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plaintiffcorporation
plaintiffjurisdictionstatutelevy

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Miles Laboratories, Inc. v. Department of Revenue, 274 Or. 395, 546 P.2d 1081

Facts

The plaintiff, a foreign corporation, operates a Consumer Products Division that markets various products through distribution warehouses across the country, including one in Portland, Oregon. In Washington, the corporation employs 12 salesmen who take orders for its products, which are then processed in Indiana. The salesmen maintain samples, place displays in retail outlets, and have incurred significant advertising expenses in Washington. The corporation is licensed to do business in Washington and pays the state's use tax on distributed samples.

The facts are stipulated. Plaintiff's Consumer Products Division markets proprietary medicines, nutritional and hygienic products and pharmaceuticals through distribution warehouses which are located in various parts of the country. One of its distribution warehouses is located in Portland, Oregon.

Issue

Whether a portion of the plaintiff's income would be taxable by the state of Washington based on its business activities there.

The issue is whether a portion of plaintiff's income would be taxable by the state of Washington, on the portion of its income derived from its Washington activities, if that state had tax statutes similar to Oregon's statutes.

Rule

Public Law 86—272 provides that a state cannot impose a net income tax on income derived from interstate commerce if the only business activities within the state are solicitation of orders.

Public Law 86—272 (15 U.S.C.A. s 381) provides: ‘s 381 . (a) No State, * * *, shall have power to impose, * * *, 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, ‘* * *.’

Analysis

The court analyzed the nature of the plaintiff's activities in Washington and determined that they went beyond mere solicitation of orders. The salesmen's actions, including replacing damaged merchandise and servicing accounts, were deemed to exceed the protections offered by Public Law 86—272, thus allowing Washington to tax the income attributable to those activities.

We conclude that in the instant case, plaintiff's activities in Washington went beyond the mere solicitation of orders and that plaintiff would not be immune from the taxing power and jurisdiction of the state of Washington.

Conclusion

The court affirmed the Tax Court's decision, concluding that the plaintiff's activities in Washington were sufficient to subject it to the state's taxing power.

The decree of the Tax Court is affirmed.

Who won?

The plaintiff prevailed because the court found that its business activities in Washington were not limited to solicitation, thus making it subject to taxation.

Plaintiff is ‘taxable’ in Washington if Washington has jurisdiction to levy a tax upon plaintiff's net income ‘regardless of whether, in fact, the state does or does not.’

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