceptance, filling,
and delivery back to the buyer, it is obvious that the State of the
buyer has no local grip on the seller. Unless some local incident
oc-
239
curs sufficient to bring the transaction within its taxing
power, the vendor is not taxable." Id., at 537.
Firm expectations within the business community were built upon
the rule as restated in
Norton. Companies engaging in
interstate commerce conformed their activities to the limits our
cases seemed to have endorsed. To be sure, the decision to stay at
home might have derived in some respects from independent business
concerns. The expense and commitment of an in-state sales office,
for example, might have informed a decision to send salesmen into a
State without further staff support. Some interstate operations,
though, carried the unmistakable mark of a legal, rather than
business, justification. The technical requirement that orders be
approved at the home office, unless approval required judgment or
expertise (for example, if the order depended on an ancillary
decision to give credit or to name an official retailer), was no
doubt the product of the legal rule.
These settled expectations were upset in 1959, their continuing
vitality put in doubt by
Northwestern States, International
Shoe, and
Brown-Forman. In
Northwestern States,
the Court upheld state income taxation against two companies whose
in-state operations included a sales staff and sales office. 358 U.
S., at 454-455. Our disposition was consistent with prior law,
since both companies maintained offices within the taxing State.
Ibid. But the Court's opinion was broader than the holding
itself and marked a departure from prior law.
"We conclude that net income from the interstate operations of a
foreign corporation may be subjected to state taxation provided the
levy is not discriminatory and is properly apportioned to local
activities within the taxing State forming sufficient nexus to
support the same." Id., at 452.
In the absence of case law giving meaning to "sufficient nexus,"
the Court's use of this indeterminate phrase cre-
240
WILLIAM WRIGLEY, JR.,
CO.
ated concern and apprehension in the business community. S.
Rep., at 2-4; H. R. Rep., at 1. Apprehension increased after our
denial of certiorari in
International Shoe and
Brown-Forman, where the Louisiana Supreme Court upheld the
taxation of companies whose business activities within the State
were limited to solicitation by salespeople. S. Rep., at 3; H. R.
Rep., at 2. The concern stemmed not only from the prospect for tax
liability in an increasing number of States, but also from the
uncertainty of its amount and apportionment, the burdens of
compliance, a lack of uniformity under state law, the withdrawal of
small businesses from States where the cost and complexity of
compliance would be great, and the extent of liability for back
taxes.
As first drafted by the Senate Finance Committee, § 381(a) would
have addressed the decisions in
Northwestern States,
International Shoe, and
Brown-Forman. S. Rep., at 2-3;
H. R. Rep., at 3; 105 Congo Rec. 16378, 16934 (1959). The Committee
recommended a bill defining "business activities" in three
subsections, with one subsection corresponding to the facts in each
of the three cases. S. 2524, 86th Cong., 1st Sess. (1959). Before
the bill was enacted, however, the Senate rejected the third of
these subsections, corresponding to
Northwestern States,
which would have extended protection to companies with in-state
sales offices. 105 Congo Rec. 16469-16477 (1959) (Senate debate on
an amendment proposed by Sen. Talmadge (Ga.)). But the other two
subsections, those dealing with the state-court decisions in
International Shoe and
Brown-Forman, were retained.
105 Congo Rec., at 16367, 16376, 16471, 16934; H. R. Rep., at 3.
Thus, while
Northwestern States provided the first impetus
for the enactment of § 381(a), it does not explain the statute in
its final form. By contrast, the history of enactment makes clear
that § 381(a) exempts from state income taxation at least those
business activities at issue in
International
241
Shoe and
Brown-Forman. These cases must inform any
attempt to give meaning to § 381(a).
International Shoe manufactured shoes in St. Louis, Missouri.
Its only activity within the State of Louisiana consisted of
regular and systematic solicitation by 15 salespeople. No office or
warehouse was maintained inside Louisiana, and orders were accepted
and shipped from outside the State. The salespeople carried product
samples, drove in company-owned automobiles, and rented hotel rooms
or rooms of public buildings in order to make displays.
International Shoe, 236 La., at 280, 107 So. 2d, at 640;
Hartman, "Solicitation" and "Delivery" Under Public Law 86-272:
An Uncharted Course, 29 Vand. L. Rev. 353, 358 (1976).
