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Blue Buffalo Company, Ltd. v. Comptroller of Treasury

Court of Special Appeals of Maryland

December 20, 2019


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          Circuit Court for Baltimore City, Case No.: 24-C-17-004798, Wanda Heard, Judge.

         Argued by: Michael A, Jacobs (Daniel Z. Herbst, Reed Smith, LLP, on the brief), Philadelphia, PA, for Appellant.

         Argued by: Michael J. Salem (Brian E. Frosh, Atty. Gen., on the brief), Annapolis, MD, for Appellee.

         Panel: Kehoe, Leahy, Sally D. Adkins (Senior Judge, Specially Assigned), JJ.


         Adkins, Sally D., J.

         [243 Md.App. 699] Federal law provides immunity from state taxation to interstate corporations whose sole business in the taxing state is the solicitation of orders. 15 U.S.C. § 381(a). When the State asserts its rights to tax an interstate corporation that sells its goods within our borders, we look to the Supreme Court’s decision in Wisconsin Dep’t. of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 223, 112 S.Ct. 2447, 120 L.Ed.2d 174 (1992) for instruction as to interpreting the statute. At issue here is whether a dog food manufacturer exceeded the scope of the statutory protection when

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its employees performed various activities in Maryland relating to its product. Upon review, we hold that important aspects of the appellant’s activities went beyond the solicitation of orders. We therefore affirm the decision of the Circuit Court for Baltimore City.


          Appellant Blue Buffalo Co., Ltd., is a Delaware corporation that is commercially domiciled in the state of Connecticut. Blue Buffalo is in the business of formulating and selling premium pet food. During 2011 and 2012 (the "Tax Years"), these products were produced by independent manufacturers located outside Maryland, shipped into the state by common carrier, and sold through national chains and local independent retailers. Blue Buffalo did not maintain any corporate office, warehouse, storeroom, or distribution facilities inside the state.

          Although most of Blue Buffalo’s business was conducted outside of Maryland, the corporation maintained several employees inside the state. During the Tax Years, those employees were: one Distributor Sales Manager, one Account Manager, two Regional Demo Managers, and several dozen "Pet Detectives." The parties dispute the nature, scope, and significance of these individuals’ activities during the Tax Years.

          Blue Buffalo’s management staff was responsible for building the company’s relationships with retailers and taking advantage of market opportunities. The Distribution Sales Manager regularly met with the managers of local independent retail stores to arrange bulk orders of Blue Buffalo products. Likewise, the Account Manager met with representatives of national chains that carried Blue Buffalo products— such as Pet Smart, Petco, and Tractor Supply. From time to time, both managers served as a face for Blue Buffalo in the broader community. The Distribution Sales Manager periodically attended pet-related community events, such as adoption fairs and pet walks. The Account Manager organized events in retail stores to demonstrate the advantages of Blue Buffalo’s products to ultimate consumers.

          Each Regional Demo Manager was chiefly responsible for recruiting, training, and managing Pet Detectives in their assigned geographic area. The Pet Detectives were on-the-ground sales representatives, stationed at retail locations where Blue Buffalo products were sold. Their primary duty [243 Md.App. 701] was to interact with customers and encourage them to buy Blue Buffalo products from the retailer. They also advised retailers on the proper display of Blue Buffalo products and encouraged retailers to place orders when inventory was running low. The Pet Detectives would provide their Regional Demo Manager with regular reports on detailing sales, pet visits, and hours worked at each store. These reports occasionally included comments on customer interactions, product suggestions, the activities of competitors, and issues encountered on the job.

         Blue Buffalo paid Maryland’s corporate income tax in 2011 and 2012 for a total amount of $706,966 based on the activities of its Maryland employees. It later filed amended returns for the Tax Years to request a full refund, on the grounds that its staff were limited to the solicitation of orders, an activity protected from taxation under 15 U.S.C. § § 381-384 ("Public Law 86-272"). After a hearing, the Comptroller determined that Blue Buffalo had not met its burden to show that it qualified for protection under 15 U.S.C. § 381 for the Tax Years. Blue Buffalo appealed to the

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Maryland Tax Court, characterizing its employees’ activities as missionary sales protected by 15 U.S.C. § 381(a)(2). The Tax Court found that several of Blue Buffalo’s activities served an independent business purpose, and therefore upheld the Comptroller’s decision. The Circuit Court for Baltimore City affirmed, and Blue Buffalo now appeals.


          Standard of Review

          On appeal, we review the decision of the Tax Court, rather than the circuit court. Comptroller of Treasury v. Johns Hopkins Univ., 186 Md.App. 169, 181, 973 A.2d 256 (2009). We may uphold a Tax Court decision only on the findings and reasons given by the Tax Court. NIHC, Inc. v. Comptroller of Treasury, 439 Md. 668, 683, 97 A.3d 1092 (2014). As the Tax Court is an adjudicatory administrative agency, its final orders are examined under the same standards [243 Md.App. 702] of review governing other agencies. Id. at 682, 97 A.3d 1092. Findings of fact are reviewed for substantial evidence and entitled to deference if the record reasonably supports the agency’s conclusion. Id. at 683, 97 A.3d 1092. Pure questions of law are reviewed without deference. Ramsay, Scarlett & Co., Inc. v. Comptroller of Treasury, 302 Md. 825, 834, 490 A.2d 1296 (1985).

          Our review of the Tax Court’s application of the law to the facts is generally narrow: "we will not substitute our judgment for the expertise of ... the administrative agency." Gore Enterprise Holdings, Inc. v. Comptroller of Treasury,437 Md. 492, 503-04, 87 A.3d 1263 (2014) (cleaned up). Commensurate with this expertise, an agency’s legal conclusions based on interpretations of the statutes and regulations it administers are afforded "great weight." Id. at 505, 87 A.3d 1263. This principle is limited by the "plain meaning" rule of interpretation; that is "where there is no ambiguity and the words of the statute are clear, we simply apply the statute as it reads." Frey v. Comptroller of Treasury,422 Md. 111, 182, 29 A.3d 475 (2011) (cleaned up). Likewise, an agency’s conclusion predicated on the ...

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