Court Opinion

ID: 8077353
Source: CourtListenerOpinion
Date Created: 2022-09-09 13:09:50.274639+00
Date Added: 2024-06-11T13:29:38.623818
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Online Merchants Guild,                     :
                 Petitioner                 :
                                            :
       v.                                   : No. 179 M.D. 2021
                                            :
C. Daniel Hassell, in his official          :
capacity as Secretary of Revenue,           :
Department of Revenue,                      :
                    Respondent              : Argued: June 22, 2022

BEFORE:       HONORABLE RENÉE COHN JUBELIRER, President Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge
              HONORABLE ANNE E. COVEY, Judge
              HONORABLE MICHAEL H. WOJCIK, Judge
              HONORABLE CHRISTINE FIZZANO CANNON, Judge
              HONORABLE ELLEN CEISLER, Judge
              HONORABLE LORI A. DUMAS, Judge

OPINION
BY JUDGE CEISLER                                            FILED: September 9, 2022

       Before this Court are cross-applications for summary relief filed by C. Daniel
Hassell, the Secretary of Revenue (Revenue), and the Online Merchants Guild
(Guild), a trade association comprised of online businesses that sell merchandise
through Amazon’s Fulfillment by Amazon (FBA) Program.1 The key issue before
this Court is whether non-Pennsylvania businesses that sell merchandise through
Amazon’s FBA Program must collect and remit Pennsylvania sales tax pursuant to

       1
         As described on Amazon’s website, the FBA Program is an Amazon service through
which “businesses outsource order fulfillment to Amazon. Businesses send products to Amazon
fulfillment centers and[,] when a customer makes a purchase, [Amazon will] pick, pack, and ship
the order. [Amazon] can also provide customer service and process returns for those orders.” See
https://sell.amazon.com/fulfillment-by-amazon?ld=seussoagoog-sitelink-fba2-D (last visited
September 8, 2022).
Section 237(b)(1) of the Tax Reform Code of 1971 (Tax Code),2 which provides that
“[e]very person maintaining a place of business” in the Commonwealth of
Pennsylvania (Commonwealth) must collect and remit Pennsylvania sales tax, or
pay personal income tax (PIT) pursuant to Section 302(b) of the Tax Code,3 which
imposes PIT at a rate of 3.75 % upon nonresidents for income derived “from sources
within this Commonwealth.”

      After careful review, we hold that Revenue has failed to provide sufficient
evidence that non-Pennsylvania businesses selling merchandise through the FBA
Program (FBA Merchants), and whose connections to the Commonwealth were only
shown to be limited to the storage of merchandise by Amazon in one of Amazon’s
Pennsylvania warehouses, have sufficient contacts with the Commonwealth such
that Revenue can mandate they collect and remit sales tax or pay PIT pursuant to
Sections 237(b)(1) and 302(b) of the Tax Code. Accordingly, we grant the Guild’s
cross-application for summary relief and deny the cross-application for summary
relief filed by Revenue.
                                         I. Background
      Before engaging in a recitation of the relevant facts in this matter, it is helpful
to first review the legal precedent governing when a state may exercise jurisdiction
over a nonresident business, as well as the pertinent provisions of the Tax Code.
                                          A. Case Law
      Whether a person or entity may be liable for taxes revolves around the well
established notion that the potentially liable party must have “minimum contacts”
with the forum jurisdiction. Wirth v. Commonwealth, 95 A.3d 822 (Pa. 2014). In

      2
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7237(b)(1).

      3
          Added by the Act of August 4, 1991, P.L. 97, 72 P.S. § 7302(b).

                                                2
Quill Corporation, Inc. v. North Dakota, 504 U.S. 298 (1992), the United States
(U.S.) Supreme Court reviewed whether a North Dakota taxing statute
impermissibly required an out-of-state mail-order business, which had neither retail
outlets nor sales representatives in North Dakota, to collect and remit North Dakota’s
use tax, in violation of Section 1 of the Fourteenth Amendment of the U.S.
Constitution (Due Process Clause)4 and Article I, Section 8, Clause 3 of the U.S.
Constitution (Commerce Clause).5 Quill Corporation, Inc. (Quill), a purveyor of
office equipment and supplies, solicited business to North Dakota residents through
catalogs and flyers, magazine advertisements, and telephone calls. Id. at 302. The
North Dakota taxing statute required any retailer, defined as any person engaging in
regular or systematic solicitation of a consumer market in the state, to collect a “use
tax” for any property purchased for storage, use, or consumption within the state.
Id. In analyzing the constitutionality of the use tax, as applied to Quill, the U.S.
Supreme Court noted that the Due Process Clause and Commerce Clause reflected
different constitutional concerns, and a taxing statute that comported with due
process may nonetheless violate the Commerce Clause. Id. at 305-06. A due process
analysis typically encompassed the concepts of notice and fair warning and looked
to “the fundamental fairness of government activity” and whether a state’s exercise
of power over a nonresident was legitimized by the nonresident’s connections to that
state. Id. at 312. A Commerce Clause analysis, conversely, was “informed . . . by
structural concerns about the effects of state regulation on the national economy.”