Brown-Forman distilled and packaged whiskey in Louisville,
Kentucky, for sale in Louisiana and elsewhere. It solicited orders
in Louisiana with the assistance of an in-state sales staff. All
orders were approved and shipped from outside the State. There was
no in-state office of any kind. Brown-Forman salespeople performed
two functions: they solicited orders from wholesalers, who were
direct customers of Brown-Forman; and they accompanied the
wholesalers' own sales force on visits to retailers, who were
solicited by the wholesalers. The Brown-Forman salespeople did not
solicit orders at all when visiting retailers, nor could they sell
direct to them. They did assist in arranging suitable displays of
the distiller's merchandise in the retail establishments.
Brown-Forman, 234 La., at 653-654, 101 So. 2d, at 70.
The activities in
International Shoe and
Brown-Forman extended beyond specific acts of entreaty; they
included merchandising and display, as well as other simple acts of
courtesy from buyer to seller, such as arranging product displays
and calling on the customer of a customer. The activities
considered in
International Shoe and
Brown-Forman are
by no means exceptional. Checking inventories, displaying products,
replacing stale product, and verifying credit are all
242
WILLIAM WRIGLEY, JR.,
CO.
normal acts of courtesy from seller to buyer. J. Hellerstein, 1
State Taxation: Corporate Income and Franchise Taxes , 6.11[2], p.
245 (1983). A salesperson cannot solicit orders with any degree of
effectiveness if he is constrained from performing small acts of
courtesy. Note, State Taxation of Interstate Commerce: Public Law
86-272, 46 Va. L. Rev. 297, 315 (1960).
The business activities of Wrigley within Wisconsin have
substantial parallels to those considered in
International
Shoe and
Brown-Forman. Wrigley has no manufacturing
facility in the State. It maintains no offices or warehouses there.
The only product it owns in the State is the small amount necessary
for its salespeople to call upon their accounts. All orders
solicited by its salespeople are approved or rejected outside of
the State. All orders are shipped from outside of the State. Other
activities, such as intervening in credit disputes, hiring
salespeople, or holding sales meetings in hotel rooms, do not
exceed the scope of § 381(a); I agree with the Court that these too
are the business activities of solicitation.
Ante, at
234-235; App. 10-13.
The Department of Revenue, in an apparent concession of the
point, does not contend that the business activities of Wrigley
exceed the normal scope of solicitation; instead the Department
relies on a distinction between business activities undertaken
before and after the sale. Brief for Petitioner 18, 21. Under the
Department's submission, acts leading to the sale are within the
statutory safe harbor, while any act following the sale is beyond
it.
Ibid. I agree with the Court, as well as with the
Supreme Court of Wisconsin, that this distinction is unworkable in
the context of a continuing business relation with many repeat
sales.
Ante, at 230-231; App. to Pet. for Cert. A-41.
As the Court indicates, the case really turns upon our
assessment of two practices: replacing stale product and providing
gum in display racks.
Ante, at 233. If the retailers relied
on the Wrigley sales force to replace all stale product
243
and that service was itself significant, say on the magnitude of
routine deliveries of fresh bread, then a separate service would
seem to be involved. But my understanding of the record is that
replacement of stale gum took place only during the course of
regular solicitation. App. 27-28, 41, 58, 117-118. There was no
contract to perform this service. There is no indication in the
record that this was the only method dealers relied upon to remove
stale product. It is not plausible to believe that by enacting §
381(a) Congress insisted that every sales representative in every
industry would be prohibited from doing just what Wrigley did.
Acceptance of the stale gum replacement does not allow industry
practices to replace objective statutory inquiry. The existence of
a contract to perform this service, or an indication in the record
that this service provided an independent component of significant
value, would alter the case's disposition, regardless of the
seller's intentions. The test I propose does not depend on the
sellers' intentions or motives whatsoever; rather it requires an
objective assessment from the vantage point of a reasonable buyer.
If a reasonable buyer would consider the replacement of stale gum
to provide significant independent value, then this service would
subject Wrigley to taxation. The majority appears to concede the
point in part when it observes Wrigley replaced stale gum free of
charge,
ante, at 234, n. 9, which provides a strong
indication that the replacement of stale gum is valuable to
Wrigley, not its customers, as an assurance of quality given in the
course of an ongoing solicitation.
I agree with the Court's approach, which is to provide guidance
by some general rule that is faithful to the precise language of
the statute. But it ought not to do so without recognition of some
of the most essential aspects of solicitation techniques. No
responsible company would expect its sales force to decline giving
minimal assistance to a retailer in replacing damaged or stale
product. In enacting § 381(a), Congress recognized the importance
of interstate solicitation
244
WILLIAM WRIGLEY, JR.,
CO.
to the strength of our national economy. The statute must not to
be interpreted to repeal the rules of good sales techniques or to
forbid common solicitation practices under the threat of forfeiting
this important tax exemption. Congress acted to protect interstate
solicitation, not to mandate inefficiency.
