Opinion ID: 1205408
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Heading: retailer doing business in kansas

Text: Article I,§ 8 of the United States Constitution states that Congress has the power to regulate Commerce with foreign Nations, and among the several States. The United States Supreme Court has recognized that the Commerce Clause does more than make an affirmative grant of power; it also prohibits certain State actions that interfere with interstate commerce. Quill Corp. v. North Dakota, 504 U.S. 298, 309, 119 L. Ed.2d 91, 112 S. Ct. 1904 (1992). Quill restated the four-part test used in evaluating the validity of state taxes under the Commerce Clause: [W]e will sustain a tax against a Commerce Clause challenge so long as the `tax [1] is applied to an activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.' [Citation omitted.] 504 U.S. at 311. In determining whether the Kansas compensating tax violates the Commerce Clause, the parties here argue only the substantial nexus requirement of the test. The parties agree that Scholastic is a retailer but disagree as to whether Scholastic is a retailer doing business in Kansas. Scholastic is a retailer doing business in Kansas if it has or maintains any agent or other representative operating within this state under the authority of the retailer. K.S.A. 1995 Supp. 79-3702(h)(1). Scholastic asserts that it has no agents in Kansas; therefore, there is no substantial nexus to Kansas. It argues that because it has no agents in Kansas there is no substantial nexus to Kansas requiring it to collect and remit the Kansas compensating tax. In finding that Scholastic was required to collect and remit the tax, BOTA addressed the question of agency and found that under the written agreement no express or implied agency relationship existed between Scholastic and the Kansas teachers. After rejecting the KDR's claim that an expressed or implied agency existed, BOTA determined that under the facts an apparent agency existed between Scholastic and the teachers, citing Kunz v. Lowden, 124 F.2d 911 (10th Cir. 1942). On appeal, the parties present different arguments with respect to this finding. Scholastic argues that the doctrine of apparent agency applies only to a third party who is induced by the parties to believe an agency exists and cannot be used as a pretext for finding that Scholastic is a retailer doing business in this state. As authority for this argument, Scholastic relies on Theis v. duPont, Glore Forgan Inc., 212 Kan. 301, 510 P.2d 1212 (1973), which discussed the doctrines of apparent agency and agency and set out the legal distinction between the two doctrines and the separate duties imposed by law. In that case the plaintiff, Theis, retained the defendant, duPont, a brokerage firm, for the purpose of trading in the commodities market. The duPont employee who handled Theis' account, Craig Benjamin, engaged in unauthorized transactions on Theis' account. Theis repeatedly told Benjamin not to do so, and after one such unauthorized transaction, Theis closed his account with duPont. Theis sued duPont for damages from the unauthorized transaction. duPont argued that Benjamin, its employee, had Theis' implied or apparent authority to engage in the transactions on Theis' account. 212 Kan. at 306. The Theis court first discussed the types of agency, observing: The law recognizes two distinct types of agencies, one actual and the other ostensible or apparent. The authority of an actual agent may be either express or implied. The distinctions between express, implied and apparent authority are explained in Greep v. Bruns, 160 Kan. 48, 159 P.2d 803 [(1945)], as follows: `The authority of an actual agent may be either express or implied. It is express if the one sought to be charged has delegated authority to the agent by words which expressly and directly authorize him to do a delegable act. It is implied if from statements of the parties, their conduct and other relevant circumstances it appears the intent of the parties was to create a relationship permitting the assumption of authority by an agent which when exercised by him would normally and naturally lead others to believe in and rely on his acts as those of the principal. `An ostensible or apparent agent is one whom the principal has intentionally or by want of ordinary care induced and permitted third persons to believe to be his agent even though no authority, either express or implied, has been conferred upon him.' (Syl. ¶¶ 4 and 5). 