       4
           The Due Process Clause relevantly provides that no state shall “deprive any person of
life, liberty, or property, without due process of law[.]” U.S. Const. amend. XIV, § 1.

       5
         The Commerce Clause provides that “[t]he Congress shall have Power . . . [t]o regulate
Commerce with foreign [n]ations, and among the several States, and with the Indian Tribes.” U.S.
Const. art. I § 8, cl. 3.

                                               3
Id. A tax would sustain against a Commerce Clause challenge where it: (1) applied
to an activity with a substantial nexus to a taxing state; (2) was fairly apportioned;
(3) did not discriminate against interstate commerce; and (4) was fairly related to the
services provided by the state. Id. at 311 (citing Complete Auto Transit, Inc. v.
Brady, 430 U.S. 274, 279 (1992)).
      As to Quill’s activities in North Dakota, the U.S. Supreme Court held that
Quill “purposely directed its activities at North Dakota residents [and] the magnitude
of those contacts” was sufficient to withstand a due process challenge. Id. at 308.
Regarding the Commerce Clause, however, the U.S. Supreme Court reaffirmed its
prior determination in National Bellas Hess, Inc. v. Department of Revenue of
Illinois, 386 U.S. 753 (1967) (overruled by South Dakota v. Wayfair, Inc., 138 S. Ct.
2080 (2018)), that an out-of-state vendor whose only contacts with the taxing state
were by mail or common carrier lacked the substantial nexus required. Quill, 504
U.S. at 317. Accordingly, as Quill did not have a physical presence in North Dakota,
the Commerce Clause shielded it from collecting and remitting the North Dakota
use tax. Id. at 302.
      In 2018, after recognizing changes in the marketplace brought about by
internet sales, the U.S. Supreme Court explicitly overruled Quill in Wayfair, which
concerned a South Dakota act that required out-of-state sellers to collect and remit
sales tax “as if” they had a physical presence in the state. Relying on Quill, the South
Dakota Supreme Court had affirmed a lower court decision invaliding the act, which
applied to sellers delivering more than $100,000 in goods or services, or engaging
in more than 200 transactions for the sale of goods or services, into the state. 138 S.
Ct. at 2089. The U.S. Supreme Court rejected the physical presence requirement in
Quill as unsound, given that a business with a single salesperson located in a

                                           4
particular state would be required to collect and remit sales tax but a business with
identical sales and a website accessible in every state would not. Id. at 2093. The
U.S. Supreme Court noted that the Commerce Clause was designed to prevent states
from engaging in economic discrimination, not to relieve those engaged in interstate
commerce from their share of a state’s tax burden. Id. at 2093-94. Quill undermined
these precepts, as it put local, and many interstate businesses, at a competitive
disadvantage relative to remote sellers. Id. at 2094. In the absence of Quill’s
physical presence requirement, the U.S. Supreme Court turned to the first prong of
the test identified in Complete Auto, which simply asked whether a tax applied to an
activity with a substantial nexus to the taxing authority. Id. at 2099. The South
Dakota act only applied to those out-of-state sellers delivering more than $100,000
in goods or services or engaging in 200 or more separate transactions delivering
goods and services, a quantity of business that the U.S. Supreme Court felt “could
not have occurred unless the seller availed itself of the substantial privilege of
carrying on business in South Dakota.” Id. As the Wayfair respondents were large
national companies with an extensive presence, the substantial nexus requirement in
Complete Auto was satisfied. Id.6
       While Pennsylvania courts have not yet addressed the narrow issue of whether
a nonresident business that stores merchandise in a Pennsylvania warehouse is
subject to the sales tax and PIT provisions of the Tax Code, they have reviewed
whether due process is implicated by the imposition of taxes on nonresidents. In
Equitable Life Assurance Society of the United States v. Murphy, 621 A.2d 1078 (Pa.
Cmwlth. 1993), this Court relevantly addressed whether a realty transfer tax imposed

       6
         Because other principles that might invalidate the South Dakota act had not been litigated,
the U.S. Supreme Court vacated the judgment of the South Dakota Supreme Court and remanded
the matter for further proceedings. Wayfair, 138 S. Ct. at 2100.

