IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON^ on;;: IRWIN NATURALS, Appellant,

STATE OF WASHINGTON, DEPARTMENT OF REVENUE, Respondent. No. 73966-2-1 DIVISION ONE UNPUBLISHED OPINION V?

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Spearman, J. — Irwin Naturals (Irwin) is a California company that sells wholesale and retail nutritional supplements to Washington consumers. Irwin 

### disputes the Department ofRevenue's (DOR) assessment of a Business and 

### Occupation (B &0) and Retail Sales Tax (sales tax) on its retail sales in the State 

### of Washington for the periodfrom 2002 through2009.1 Irwin paid the tax and brought an action to refund the amount paid, claiming thatthe tax violated the

commerce clause ofthe United States Constitution because the retail sales were dissociated from its in-state wholesale activities. The trial court disagreed and 

### granted summaryjudgment in DOR's favor. Irwin appeals. We affirm.

1 Irwin does not contest the taxes assessed on its wholesale sales.No. 73966-2-1/2
FACTS Irwin Naturals is a corporation with its principal place ofbusiness in Los Angeles, California. Irwin is inthe business of developing, marketing, and selling retail and wholesale nutritional products. From 2002 through 2009, Irwin made wholesale sales to retailers and distributors inWashington. During this time, Irwin invested considerable resources into its store presence inWashington. Senior company employees spent a considerable amount oftime inthe state. They participated in new item presentation, category review, promotional planning, educating sales staffand trade show exhibitions. Irwin also engaged four marketing firms to aid in marketing its products inWashington. The firms 

### engaged in a wide variety ofactivities with Irwin's wholesale customers, such as 

### soliciting sales, receiving productorders, attending retailer shows on Irwin's behalfand acting as an intermediary with Irwin's retailers on promotional 

### programs and otherbusiness matters. Irwin'sproducts are available at Washington health food stores, as well as numerous well-known grocery, drug, and convenience store chains. According to one of its sales representatives, "people know the Irwin name." Clerk's Papers (CP) at 118. 

### Irwin began making retail sales to Washington residents in 2004. It characterizes its operations during the tax period as being divided into a "Retail Sales Channel" and a "Wholesale Sales Channel. BriefofAppellant at 2. 

### According to Irwin, the retail and wholesale sales operated completely independently ofeach otherduring the period from2004 through 2009. IrwinNo. 73966-2-1/3 handled all ofthe wholesale advertising and promotion in-house, along with the shipment oforders, the collection ofpayments, and the inquiries from its wholesale customers. Irwin sold wholesale products under the brands "Irwin Naturals," "Nature's Secret" and "Applied Nutrition" from 2002 through 2006. CP

at 193.All ofthe products sold inWashington stores listed Irwin's phone number and/or email address and website address. The website provided information about IrwinNaturals' product line and how to obtain product samples. During that 

### period, consumers were not permitted to place online orders. It is undisputed that Irwinreceived phone inquiries from individuals who had purchased Irwinproducts from its wholesale customers. However, when it received these calls, Irwin directed the callers back to the retailer. 

### Irwin'sstrategy fordeveloping retail sales was to offerparticular products for sale through infomercials. Once the retail sales ofthose products peaked, Irwin planned to offer the same products to its established retailers and 

### distributors, withthe goal of maximizing revenue from both retail and wholesale sales. From 2004 through 2009, Irwin's retail sales used third party companies 

### for its advertising and promotion, solicitation and taking ofconsumer orders, 

### assembly and shipment, collection ofconsumerpayments, and customerservice inquiries. 

### In2004, Irwin implemented its retail strategywith its Dual Action Cleanse 

### product, underthe brand "CellularResearch" Formulas. Itmarketed the productNo. 73966-2-1/4 directly to Washington consumers through infomercials. CP at47-48. Annual retail sales of Dual Action Cleanse peakedjust short of $2 milliondollars in2006. As planned, Irwin made the product available to its retailers who advertised the productthrough "As Seen on TV"campaigns at a much lower price. Butthe market did not immediately shift from retail sales to wholesale sales. In2007 and 2008, Irwin's retail sales far exceeded those ofits retailers. Irwin's annual retail
revenues were approximately $1.3 millionand $820,000 respectively and its annual wholesales revenues were approximately $45,000 and $91,000, respectively. By2009, Irwin's annual revenue was stillcomparable to that of its retailers, approximately $635,000 and $693,000, respectively. From 2002 through 2009, Irwin earned approximately $10 million ingross
revenue from wholesale sales. From 2004 through 2009, Irwin earned 

### approximately $5 million ingross revenue on its retail sales. DOR audited Irwin's records and issued assessments for unpaid business and occupation, retail sales, and littertaxes for 2002 through 2008. Although Irwindisputed the amount assessed on it retail sales, itpaid the assessment under protest along with 

### penalties and interest. Irwin filed this action seeking a refund for the disputed

amount under RCW 82.32.180. 

