WISCONSIN DEPARTMENT OF REVENUE v. WILLIAM WRIGLEY, JR., CO.
Legal provision: 15 U.S.C. 381
Argument of F. Thomas Creeron, III
Chief Justice Rehnquist: We'll hear argument now in No. 91-119, the Wisconsin Department of Revenue v. William Wrigley, Jr., Co.--
Mr. Creeron, is it?
Mr. Creeron: Yes, Mr. Chief Justice.
Unknown Speaker: Mr. Creeron, you may proceed.
Mr. Creeron: Mr. Chief Justice, and may it please the Court:
The question presented in this case is whether for the 6-year period at issue the respondent engaged in activities other than those expressly permitted by Public Law 86-272, thereby forfeiting the limited immunity from State taxation measured by income, which is accorded by that statute.
It is Wisconsin's position that the respondent did engage in activities other than those expressly permitted, that its assessment covering that period is valid, and that the judgment of the Wisconsin Supreme Court should therefore be reversed.
This case arose as a result of a franchise tax assessment made by the Wisconsin Department of Revenue against the William Wrigley, Jr., Company, which is the largest manufacturer of chewing gum in the world.
The franchise tax is a fairly apportioned tax imposed only upon income attributable to business activities within Wisconsin.
During these years, Wrigley's Wisconsin sales ranged from $2.8 million to $4.4 million, while its total sales ranged from $140 million to $230 million.
The tax itself, exclusive of interest, is slightly in excess of $120,000, an amount which is not in dispute.
The Wisconsin Supreme Court reversed the Wisconsin Tax Appeals Commission solely on the legal question of how it construed the provisions of Public Law 86-272, and agreed with the construction of that statute that Wrigley continues to advocate here.
Unknown Speaker: Was that a unanimous opinion?
Mr. Creeron: Yes, it was.
This Court's decision in Heublein established two firm tenets for construing Public Law 86-272.
First, Congress must speak clearly when it chooses to abridge the State's taxing powers, which of course are fundamental to their very existence.
If Congress does not speak clearly, ambiguous terms in the statute will be construed in favor of the preexisting authority to tax.
Second, clarity that would remove uncertainty was Congress' primary goal in enacting Public Law 86-272.
While any of the activities listed by the Wisconsin Tax Appeals Commission would probably be sufficient to support taxation under the principles set forth by the Court in Heublein, the major activities engaged in by Wrigley, which we claim exceeded those listed in the statute, are maintaining stocks of goods in rented warehouse space in Wisconsin and in its employees' homes in Wisconsin; replacing stale or damaged product from that stock of goods; direct agency stock check sales and direct delivery of product from that stock of goods; and personnel management and similar activities engaged in by Wrigley's resident regional manager, which did not involve any customer participation.
Unknown Speaker: How long does it take for gum to get stale?
What's its shelf life?
Mr. Creeron: I do not know.
Unknown Speaker: It's 6 months.
I do not chew gum.
Mr. Creeron: The statute at issue is a minimum activity statute.
It was enacted to assure continued entry by small businesses into new markets so that they could compete with large, multistate corporations like Wrigley that had already established themselves in those markets.
Under the statute, a seller of tangible personal property is permitted to engage in three activities if they originate outside the taxing State.
It may approve orders, it may fill orders, and it may deliver goods to the customer.
Wrigley shipped fresh gum, carried on its books as inventory, to a warehouse and to its employees' homes in Wisconsin.
That gum was not shipped to the customer, and most of it remained in storage at these locations.
Once that gum was in Wisconsin, it is our position that it became a stock of goods within the State.
Unknown Speaker: That was the only instance, wasn't it?
Mr. Creeron: The only shipment of goods other than to the customer was to the warehouse and to its employees' homes, yes.
Unknown Speaker: That's the only warehousing instance that the record discloses?
Mr. Creeron: Yes, but that instance continued through all six of the tax years at issue.
Unknown Speaker: Wasn't much of a warehousing, was it?
Mr. Creeron: No, it was... they rented warehouse space, but gum isn't, and the space was not--
Unknown Speaker: How large a space?
Mr. Creeron: --Excuse me?
Unknown Speaker: How large a space?
Mr. Creeron: I do not know how large the space was, but I believe the record indicates that during this time period the annual cost was no more than $300 a month.
Unknown Speaker: When you say they did, I thought it was one salesman did, right?
Do we know that other officers of the company knew about that?
Mr. Creeron: Yes, the record clearly reflects that the regional manager in 1973 obtained permission from Wrigley to rent the warehouse, and was assured by Wrigley that he would in fact be reimbursed for those warehouse costs.
Then when an employee was finally hired and the... he lived in an apartment, the stock of gum would not fit within his apartment, he continued that arrangement, and he also was assured by Wrigley that he would be reimbursed for those costs.
So I don't think Wrigley can say that it did not approve of this particular activity.
Once the gum was in these in-State locations, Wrigley's sales representatives would use that gum, travel around to dealer locations, and would fill display stands at the retailer's location.
If the retailer did not have the correct sizes of product, the sales representative would swap product with the retailer, and place the different sizes of product in the display stand.
It's our position that that activity constituted delivery of goods from within the State.
On occasion, approximately once per month per sales representatives, the retailer would not have the correct size of product, the sales representative could not do the necessary product swapping, and the sales representative would then provide gum to the retailer through a device known as an agency stock check.
The way that would work was that the stock check would be given to the retailer as a receipt, the wholesaler would bill the retailer, and Wrigley would then bill the wholesaler.
Since billing did occur in these situations, it's our position that a sale did take place.
Therefore, both approval and delivery of these agency stock check transactions occurred in Wisconsin.
The plain and unambiguous meaning of the statutory terminology prohibits this product swapping and these agency stock check transactions.
The statute does permit certain business activity within a State that would otherwise have jurisdiction to tax, but its language immediately limits the phrase "business activity" in such a way that the only activity of that kind that may originate within the State must constitute solicitation of orders.
The plain and unambiguous meaning of the term "only" is that nothing else may occur.
And the Wisconsin Supreme Court's decision, with which Wrigley appears to agree in every respect, holds that the ordinary and accepted meaning of the term "solicit" is to make a plea.
