WASHINGTON -- The Supreme Court on Friday upheld a Wisconsin tax assessment against the William Wrigley Jr. Co. gum manufacturer in a ruling that provides states with clear guidance on the extent of their taxing powers.
Paull Mines, counsel of the Multi-state Tax Commission, hailed the ruling, saying, "This is the first time the justices have spoken on this issue, so this is a unifying force."
The case scrutinized a federal law that provides businesses with immunity from state income taxes if theri only activities within the state consist of "solicitation of orders" for interstate sales.
In its 6-to-3 ruling in the case, Wisconsin Department of Revenue v. Wrigley Co., the court said the tax immunity provided by the law "covers more than what is strictly essential to making requests for purchases."
But the court drew a sharp distinction between activities that are entirely ancillary to requests for orders, and those that the company would engage in anyway but have chose to allocate to its sales force. The court said the tax benefits of the federal law extend only to ancillary activities.
"Providing a car and a stock of free samples to salesman is part of the 'solicitation of orders,' because the only reason to do it is to facilitate requests for purchases," wrote Justice Antonin Scalia for the court majority.
"Contrariwise," he added, "employing salesmen to repair or service the company's products is not part of the 'solicitation of orders,' since there is good reason to get that done whether or not the company has a sales force."
Marget Derus, executive assistant to Mark Bugher, Wisconsin's revenue director, said the state was pleased with the court's decision.
"This is an rea we have been operating in without guidance from the courts," she said. "We're happy this gives us some guidance on what is solicitation.
In addition to Wisconsin, she said, the court's decision would be helpful both to other states in collecting a corporate income tax and to companies in making theri business plans.
Ms. Derus said the Wrigley Co. will have to pay the state about $500,000 plus interest in income taxes for the years covered by the case, 1973 through 1978.
She added that the state will begin using the standards set by the high court in determining what businesses should be paying the state's 7.9% corporate income tax.
The Wrigley Co., the world's largest chewing gum and manufacturer, sold its products in Wisconsin through a network of field representatives who solicited orders but also performed other duties.
In 1980, the Wisconsin Department of Revenue concluded that the representatives' activities were enough to allow the state to tax Wrigley. After years of legal wrangling, the Wisconsin Supreme Court ruled the federal law shielded the activities from taxation.
Of those activities, the U.S. Supreme Court concluded on Friday that the replacement of stale gum and the storage of gum in Wisconsin were not ancillary activities and were sufficient to trigger Wisconsin taxation. The court did allow, however, that Wrigley's in-state recruitment and training of sales representatives "served no purpose apart from their role in facilitating solicitation."
Writing separately, Justice Sandra Day O'Connor said the replacement of stale gum was an essential part of solicitation. "Making sure that one's product is available and properly displayed serves no independent business function apart from requesting purchases; one cannot offer a product for sale if it is not available," she wrote. But she said other Wrigley operations in Wisconsin were sufficient to trigger taxation.
Justice Anthony Kennedy dissented, joined by Chief Justice William H. Rehnquist and Justice Harry A. Blackmun.
According to Justice Kennedy, the court should have said the federal law provides a tax exemption for "business activities performed in connection with solicitation if reasonable buyers would consider them to be a part of the solicitation itself and not a significant and independent service or component of value."
Under that rationale, Justice Kennedy said, Wisconsin would have been prohibited from levying the tax on Wrigley.