Court Opinion

ID: 9698371
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:48:45.841395+00
Date Added: 2024-06-11T12:29:57.694128
License: Public Domain

ROBERTS, Justice,
dissenting.
Through an unjustified interpretation of a federal statute, the majority allows appellant, United States Tobacco Co., to escape taxation on income unquestionably earned through its activities in Pennsylvania. In reaching this conclusion, the majority overlooks a controlling decision of the United States Supreme Court, Clairol, Inc. v. Kingsley, 402 U.S. 902, 91 S.Ct. 1337, 28 L.Ed.2d 643 (1971), dismissing for want of a substantial federal question, 57 N.J. 199, 270 A.2d 702 (per curiam), aff’g 109 N.J.Super. 22, 262 A.2d 213 (1970). Today’s result will allow foreign corporations with income fairly attributable to activities in Pennsylvania to escape Pennsylvania taxation, thus placing a heavy and unfair burden upon domestic taxpayers, both corporate and individual. I dissent.
*143The facts are not in dispute. Appellant, a New Jersey corporation, manufactures and sells tobacco products in interstate commerce, distributing its products to wholesalers in Pennsylvania, who then resell to retailers. Appellant’s links to wholesalers in Pennsylvania are “missionary representatives” who solicit orders, furnish appellant’s promotional materials, and sometimes take orders. These orders are processed and filled at appellant’s out-of-state offices.
The missionaries also visit retail outlets who sell tobacco products in Pennsylvania, encouraging retailers to make purchases of appellant’s products from wholesalers. They also hand out samples of new products repurchased by appellant from its wholesalers. Some of these samples are given gratis, in exchange for preferred display space in retail outlets. Other samples are sold to retailers at the price at which the missionary representatives purchased them from wholesalers. The representatives also, at their own discretion, rotate out retailers’ stale inventory by replacing it with fresh supplies the representatives carry with them, help set up retailers’ counter displays, and further promote new products of appellant. As the Assistant Division Manager of appellant for Pennsylvania testified, the missionaries’ “main function would be to create good will among the retail accounts throughout the territory and in the same token we are creating good will between United States Tobacco Company and the wholesale distributors,” and that a representative is “in general ... a good will ambassador for the Company.” About 5% of appellant’s retail product distributions in Pennsylvania were made directly by the missionary representatives.
In the absence of pre-emptive legislation, states have broad authority to regulate and tax commerce in ways that do not unduly burden it. Mr. Justice Blackmun, for an unanimous Court, stated:
“ ‘It is a truism that the mere act of carrying on business in interstate commerce does not exempt a corporation from state taxation. “It was not the purpose of the commerce clause to relieve those engaged in interstate *144commerce from their just share of state tax burden even though it increases the cost of doing business.” Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, 82 L.Ed. 823 (1938).’ Colonial Pipeline Co. v. Traigle, 421 U.S. at 108, 95 S.Ct., at 1543.”
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 288, 97 S.Ct. 1076, 1083 (1977), overruling Spector Motor Service v. O’Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (1951).
Congress requires the states to exempt from income taxation certain corporations doing business solely in interstate commerce:
“Minimum standards
(a) No State, or political subdivision thereof, shall have power to impose, for any taxable year ending after September 14, 1959, 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 during such taxable year are either, or both, of the following:
(1) the solicitation of orders by such person, or his representative, 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; and
(2) the solicitation of orders by such person, or his representative, in such 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).
In enacting Section 381, Congress intended to assure interstate corporations only that solicitation would not be subjected to state taxation. The Senate Report, 2 U.S.Code Cong. & Admin.News p. 2548 (86th Cong. 1st Sess. 1959), uses- strong language in noting that “solicitation,” and “no other business activities,” would qualify as a Section 381 *145exemption. Id. at 2554. The Report notes that many interstate businesses were less concerned with obtaining exemption for broad classes of activities than with being certain that there is some minimal level of activity within a state below which a corporation cannot be taxed. Id. at 2550. This concern was touched off by Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959). Portland Cement destabilized expectations of corporations whose selling techniques depended in part upon knowing which states could tax them and which could not. By removing the “travelling salesmen’s exemption” that interstate businesses had enjoyed since Robbins v. Shelby County Taxing District, 120 U.S. 489, 7 S.Ct. 592, 30 L.Ed. 694 (1887), the Court removed any such guidelines. Section 381 was designed to exclude from state taxation only mere solicitation.
Appellant’s missionary representatives perform marketing functions in Pennsylvania in addition to solicitation. They supervise retail marketing of appellant’s products by providing free samples to retailers to introduce new products to the market, strategically placing counter and store displays of appellant’s products, replacing stale goods on retailers’ shelves with fresh materials carried in cars furnished representatives by appellant and performing similar services. To ignore this business reality, in which retailers receive goods not from out-of-state after mere solicitation from appellant, but directly from appellant’s representatives in Pennsylvania, is to ignore the context in which Section 381 was passed and in which it must be interpreted.
On almost identical facts, the New Jersey courts held Clairol, Inc. taxable in New Jersey. Clairol, Inc. v. Kingsley, 109 N.J.Super. 22, 262 A.2d 213, aff’d, 57 N.J. 199, 270 A.2d 702 (1970) (solicitors performed other marketing duties such as rotating stock for freshness, setting up counter displays, etc.). The United States Supreme Court dismissed Clairol’s appeal for want of a substantial federal question. 402 U.S. 902, 91 S.Ct. 1337, 28 L.Ed.2d 643 (1971). Such a dismissal is a decision by the Supreme Court on the merits of the *146particular factual situation which the case presents. Hicks v. Miranda, 422 U.S. 332, 343-45, 95 S.Ct. 2281, 2289, 45 L.Ed.2d 223 (1975). Because I see no substantial difference from the facts in Clairol and the facts of the instant case, I believe that Clairol controls our interpretation of Section 381.* See also Zucht v. King, 260 U.S. 174, 43 S.Ct. 24, 67 L.Ed. 194 (1922) (appeal will be dismissed when state court decision on federal question is clearly correct).
My interpretation of the word “solicitation” is also consistent with the rule that Congress is presumed to respect state sovereignty and traditional state powers unless, and only to the extent, that it explicitly limits those powers. Employees of Department of Public Health and Welfare v. Missouri, 411 U.S. 279, 284-85, 93 S.Ct. 1614, 1618, 36 L.Ed.2d 251 (1973); 3 Sutherland, Statutory Interpretation § 62.01 at 64 n. 8 (Sands ed. 1974). We should thus interpret Section 381 to impose as few limitations upon the traditional state power to impose taxes as is consistent with the clear language of the section. Such a construction compels us to conclude that “solicitation” does not include appellant’s marketing techniques.
Because appellant’s representatives marketed and immediately distributed products in Pennsylvania, rather than *147merely solicited orders to be filled from out of state, 15 U.S.C. § 381 does not immunize appellant from taxation in Pennsylvania. I dissent.
EAGEN, C. J., joins in this dissenting opinion.