The ordinary and accepted meaning of the term "solicitation of orders" therefore, is simply requesting orders.
Even if solicitation were determined to be an ambiguous term, its possible meanings can be placed on a spectrum.
At one end, simply requesting and receiving orders within the State would be permissible, and any other activity would result in payment of a fairly apportioned tax.
At the other end of that spectrum, lease or ownership of physical facilities or the presence of a stock of goods would be prohibited, and every other activity conducted within a State which would otherwise have jurisdiction to tax, would nevertheless be tax exempt.
Every presumption in Heublein is in favor of that end of the spectrum, where only requesting orders is permissible.
Under the Court's decision in that case, Wrigley's burden to establish that the court should move away from that end of the spectrum any distance at all is enormous.
Yet Wrigley's redefinition of the term "solicitation" to include what it claims are incidental activities is at the exact opposite end of the spectrum from its ordinary and accepted meaning.
Unknown Speaker: Well, Mr. Creeron, I think Wrigley's in their brief say that even you, your side, the State, doesn't insist that it be only solicitation, only would you like to buy, period.
That even you concede there may be some incidental conversation and so forth in connection with that.
They say you don't really limit it to the actual narrowest meaning you could, either.
Mr. Creeron: We, the Wisconsin Department of Revenue, did not apply the narrowest test that is applied in some States, but it is our position that the activity must be part and parcel of the sales pitch.
That may be slight... a slightly different definition than saying that all you can do is ask for the order, but--
Unknown Speaker: How about restocking the gum at the... you know, at the same call would you ask him to buy some more?
Mr. Creeron: --It's our position that you can't do that.
That serves another purpose.
It serves a quality control purpose of the company, which is other than solicitation.
Unknown Speaker: Well, it could be seen as part of the overall solicitation, saying this is the kind of service that we routinely perform and therefore you ought to deal with us.
Mr. Creeron: Well, the statute, first of all, only protects the sale of tangible personal property.
It does not protect the provision of services.
Unknown Speaker: No, of course.
But it's the sale that we're talking about that would be the measure of the tax.
But presumably do you take the position that nothing that enhances the chances of making the sale can be done and fall within the exemption?
Mr. Creeron: Not at all.
We take the position that if the activity is part and parcel of, inextricably bound, whatever terminology along those lines you chose to use, part of the sales pitch itself, that the activity is permissible.
The pre-sale/post-sale test, I think, is useful in regard to the replacement of damaged goods because I think what that test is trying to get at is that you can't do more simply because the first sale or many sales have taken place.
The first time you approach a customer who had never done business with you before, you would not be in a position to replace damaged goods, which I think indicates that that activity is something that is beyond the sales pitch itself.
Unknown Speaker: Mr. Creeron, suppose you have a salesman who makes his presentation to the customer, the customer buys some gum, and then the customer says, but I'm telling you now, I'm not going to place another order unless you forward to the company and support these complaints that I have about the company... about the last shipment.
Now I want you do that for me.
And he says, okay, I'll do it.
And he does it.
He writes to the company and supports the customer's complaints.
Is that activity... I don't see how that comes within your definition.
That would render the company liable?
Mr. Creeron: I don't believe that activity does come within our definition.
I don't believe complaint handling is something that would occur the first time that you approach the customer.
So that activity does not fit within our definition.
Unknown Speaker: Meaning that it renders the company taxable?
Mr. Creeron: Yes.
Unknown Speaker: But surely solicitation includes not just the first time you approach the company, but approaches thereafter to keep their sales going?
Mr. Creeron: Absolutely.
You can do the same things the second time, the third time.
Unknown Speaker: And if you're back the third time, and the customer said I've really got these complaints about the first two batches that I bought, forward them to the manufacturer, the salesman cannot do that without going beyond solicitation in your view?
Mr. Creeron: Again, it's our position that's a quality control service, and that that is... that is not part and parcel of the sales pitch.
Unknown Speaker: May I ask about the storage?
How long... one salesman was it rented the space for a while and then used the gum.
And the answer of the Wisconsin Supreme Court as I remember it was it was de minimis, that it if it had been a routine... major part of the, you know, regular storage of stuff that's delivered, it would be different.
Do you recognize any de minimis exception?
And if you don't... or if you do, why doesn't this come within it?
Mr. Creeron: We absolutely do not recognize any de minimis exception.
We feel that that's inconsistent with the word "only" that Congress used in this particular statute.
And if you look in the legislative history, Senator Byrd, the sponsor of the bill, in the Congressional Record at 16355 says that the sale of a single sample within the State would result in a forfeiture of immunity under the bill.
It seems that if you're going to apply that logic to warehouse rental, the rental of a single warehouse or a small amount of warehouse space would also result in a forfeiture of immunity under the statute.
Unknown Speaker: Maybe Senator Byrd was wrong.
Mr. Creeron: He may have been, but if we look simply to the unambiguous language itself--
Unknown Speaker: xxx Byrd.
Mr. Creeron: --Excuse me?
Unknown Speaker: Senator Byrd.
But all that the statute says that only these activities.
And whenever you have a de minimis exception from anything, it's a de minimis exception from some categorical prescription, otherwise you wouldn't need a de minimis exception.
You'd have a regular exception.
Mr. Creeron: Well.
Unknown Speaker: So all you say is this is categorical.
But every prescription is categorical and you have de minimis exceptions from all prescriptions, or almost all, anyway.
Mr. Creeron: The plain an unambiguous meaning of the term "only" means that, and it's our position, anyway, that Congress did not want a de minimis exception with respect to this particular statute.
You do have in various aspects of the law de minimis exemptions created, but I have not seen one with respect to a taxing statute that uses the word "only".
Unknown Speaker: I don't know another taxing statute that uses the word "only", do you?
Mr. Creeron: Perhaps that's all the more reason--
Unknown Speaker: xxx then.
Mr. Creeron: --why this statute should not be construed to have de minimis exemption.
Unknown Speaker: What if the salesman is seeking new customers, and he wants some samples.
Here is some great Wrigley gum, why don't you try it out for a week, see if you can sell it.
So he gives him a few samples hoping that he'll get an order next week.
And he does.
The guys says, gee, pretty good gum, sells well.
And he... if he has to have samples at his house or in a warehouse, is that too much?
