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15 U.S.C.S. § 381(a)(1) confers immunity from state income taxes on any company whose "only business activities" in that State consist of "solicitation of orders" for interstate sales. "Solicitation," commonly understood, means asking for, or enticing to, something.
During 1973-1978, William Wrigley, Jr., Co. (William Wrigley), which is based in Chicago, sold its products 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 requesting orders from customers. Wisconsin orders were sent to Chicago for acceptance, and were filled by shipment through common carrier from outside the State. In 1980, petitioner Wisconsin Department of Revenue concluded that William Wrigley’s in-state business activities during the years in question had been sufficient to support imposition of a franchise tax. William Wrigley objected to the assessment of that tax, maintaining that it was immune under 15 U.S.C. § 381(a), which 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 State Supreme Court disallowed the imposition of the tax.
Did William Wrigley activities in Wisconsin fall outside the protection of § 381?
The court noted that 15 U.S.C.S. § 381(a)(1) conferred immunity from state income taxes on any company whose "only business activities" in that state consisted of "solicitation of orders" for interstate sales. The court was of the opinion that the term "solicitation" in the statute included not just explicit verbal requests for orders, but also any speech or conduct that implicitly invited an order. The court concluded that the replacement of stale gum, the supplying of gum through "agency stock checks," and the storage of gum were not ancillary. Because the activities served an independent business function quite separate from requesting orders, it did not qualify for § 381 immunity. Since William Wrigley’s business activities within Wisconsin were not limited to those specified in § 381, the prohibition on net-income taxation contained in the provision was inapplicable. The judgment below was reversed.