212 Kan. at 306. The Theis court then found the doctrine of apparent agency inapplicable under the facts, observing: The Greep case makes it clear the apparent authority doctrine has relevance only when a third party has dealt with an ostensible agent and then seeks to bind the principal to a transaction despite the fact that the agent had no actual authority to bind him. 212 Kan. at 306. It noted that Theis' contract was with duPont, though acting through Benjamin as the account executive, and duPont, as Benjamin's employer, did not occupy the position of stranger or third party to the agency contract. The court concluded that because there was no third party involved, there was no apparent agency. Similar principles of agency were stated in Mohr v. State Bank of Stanley, 241 Kan. 42. Loyd, the co-owner of two companies (Tri-County and Mohr-Loyd Leasing) deposited checks made out to the two companies into the bank account of a third company (Earthborn Energy) owned solely by Loyd. Tri-County and the other co-owner, Mohr, sought to recover the proceeds of the checks from the bank in which the checks were deposited. The bank contended that, as a matter of law, Loyd had implied or apparent authority to endorse and negotiate the checks. The Mohr court cited the principles of agency stated in Greep as well as other authorities discussing express and implied agency. In rejecting the claim that an apparent agency existed, the Mohr court stated: Apparent agency is based on intentional actions or words of the principal toward third parties which reasonably induce or permit third parties to believe that an agency relationship exists. In the case before us, there were no actions by Tri-County and no words expressed on its behalf to the State Bank of Stanley to induce or permit it to believe that Loyd was the agent of Tri-County and authorized to deposit corporate checks in his own personal business account.... We find no basis in the evidence for the existence of any apparent agency. 241 Kan. at 46. Both Mohr and Theis are instructive. Each points out that under the doctrine of apparent agency, the principal has conferred no authority, either express or implied, on the agent. Mohr, 241 Kan. 42, Syl. ¶ 4: Theis, 212 Kan. 301, Syl. ¶ 6. Further, both Mohr and Theis conclude that apparent agency rests on some action by the alleged agent toward a third party. Theis clearly states that the doctrine of apparent agency applies only when a third party has dealt with an apparent agent and that third party seeks to bind the principal to the transaction entered into by its apparent agent. Although an appellate court gives deference to the agency's interpretation of a statute, BOTA's determination of a question of law is not binding on an appellate court. Whether an apparent agency exists and if that agency relationship is sufficient for the KDR to assess a use tax on the gross receipts of Scholastic's sales in Kansas under the Kansas Compensating Tax Act are questions of law over which an appellate court's review is unlimited. K.S.A. 1995 Supp. 79-3702(h) states that a retailer is a [r]etailer doing business in this state if it has any agent or other representative operating within this state under the authority of the retailer. (Emphasis added.) Because the third party to the apparent agency relationship, the students, are not seeking to enforce the agency relationship, the doctrine of apparent agency has no application and is insufficient as a matter of law to bring a retailer within the scope of K.S.A. 1995 Supp. 79-3702(h). The KDR argues that Scholastic's statement in its written material that teachers are not its agents is ineffective because Scholastic receives and retains the benefits of the teachers who conduct the transactions on Scholastic's behalf. The KDR asserts that agency by ratification is established. See Scholastic Book Clubs, Inc. v. State Bd. of Equalization, 207 Cal. App.3d 734, 738, 255 Cal. Rptr. 77 (1989). Agency is a comprehensive term embracing an almost limitless number of relations between two or more persons or entities by which one party, usually called the agent or attorney, is authorized to do certain acts for, or in relation to rights or property of, the other, who is denominated the principal, constituent, or employer. The relationship of agency may be expressly created or arise by inference from the relation of the parties without proof of any express agreement, or may be created by law. Whether one is the agent of another for a specific purpose depends upon whether he or she has power to act with reference to the subject matter. To establish an agency relationship, there need be no evidence of authority to act if the party performs duties or creates benefits of which the other person avails himself or herself. Kunz, 124 F.2d at 913. While an express contract may create an agency relationship, conduct implying an agency relationship serves just as well. An implied agency may exist if it appears from the parties' words, conduct, or other circumstances that the principal intended to give the agent authority to act. Turner and Boisseau v. Marshall Adjusting, 775 F. Supp. 372, 378 (D. Kan. 1991). An implied agency relationship may exist notwithstanding either a denial of the agency by the alleged principal or a lack of mutual understanding of agency between the parties. 775 F. Supp. at 378; Moore v. Adkins, 2 Kan. App.2d 139, Syl. ¶ 7, 576 P.2d 245 (1978). First, we note that an implied agency may exist if it appears from a party's words, conduct, or other circumstances that the principal intended to give the agent authority to act. Second, that agency relationship may exist notwithstanding a denial by the alleged principal or whether the parties understood it to be an agency. We conclude that Kansas teachers are acting under Scholastic's authority once they undertake to sell the books to the students. By Scholastic's accepting orders and payments and shipping merchandise to teachers for distribution to the student purchasers, the Kansas teachers are the implied agents of Scholastic.