Mr. Creeron: If he gives the... a prospective customer samples, it would be our position that that would be permissible because it has no other purpose other than solicitation of orders.
If you rent a warehouse for a bunch of samples--
Unknown Speaker: Well, you got to put them somewhere, and your wife doesn't like them in your house.
So what are you going to do?
You go to some locker somewhere.
Now are you out of bounds then?
Mr. Creeron: --Well, first of all, that's not what happened here.
I mean, most of this gum was used to replace product.
Unknown Speaker: It's what?
It's used to--
Mr. Creeron: --Replace stale product.
Very little of it was used as free samples.
But the act of renting the warehouse itself, it's our position, would not be solicitation.
You cannot have rental of a warehouse full of samples.
And if you look at the bills that--
Unknown Speaker: --Well, you can have a locker 2 feet square.
Mr. Creeron: --If you're renting physical plant within a State, it's our position that that is not permissible with any unambiguous language of the statute.
Unknown Speaker: Can you pay a taxicab to carry these samples?
I mean, let's say a taxicab charges for suitcases, and you put the samples of suitcases in the trunk of the cab to show it.
That's out, too?
Mr. Creeron: No, absolutely you can do that.
Unknown Speaker: Well, why can you do it?
Why is that any different from storing the samples?
I mean, it seems to me everything that you would reasonably be expected to do with samples ought to be okay if the samples... if giving the samples are okay.
Otherwise, that's silliness.
You say, well, you can give him samples, but you can't carry it in a cab.
Mr. Creeron: I didn't say that you couldn't carry them in a cab.
Unknown Speaker: I know you didn't, but you ought to if you're going to say you can't put it in a locker.
Mr. Creeron: I'm saying you can't put it in a warehouse, which is what happened here.
Unknown Speaker: Can you engage in activities to stimulate sales, since the ultimate purpose of doing that is of course to stimulate orders?
Mr. Creeron: You can engage in the sales pitch itself.
If by that you mean that is any activity which would generate additional profits permissible, we take the position that that activity is not allowed under the unambiguous language of the statute.
Unknown Speaker: If the salesman arrives for the first time at a store and says we'll give you all of these posters to display in the store that advertise the virtues of the gum, pictures of the twins, and so on, is that impermissible?
Mr. Creeron: No, I believe you can do that.
I don't see what other purpose that activity would have, that that activity would be inextricably bound up in the sales pitch itself.
Unknown Speaker: What about renting newspaper space for advertising in local papers or renting radio time?
Is that like the posters?
Mr. Creeron: If the term "solicitation" is determined to... is given its ordinary and accepted meaning, then I believe that would be permissible.
Unknown Speaker: What about a warehouse to store the posters in?
Mr. Creeron: I don't... again, I don't think you can do that.
The bills that were... that did not pass indicated that if you had warehouse space or anything of that nature within the State, that those activities were not permissible.
So the act of--
Unknown Speaker: But the cab's okay?
Mr. Creeron: --The cab's okay.
Unknown Speaker: If you just have them driven around constantly you'll be all right.
Mr. Creeron: Probably an unlikely scenario, but transportation to and from the customer is a necessary consequence of solicitation.
There is a suggestion in the respondent's brief that we take the position that you can't even drive away from the customer in your automobile, that you have to walk home, and that's absolutely not true.
Unknown Speaker: Haven't you slipped pretty far down the slope when you let the... when you let the salesman go out and start renting or buying radio time and taking out newspaper ads?
In the case of giving him the posters, you can say, well that is... he's only dealing with the person from whom he wants to solicit the order.
But when you let him start going out to address the world in general, that is no longer true.
And why on your view doesn't that cross the line from what is integrally related to an entirely separate activity, and therefore subject to tax?
Mr. Creeron: Well, I don't know if I would look at it in those terms.
If there is a problem with advertising, it would be, I think, that the statute only allows solicitation of the customer and the customer's customer.
And advertising might be construed as what would be called third-tier solicitation where you're soliciting--
Unknown Speaker: I think that's what I was assuming in my question, yeah.
That's why I... your answer surprised me somewhat.
Mr. Creeron: --That is a problem.
You... your first question, I assumed, just asked about is advertising solicitation, not whether advertising was permitted under this particular statute.
Apparently I misunderstood your first question.
Unknown Speaker: I probably wasn't clear.
In any case, you're receding from the answer that I thought you were giving.
I think he is, yes.
What if the customer says, gosh, I'll order a lot of this gum, but how do I know I can sell it.
Will you agree to take a space in the Denver Post and help me sell this gum.
And he says, sure.
Make it the Milwaukee Journal.
That's all right, too.
So I mean, his order... his order is conditioned on your agreeing to take out the ad.
And you say sure, and he gives you an order.
Mr. Creeron: Well, if the ad does in fact involve third-tier solicitation, which is... I take it your question assumes that, then... I mean, you can't do it simply because the customer imposes it as a condition.
Unknown Speaker: All right.
So he can't do that and stay within the statute.
Mr. Creeron: I don't think so.
Unknown Speaker: All right.
Well, you're the Attorney General.
Well, what if Wrigley simply advertises over WGM and WB... are those television stations as well as railroad... as well as radio stations in Chicago?
Well, whatever the corresponding television stations are in Chicago, and those are beamed into Wisconsin.
Does that render him... does that render Wrigley liable?
Mr. Creeron: Again, with advertising you have a difficult problem.
We're not relying on the advertising that occurred in this case.
But it depends, I think, under the statute, on what audience you're reaching.
If you're reaching the customer or the customer's customer, you can do it.
Unknown Speaker: What's a customer's customer?
I don't understand what you mean.
Wholesalers or retailers, is that what you're talking about?
Mr. Creeron: Right.
Unknown Speaker: But not the consumer.
Mr. Creeron: Well, you see in this case, the problem with that is, and why advertising really is a difficult issue here and why we're not relying on it, is in this case some retailers were Wrigley's customers.
So you're reaching a mixed audience with the advertising.
Unknown Speaker: I don't know why you concede customer's customer.
I would think the line would end at customer.
Mr. Creeron: I believe section (e)(2), which refers to missionary activities, does permit solicitation of the customer's customer.