                                                 5
by the City of Philadelphia (City) on the sale of a nonresident’s real property violated
the Due Process and Commerce Clauses of the U.S. Constitution. We recognized
that the “minimal connection between” the taxing authority and the person it sought
to tax required that the taxes imposed bear a rational relationship “to the protections,
opportunities[,] and benefits given by the taxing authority.” Id. at 1091 (internal
citations omitted). “The simple but controlling question” concerned whether the
taxing authority had “given anything for which it [could] ask [in] return.” Id.
(emphasis in original). Although the settlement disposing of the real property took
place out of state, the real property itself was located in the City, which created the
connection required to withstand a claim under the Due Process Clause. Id. at 1092.
The realty transfer tax also survived the appellants’ Commerce Clause challenge, as
it satisfied the test outlined in Complete Auto. Id. at 1093. The realty transfer tax
had a substantial nexus with the City, as it only applied to transfers of real property
located within the City’s jurisdiction. Id. at 1093. The tax was fairly apportioned,
which meant that it could not be imposed a second time by another jurisdiction and
that it “reasonably reflect[ed] the in-state component of the activity being taxed[,]”
because only the City, and no other locality, could tax sales of real estate located
within its borders, and the only portion of the transaction subject to taxation was that
which involved the transfer of City real estate.         Id.   The tax was deemed
nondiscriminatory, as it applied at the same rate to both residents and nonresidents.
Id. Finally, the tax was fairly related to the municipal services provided by the City
to owners of real property located therein. Id. at 1093-94.
      In Marshall v. Commonwealth, 41 A.3d 67 (Pa. Cmwlth. 2012), this Court
upheld Revenue’s imposition of PIT on Robert Marshall (Marshall), a nonresident
partner of a Connecticut limited partnership (Partnership) that owned the U.S. Steel

                                           6
Tower, a 64-story office building, and the underlying parcel of land, located in
Pittsburgh, Pennsylvania.        Marshall challenged the PIT on several grounds,
including due process, arguing that he lacked minimum contacts with the
Commonwealth.7 Id. at 73. This Court rejected Marshall’s due process argument,
as the Partnership’s primary purpose was ownership and maintenance of the U.S.
Steel Tower. Id. at 74. Marshall “purposefully availed himself of the opportunity
to invest in Pennsylvania real estate through [the Partnership,]” which provided
sufficient minimum contacts for the imposition of PIT after the Partnership disposed
of the property. Id.
       Our Supreme Court reached the same conclusion in Wirth, which consolidated
an appeal from our decision in Marshall with appeals filed by other nonresident
partners of the Partnership. The Supreme Court noted that the analysis of the
appellants’ due process claims, and whether they could be liable for PIT, considered
whether they had minimum contacts with Pennsylvania. Id. at 837. Whether
minimum contacts existed turned on whether the appellants could “reasonably
anticipate being taxed upon a taxable event.” Id. The Supreme Court agreed with
Revenue that the primary purpose of the Partnership was “to own, operate, and gain
income from” the U.S. Steel Tower. Id. at 839. As a result, through the Partnership’s
ownership and operation of the U.S. Steel Tower, the appellants “purposefully
availed themselves” of Pennsylvania law, thus establishing minimum contacts
within Pennsylvania. Id.
                                      B. The Tax Code
       Section 202(a) of the Tax Code, 72 P.S. § 7202(a), imposes a six percent tax
“upon each separate sale at retail of tangible personal property or services[.]”

       Because Marshall failed to properly develop his argument that Revenue’s action violated
       7

the Commerce Clause, we deemed the issue waived. Marshall, 41 A.3d at 73.

                                              7
Pursuant to Section 237(b)(1) of the Tax Code, 72 P.S. § 7237(b)(1), Pennsylvania
sales tax must be collected and remitted by “[e]very person maintaining a place of
business” in the Commonwealth.8 Further, any person that is required to collect
Pennsylvania sales tax from another person, and that fails to do so, shall be liable for
the full amount of the tax that should have been collected.
      The Department of Revenue (Department), or its agents, is authorized by
Section 272 of the Tax Code to “examine the books, papers[,] and records of any
taxpayer in order to verify the accuracy and completeness of any return made or, if
no return was made, to ascertain and assess the tax imposed by [the Tax Code].” 72
P.S. § 7272 (emphasis added). “Taxpayer” is defined in Section 201(n) of the Tax
Code, 72 P.S. § 7201(n), as “[a]ny person required to pay or collect the tax imposed
by [the Tax Code.]” Section 272 further provides that the Department may “examine
any person, under oath, concerning taxable sales or use by any taxpayer or
concerning any other matter relating to the enforcement or administration of [the
Tax Code], and to this end may compel the production of books, papers[,] and
records and the attendance of all persons whether as parties or witnesses whom it
believes to have knowledge of such matters. The procedure for such hearings or
examinations shall be the same as that provided by The Fiscal Code [9] relating to
inquisitorial powers of fiscal officers.” Id. The relevant provision of The Fiscal
Code, Section 1602(a), grants the Secretary of Revenue, for the purpose of
determining the amount of taxes owed, and the collection thereof, authority to
examine a taxpayer’s records and to compel the production of records and the

      8
          “Person” includes “[a]ny natural person, association, fiduciary, partnership,
corporation[,] or other entity[.]” Section 201(e) of the Tax Code, 72 P.S. § 7201(e).