### The parties filed cross-motions forsummaryjudgment. The trial court 

### rejected Irwin's argumentthat the tax violated the commerce clause and granted DOR's motion. It concluded that because Irwin's retail sales had a substantialNo. 73966-2-1/5

nexus to Washington, the revenues from those sales were properly subjectto the State's B&O and sales tax. Irwin appeals. DISCUSSION We review a decision granting summaryjudgment de novo, engaging in the same inquiry as the trial court and viewing the facts and inferences inthe lightmostfavorable to the non-moving party. Lamtec Corp. v. Dep't. ofRevenue, 151 Wn. App. 451, 456, 215 P.3d 968 (2009). Summaryjudgment is properwhen there are no genuine issues ofmaterial fact and the moving party is entitled to judgment as a matter of law. Id. The parties agree thatthere are no genuine issues of material fact; Irwin contends that the trial court should have granted summaryjudgment in its favor. Irwinclaims that its retail sales are separate and distinct from its wholesale activities inWashington. As a result, itcontends thatthe commerce 

### clause prohibitsWashington from imposing eitherthe B&O tax or an obligation to collect a sales tax.2 Insupport of its argument concerning the B&O tax, Irwin 

### relies primarily on Norton Co. v. Dep't ofRevenue, State ofIII., 340 U.S. 534, 71 S.Ct 377, 95 L.Ed 517 (1951). That case held that an interstate sellerwho

2The issue in this case concerns what is frequently referred to as the "dormant" or "negative"commerce clause. As explained inQuill Corp. v. North Dakota by and through Heitkamp, 504 U.S. 298, 309,112 S.Ct. 1904, 119 L.Ed.2d 91 (1992), "the Commerce Clause is more than an affirmativegrantof power; ithas a negative sweep as well. The Clause ... 'by its own force' prohibits certain state actions that interferewith interstate commerce" (quoting South Carolina State Highway Dep't v. Barnwell Brothers. Inc.. 303 U.S. 177, 185, 58 S.Ct. 510, 82 L.Ed.734(1938). All references to the commerce clause in this opinion pertain to this aspectof commerce clausejurisprudence.No. 73966-2-1/6 

### engages inactivities within a state can still avoid taxation on some in-state sales by showing that particulartransactions are dissociated from the local business and solely interstate in nature. Id. at 537. As to the use tax, Irwin concedes Nat'l Geographic Soc. v. Cal. Bd. of Equalization, 430 U.S. 551, 97 S.Ct 1386, 51 

### L.Ed.2d 631 (1977), "held thatthe taxpayer was not permitted to dissociate its mail order sales for sales and use tax purposes." Brief ofAppellant at 23. But it contends that recent U.S. Supreme Court cases interpreting the commerce 

### clause, particularly Complete Auto Transit, Inc. v. Brady, 430 U.S. 374, 97 S.Ct. 1076, 51 LEd.2d 326 (1977) and Quill Corp. 504 U.S. 298, have "diminished, if 

### not tacitlyoverruled, the holding in National Geographic" and "ma[de] clearthat dissociation applies to all tax types." Br. ofAppellant at 23; 28. 

### DOR takes the opposite view. Itcontends thatdissociation is no longer a viable means for an interstate sellerto avoid a tax imposed by a state with which ithas a substantial nexus. As to the sales tax, DOR relies primarily on National Geographic and notes Irwin's concession "that National Geographic, if still good 

### law, forecloses its argument." Brief ofRespondent at 17. But DOR also concedes, as itmust, that National Geographic does not expressly apply to a 

### B&O tax. Nonetheless, DOR argues that Irwin's reliance on Norton to contest 

### that tax, is misplaced. According to DOR, Norton's precedential vitality has been undermined by more recent U.S. Supreme Court cases, specifically, Gen. Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964)) and Tyler Pipe Indus., Inc. v. Wash. Dep't of Revenue, 483 U.S. 232, 107 S.Ct. 2810,No. 73966-2-1/7 97 L.Ed.2d 199 (1987) (which overruled Gen. Motors on other grounds). Italso cites a recent decision by Division Two ofthis court which rejected an interstate seller's reliance on dissociation to contest B&Otax liability.Avnet v. State, Dep't of Revenue, 187 Wn. App. 427, 348 P.3d 1273 (2015), review granted. 184 Wn.2d 1026, 364 P.3d 120 (2016). We conclude that an out-of-state corporation is not subjectto a state tax if itcan prove the sales or activity in question does not have a substantial nexus to the taxing state. For purposes of a sales tax, a substantial nexus exists ifthe 