Unknown Speaker: Well, if the advertising... if just advertising in the State from out of State would give you jurisdiction to tax, why you would just be home free and so would every other State because there... national advertising.
Mr. Creeron: Well, that... that's the next case.
Unknown Speaker: xxx.
Mr. Creeron: Jurisdiction to tax--
Unknown Speaker: Not if you lose this one.
Mr. Creeron: --Jurisdiction to tax is present is this case.
We're not claiming and it's not an issue in this case that advertising itself creates jurisdiction to tax.
The question is if there is otherwise jurisdiction to tax, what activities are exempt solicitation?
In conclusion, it's our position that the Wisconsin... the--
Unknown Speaker: Can I just ask one other little... maybe this is stupid, but supposing we could identify the percentage of Wrigley's business that was done in the ways that you say established something more than solicitation in the State.
Would that, in your view, entitle Wisconsin to tax the portion of their income attributable to those activities, or would it then allow you to tax all the income they've gotten from everything else they've done?
Mr. Creeron: --It's our position that it's an all or nothing statute.
Once you engage in activities beyond those expressly permitted by the statute, you're taxable for the whole tax year.
Unknown Speaker: Has anybody passed... have courts passed on that particular point I've raised?
You see, the text of the statute, I think, is somewhat ambiguous on that point.
Mr. Creeron: I'm not aware of any court which has taken a contrary position and required some kind of a percentage apportionment based on what activities are solicitation and what are not.
Unknown Speaker: So that if 99 percent of their sales and solicitations were exempt under the statute, but they have 1 percent that is generated by an... by a taxable method, the whole 100 percent becomes taxable.
Mr. Creeron: Well, some courts have accepted the de minimis argument, but I'm not aware of any--
Unknown Speaker: But it's either all... it's always an all or none proposition.
Mr. Creeron: --As far as I know, there's no court that's held to the contrary.
In conclusion, we urge reversal of the judgment of the Wisconsin Supreme Court.
Unknown Speaker: Thank you, Mr. Creeron.
Mr. Prettyman, we'll hear from you.
Argument of E. Barrett Prettyman, Jr
Mr. Prettyman: Mr. Chief Justice, and may it please the Court:
General Creeron has touched upon a number of activities that he says that we engaged in, and I'm going to deal with those in just a moment.
But I thought it might be helpful in starting just to focus on some of the things that we didn't do in Wisconsin in an effort to comply with this statute.
We were not, for example, licensed within the State.
We didn't have a bank account there.
We didn't invoke the jurisdiction of any Wisconsin court.
We didn't own real estate or a manufacturing plant or a sales office or a warehouse.
We didn't collect delinquent accounts or investigate credit-worthiness or grant credit or handle complaints.
We didn't approve or accept orders.
We didn't hire or fire within the State.
We didn't even have a listing in the phone book.
And when the salesman gave out cards, they had--
Unknown Speaker: How did you check credit?
Mr. Prettyman: --Pardon me?
Unknown Speaker: Didn't you even check credit?
Mr. Prettyman: Illinois did.
The office in... the Wrigley office, but it was not done in Wisconsin.
Unknown Speaker: You mean they did it on the phone to Wisconsin?
Mr. Prettyman: Well, the Wisconsin office, whenever a prospective customer came in, the name was forwarded to Illinois for a number of reasons, among them, to make sure that they could pay their bills.
And Wisconsin... I'm sorry, Illinois--
Unknown Speaker: So they corresponded or used the telephone to check the credit.
Mr. Prettyman: --Yes, they would either send in a written notice--
Unknown Speaker: Into Wisconsin.
Mr. Prettyman: --No, to Illinois.
Unknown Speaker: Well, I know but what would Illinois... how would Illinois check the credit?
Mr. Prettyman: I have no idea how they checked the credit.
I assume they looked up--
Unknown Speaker: Well, I assume they communicated with somebody.
Mr. Prettyman: --Well, there's no evidence in this record that--
Unknown Speaker: Well, you mean they just sat in Illinois and said, gee, here's this name, and it must be good?
Mr. Prettyman: --Well, the--
Unknown Speaker: They must have written into Wisconsin.
Mr. Prettyman: --What this record reflects, Justice White, is that credit matters were handled out of Chicago.
Unknown Speaker: Yes, I know.
Mr. Prettyman: That's what the record reflects.
As I was about to say--
Unknown Speaker: All right.
Mr. Prettyman: --the cards that the salesmen gave out didn't even have a Wisconsin address or telephone number on it.
I touch on that because we were making obviously an honest effort to comply with this statute.
Now, General Creeron has focused on the word "solicitation", but I would remind you that that's not what that statute talks about.
The statute talks about business activities within the State, which are the solicitation of orders.
It's the business activities that we're trying to determine the meaning of here.
I would further point out that he said that this statute abridged the State's taxing authority.
In fact, this statute is an allocation statute, because what you have here is all of Wrigley's orders or business in Wisconsin is presently taxed in Illinois... 100 percent of it.
So what this statute does is say that that is where it should be taxed.
On the other hand, if Wisconsin was going to tax some of these activities, then under the so-called reverse nexus rule, Illinois would not tax so... those particular activities.
So this doesn't take power away from the States to tax, what it does is to allocate power between the States that can tax.
Unknown Speaker: Well, I think it's an overstatement, Mr. Prettyman, to say it doesn't take power away from States to tax.
Because in the absence of this statute, don't you think that Wisconsin would have a better case for taxing?
Mr. Prettyman: --Absolutely.
And in fact I... we don't contest that there's nexus in this case.
This is not a Quill case.
It has nothing to do with nexus.
We would concede immediately that there's nexus to tax.
What I meant by that was it isn't as if it was telling the States you cannot tax this activity.
What it is is saying that Illinois can tax it, but Wisconsin can't.
It allocates that power between the States.
Now, General Creeron, if I understood him, in answer to a question from Justice Souter, conceded that dropping off posters would be part of the business activities that was covered here.
And he said because that's inextricably bound up in the solicitation process.
That is our case.
That is our position, that everything that we did was either inextricably bound up in the solicitation process or it was of a de minimis nature.
Now let me go to the four or five points that he mentioned that he thought went too far.
And the first was what he called the agency stock transfers.
This was not a--
Unknown Speaker: The what?