      9
          Act of April 9, 1929, P.L. 343, as amended, 72 P.S. §§ 1-1805.

                                                8
attendance of any person, whether a party or witness, deemed necessary for the
investigation and examination of “any public account[.]” 72 P.S. § 1602(a). Should
a person neglect or refuse to produce the records requested by the Secretary of
Revenue, Section 1602(c) of The Fiscal Code, 72 P.S. § 1602(c), authorizes the
issuance of a summons “directed to the sheriff of the county in which the person”
resides to procure the records.
      “Maintaining a place of business in this Commonwealth” is defined, in
relevant part, as follows:
             (1) Having, maintaining or using within this
             Commonwealth, either directly or through a subsidiary,
             representative or an agent, an office, distribution house,
             sales house, warehouse, service enterprise or other place
             of business; or any agent of general or restricted authority,
             or representative, irrespective of whether the place of
             business, representative or agent is located here,
             permanently or temporarily, or whether the person or
             subsidiary maintaining the place of business,
             representative or agent is authorized to do business within
             this Commonwealth.

             (2) Engaging in any activity as a business within this
             Commonwealth by any person, either directly or
             through a subsidiary, representative or an agent, in
             connection with the lease, sale or delivery of tangible
             personal property or the performance of services thereon
             for use, storage or consumption or in connection with the
             sale or delivery for use of the services described in
             subclauses (11) through (18) of clause (k) of this section,
             including, but not limited to, having, maintaining or
             using any office, distribution house, sales house,
             warehouse or other place of business, any stock of goods
             or any solicitor, canvasser, salesman, representative or
             agent under its authority, at its direction or with its
             permission, regardless of whether the person or subsidiary
             is authorized to do business in this Commonwealth.

                                         ....

                                          9
                (3.5)(i) Engaging in any activity as a business by any
                person, either directly or through a subsidiary,
                representative or an agent, in connection with the lease,
                sale or delivery of tangible personal property into this
                Commonwealth or the performance of services for use,
                storage[,] or consumption[,] or in connection with the sale
                or delivery for use in this Commonwealth of at least
                [$100,000] during the preceding twelve-month calendar
                period.[10]
72 P.S. § 7201(b) (emphasis added).
       Section 201 of the Tax Code contains several terms that are specifically
germane to Internet sales,11 as follows:
                (hhh) “Forum.” A place where sales at retail occur,
                whether physical or electronic. The term includes a store,
                a booth, an Internet website, a catalog[,] or similar place.

                (iii) “Marketplace facilitator.” A person that facilitates the
                sale at retail of tangible personal property. For purposes
                of this article, a person facilitates a sale at retail if the
                person or an affiliated person:

                      (1) lists or advertises tangible personal property for
                      sale at retail in any forum; and
                      (2) either directly or indirectly through agreements
                      or arrangements with third parties, collects the
                      payment from the purchaser and transmits the
                      payment to the person selling the property.
                The term includes a person that may also be a vendor.

                (jjj) “Marketplace seller.” A person that has an agreement
                with a marketplace facilitator to facilitates sales for that
                person.

       10
         Section 201(b)(3.5)(i) of the Tax Code was added by the Act of June 28, 2019, P.L. 50,
No. 13 (Act 13), 72 P.S. § 7201(b)(3.5)(i).

       11
            Added by Section 1 of Act 13.

                                              10
72 P.S. § 7201(hhh), (iii), and (jjj).
       Section 237(b.1) of the Tax Code provides that a marketplace facilitator
maintaining a place of business in the Commonwealth must collect and remit
Pennsylvania sales tax on all sales, leases, and deliveries of tangible personal
property by marketplace sellers whose sales are facilitated through the marketplace
facilitator’s forum.12
                                    C. Factual Background
       Turning to the instant matter, in an agreement executed between Amazon and
Revenue on January 30, 2012 (2012 Agreement), Amazon agreed to voluntarily
collect and remit Pennsylvania sales tax on its internet sales. Deposition of Kevin
Milligan,13 3/23/22, at 63; Guild’s Br., Ex. 4. The 2012 Agreement focused on the
collection of sales tax for goods owned and sold by Amazon. Milligan dep. at 71.
In 2017, Revenue began developing a strategy for collecting sales tax from FBA
Merchants that had a physical presence in the Commonwealth. Id. at 80-82. This
strategy coincided with the enactment of the Act of October 30, 2017, P.L. 672 (No.
43), which added provisions to the Tax Code addressing the collection of sales tax
for online sales. Id. at 126, 145. Shortly thereafter, Amazon and Revenue entered
into a second agreement whereby, effective April 1, 2018, Amazon would collect
and remit Pennsylvania sales tax on FBA sales (2018 Agreement). Id. at 157. The
2018 Agreement also provided that Amazon would not be liable for any sales tax

       12
            72 P.S. § 7237(b.1).