Even accepting the majority's test on its own terms, the
business activities which the Court finds to be within the safe
harbor of the federal statute are less ancillary to a real sales
solicitation than are the activities it condemns. The credit
adjustment techniques and the training sessions the Court approves
are not related to a particular sales call or to a particular sales
solicitation, but the condemned display and replacement practices
are. I do not understand why the Court thinks that a credit dispute
over an old transaction, handled by telephone weeks or months later
is exempt because it "ingratiate[s] the salesman with the customer,
thereby facilitating requests for purchases,"
ante, at 235,
but that this same process of ingratiation does not occur when a
salesperson who is on the spot to solicit an order refuses to harm
the company by leaving the customer with bad product on the shelf.
If there were any distinction between the two, I should think we
would approve the replacement and condemn the credit adjustment.
The majority fails to address this anomaly under its test,
responding instead that my observation of it suggests ambiguity in
my own.
Ante, at 229, n. 5. In my view, both the gum
replacement and credit adjustment are within the scope of
solicitation.
I would agree with the Court that the furnishing of racks with
gum that is sold to the customer presents a problem of a different
order,
ante, at 233, but here too I think it adds no
independent value apart from the solicitation itself. To begin
with, I think it rather well accepted that the setting up of
display racks and the giving of advice on sales presentation is
central to the salesperson's role in cultivating customers. There
are dangers for the manufacturer, however,
245
if the salesperson spends the time to set up a display and then
stocks it with free goods, because this could create either the
fact or the perception that retailers were not receiving the same
price. Free goods lower the per unit cost of all goods purchased.
The simplest policy to avoid this problem is to charge for the
goods displayed, and that is what occurred here. Moreover, I cannot
ignore, as the Court appears to do, that a minuscule amount of gum,
no more than 0.00007% (seven one-hundred thousands of one percent)
of Wrigley's in-state sales, was stocked into display racks in this
fashion. Brief for Respondent 5; App. to Pet. for Cert. A-43.
Indeed, the testimony is that Wrigley salespeople would stock these
display racks out of their own supply of samples only as a matter
of last resort, in instances where the retailer possessed an
inadequate supply of gum and could not await delivery in the normal
course.
"Q Well, I take it that if you put in the stand and it was a new
stand, you took the gum out of your vehicle and transferred it to
him there; is that correct?
"A No, I would not say that's correct.
"Q Well, did you ever stock new stands from your vehicle?
"A I would say possibly on some-on a few occasions. "Q And how
many few occasions were there during your tenure as a field
representative in 1978?
"A Boy. I would just be guessing. Maybe a dozen times.
"Q And just what would-what all happened in that circumstance
that you wound up putting in a new stand and taking the gum out of
your vehicle and transferring it to the retailer?
"A Well, like I said, primarily I wanted to get a stand in and
then he wanted to get that order through his wholesaler; but if he
couldn't wait, if he said my wholesaler was just in yesterday or
something or he was not going to be in for a week, he didn't want a
stand
246
WILLIAM WRIGLEY, JR.,
CO.
sitting around, so we would then fill it and then bill the
wholesaler .... " App. 37-38.
Under the circumstances described here, I fail to see why the
stocking of a gum display does not "ingratiate the salesman with
the customer, thereby facilitating requests for purchases,"
ante, at 235, as is required under the rule formulated by
the Court. The small amount of gum involved in stocking a display
rack, no more than $15-$20 worth, belies any speculation,
ante, at 234, n. 9, that Wrigley was driven by a profit
motive in charging customers for this gum. App.38.
The Court pursues a laudable effort to state a workable rule,
but in the attempt condemns business activities that are bound to
solicitation and do not possess independent value to the customer
apart from what often accompanies a successful solicitation. The
business activities of Wrigley in Wisconsin, just as those
considered in
International Shoe and
Brown-Forman,
are the solicitation of orders. The swapping of stale gum and the
infrequent stocking of fresh gum into new displays are not services
that Wrigley was under contract to perform; they are not activities
that can be said to have provided their own component of
significant value; rather they are activities conducted in the
course of solicitation and whose legal effect should be the same.
My examination of the language of the statute, considered in the
context of its enactment, demonstrates that the concerns to which §
381(a) was directed, and for which its language was drafted, are
misapprehended by the Court's decision today.
I would affirm the judgment of the Wisconsin Supreme Court.
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