### corporation has a presence inthe taxing state. For purposes of a B&O tax, a substantial nexus exists ifthe corporation's in-state activity aids inestablishing or maintaining a market within the taxing state. We further conclude, for the reasons explained below, that Irwin has not proved that itdoes not have a substantial


### nexus withWashington and accordingly, it is liable for both taxes on its retail sales inWashington. We first address Irwin's liability for the sales tax. We begin with a discussion ofthe two cases upon which the parties principally rely. In Norton, 340 U.S. at 535, a Massachusetts corporation, sold machines 

### and supplies in Illinois through an in-state office and warehouse inChicago. But the record appeared to show that some sales occurred directly between a customer and the home office in Massachusetts without any intervention by the 

### Chicago office. Inthese instances orders were sent bythe customerdirectly to the home office which, inturn, sentthe purchased product directly to theNo. 73966-2-1/8 customer. Jd. at 539. Even though the Illinois tax statute specifically exempted "business in interstate commerce" as required by the commerce clause ofthe U.S. Constitution, the state collected a B&O tax on these direct sales as well as those that went through Norton's Chicago facilities, id. at 535-36. The Illinois Supreme Court affirmed the lower court's finding that the tax
was validly imposed even though, as the Norton court observed, itacknowledged that "'there could be no tax on solicitation of orders only' in the State." jd. at 537 (quoting Norton Co. v. Dep't of Revenue, 405 III. 314, 320, 90 N.E.2d 737 (1950)). The Illinois court concluded that "the presence of [Norton's] local retail outlet, in the circumstances ofthis case, was sufficientto attribute all income derived from Illinois sales to that outlet and render it all taxable." Id. The Norton court explicitly rejected this reasoning because a B&O tax is a directtax that "falls on the vendor." jd. The court concluded that the presence of a local office in 

### the state was, by itself, insufficient to supportthe imposition of a B&O tax on transactions that did not involve the local office in any way. The court stated: Where a corporation chooses to stay at home in all respects except to send abroad advertising or drummers to solicit orders which are 

### sent directly to the home office for acceptance, filling, and delivery back to the buyer, it is obvious thatthe State ofthe buyer has no 

### local grip on the seller. Unless some local incident occurs sufficient to bring the transaction within its taxing power, the vendor is not taxable. 

### IdL, (citing McLeod v. J.E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304(1944)).

8No. 73966-2-1/9 

### The court expressly limited its holding to a tax like a B&O tax, because it is imposed directly on the vendor. It did not express an opinion on whether inthe

case of a sales or use tax, the mere presence of a local office was sufficientto bring the vendor within the state's taxing power. The courtdid note, however, thatthe state's burden ofestablishing its right to impose a tax was "more easily" met in that context, "because the impact ofthose taxes is on the local buyer or user." Id. Thus, for B&O taxes, the court concluded that a corporation "can avoid taxation on some Illinoissales only by showing that particulartransactions are dissociated from the local business and interstate in nature." jd. But it left for 

### anotherday the showing necessary to dissociate inthe case of a sales or use

tax. 

### The opportunity to address that issue arose in Nat'lGeographic, 430 U.S. 551. There, the National Geographic Society, a District ofColumbia (D.C.) 

### corporation, maintained two offices in California that solicited advertising copy for the Society's monthly magazine. The California offices performed no activities related to the Society's operation of a mailorder business for the sale of maps, 

### atlases, globes, and books from its offices inD.C. Orders forthese items were 

### solicited by inserts in magazines or other announcements mailed to subscribers and Society members. Orders and payments were sent directly to the Society's D.C. headquarters. Purchased items were mailed directly to the consumerfrom the Society's D.C. or Maryland offices.No. 73966-2-1/10 California law required retailers "'engaged in business in this state and 

### making sales oftangible personal property for storage, use, or otherconsumption in this state' to collectfrom the purchaser a use tax in lieu of a sales tax imposed 

### upon local retailers." Nat'lGeographic, 430 U.S. at 553, (quoting California Rev. 

### &Tax Code § 6203 (West Sup. 1976)). The retailer is liable for the full amount of the tax whether collected or not. jd. The California Supreme Court held that the 

### Society was liable for the tax and the U.S. Supreme Court accepted its appeal. As framed byJustice Brennan, the question before the court was "whether the Society's activities at the offices in California provided sufficient nexus between the out-of-state seller appellant and the State as required bythe Due Process Clause ofthe Fourteenth Amendment and the Commerce Clause to 