       13
          Milligan is the special advisor to Revenue’s deputy secretary of taxation. Milligan dep.,
3/23/22, at 9.

                                                11
owed for FBA sales made prior to April 1, 2018.14 Id. at 161, 171. FBA Merchants,
who were not parties to the 2018 Agreement, remained obligated to pay any
outstanding sales tax for pre-April 1, 2018 FBA sales and for any FBA sales made
after that date “if Amazon messed up” and failed to collect sales tax. Id. at 207.
       On June 2, 2021, the Guild filed a petition for review (PFR) with this Court
after its members received a Business Activities Questionnaire Request (Business
Activities Request)15 from Revenue indicating that they “may have” a physical
presence in Pennsylvania that would require the collection and remittance of
Pennsylvania sales tax and the payment of PIT. Stipulation ¶ 1(a). The Business
Activities Request noted that, under the Tax Code, storing property, including
inventory, at a distribution or fulfillment center, or at any other location within
Pennsylvania, constituted a physical presence that created tax obligations, such as
income and sales tax, that must be reported and remitted as of the date the property
was first located within Pennsylvania. Emergency Relief Application, Ex. 1.

       14
            During this same time period, the Commonwealth Department of Community and
Economic Development issued its response to a request for proposal (RFP) issued by Amazon for
the location of a second Amazon headquarters, offering Amazon up to $4.6 billion in financial
assistance should it choose Pennsylvania as the site for its new headquarters.           See
https://s3.documentcloud.org/documents/5113274/Letter-SecretaryDavin-AmazonHQ2-RFP-
1.pdf (last viewed September 8, 2022). On November 13, 2018, Amazon selected New York City,
New York, and Arlington, Virginia, as the destinations for its new headquarters. See
https://www.usatoday.com/story/tech/science/2018/09/12/timeline-amazons-search-hq-2-its-
second-headquarters/1273275002/ (last viewed September 8, 2022). Amazon later abandoned
plans        to      locate      a      headquarters       in       New       York      City.
https://www.nytimes.com/2019/02/14/nyregion/amazon-hq2-queens.html (last viewed September
8, 2022).

       15
          The declaration of Suzanne Tarlini, Director of Revenue’s Bureau of Registration and
Taxpayer Management, indicates that, as of March 23, 2021, Revenue mailed 11,263 Business
Activities Requests to nonresident businesses believed to have a nexus with the Commonwealth.
Guild’s Br., Ex. 7; Revenue’s Br., Ex. G.

                                             12
       Recipients of the Business Activities Request were offered the opportunity to
participate in a voluntary compliance program (Compliance Program) that would
assist them in complying with any past due tax obligations and that offered a limited
lookback period that would relieve them of tax obligations accruing prior to January
1, 2019. Id. Businesses interested in participating were directed to complete and
return a questionnaire to Revenue within 15 days of the Business Activities
Request’s date, which Revenue would thereafter review for purposes of determining
the businesses’ tax obligations. Id. Businesses deemed subject to Pennsylvania sales
and income tax would be registered as such and notified of their tax collection and
filing obligations. Id. The Business Activities Request further indicated that
“[f]ailure to provide the information requested [would] result in additional
enforcement actions and the business [would] forfeit any penalty relief or limited
lookback provisions provided by the [Compliance Program].” Id. (emphasis added).
       On June 3, 2021, the Guild filed an application for emergency relief, seeking
a stay of Revenue’s June 8, 2021 deadline for complying with the Business Activities
Request.     Then-President Judge Brobson denied the application as moot after
Revenue agreed to extend the deadline to June 22, 2021.16 Following a June 9, 2021
status conference, the parties agreed to file cross-applications for summary relief,
along with supporting briefs. Revenue’s compliance deadline was extended pending
this Court’s disposition of their cross-applications for summary relief. June 30, 2021
Stipulation, ¶ 5.
       Prior to initiating the instant action, on February 26, 2021, the Guild filed a
complaint for declaratory and injunctive relief with the United States District Court
for the Middle District of Pennsylvania (District Court), arguing that Revenue’s

       16
          The June 8, 2021 extension was itself an extension of the original May 8, 2021 deadline
agreed to by the parties. Emergency Relief Application, Ex. 5.

                                               13
attempts to collect Pennsylvania sales tax from the Guild’s members violated their
constitutional rights. June 30, 2021 Stipulation, ¶ 1.17 As part of the District Court
action, Scott Moody (Moody), a Guild member and nonresident FBA Merchant,
testified that he began selling merchandise through the FBA Program in September
2018. Emergency Relief Application, Ex. 2, Notes of Testimony (N.T.), 4/29/21, at
9, 13, 48. Moody related that, in addition to conducting its own first-party online
sales, Amazon permits third-party merchant sales that are fulfilled directly by the
merchant. Id. at 14. Conversely, FBA sales are, as the name suggests, fulfilled
entirely by Amazon, which collects payment from the customer and ships the
merchandise directly from an Amazon warehouse. Id. at 23. To participate in the
FBA Program, an FBA Merchant submits a list of its inventory to Amazon, which
is then shipped to a location designated by Amazon. Id. at 24. An FBA Merchant
cannot select the warehouse to which its merchandise will be shipped, unless it pays
a fee to participate in an “inventory placement service” that enables the FBA
Merchant to direct its shipments to certain locations. Id. at 26, 37. This service only
governs the initial shipment of merchandise to Amazon, as the FBA Merchant
retains “no further control” over merchandise received by Amazon, unless the FBA
Merchant elects to withdraw its products from sale on Amazon. Id. at 26. Following
the sale of its merchandise through the FBA Program, an FBA Merchant receives
payment from Amazon, minus funds withheld “to cover potential refunds.” Id. at
24. FBA Merchants have no contact with the customers that purchase their
merchandise. Id. at 36.

