Wisconsin Department of Revenue v. William Wrigley, Jr., Co.
505 US 214, 1992 U.S. LEXIS 3694, 120 L. Ed. 2d 174 (1992)
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Rule of Law:
Under 15 U.S.C. § 381, the term 'solicitation of orders' is not limited to the mere request for a purchase but includes activities entirely ancillary to the request. However, activities that serve an independent business function, such as repair, maintenance, or direct sales, are not protected, and if they are more than a de minimis deviation, the company forfeits its immunity from state income tax.
Facts:
- William Wrigley, Jr., Co. (Wrigley), a Chicago-based gum manufacturer, sold its products in Wisconsin through sales representatives who resided there.
- Wrigley's sales reps solicited orders from retailers, which were then sent to Chicago for approval and filled by shipment from outside Wisconsin.
- In addition to soliciting orders, the reps regularly replaced retailers' stale gum with fresh gum from their own car stock at no cost to the retailer.
- On infrequent occasions, reps would sell small amounts of gum (valued at $15-$20) directly from their car stock to fill new display racks, billing the retailer through an 'agency stock check.'
- Sales reps stored company-owned inventory of gum, display racks, and promotional materials in their homes; one representative was reimbursed for renting a small storage space.
- A Wisconsin-based regional manager recruited, trained, and evaluated sales reps and occasionally intervened in credit disputes between Wrigley's main office and key local accounts.
- Wrigley did not own or lease any office, warehouse, or other real property in Wisconsin, nor did it have a bank account or phone listing in the state.
Procedural Posture:
- The Wisconsin Department of Revenue issued a franchise tax assessment against William Wrigley, Jr., Co. for the years 1973-1978.
- Wrigley objected to the assessment, and the Wisconsin Tax Appeals Commission upheld the tax.
- On review, the County Circuit Court reversed the Commission, finding Wrigley's activities were protected by federal law.
- The Wisconsin Court of Appeals (an intermediate appellate court) then reversed the Circuit Court's decision, reinstating the tax.
- The Wisconsin Supreme Court (the state's highest court) reversed the Court of Appeals, holding that Wrigley was immune from the tax under 15 U.S.C. § 381.
- The United States Supreme Court granted certiorari to review the Wisconsin Supreme Court's decision.
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Issue:
Do an out-of-state company's in-state business activities—which include replacing stale products, occasionally selling small quantities of products from car stock, and storing inventory for these purposes—go beyond the 'solicitation of orders' protected from state income taxation by 15 U.S.C. § 381?
Opinions:
Majority - Justice Scalia
Yes. An out-of-state company's in-state activities that serve an independent business function apart from requesting orders are not protected by 15 U.S.C. § 381. The Court established that 'solicitation of orders' covers more than the explicit request for a purchase; it also covers activities that are 'entirely ancillary' to solicitation—those that serve no independent business function. Activities like providing salesmen with cars and samples are ancillary. However, activities like repairing products, collecting on accounts, or, in this case, replacing stale gum and selling gum via 'agency stock checks,' are not ancillary because they serve independent business purposes (quality control and direct sales) and would be performed even without a soliciting sales force. While a 'de minimis' exception exists for non-ancillary activities, Wrigley's combined activities of stale gum replacement, inventory storage, and occasional direct sales established a 'nontrivial additional connection' with Wisconsin, thus forfeiting its tax immunity.
Concurring - Justice O'Connor
Yes. While I agree with the judgment that Wrigley is subject to taxation, I disagree with the majority's reasoning regarding the replacement of stale gum. I believe replacing stale gum is ancillary to solicitation because it ensures the product is available to the public in a purchasable form, which serves no independent business function apart from requesting purchases. However, I agree that Wrigley's other activities, specifically the storage of gum in the state and the use of 'agency stock checks' for direct sales, were not ancillary to solicitation and were not de minimis. On that basis alone, Wrigley loses its tax immunity.
Dissenting - Justice Kennedy
No. The majority's 'entirely ancillary' test is too restrictive and ignores the practical realities of sales that Congress intended to protect. A better standard would be whether a reasonable buyer would consider the activities part of the solicitation itself rather than a significant, independent service. Activities such as replacing stale gum or occasionally stocking a display are normal acts of courtesy that are part of the solicitation process and do not provide independent value to the customer. These actions are less removed from solicitation than mediating credit disputes, which the majority protects. Congress intended to protect the kind of common-sense sales activities at issue in pre-statute cases like International Shoe and Brown-Forman, and the majority's rigid test undermines that purpose and mandates inefficiency.
Analysis:
This decision provides a significant clarification of the scope of the federal tax immunity granted by 15 U.S.C. § 381. By establishing the 'entirely ancillary' test, the Court created a more defined, albeit narrower, standard for what constitutes protected 'solicitation.' This ruling resolved a split among state courts and provided a clearer framework than the previous, more nebulous interpretations. The decision impacts multistate corporations by limiting the types of activities their sales forces can perform in a state without triggering income tax liability, potentially exposing companies to taxation if their salespeople engage in tasks like minor repairs, quality control, or any form of direct sales, even if minimal.