### support the imposition upon the Society of a use-tax-collection liability. ..." Id. at
554. 

### The Society argued that to impose use-tax-collection liability "there must exist a nexus or relationship not only between the seller and the taxing State, but 

### also between the activity of the seller soughtto be taxed and the seller's activity within the State." Id, at 560. Itmaintained that because its mailorder sales were 

### separate and distinctfrom the activities of itstwo in-stateoffices which involved onlysoliciting advertising copy, the requisite nexus or relationship was not 

### present. The Courtdisagreed. Itconcluded thatwhile a transactional nexus may be necessaryto sustain a direct tax, like that at issue in Norton, "such dissociation does not bar the imposition of the use-tax-collection duty."jd. Itwas

10No. 73966-2-1/11 sufficientthat the Society had a "substantial presence" inthe state, which included two offices that solicited approximately $1 milliondollars ofbusiness annually, jd. at 556. The court held that, the relevant constitutional test to establish the requisite nexus for 

### requiring an out-of-state sellerto collect and pay the use tax is not whetherthe duty to collectthe use tax relates to the seller's activities carried on within the State, but simply whetherthe facts demonstrate some definite link, some minimum connection, between 'the State and the person ... itseeks to tax.' 

### id, at 561, (quoting Miller Bros, v. Maryland, 347 U.S. 340, 344-345, 74 S.Ct. 535, 98 L.Ed. 744 (1954)). 

### In light of this holding, DOR relies heavily on National Geographic to 

### support its claim that Irwin is liable for the sales tax obligation at issue here. Irwin contends however, thatthe decision is not controlling. Itclaims the decision may 

### be disregarded as "an anachronistic landmark" in the evolution of the Court's
commerce clausejurisprudence. Reply Br. of Appellant at 10. 

### Irwin argues that NationalGeographic's commerce clause analysis fails to 

### distinguish between the nexus necessary to satisfy the due process clause and that necessary to satisfy the commerce clause. It argues that the analysis conflates the issues and thus, fails to explicitly address commerce clause


### concerns regarding the free flow of commerce between the states. Instead, its conclusion that sufficient nexus was established by "some minimum connection, 

### between 'the State and the person ... itseeks to tax'" actually addressed only 

### due process concerns with notice and fundamental fairness. National

11No. 73966-2-1/12 

### Geographic, 430 U.S. at 561, (quoting Miller Bros., 347 U.S. at 344-45). Forthat 

### reason, according to Irwin, the case does not control here. Irwin cites Quill Corp., 504 U.S. 298, in support ofthis argument. Quillwas a Delaware corporation with offices in several states, but it 

### owned no property in North Dakota nor did any of its employees work or reside there. Quill solicited customers for its office equipment and supply business 

### catalogs, flyers, advertisements in national periodical and phone calls. It earned about $1 million dollars annually from approximately 3000 customers in North Dakota. Quill delivered all of its merchandise to its North Dakota customers by mail or common carrier from out-of-state locations. When Quill failed to collect a
use tax from its customers, North Dakota sued, seeking an orderdirecting Quill 

### to collect and pay the tax. Quill disputed the state's claim, arguing that underthe 

### due process and commerce clauses of the U.S. Constitution, North Dakotadid not have the power to compel itto collect the tax. After the North Dakota 

### Supreme Court rejected Quill's arguments on both grounds, the U.S. Supreme Court accepted its appeal. The Quillcourtfirst observed that although due process and commerce 

### clause claims are closely related, each poses "distinctlimits on the taxing powers of the States. Accordingly, while a State may, consistentwith the Due Process Clause, have the authority to tax a particulartaxpayer, imposition of the tax may nonetheless violate the Commerce Clause." jd, at 305 (citing Tyler Pipe Indus., 483 U.S. 232).

12No. 73966-2-1/13 Due process centrally concerns the fundamental fairness of governmental activity. Thus, at the most general level, the due process nexus analysis requires that we ask whether an individual's connections with a State are substantial enough to 

### legitimate the State's exercise ofpower over him. We have, therefore, often identified 'notice' or 'fair warning' as the analytic touchstone ofdue process nexus analysis. Incontrast, the Commerce Clause and its nexus requirement are informed not so much by concerns aboutfairness for the individual defendant as by structural concerns aboutthe effects ofstate regulation on the national economy. 

