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Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199, 55 USLW 4978

Facts

The case involved challenges to Washington's B & O tax, which imposed taxes on various business activities, including manufacturing and wholesaling. Local manufacturers were exempt from the manufacturing tax for products sold within the state, while out-of-state manufacturers were taxed on their sales in Washington. Tyler Pipe Industries, an out-of-state manufacturer, contested the tax, arguing it did not have sufficient nexus with Washington to justify the tax on its wholesale sales. The trial court upheld the B & O tax, leading to appeals.

In both of the cases under review, which originated as state-court tax refund suits by appellants, local manufacturers who sold their goods outside Washington and out-of-state manufacturers who sold their goods in Washington, the trial court held that the multiple activities exemption did not discriminate against interstate commerce in violation of the Commerce Clause.

Issue

Did Washington's business and occupation tax, particularly the multiple activities exemption, discriminate against interstate commerce in violation of the Commerce Clause?

The principal question in these consolidated appeals is whether Washington's manufacturing tax similarly violates the Commerce Clause of the Constitution because it is assessed only on those products manufactured within Washington that are sold to out-of-state purchasers.

Rule

The court applied the principle that a state may not impose a tax that discriminates against interstate commerce, particularly when it creates a disparity between local and out-of-state businesses.

A state may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.

Analysis

The court found that the multiple activities exemption created a discriminatory tax structure by exempting local manufacturers from the manufacturing tax while imposing it on out-of-state manufacturers. This was deemed unconstitutional as it placed interstate commerce at a disadvantage. The court also determined that the activities of Tyler's sales representatives in Washington established sufficient nexus for the state to impose the wholesale tax.

The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it.

Conclusion

The Washington Supreme Court affirmed the trial court's decision regarding the B & O tax but ruled that the multiple activities exemption was unconstitutional. The case was vacated and remanded for further proceedings on refund issues.

The current B & O tax exposes manufacturing or selling activity outside the State to a multiple burden from which only the activity of manufacturing in-state and selling in-state is exempt.

Who won?

The State of Washington prevailed in the case, as the court upheld the B & O tax's constitutionality but found the multiple activities exemption discriminatory against interstate commerce.

The Washington Supreme Court concluded that the B & O tax was not facially discriminatory and rejected the appellants' arguments that our decision invalidating West Virginia's exemption for local wholesaler-manufacturers required that the B & O tax be invalidated.

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