      17
          The District Court ultimately dismissed the Guild’s complaint, as it concerned an
unsettled matter of Pennsylvania law. June 30, 2021 Stipulation, ¶ 1; Emergency Relief
Application, Ex. 4.

                                            14
          Moody testified that he received a Business Activities Request from Revenue
in early 2021 indicating that his business may be subject to Pennsylvania sales and
income tax due to the storage of merchandise in one of Amazon’s Pennsylvania
warehouses. Id. at 40; Emergency Relief Application, Ex. 1. Moody stated that he
could not verify his business activity in Pennsylvania because he could not identify
how much of his FBA inventory was stored there. N.T., 4/29/21, at 40, 47. He
believed that Amazon collected sales tax on FBA sales when he initially began
participating in the FBA Program in 2018. Id. at 44. Moody conceded during cross-
examination that the FBA agreement he executed with Amazon provides that he is
responsible for collecting, reporting, and paying any taxes that Amazon has not
collected and remitted on his behalf. Id. at 50. Moody also acknowledged that he
owns the merchandise offered through the FBA Program until a customer pays for
it. Id. at 53. He agreed that he had neither received any tax assessments from
Revenue, nor had he been contacted by Revenue’s criminal tax section or its Bureau
of Audits. Id. at 57-58.
          Following the submission of briefs in support of the parties’ cross-
applications for summary relief and oral argument, which took place on June 22,
2022, this matter is now ready for our disposition.
                                              II.        Issues
          The primary issue before this Court is whether FBA Merchants are subject to
the sales tax and PIT provisions of the Tax Code because Amazon stored their
merchandise in warehouses located in the Commonwealth.18 Additionally, the Guild
argues that Revenue lacks the authority to collect sales tax in a retroactive manner,
that the relevant provisions of the Tax Code do not apply to the Guild’s nonresident

          18
               We have reordered the issues so that we may first address the Guild’s constitutional
claims.

                                                    15
members, and that Revenue’s enforcement efforts violate the federal Internet Tax
Freedom Act (ITFA).19
                                      III.   Discussion
       An application for summary relief is evaluated according to the standards for
summary judgment. Myers v. Com., 128 A.3d 846, 849 (Pa. Cmwlth. 2015). An
application for summary relief may be granted if a party’s right to judgment is clear
and no issues of material fact are in dispute. Id. To be entitled to summary relief,
the parties must demonstrate the nonexistence of any genuine issue of material fact.
Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, (Pa. 1979).
       First, we address whether imposition of the sales tax collection and remittance
provisions in Section 237(b)(1) of the Tax Code on nonresident FBA Merchants
implicates the Due Process Clause of the U.S. Constitution. A taxpayer challenging
the constitutionality of tax legislation bears a heavy burden. Leonard v. Thornburgh,
489 A.2d 1349, 1351 (Pa. 1985). Tax legislation is presumed to be constitutionally
valid and will only be declared unconstitutional where it “clearly, palpably, and
plainly violates the Constitution.” Free Speech, LLC v. City of Phila., 884 A.2d 966,
971 (Pa. Cmwlth. 2005).          Any doubts regarding the constitutionality of tax
legislation should be resolved in favor of upholding the legislation. Id.
       As already discussed herein, the Due Process Clause protects citizens from
unfair tax burdens by limiting the power of states and their political subdivisions to
impose extra-territorial taxation. Equitable Life, 621 A.2d at 1091 (internal citations
omitted). To comply with due process, such taxation is restricted to cases in which
there exists “some definitive link, some minimal connection, between the state and

       19
          Pub. L. No. 105-277, Div. C. Title XI, §§ 1100-1104, 112 Stat. 2681 (1998) (current
version at 47 U.S.C. § 151 note). The ITFA generally prohibits the imposition of any
discriminatory tax on electronic commerce.