### Id, at 312. These fundamental fairness concerns are metwhere there is "'some definite link, some minimum connection, between a state and the person, 

### property ortransaction itseeks to tax[.]'" Id, at 306 (quoting Miller Bros., 347 U.S. at 344-45). 

### Caselaw prior to Quillhad utilized a bright linetestto determine whether 

### the due process minimum connection was established in the case of a use tax. 

### Regardless of other factors, iftheforeign corporation engaged in some form of activity within the taxing state, such as the presence ofsales personnel or maintenance of local retail stores, due process was satisfied. Id, (citing Scripto, Inc. v. Carson, 362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660 (1960). If not, imposing 

### the duty to collectthe tax was unconstitutional, id, (citing National Bellas Hess, Inc. v. Dep't of Revenue ofIII., 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 

### (1967))(overruled byQuill only as to the due process clause analysis). Quill noted, however, that inthe 25 years since Bellas Hess, due process 

### jurisprudence had evolved substantially:

13No. 73966-2-1/14 [W]e have abandoned more formalistic tests thatfocused on a defendant's 'presence' within a State infavor of a more flexible 

### inquiry into whether a defendant's contacts withthe forum made itreasonable, in the context of ourfederal system of Government, to require it to defend the suit inthat State. id, at 307. Accordingly, the court overruled those cases applying a presence/non

### presence bright-line test, id, at 308. Instead, the court held that due process is 

### satisfied if"a foreign corporation purposefully avails itself of the benefits of an economic market in the forum State." Id, at 307. Because itwas beyond question that Quill had done so in North Dakota, imposition ofthe duty to collectthe use tax did not offend the due process clause, id, at 308. The Quill court then turned to the nexus necessary underthe commerce 

### clause. Itnoted thatthe commerce clausejurisprudence had likewise trended 

### away from formalism and bright-line tests. The court cited Complete Auto, 430 U.S. 374, as a case which "emphasized the importance of looking past 'the 

### formal language of the tax statute [to] its practicaleffect." Id, at 310 (quoting Complete Auto, 430 U.S. at 279). Instead, the court in that case setout a flexible 

### four-parttest togovern thevalidity of state taxes under the commerce clause. A tax will be sustained against a commerce clause challenge so long as it "is 

### applied to an activity with a substantial nexus with the taxing State, isfairly apportioned, does notdiscriminate against interstate commerce, and isfairly related to the services provided bythe State." Complete Auto, 430 U.S. at 279. At first blush, Quill appears to support Irwin'sargument that National 

### Geographic is no longer good law. Quill makes clearthat the nexus requirements

14No. 73966-2-1/15 

### ofthe due process clause and the commerce clause are not identical. The court expressly disagreed with North Dakota's assertion that the nexus requirements imposed by the Due Process and Commerce Clauses are equivalent and that if, as we concluded above, a mail-order house that lacks a physical presence inthe 

### taxing State nonetheless satisfies the due process 'minimum contacts' test, then that corporation also meets the Commerce Clause 'substantial nexus' test. 

### Id, at 312. Quill establishes that the propertest is setforth inComplete Auto and thatforthe first factor, which the parties agree is the onlyfactor at issue in this 

### case, the issue is whetherthe tax is being applied to an activity with a substantial

nexus with the taxing state. 

### But in determining what constitutes a substantial nexus underthe


### commerce clause forpurposes of a sales or use tax, Quill did not reject National Geographic in its entirety. Instead, the courtembraced "'the sharp distinction
... between mail-order sellers with [a physical presence in the taxing] State and those
... who do no more than communicate with customers in the State by mail 

### or common carrier as part of a general interstate business'" as a basis for 

### determining when a state could properly impose a use taxcollection obligation. Id, at311 (quoting National Geographic, 430 U.S. at559). In otherwords, the determinative factor in National Geographic, thatthe Society had a substantial 

### presencein California, continuedto be thedeterminativefactor underQuill. The Quill courtexplicitly acknowledged that forpurposes of its commerce clause 

### analysis ofthe use taxcollection obligation itwas adopting the same bright-line

15No. 73966-2-1/16 test ofNational Geographic and Bellas Hess, that itrejected in its due process analysis. 

### The court also recognized that retaining the bright-line test inthe use tax contextwent againstthe trend ofeschewing formalistic, inflexible rules, but observed that "not all formalism is alike." Quill 504 U.S. at 314. The court concluded that a bright-line demarcating when a state could impose a use tax 

### obligation was consistentwithfundamental commerce clause concerns aboutthe effects of state regulation on the national economy. 