Mr. Prettyman: --The agency stock transfers.
This is not a sale.
There was no price involved, no billing, no money accepted, no invoice.
What this was was really an internal check of the company to make sure that there was no sale.
And it was also de minimis.
And it was established that it represented 7/100, 000 of 1 percent of the business done there.
And what this process was, it was very simple.
If you went in, for example, to a new customer, say a retailer, and he's found that he didn't have any gum on his shelf.
You said... and you want to get him as a customer and you want to solicit his sales, you took out some gum from your car, and you put it on the shelf, and you said, look, try this and, you know, we'll get some orders from you.
Then you made out one of these agency stock transfers and you sent it either to the wholesaler or to the company, which in turn would bill.
That's all it was.
It represented, it was estimated, like 5 percent of the gum that was carried in the car.
Unknown Speaker: Who was billed for what?
Mr. Prettyman: Either the wholesaler billed that... retailer, or if it was a large account, Wrigley billed the whole... the retailer.
Unknown Speaker: But de minimis or not, it was a sale of gum.
Mr. Prettyman: No, it was not... it was not a sale... I don't think it was a sale in the normal sense, Your Honor, because--
Unknown Speaker: Well, it was not a sale to a consumer, but neither was it a gift to the retailer as an inducement.
It was in fact a sale to the retailer.
Mr. Prettyman: --If it will help move us along, I will say it's a sale because it was totally de minimis.
I... when I said it wasn't a sale, I meant it wasn't in the normal sense of a sale where you go and tell the fellow the price and you haggle with him.
And then you... he pays you the money and you give him the gum.
That isn't how it happened.
But I would concede that if this was the way that the company did business on a regular basis with all of its people, it could possibly go beyond solicitation.
But what I'm saying is that when you have an activity that is 7/100, 000 of 1 percent of your business, surely, once you accept the de minimis concept, you would have to say that that's it.
Unknown Speaker: Well, is there a de minimis concept that we should accept here?
It certainly isn't reflected in the text of the statute.
Mr. Prettyman: I don't think most statutes that have a de minimis exception to them express language in that way, Justice O'Connor.
I would point out that not only has this Court recognized a de minimis exception in numerous cases, but Congress itself in the legislative history of this act referred to de minimis exceptions.
Petitioner's own regulations implicitly recognize have been de minimis exceptions.
Some of the State--
Unknown Speaker: Well, do we have to worry about the word "only" that appears in the statute?
Mr. Prettyman: --You know it's interesting, Your Honor, if you look at the statute and take out the word "only", I think the statute would mean exactly the same thing.
"Only", I think is a matter of emphasis.
I would certainly agree with you on that.
But if it said no State shall have power to impose a net income tax if the business activities are the solicitation of orders, it would mean exactly the same thing.
So I take the word "only" to be a matter of emphasis, but I don't see that it does away with a de minimis exception at all.
Some of the amici in this very case that support petitioner agree that there is a de minimis exception.
And I would remind you, for example, of the Abbott Labs case, which we cite in our brief.
There you have a... it was a Robinson-Patman exemption for sales to nonprofit hospitals that used the goods for their own use.
And the question came up, well, what about purchases for walk-ins?
And you said, well, walk-ins wouldn't be for the hospital's use, and then somebody said, yeah, but what about emergencies where the walk-ins are connected with the hospital.
And you said, well, that's de minimis.
Now, you carved that right of the statute.
So I don't think there can be any question that there has to be a de minimis exception because look, you're dealing with companies large and small here.
And to say that the taxing authority can kind of peek around the corner and find in an exigent circumstance some exception during the course of an entire tax year, where somebody went a bit too far, and that brings me to the warehouse situation--
Unknown Speaker: Before you get to the warehouse, what is the relationship that renders something de minimis or not?
You gave a very tiny percentage of Wrigley's total sales--
Mr. Prettyman: --In Wisconsin.
No, only in Wisconsin.
Unknown Speaker: --Of their total sales in Wisconsin?
Mr. Prettyman: Yes.
Unknown Speaker: You think that's the way to decide it?
Mr. Prettyman: Yes.
I think it relates either... can relate either to the size of the sales or to kind of a minor exception to your normal practice.
And if I can move logically then to the warehouse situation.
Unknown Speaker: But may I just interrupt there?
Mr. Prettyman: Certainly.
Unknown Speaker: You said minor exception to the normal practice, but we're talking about a normal practice, aren't we, the replacing of stale gum and doing this delivery and having this billing you described here?
Mr. Prettyman: Well, there's a big difference between replacement of stale gum and the agency stock.
Unknown Speaker: Well, aren't they both normal practices?
Mr. Prettyman: Well, the agency stock is a normal practice, but it's de minimis because it constitutes such a tiny percentage of what we do.
Replacement of stale gum is as inextricably bound up in solicitation as anything you can possibly conceive.
Unknown Speaker: Does the retailer pay for the fresh gum that's used to replace the stale gum?
Mr. Prettyman: No, he's already paid for it.
You see, the sale has been made, the shipment has been made.
It's on his shelf.
The salesman goes in and he finds it's over 6 or 8 months old, and he says this is out of date.
Now why does he do that?
Because he knows that if that salesman gets caught with stale gum and his customers tell him, we'll never get another order.
A salesman will tell you that there's nothing more inextricably bound up in solicitation than replacing stale gum.
He's not going to get any orders unless he's got--
Unknown Speaker: This is gum that has not gone stale on the retailer's shelf.
It is gum that is stale when delivered to the retailer?
Mr. Prettyman: --No, no, no.
It would normally have gone stale on his shelf, Your Honor.
I hope we don't deliver stale gum.
Unknown Speaker: And he doesn't pay for this new gum?
Mr. Prettyman: No.
It's exchanged free.
He's not charged for it.
Unknown Speaker: So he only pays for the gum that he either sells, or that stays perpetually fresh?
Mr. Prettyman: If he--
It's not in the contract, but that's what we do as part of our solicitation.
Because if we put packs on his shelf and then a customer comes in and says, you know, that stuff I chewed the other day was hard as a board, he's not going to put any more orders with us.
Unknown Speaker: xxx wasn't gum.