 Cases from other jurisdictions also support this distinction between mere solicitation and marketing. Two other states have explicitly construed “solicitation” to exclude even the incidentals of solicitation. Miles Laboratories v. Department of Revenue, 274 Or. 395, 546 P.2d 1081 (1976) (setting up counter displays, etc., not “solicitation”; particularly noteworthy because Oregon’s tax scheme allowed domestic taxpayers to escape from taxation of income earned out of state in states where it failed the § 381 test); Herff Jones Co. v. State Tax Comm’n, 247 Or. 404, 430 P.2d 998 (1967) (corporation held taxable where collection of funds was the only activity beyond solicitation); Hervey v. AMF Beaird, Inc., 250 Ark. 147, 464 S.W.2d 557 (1971). Contra, State ex rel. Ciba Pharmaceuticals, Inc. v. State Tax Comm'n, 382 S.W.2d 645 (Mo. 1964) (pre-Clairol) (incidentals of solicitation did not go beyond exemption of § 381). Similarly, those other cases granting exemptions under § 381 have involved corporations whose in-state activity did not go beyond narrow solicitation. Oklahoma Tax Comm’n v. Brown-Forman Distillers Corp., 420 P.2d 894 (Okl.1966) (stipulated facts); International Shoe Co. v. Cocreham, 246 La. 244, 164 So.2d 314 (1964), cert. denied, 379 U.S. 902, 85 S.Ct. 193 (1964).