### Like other bright-linetests, the Bellas Hess rule appears artificial at its 

### edges: Whetheror not a State may compel a vendor to collect a sales or use tax may turn on the presence in the taxing State of a small sales 

### force, plant, oroffice. CI NationalGeographic Society v. California Bd. of Egualization, 430 U.S. 551, 97 S.Ct. 1386, 51 L.Ed.2d 631 (1977); Scripto, Inc. v. Carson, 362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660 (1960). This 

### artificiality, however, is more than offset by the benefits of a clear rule. Such a rulefirmly establishes the boundaries of legitimate state authority 

### to impose a duty to collectsales and use taxes and reduces litigation concerning those taxes. . . . 

### Moreover, a bright-line rule in the area ofsales and use taxes also 

### encourages settled expectations and, in doing so, fosters investment by businesses and individuals. Indeed, it is not unlikely thatthe mail-order 

### industry's dramatic growth over the last quartercentury is due in part to 

### the bright-line exemptionfrom statetaxationcreated in Bellas Hess. Id, at 315-16. 

### Because it is undisputed that Irwin has a substantial physical presence in 

### Washington, we conclude that the commerce clause does notprohibitthe state from imposing onIrwin an obligation tocollectthe sales tax and because itis conceded that Irwin failed to do so, the state may properly assess against it the obligation to pay the amount due.

16No. 73966-2-1/17 We turn next to the assessment ofthe B&Otax against Irwin. The parties 

### agree that resolution ofthe issue turns on whether, as to its retail sales, Irwin has
a substantial nexus withWashington. The dispute concerns whetherthe issue of "transactional nexus" is essential to establishing a substantial nexus. According 

### to Irwin, "[i]fa transactional (sic) or activity does not have a transactional nexus with a state, the taxpayerwill have succeeded indissociating the disputed 

### transaction or activities[,]"thereby disproving the existence of a substantial
nexus. Br. of Appellant at 8, n.1. Irwin concedes that itswholesale activities have
a transactional nexus withWashington but argues that its retail sales do not. This is so, itcontends, because its retail sales and wholesale sales were completely 

### independent ofeach other during the tax period. DOR, on the other hand, contends that under modern commerce clause 

### jurisprudence, establishing atransactional nexus is not essential tofinding a substantial nexus. It argues "[t]hereneed not be a direct connection between Irwin'sin-state activities and particular sales to impose business and occupation 

### tax." Br. ofRespondent at 29. Relying primarily onAvnet, DOR argues it isonly 

### necessary that "Irwin's in-stateactivities weresignificantin establishing and maintaining a market for its goods in this state." Br. ofRespondent at 29. Whether an out-of-state company has substantial nexus withWashington 

### is a question oflaw reviewed de novo. SpaceAge Fuels, Inc. v. State, 178Wn. 

### App. 756, 762, 315P.3d604(2013). Taxes are presumedvalid andit iswell settled that the taxpayercarries the heavy burden ofestablishing that no

17No. 73966-2-1/18 

### substantial nexus exists. Accordingly, here, the burden is on Irwin to establish it is exemptfrom the disputed B&Otax assessment. 

### Irwin relies primarily on Norton and B.F. Goodrich Co. v. State, 38 Wn.2d 663, 231 P.2d 325 (1951), a case decided by our state supreme court a few months after Norton. As in Norton, B.F. Goodrich did substantial business within 

### the taxing state. Atissue was whether some of B.F. Goodrich's interstate sales
were subject to the B&O tax. The court acknowledged that under Norton even "where a corporation has gone into a state to do local business by state 

### permission, and has set up an office which performs service helpful to its 

### competition for localtrade ... this ... does not prevent it being tax-free with respectto sales separate and distinct from its localbusiness." jd, at 672. The critical issue was whetherthe services rendered by the B.F. Goodrich's 

### Washington offices were "decisivefactors in establishing and holding" the Washington market. Id,To establish that certain interstate sales are "separate and distinct," the taxpayer has to show that itdoes not "channel business through a localoutlet. ..." id, at 673. In other words, the state may not tax "the 

### proceeds from sales with which the local outlet hadnothing todo." id, at 675. Applying this test to the facts ofthe case beforeit, the B.F. Goodrich court concluded that the tax was impermissible as to those sales which arose from an 

### order sent directlyfrom a Washington customer to an out-of-state B.F. Goodrich office, which was filled and shipped directly to the customerfrom an out-of-state 

### office, id, at 673. But interstate sales which were connected to aWashington

18No. 73966-2-1/19 office in anyway, even if only to approve or deny creditfor the Washington customer, fell within the state's taxing authority. Irwincontends that, like Norton, B.F. Goodrich is still good law and controls the outcome here. According to Irwin, its wholesale activities "had nothing to do" with its retail sales, thus, the proceeds from the latter are beyond the reach ofWashington's taxing authority. In response, DOR cites Avnet for the proposition that the foundation supporting Norton and B.F. Goodrich "ha[s] been eroded by subsequent precedent." Avnet, 187 Wn. App. at 445. Itargues that the modern test for substantial nexus is whetherthe bundle of corporate activity "carried on within the state supported the taxpayer's ability to establish and hold a marketfor its in state sales." Br. ofRespondent at 24. According to it, "[n]odirect connection 

