BLUE BUFFALO COMPANY, LTD.
COMPTROLLER OF THE TREASURY
Circuit Court for Baltimore City Case No.: 24-C-17-004798
Leahy, Adkins, Sally D. (Senior Judge, Specially Assigned),
ADKINS, SALLY D., J.
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
(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 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.
OVERVIEW AND PROCEDURAL POSTURE
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.
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.
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.
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 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.
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 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.
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 (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 (2014). As the Tax Court is
an adjudicatory administrative agency, its final orders are
examined under the same standards of review governing other
agencies. Id. at 682. Findings of fact are reviewed
for substantial evidence and entitled to deference if the
record reasonably supports the agency's conclusion.
Id. at 683. Pure questions of law are reviewed
without deference. Ramsay, Scarlett & Co., Inc. v.
Comptroller of Treasury, 302 Md. 825, 834 (1985).
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, 437 Md. at 503-04 (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. 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 (2011) (cleaned up). Likewise, an agency's
conclusion predicated on the application of case law presents
"a purely legal issue uniquely within the ken of a
reviewing court," and will not receive deference.
Id. (internal citation omitted).
Solicitation Of Orders
Court assessed Blue Buffalo's claim under the Interstate
Commerce Tax Act, Public Law 86-272, as codified in 15 U.S.C.
§ 381. Section 381 prohibits states from taxing the net
income of an out-of-state corporation whose only business
inside the state during the taxable year was one of the
(1) the solicitation of orders by [a] person, or his
representative, in [a] 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 [a] person, or his
representative, in [a] 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).
enacted this provision to define a "'lower
limit' for the exercise of the state taxing power"
after the Supreme Court upheld state income taxes imposed on
interstate corporations based on the activities of their
travelling salespeople. Wisconsin Dep't. of Revenue v.
William Wrigley, Jr., Co., 505 U.S. 214, 223 (1992);
see Comptroller of Treasury v. World Book Childcraft
Int'l, Inc., 67 Md.App. 424, 432 (1986) (Section 381
bars taxation unless company's activities "meet
certain minimum standards"). Section 381(a)(1) protects
the direct solicitation of orders by an out
of state business. Section 381(a)(2) protects an activity
referred to as missionary sales-solicitation
of ultimate consumers on behalf of a third-party retailer,
who will eventually place an order to replenish their
inventory. Wrigley, 505 U.S. at 233-34.
§ 381 does not define "solicitation of
orders," the Supreme Court has issued one decision
defining the scope of these protections. In Wrigley,
it upheld the imposition of Wisconsin's franchise tax on
the world's largest manufacturer of chewing gum.
Id. Wrigley, an international corporation based in
Chicago, did not have an office or facility in Wisconsin, did
not own or lease property in Wisconsin, did not process
orders in Wisconsin, and was not licensed to do business in
Wisconsin. Between 1973 and 1978, Wisconsin nevertheless
taxed Wrigley based on the in-state income generated by its
sales force. After the Wisconsin Supreme Court disallowed the
tax, the Supreme Court granted the State's petition for
certiorari. Id. at 219-220.
that § 381 "covers more than what is strictly
essential to making requests for purchases,"
the Court reasoned that the statute immunizes the entire
process associated with requesting orders. Id. at
228 (emphasis in original). Solicitation, in common parlance,
includes both "explicit verbal requests for orders"
and "speech or conduct that implicitly invites an
order," such as a salesperson's acclamation of the
advantages and virtues of his products. Id. at 223.
Moreover, restricting the immunity to requests alone would
defeat its purpose, as salespeople must be provided with
logistical support and supplies to enable their solicitation
efforts. Therefore, the Court held that 15 U.S.C. § 381
protects activities that are entirely ancillary to the
solicitation process-those that serve "no independent
business function apart from their connection to the
soliciting of orders . . . ." Id. at 229. ...