                                             16
the person, property[,] or transaction it seeks to tax[.]” Id. The existence of
minimum contacts requires “some act” by which an entity “purposefully avails itself
of the privilege of conducting activities within the forum [s]tate, thus invoking the
benefits and protections of its laws.” Wirth, 95 A.3d at 838 (quoting Hanson v.
Denckla, 357 U.S. 235, 253 (1958)). The existence of such a link turns upon the
individual facts of each case. L.L. Bean, Inc. v. Com., 516 A.2d 820, 824 (Pa.
Cmwlth. 1986). The placement of goods into the stream of commerce with an
expectation that they will be purchased by a state’s consumers may indicate
purposeful availment; however, “as a general rule, it is not enough that the defendant
might have predicted that its goods will reach the forum [s]tate.” J. McIntyre Mach.,
Ltd. v. Nicastro, 564 U.S. 873, 882 (2011). As we noted in Equitable Life, “[t]he
simple but controlling question is whether the taxing authority has given anything
for which it [could] ask [in] return.” Equitable Life, 621 A.2d at 1091 (emphasis in
original).
      The Guild argues that Revenue cannot establish sufficient minimum contacts
exist that would bring the FBA Merchants within Revenue’s jurisdictional reach.
Amazon, not the FBA Merchants, controls the storage and shipment of goods in the
FBA Program, and an FBA Merchant’s mere participation in the FBA Program does
not create meaningful contacts with the Commonwealth. At most, the Guild argues,
it creates the possibility that Amazon would “unilaterally decide to store goods in
Pennsylvania, as opposed to” a facility located in another state. Guild’s Br. at 21.
      Revenue concedes that a state must have personal jurisdiction over a
nonresident business before it can require the payment of taxes. It argues, however,
that the Business Activities Request sent to FBA Merchants is not a demand for tax
payments. Rather, it is a “demand for information concerning potential tax liability,”

                                         17
which Revenue has the authority to seek under Section 272 of the Tax Code.
Revenue’s Br. at 16. Revenue denies that the Compliance Program violates an FBA
Merchant’s due process rights, as any FBA Merchant declining to participate will
receive notice of any adverse decision made by Revenue and the opportunity to
appeal that decision. Revenue further contends that the Guild’s due process claim
is premature because no FBA Merchants have received a tax assessment from
Revenue. Conversely, Revenue asserts that the FBA Merchants may not press a
federal due process claim because they have not first taken advantage of any
available administrative processes.        Moreover, Revenue suggests that, by
participating in the FBA Program, the FBA Merchants should have reasonably
anticipated that they would incur tax liability in the Commonwealth.
      While it appears that Revenue has not issued a tax assessment against any of
the FBA Merchants, we do not agree that the Business Activities Request mailed by
Revenue is merely a “demand for information.” Rather, the Business Activities
Request indicates that “[f]ailure to provide the information requested will result in
additional enforcement actions,” language that clearly suggests the existence of
pending enforcement actions. Emergency Relief Application, Ex. 1 (emphasis
added). We likewise reject Revenue’s argument that the Guild’s due process claim
is premature, as it is not clear what, if any, administrative processes are available to
the FBA Merchants, beyond their strict compliance with the dictates of the Business
Activities Request. Moreover, the administrative process identified by Revenue,
notice and the opportunity to appeal an adverse tax assessment, would be available
only following a determination of tax liability. Essentially, if we correctly follow
Revenue’s reasoning, FBA Merchants, simply by virtue of having enrolled in the
FBA Program, have placed themselves within Revenue’s jurisdiction and thus have

                                          18
no means to challenge Revenue’s authority to investigate their records and determine
their tax liability until after Revenue has investigated their records and determined
their tax liability. This circuitous line of reasoning is unsupported by the statutory
framework and controlling jurisprudence.
      Critically, Revenue’s investigative powers under Section 272 apply to the
records of taxpayers, not individuals or entities Revenue suspects may be taxpayers.
Furthermore, Section 272 does not grant Revenue the unfettered authority to seek
business information from any person or entity it desires for the purpose of
determining its status as a taxpayer. Due process requires a connection between the
taxing authority and the person or entity it seeks to tax and “some act” indicating the
alleged taxpayer has availed itself of the taxing authority’s protections,
opportunities, and services. Wirth, 95 A.3d at 838.
      The record reflects that Amazon determines the location to which goods are
shipped by an FBA Merchant. Even where an FBA Merchant has paid to participate
in Amazon’s “inventory placement service,” an FBA Merchant has no control over
its merchandise once Amazon receives it. Therefore, while an FBA Merchant may
initially ship its merchandise to a Pennsylvania warehouse owned and operated by
Amazon, whether the merchandise remains in that location is a decision made solely
by Amazon. Once the merchandise is purchased by an Amazon customer, Amazon
is responsible for shipping it to the customer. The identity and location of the
purchaser is not disclosed to the FBA Merchant. Milligan, Revenue’s special
advisor to the deputy secretary for taxation, acknowledged during his deposition that
FBA sales are made through Amazon’s website, that Amazon collects payment for
the purchased goods, and that Amazon is responsible for shipping the merchandise
to the customer in an Amazon-branded box. Milligan Dep. at 136-37. We are hard