### between Irwin'sWashington activities and retail sales is required" to establish a sufficient nexus to lawfully impose a B&Otax. id. In Avnet, the company had a Washington office that engaged in building 

### and maintaining its worldwide market. Employees at that office serviced accounts, developed and implemented new marketing programs, recruited new customers, and offered extensive engineering support. Avnet soughtto 

### dissociate twocategories ofsales, only one ofwhich is relevant here.3In its

3Avnet's "drop-shipped" sales involveout-of-state customers placing orders with an outof-state office but directing Avnet to ship the products directly to a third party in Washington. Avnet, 187 Wn. App. at 432. This scenario is not at issue in this case.
19No. 73966-2-1/20 "national sales," Avnet customers placed orders from a location outside of 

### Washington with an Avnet officealso located outside the state, but received the orders at a Washington location. 

### The Avnet court rejected the argumentthat Norton and B.F. Goodrich controlled. It firstexpressed the view that "the United States Supreme Court has 

### explicitly removed at leasttwo of Norton's chief doctrinal underpinnings." Avnet, 187 Wn. App. at 446. The court cited Scripto, 362 U.S. 207, as rejecting the idea expressed in Norton, that mere lack of an interstate vendor's presence in a state

was sufficient to insulate sales in that state from a tax. It also cited Complete 

### Auto as rejecting the then prevailing concept that interstate commerce was 

### immune from state taxation, a proposition upon which Norton relied. Instead, the court viewed later cases such as Gen. Motors Corp. and Tyler Pipe Indus., Inc.


### as demonstrating "aprogressive broadening of the types of activities that may establish substantial nexus forpurposes ofstate taxation ofinterstate 

### commerce."jdL at 447. Relying on those cases, butparticularly onTylerPipe, the court concluded thatAvnet was liable for the B&O tax on all of its Washington 

### sales because Avnet's marketing activities in Washington "all served the creation and maintenance ofAvnet's market inWashington, as wellas other locations." id, at 448. 

### In Tyler Pipe, the company sold goods inWashington that were manufactured outside ofthe state. Itmaintained no office, owned no property, 

### and had no employees residing in the state. TylerPipesolicited business in

20No. 73966-2-1/21 Washington through executives whose offices were located out-of-state and by a firm, retained as an independent contractor, located in Seattle. The trial court upheld the constitutionality ofWashington's B&O tax against Tyler Pipe's
commerce clause challenge, concluding thatthe state had sufficient nexus to tax the company. The trial courtfound that the firm engaged in substantial activities that helped Tyler Pipe to establish and maintain its market inWashington. On appeal to our state supreme court, the firm's activities, as found by the trial court, were summarized as follows: The sales representatives acted daily on behalfofTyler Pipe in calling on its customers and soliciting orders. They have longestablished and valuable relationships with Tyler Pipe's customers. Through sales contacts, the representatives maintain and improve the name recognition, market share, goodwill, and individual customer relations ofTyler Pipe. 

### Tyler Pipe sells in a very competitive market inWashington. The sales representatives provide Tyler Pipe with virtually all their information regarding the Washington market, including: product performance; competing products; pricing, market conditions and trends; existing and upcoming construction products; customer 

### financial liability; and other critical information of a local nature concerning Tyler Pipe's Washington market. The sales 

### representatives inWashington have helped Tyler Pipe and have a special relationship to that corporation. The activities of Tyler Pipe's agents inWashington have been substantial. Tyler Pipe v. Dep't of Revenue, 105 Wn.2d 318, 325, 715 P.2d 123 (1986). 

### Despitethese extensive activities in support of its Washington market, Tyler Pipe argued, as Irwin does here, that any receipts "from sales oforders placed directly to itfrom itsWashington customers should be exempted fromWashington's B&O tax." id, at 36. Our supreme court rejected the argument. The court determined

21No. 73966-2-1/22 that "the crucial factor governing nexus is whether the activities performed inthis state on behalfofthe taxpayer are significantly associated with the taxpayer's ability to establish and maintain a market in this state for the sales." id, at 323. It concluded this standard was satisfied because Tyler Pipe's "sales representatives perform any local activities necessary for maintenance ofTyler Pipe's market and protection of its interests...." id, at 321. The U.S. Supreme Court affirmed. It"agree[d] that the activities ofTyler's sales representatives adequately supportthe State'sjurisdiction to impose its wholesale tax on Tyler." Tyler Pipe. 483 U.S. at 251. We agree with Avnet, that Tyler Pipe controls the analysis ofwhether a substantial nexus exists. Tyler Pipe, makes two things clear. First, for businesses with a presence inthe taxing state, the fact that orders are received and filled out-of-state for delivery within the taxing state does not, by itself, immunize the sales from a B&O tax. And second, the activities that form the nexus with the 