Suppose it's a very expensive piece of machinery, and all you do... the only thing you do besides solicitation, and you're going to claim that it's solicitation, is that you service that engine.
He calls you up and says this engine won't... isn't running.
And so you rush out there.
You have a mechanic or the same salesman, he's a serviceman, and he goes out and services the engine.
That's part of his regular duties.
He'll never get another order from that company if he doesn't service that engine.
Now, do... is that in the same category?
Mr. Prettyman: Your Honor, I think you make a very good point.
And that is, what you look to--
Unknown Speaker: What point was I making?
I was asking a question.
Mr. Prettyman: --The fact that there are some duties that can go beyond solicitation depending what is customary in the industry.
If... you said technical people who may go out... you said two things.
You said, first of all, technical people, and secondly, you said salesmen.
If they're technical people, they're not salesmen and they're not soliciting.
When you look at what a salesman ordinarily does within the industry--
Unknown Speaker: Say the salesman is a qualified technician and he... part of his duties is regularly answering customers whose engines won't run.
Mr. Prettyman: --I think, Your Honor, that you'd look at what was customary in the industry.
Unknown Speaker: Well, say it is customary in the industry.
Mr. Prettyman: Well, if it's customary in the industry, and in fact he's doing most of his time selling, and as... he also spends a portion of his time doing something which he thinks he has to do in order to get the next order, then I would say that it's covered here.
It's inextricably bound up in solicitation.
But if he's primarily a repairman, and we use in our brief the example of the 60-ton generator, if somebody's going to go out and fix that, that's not a solicitation of orders.
If I could move then to the warehouse because something has been made of that.
I mentioned a few minutes ago the exigencies of a given situation, and surely that was this one.
What happened was somebody was fired and we were stuck with his gum that he had in his car.
And so it was temporarily put into a warehouse.
But then the next fellow who came along had an apartment.
He couldn't get it in his apartment apparently.
I don't know whether they wouldn't allow it in or he didn't have room, or what.
Unknown Speaker: It was his wife.
Mr. Prettyman: I'm not going to touch that one.
But... so they kept the warehouse on for the period when he was aboard because they didn't have any place else to put it.
Now, that is not the kind of warehouse that was referred to in the legislative history, that Congress didn't want you to have a plant or a sales office or a warehouse.
This was an exigent circumstance demanded by the... because you couldn't leave stuff out on the street.
And that again was a de minimis situation under the view of the Wisconsin Supreme Court, and I would suggest to you, fully supported here.
Unknown Speaker: Are there any cases that you rely on for the proposition that there's a de minimis exception in this kind of tax situation?
Mr. Prettyman: Well, I don't have a tax case for you, but I gave the example, Your Honor, of the Abbott Labs case, where you did carve a diminishment... de minimis exception right out of the statute itself.
Unknown Speaker: Yeah, but the argument is that you have different presumptions that play when it's a tax case and when it is restricting the State's otherwise existent jurisdiction to tax.
Mr. Prettyman: Your Honor, I think you have to look, if I may suggest it, at Congress really had in mind with this statute because I don't think you give it the most conceivably restrictive interpretation that you possibly could.
Congress here was worried about the fact that you have over 6,000 taxing jurisdictions.
They have all kinds of different bases and rates and timing and all the rest of it.
And compliance with this kind of local taxation was so onerous that in some cases it was pointed out that the cost of compliance was more than the tax.
So that was number one that they were worried about.
Number two, they were worried about the possibility of double taxation.
In the situation here, Illinois would continue to tax and Wisconsin taxes, and you've got double taxation.
Because of that, this statute was overwhelmingly passed.
The House passed it 359 to 31, the Senate did it on House vote.
It's been in effect for 30 years and more, since 1959.
Congress has had at least one complete report on it, the so-called Willis Report in 1962, where they essentially approved of how it was being carried out.
Unknown Speaker: Well, there's a wide variety, is there not, among the States as to what exemptions they say are covered and what aren't?
Mr. Prettyman: The language in some of the decisions is widely varying, Your Honor, but I would suggest to you I do not... I think I can honestly say I do not know of a single State decision that I would disagree with the result in, because in every one of those cases, they were doing something which we would concede is beyond solicitation.
So, although the language--
Unknown Speaker: You concede it's all or nothing?
Mr. Prettyman: --In answer to Justice Stevens' question it was... that's an interesting question.
I'm not sure what the answer of that is.
It has not been raised.
I can assure you that I go back and lose this case I will argue that it's not all or nothing.
But what the result would be, Your Honor, I honestly--
Unknown Speaker: Have you covered all the four things that--
Mr. Prettyman: --Let's see.
I have covered the agency stock.
I haven't covered personnel or home offices.
Unknown Speaker: --But you've covered the stale gum.
Mr. Prettyman: Replacement of stale and warehouse.
Unknown Speaker: And the warehouse.
Mr. Prettyman: Yes.
Unknown Speaker: All right.
Mr. Prettyman: Shall I touch briefly, then, on--
Unknown Speaker: Can I ask one other question about the stale gum?
What did your figure of 7/100, 000 of 1 percent pay into?
Of all of these activities or the smallest of the group?
Mr. Prettyman: --It covered some $600 worth of sales divided into the total sales in the State.
Unknown Speaker: I understand.
But that's just the agency stock.
Mr. Prettyman: Yes.
Unknown Speaker: That didn't include, for example, replacing the stale gum.
Mr. Prettyman: No.
And the agency stock--
Unknown Speaker: How big a percentage is that?
Mr. Prettyman: --Pardon me?
Unknown Speaker: Do you know how big a percentage that is?
Mr. Prettyman: No, but that was... the salesman testified that it was 85 percent of the stock that they kept on hand.
And the 10 percent was samples, and then the 5 percent was the agency stock.
Unknown Speaker: Eighty-five percent is used to replace stale gum.
Mr. Prettyman: Yes.
So that ought to give you some idea of it.
Unknown Speaker: Would the case be different if instead of replacing stale gum, you bought it back?
Mr. Prettyman: I think if you make an actual sales, as a--
Unknown Speaker: I'm... not sale.
If you bought from the retailer his stale inventory, you paid him for it, and then sold him, would that be a different case?
Mr. Prettyman: --You mean you buy back what you've sold him?
Unknown Speaker: Well, because you don't want him to sell that.