                                          19
pressed to envision how, in these circumstances, an FBA Merchant has placed its
merchandise in the stream of commerce with the expectation that it would be
purchased by a customer located in the Commonwealth, or has availed itself of the
Commonwealth’s protections, opportunities, and services.
       Regarding the imposition of PIT, the parties only briefly touch upon this issue
in their respective principal and reply briefs. Revenue’s argument, however, that
FBA Merchants “may have outstanding [PIT] obligations” appears to be based on
the same faulty proposition that, because Amazon may have stored an FBA
Merchant’s property in one of its Pennsylvania warehouses, an FBA Merchant has
income sourced from within the Commonwealth.                   Without more, Revenue’s
argument must fail, as Revenue’s power to examine a taxpayer’s records under
Section 272 of the Tax Code does not extend to demanding business information
from every participant in Amazon’s FBA Program, simply because Revenue
suspects that person or entity “may be in violation of Pennsylvania’s tax laws[.]”
Revenue’s Br. at 18. This Court came to a similar conclusion in Bloomingdale’s By
Mail, Ltd. v. Department of Revenue, 516 A.2d 827 (Pa. Cmwlth. 1986), and L.L.
Bean.20
       In both Bloomingdale’s and L.L. Bean, the Department sought transactional
sales data from nonresident mail order companies, Bloomingdale’s By Mail, Ltd.
(BBM) and L.L.Bean, Inc. (L.L. Bean). The Department also sought to compel the
collection and remittance of Pennsylvania sales tax. In the case of L.L. Bean, its
products were sold by V.F. Corporation (V.F.), an unrelated Pennsylvania
corporation that owned and operated retail stores in the Commonwealth. L.L. Bean,

        While our decisions in Bloomingdale’s and L.L. Bean were decided prior to Wayfair, the
       20

Wayfair decision only impacted the analysis of Commerce Clause claims. Our review in
Bloomingdale’s and L.L. Bean involved a due process analysis, which was unaffected by Wayfair.

                                             20
516 A.2d at 823. The Department argued that V.F. was L.L. Bean’s “representative”
for purposes of Section 201(b)(2) of the Tax Code,21 and, therefore, L.L. Bean
maintained a place of business in the Commonwealth. This Court rejected the
Department’s argument that V.F. acted as L.L. Bean’s representative, as L.L. Bean
exerted no control over V.F., V.F.’s operation of its stores, or V.F.’s employees. Id.
at 823. V.F. set the prices for merchandise sold at its stores, which used V.F.-
branded shopping bags.      Id. L.L. Bean’s contacts with V.F. were limited to
protecting L.L. Bean’s trademark, providing advice on how to display L.L. Bean’s
goods and improve V.F.’s sales, and confirming the accuracy of L.L. Bean’s record
keeping. Id. at 823, 825. We also rejected the Department’s argument that Section
272 of the Tax Code granted the Department authority to compel L.L. Bean’s release
of its transaction sales data for the purpose of collecting Pennsylvania sales tax from
L.L. Bean’s customers. Id. at 826. Section 272 of the Tax Code specifies that The
Fiscal Code governs the procedure for investigating and examining a taxpayer’s
records. To that end, Section 1602(c) of The Fiscal Code, 72 P.S. § 1602(c),
authorizes the issuance of a summons directed “to the sheriff of the county in which
the person or persons reside[.]”      We construed this provision as limiting the
Department’s investigative power to in-state residents, a construction bolstered by
Section 273 of the Tax Code, which requires that common carriers delivering goods
by a nonresident shipped to the Commonwealth “maintain adequate records of such
deliveries[.]” 72 P.S. § 7273; L.L. Bean, 516 A.2d at 826. We reasoned that Section
273 would be rendered superfluous if the General Assembly intended that Section
272 of the Tax Code apply to nonresidents. Therefore, we held that Section 272 did

       The 2019 amendments to the definition of “maintaining a place of business in this
      21

Commonwealth” do not affect this Court’s analysis of L.L. Bean.

                                          21
not grant the Department broad power to obtain the records of a nonresident. L.L.
Bean, 516 A.2d at 826.
       The sole issue in Bloomingdale’s concerned whether the Department had
authority under Section 272 of the Tax Code to compel the attendance of out-of-state
witnesses and the production of out-of-state documents. Relying on L.L. Bean, we
held that the Department’s subpoena power under Section 272 of the Tax Code could
only be utilized “within the borders of the Commonwealth.” Bloomingdale’s, 516
A.2d at 829.
       To paraphrase the question we posed in Equitable Life, the record fails to
disclose what, if anything, the Commonwealth has given the FBA Merchants “for
which it can ask [in] return.” Equitable Life, 621 A.2d at 1091.               Furthermore,
Revenue’s investigative powers under Section 272 may not be utilized against
persons or records located outside the Commonwealth. Accordingly, we grant the
Guild’s cross-application for summary relief.22 Revenue’s cross-application for
summary relief is denied.

                                           __________________________________
                                           ELLEN CEISLER, Judge

       22
         In light of our disposition of the Guild’s due process claim, we need not address its
remaining arguments.

                                             22
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Online Merchants Guild,               :
                 Petitioner           :
                                      :
      v.                              : No. 179 M.D. 2021
                                      :
C. Daniel Hassell, in his official    :
capacity as Secretary of Revenue,     :
Department of Revenue,                :
                    Respondent        :

                                     ORDER

      AND NOW, this 9th day of September, 2022, the cross-application for
summary relief filed by the Online Merchants Guild is hereby GRANTED. The
cross-application for summary relief filed by C. Daniel Hassell is DENIED.

                                      __________________________________
                                      ELLEN CEISLER, Judge