### taxing state need not be tied to specific sales, but instead need only generally 

### supportthe out-of-state vendor's ability to establish and maintain a marketfor its goods in the taxing state. Applyingthose concepts to this case, it is evidentthat the requisite nexus exists to supportWashington's imposition of the B&O tax on all of Irwin's retail sales. Irwin's wholesale and retail sales each involved nutritional products. When 

### Irwin started selling retail products to Washington consumers, it had already had invested considerable resources into its store presence inWashington. Senior

22No. 73966-2-1/23 company employees had spent considerable amounts oftime inWashington during the tax period at issue. They participated in new item presentation, category review, promotional planning, educating sales staffand trade show exhibitions. Irwinalso engaged four marketing firms to aid in marketing its products inWashington. The firms engaged in a wide variety of activities with Irwin's wholesale customers, such as receiving product orders, attending retailer shows on Irwin's behalfand acting as an intermediary with Irwin's retailers on promotional programs and other business matter. As a result ofthese activities, Irwinbecame very familiar with Washington nutritional products market. Itknew what types ofproducts sold best and for what prices. Likethe sales representatives in Tyler Pipe, Irwin gathered "virtually alltheir information 

### regarding the Washington market" through its extensive wholesale marketing and sales apparatus. Tyler Pipe, 105 Wn.2d at 325. Irwinclaims that the lack of brand overlap shows that the wholesale and 

### retail lines were unrelated. The argument is unpersuasive because itignores that the packaging for nearly every Irwin product sold at a Washington grocery or 

### drug store contained Irwin'sphone numberand/oremail address and website address. The website provided information about Irwin Naturals' product line and 

### how to obtain product samples. While it is likelythat these sales resulted in visits to Irwin's website, it is undisputed thatthe sales resulted inphone inquiries from individuals who had purchased Irwinproducts from its wholesale customers. 

### Irwin acknowledges receipt ofthe phone calls but points out thatthe callers were

23No. 73966-2-1/24
directed back to the retailer. But the issue is not whether these calls resulted in specific sales but instead whether itshows that Irwin's wholesale activities were creating a market for its retail sales. The phone calls resulting from its wholesale
sales show that it was. Finally, Irwin's own marketing strategy establishes the symbiotic relationship between its wholesale activities and retail sales, with each supporting the other. The admitted goal was "to maximize the revenue ofthe sale of 'Dual Action Cleanse' over its product life" by eventually switching the product from retail to wholesale sales. Br. ofAppellant at 14. Irwinclaims that because 

### the strategy "worked inthe opposite direction," i.e., utilized its retails sales to promote its wholesale market, there is no substantial nexus between Washington 

### and its retail sales. Reply Br. ofRespondent at 9. ButIrwin cites no authority that such a relationship between its in-state activities and interstate sales is insufficient to "adequately supportthe State'sjurisdiction to impose its wholesale tax." Tyler Pipe, 438 U. S. at 251. Moreover, the record shows that despite 

### making Dual ActionCleanse available to its retailers, Irwin continued to earn substantial revenue through its retail sales. Irwin cannot show thatthese sales

were unrelated to its wholesale activities. We conclude that Irwinhas not borne its burden ofshowing that itshould 

### be exemptfrom imposition ofWashington's sales and B&O taxes on all of it retail

24No. 73966-2-1/25 sales for the alleged tax period. The trial court did not err in granting summary 

### judgment in favor ofDOR.4 Affirmed.

WE CONCUR: 

## Q>e cir^p^- Q

4Irwin argues that regardless ofthemerits of itsconstitutional claim, theformerWAC 458-20-193 (2010) provides an additional basis for dissociation in addition to thecommon law issues of nexus. We disagree. Theregulation, known as "Rule 193," set forth DOR's view of the parameters forWashington's B&O tax. Undertherule, aB&Otax isnotassessed on sales of goodswhich originate outsidethis state unless the goods werereceived by the purchaserin this state and the seller had nexus. Ifa seller "carries on significant activity in this state and conducts no other business in the state exceptthe business of making sales, this person has the distinct burden ofestablishing that the instateactivities are notsignificantly associated in any waywith the sales into the state." FormerWAC458-20-193(7)(c). Because we conclude that Irwin has failed to carry this burden, it is not entitled to relief under the rule.

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