Case Title: Commonwealth v. National Private Truck Council

Citation: 

Docket Number: 960575

State: virginia

Court: Virginia Supreme Court

Date: 1997-01-10T00:00:00Z

Document:
Present:  All the Justices 
 
COMMONWEALTH OF VIRGINIA,  
DEPARTMENT OF TAXATION 
 
v.   Record No. 960575 
OPINION BY JUSTICE ELIZABETH B. LACY 
                                  January 10, 1997 
NATIONAL PRIVATE TRUCK COUNCIL 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 
 
Donald H. Kent, Judge 
 
 
In this declaratory judgment action, we determine whether 
a regulation issued by the Virginia Department of Taxation 
regarding corporate income taxation violates federal statutory 
law. 
 
In 1959, Congress passed Public Law 86-272, codified as 15 
U.S.C. § 381 (§ 381).  That statute provides, in pertinent 
part: 
 
(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 . . . are . . . : 
 
 
 
(1) the solicitation of orders by such 
person . . . 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.  [Emphasis added.] 
 
 
The Virginia Department of Taxation (the Department) 
maintains that the solicitation of goods and the delivery of 
goods are two separate transactions and considers § 381 to 
provide immunity for solicitation only.  Based on this premise, 
the Department adopted a regulation extending the immunity from 
state income taxation afforded under § 381 only to those 
instances in which the shipment or delivery of goods is 
 
 
 
 
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accomplished by common carrier.  Va. Reg. § 630-401(G) (1985) 
(the Virginia Regulation).  Thus, under the Department's 
interpretation, any foreign company that solicits and approves 
orders for its merchandise under the conditions described in 
§ 381, but delivers the merchandise to Virginia using its own 
vehicles, is subject to Virginia tax on the income derived from 
such sales. 
 
The National Private Truck Council (the Council), a 
national trade association representing more than 1,000 
companies that operate their own private truck fleets, filed a 
bill of complaint for declaratory judgment seeking a 
declaration that the Virginia Regulation violates § 381 because 
it limits immunity from state income taxation to those 
instances in which goods are delivered by common carrier.  
Cross motions for summary judgment were filed, and the trial 
court entered an order granting summary judgment to the 
Council.  We awarded the Department an appeal and will affirm 
the judgment of the trial court.
*   
 
 
*     *The Department initially filed a demurrer challenging 
the standing of the Council, see Carnes v. Board of Supervisors 
of Chesterfield County, 252 Va. 377, ___ S.E.2d ___ (1996), but 
withdrew the demurrer prior to a ruling by the trial court.  
Therefore, that issue has been waived.  Princess Anne Hills 
Civic League, Inc. v. Susan Constant Real Estate, 243 Va. 53, 
59 n.1, 413 S.E.2d 599, 603 n.1 (1992); Lynchburg Traffic 
Bureau v. Norfolk and Western Railway Co., 207 Va. 107, 108, 
147 S.E.2d 744, 745 (1966).  Similarly, the Department did not 
assert a claim that its sovereign immunity had not been waived 
for declaratory judgment actions, see Virginia Physical Therapy 
Ass'n v. Virginia Board of Medicine, 245 Va. 125, 427 S.E.2d 
183 (1993), and, therefore, we do not address that issue. 
 
 
 
 
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Section 381, by plain and clear language, extends immunity 
to a particular income-generating transaction.  This 
transaction consists of soliciting orders, approving the 
orders, and shipping or delivering the goods ordered.  To limit 
the tax immunity granted by § 381 to the activity of 
solicitation only, as the Department suggests, renders the 
protection intended by that section meaningless.  Potentially 
taxable income is not generated within the taxing state until 
there has been a successful "shipment or delivery" of goods.  
Exempting merely "solicitation" is no exemption at all. 
 
Whether a particular activity constitutes solicitation, 
approval, or delivery may require construction of those terms. 
 Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 505 
U.S. 214, 223-231 (1992) (whether certain actions constitute 
solicitation).  A joint congressional committee studying the 
matter of state taxation of interstate commerce has stated 
that, although § 381 "makes it clear that delivery of goods 
into a State does not deprive the selling company of statutory 
immunity, there can be doubt about the meaning of delivery."  
H.R. Rep. No. 88-1480, at 146 (1964).  Thus, while the meaning 
of the word "delivery" may be disputed in a particular factual 
situation, delivery is a protected activity under § 381 when 
undertaken in conjunction with the other elements of the 
immunized income-producing transaction. 
 
In this case, the Department has conceded that the use of 
 
 
 
 
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company-owned trucks constitutes "delivery" of the goods as 
that term is used in § 381.  The only issue is whether the 
Virginia Regulation, which defines the manner of delivery 
necessary to qualify for immunity from state taxation under 
§ 381, violates federal law.  Code § 58.1-205. 
 
In enacting § 381, Congress did not identify any manner of 
delivery necessary to qualify for the immunity.  Section 381 
does not specify common carrier, contract or private carrier, 
or any other particular method of delivery.  In the absence of 
a qualification in the federal statute, the Department may not 
add conditions to, or otherwise limit, the protection offered 
by § 381.  See Comm'r of Revenue v. Kelly-Springfield Tire Co., 
643 N.E.2d 458, 461 (Mass. 1994).  Therefore, the Virginia 
Regulation violates the plain meaning of § 381 because it 
limits the conditions under which a company is entitled to 
immunity from state taxation.   
 
Accordingly, we will affirm the judgment of the trial 
court. 
 
Affirmed.