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By Altus Group | January 2, 2018

By: Karen T. Syrylo, CPA

It had been many years since the Maryland courts dealt with the issue of protections provided to sellers of tangible personal property under U.S. Public Law 86-272, until recently.  In November the Maryland Tax Court made available its written decision in Blue Buffalo Company, LTD.  V. Comptroller (M.T.C. No. 16-IN-00-0364, issued August 30, 2017).  The court analyzed the company’s in-state activities and ruled that the company had exceeded the limitations of P.L. 86-272 and therefore had Maryland nexus for income tax purposes, thus denying Blue Buffalo’s request for income tax refund.  The company had contended that it was immune from Maryland income tax because it’s Maryland activities were limited to solicitation of orders for its products.

U.S. P.L. 86-272, in federal statute at 15 U.S.C. 38(a), provides:

“(a) No State, or political subdivision thereof, shall have power to impose, for any taxable year… a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:

(1) the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and

(2) the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1).”

The facts indicated that Blue Buffalo had several employees present in Maryland conducting various activities:

1) A Distributor Sales Manager who met with local retailers, provided education and training to retailer personnel regarding Blue Buffalo products, and attended community events such as pet adoptions and community pet walks on behalf of the company;

2) An Account Manager whose function was to maintain relationships with local store managers and who trained the retailer’s personnel as well as customers about the use of products and also helped maintain the stores’ retail displays and gathered customer and competitor information while at the retail stores;

3) Two Regional Demo Managers who recruited and trained Blue Buffalo’s in-store sales representatives;

4) Several dozen in-store sales representatives referred to as “Pet Detectives” who interacted with the consumers at the local stores, encouraged purchases of Blue Buffalo products, and also obtained intelligence about competitors at the retail locations, gathered market data, and assisted with quality control and inventory issues by pulling expired inventory from the shelves, providing restocking services, and gathering information from consumers when products were returned to the retail store.

The activities of the Regional Demo Managers in item 3) were described as serving “no function apart from facilitating the solicitation of orders” (and therefore presumably would have immunized the company from income taxation if viewed alone).  However, the court determined that Blue Buffalo’s other Maryland activities served other business purposes other than requesting orders, and described them as “similar to an in-state Maryland sales force as opposed to employees merely soliciting out-of-state sales.”  For example, the court specified it’s view that “Gathering competitive data was in no way related to requesting orders.”  The judge concluded that the company’s business activities in Maryland “exceeded the solicitation protected by P.L. 86-272” and the income tax refund was denied.


First, as we often see in practice, it is critical that documents support the real facts, including such things as written job descriptions or statements from employees compared to the actual activities conducted by the employees. The Tax Court’s conclusion references that “from their own reports” the sales people’s jobs included “assisting with quality control and inventory issues,” and yet in the recitation of facts the decision says that “at least one Pet Detective [sales person] restocked retailer shelves on at least one occasion.”  Even if this activity is not considered ancillary to solicitation, surely one person doing this service one time is de minimus, and yet apparently the sales people’s documentation described it as routine.

Additionally, the Tax Court did not cite or make any reference to the U.S. Supreme Court’s 1992 ruling in Wisconsin Department of Revenue v. William Wrigley, Jr., Co., in which the Court provided for a broad interpretation of “solicitation” for determining protected activities, i.e. activities that are ancillary to the solicitation process, and also allowed that de minimus non-solicitation activities would not run afoul of exemption under P.L. 86-272.  The Tax Court’s chosen wording of “similar to an in-state sales force” strikes this author as odd, since an in-state sales force consisting of sales people who solicit orders is exactly what P.L. 86-272 addresses.  Although the first Maryland case on the topic in many years, one wonders whether this one is clear enough to preclude other challenges.

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