He's got some merchandise that you think is going to hurt the goodwill of your company.
Mr. Prettyman: Oh, I see.
In other words you buy... the salesman on the spot buys back the... I think that could well go beyond the statute because--
Unknown Speaker: What do you do with the stale gum you take off the shelf?
Throw it in the wastebasket?
Mr. Prettyman: --No.
Unknown Speaker: It's really a trade, isn't it?
Mr. Prettyman: Well, first of all--
Unknown Speaker: You take it and you replace it.
That's a trade.
Mr. Prettyman: --Back during this period, most of it was packaged and sent back to Chicago.
A little bit of it--
Unknown Speaker: So it's a trade.
It's a trade.
Mr. Prettyman: --A little bit of it was thrown into the local dumps.
Unknown Speaker: So instead of money, you give them new gum.
So it's sort of a sale.
Mr. Prettyman: It's an exchange.
Unknown Speaker: It's sort of a sale.
But he's billed for it.
That's what he was billed for.
Mr. Prettyman: No, not for the stale gum.
Let's distinguish now between the agency stock, which is a tiny little percentage, and the replacement of stale gum, which is completely free.
Unknown Speaker: Mr. Prettyman, why did they send it back to Chicago?
Can't they dump it in the Wisconsin landfill?
Mr. Prettyman: Your Honor, the reason it is sent back to Chicago is that in those days it could become part of new gum.
It could become a base for new gum.
That is not longer done.
Unknown Speaker: Recycled.
So when you chew gum, you're chewing stale gum, too.
Mr. Prettyman: Well, they treat it.
If I can deal with the personnel matter that he mentioned.
Personnel decisions were made in Chicago.
The final decisions were all made in Illinois.
The local man, of course, had to do some things and make recommendations.
But it's interesting that there are instances in the record where the local man made recommendations about raises, for example, which were turned down by Chicago.
In one instance where they were going to fire someone, the regional manager, who was in Wisconsin, got permission ahead of time.
He said if the facts prove true, do I have permission to fire him, and they said yes, and he fired him.
So the personnel decisions, I think, are well taken care of.
They're outside the State.
In so far as the home offices, which I believe is the last thing that General Creeron mentioned as concern, we did not have a sales office.
There was no evidence whatever that Wrigley knew about the fact that this gum was kept in the home.
It didn't pay for it.
The use was strictly incidental.
You had a file cabinet here for your normal reports, or you used the kitchen table or a part of the basement.
You had one or two meetings a year of the sales personnel, and in one case they were sent... they were in the home.
They were usually in a home. But the sales meetings were completely taken up with solicitation.
That is, how are we going to sell more gum.
And even the manager, the regional manager who was within Wisconsin, his chief job was solicitation.
He spent from 80 to 95 percent of his time in soliciting orders.
I think that's all that the... that my opponent has mentioned, but I do want to talk about the pre-sale/post-sale test for just a moment.
If you look on page 2 of his reply brief, something that I had noticed before in his main brief, he says that you don't have to have a sale in order for you to be covered under the pre-sale/post-sale test.
Now if that's true, it seems to me we fit his test.
If you don't have to have a sale, and all you have to do is the activities that would lead up to a sale, or if you have a sale, then you keep going to try to get the next sale, why, I think we meet the pre-sale/post-sale test.
Or to put it another way, I don't thing the so-called pre-sale/post-sale test makes any sense.
Because certainly in the gum industry, and Justice Blackmun, you put your finger on it, was that you not only have a short shelf life, but you have, you know, 95 percent of it is impulse buying... 95 percent is impulse buying.
And so you... when you put those two together, what you have there is activity that is ongoing in every sense.
The gum industry is different from that 60-ton generator that I mentioned to you.
Unknown Speaker: That's one of the things that troubles me.
I can't believe that Congress enacted a statute that would be almost impossible of application, and I'm looking for a criterion that would be readily applicable.
And maybe the categorical solicitation test is easier than what you're proposing.
The State authorities, under your test, would really have to know each individual industry.
If servicing normally goes along with solicitation for this industry, it's okay.
If it doesn't normally go along with solicitation for that industry, although it does for another one, then it's not okay.
That makes life very complicated.
Why should we buy in to that kind of difficulty?
Mr. Prettyman: Your Honor, I don't think it is at all.
I think it... first of all, you're looking for a criteria.
I would say that the business activities... and don't forget I go back to that.
It's just not solicitation.
It is the business activities that are solicitation.
The business activities that are covered are those which are directed toward achieving an immediate or a future sale, and which is normally done by a salesman or a supervising salesman in that industry.
Now, that is not different than the kinds of determinations that have to be made all the time, based on custom and usage in an industry... in tax matters.
For example, section 482 of the Internal Revenue Code, where a company's lending money to a foreign sub, says you can charge the interest rate that's customary in the industry.
And the IRS--
Unknown Speaker: But it says that.
I mean, it goes to the trouble of saying that.
And this doesn't say what's considered solicitation in the industry, it says solicitation, as though that's something everybody understands and it's the same everywhere.
Mr. Prettyman: --Well, don't we have to be practical about this, Your Honor, and--
Unknown Speaker: I'm trying to be.
Mr. Prettyman: --try to make sense out of what Congress did.
They obviously intended something by this statute, and I think what they intended was that whatever you normally do for... to solicit orders is what is covered.
And what salesmen do not ordinarily do is not cover it, absent a de minimis exception.
Unknown Speaker: Well, that would make me think that maybe carrying your samples around in the taxicab, yes, is part of solicitation, but I don't know why replacing stale gum is.
Mr. Prettyman: Well, I can only tell you that the evidence in this case, Your Honor, is that there is nothing more inextricably bound up in a salesman's mind and in common usage and practice than replacing stale gum. Because you're not... look, if you go to a retail store, and you're selling $10 worth of gum, that's not going to do anything for you.
But if he's a regular--
Unknown Speaker: May I interrupt you right there?
Mr. Prettyman: --Certainly.
Unknown Speaker: I take it a regular practice of delivering gum by the salesman would not constitute solicitation.
And I would... the problem I have with your example is I wouldn't... it would fit perfectly if he took away the stale gum and then said I'll give you a free order and have the wholesaler ship it into you.
So that... but he is doing the delivering himself, on a regular basis, of a portion of the inventory sold by the retailer.
And that's the question that troubles me the most.
Mr. Prettyman: Well, Your Honor, I will submit to you that it is not delivery, that's... that it's an exchange.
And what the statute contemplates is a delivery order sent for approval outside the State.
And that's not this.
That order has been sent from outside the State.
It's in the store.
That has been completed.
Unknown Speaker: No, what's in the store is the gum that's being exchanged.
The stuff he's delivered hasn't been ordered.
Do you... it would be... see, what I'm saying is it would be a quite different case if the replacement gum were shipped by the wholesaler... free.
But he just takes away the old.
And taking away the old gum, no problem.
But delivering the new gum, that's what troubles me.
Mr. Prettyman: Well, that's funny.
I don't look at it that way because I don't think that's what the statute is talking about when it means delivery.
I think this is a simple exchange for gum which has been delivered, and he's going to get further deliveries in the future.
And all he's doing is he's taking a gum which is really no longer what the man bargained for, what he paid for, and just saying, we'll give you what you originally paid for and what was originally delivered to you.
If there are no further questions, we would strongly urge that the Wisconsin Supreme Court, which as I think Justice Blackmun pointed out, was an unanimous view, and which ordinarily you would not expect from the taxing State, be affirmed in this case.
Unknown Speaker: Thank you, Mr. Prettyman.
Mr. Creeron, you have 2 minutes remaining.
Rebuttal of F. Thomas Creeron, III
Mr. Creeron: On the de minimis exemption, the word "only" is what gives the statute its character protecting small business.
If you make $600 of sales, and you say that's de minimis, a small business who comes into the State and makes that same $600 of sales, and it's their total sales, loses out under the statute.
That's totally at odds with the statutory purpose of protecting small business.
The de minimis exemption also hasn't been defined in any way--
Unknown Speaker: I don't know if I understand that argument.
Because a small business could make de minimis mistakes, too, and be protected.
I mean, a small business isn't one that has only $600 of sales.
That can have a couple hundred thousand and still be a small business.
Mr. Creeron: --Well, even if--
Unknown Speaker: What I'm saying is if there's a de minimis exception, the small business will get the benefit of it as much as the big business.
Mr. Creeron: --But how do you determine what the de minimis exemption is?
I mean, they have no definition--
Unknown Speaker: Well, that's another problem.
But I just don't buy your argument that it's loaded one way or another based on the size of the company.
At least I don't understand it on that basis.
Mr. Creeron: --But I mean, a small business couldn't claim a de minimis exemption if all its $600 of sales involve direct delivery.
You know I... it seems to me that that removes the character of the statute of protecting small business.
Also, the statute was designed to protect those corporations that couldn't afford attorneys and accountants to examine the tax laws of other States.
I think there's a certain irony in this case, if you just look at the front of Wrigley's brief, that they're claiming the benefit of the statute in light of the great number of able counsel that they're able to employ.
Unknown Speaker: Just because you're such a worthy opponent.
Mr. Creeron: Thank you very much.
Chief Justice Rehnquist: Thank you, Mr. Creeron.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 91-119, Wisconsin Department of Revenue versus William Wrigley, Jr., Company will be announced by Justice Scalia.
Argument of Justice Scalia
Mr. Scalia: This is a petition for writ of certiorari to the Supreme Court of Wisconsin.
Between 1973 and 1978 the respondent, William Wrigley, Jr., Company, a Chicago-based corporation, sold chewing gum in Wisconsin through a sales force consisting of a regional manager and various field representatives, all of whom engaged in various activities in addition to just requesting orders from customers.
Wisconsin orders were sent to Chicago for acceptance and were filled by shipment through common carrier from outside of Wisconsin.
In 1980, the petitioner here, Wisconsin Department of Revenue, concluded that Wrigley's in-state business activities during the years in question had been sufficient to support Wisconsin's imposition of a franchise tax on the corporation.
Wrigley maintained that it was immune from the tax under Section 381(a) of Title 15 of the United States Code.
That section prohibits a state from taxing the income of a corporation whose only business activities within the state consist of "solicitation of orders" for tangible goods.
Provided that the orders are sent outside the state for approval and the goods are delivered from out of state.
Ultimately, the Wisconsin Supreme Court disallowed the tax.
Obviously, the statutory phrase, "solicitation of orders", includes any speech or conduct that explicitly or implicitly proposes a sale.
We think it must mean more than that, however.
If the statute is not to be rendered a practical nullity, solicitation must also cover the entire process associated with inviting an order.
On the other hand, the statutory phrase should not be interpreted so broadly as to include all activities that are routinely or even closely associated with solicitation or customarily performed by salesmen.
In our view, solicitation of orders as used in Section 381(a) covers those activities that are entirely ancillary to requests for purchases, that is, those activities that serve no independent business function apart from their connection to the soliciting of orders.
Those activities that the company would have reason to engage in any way but simply chooses to allocate to its in-state sales force are not covered.
We also conclude that there is a de minimis exception to the activities that forfeit the statutory immunity, the legal maxim de minimis non curat lex, the law does not take account of trifles.
Whether a particular activity is sufficiently de minimis to avoid the loss of the statutory immunity depends upon whether that activity establishes a non-trivial additional connection to the state.
Applying these standards, we conclude that Wrigley's Wisconsin business activities were not limited to the solicitation of orders.
The sales representative's practice of replacing stale gum, for example, served an independent business function since Wrigley would need to take care of spoiled goods even if it did not have a sales force.
Similarly, the representative's occasional sales to retailers who had agreed to install new display racks obviously served the independent purpose of earning a profit on those items.
And because the vast majority of the gum stored by Wrigley in Wisconsin was used in connection with these activities, that storage and the indirect rental of space for that storage was in no sense ancillary to solicitation.
Moreover, these non-immune activities when considered all together are not de minimis.
Accordingly, we conclude that Wrigley was not entitled to tax immunity under the statute and we, therefore, reverse the judgment of the Wisconsin Supreme Court.
Justice O'Connor has filed an opinion concurring in part and concurring in the judgment; Justice Kennedy has filed a dissenting opinion in which the Chief Justice and Justice Blackmun join.