A231561 Precedential Affirmed Processed

Uline, Inc., Relator v. Commissioner of Revenue

Minnesota Supreme Court · Filed August 7, 2024

Opinion text

STATE OF MINNESOTA

IN SUPREME COURT

A23-1561

Tax Court McKeig, J.
Took no part, Hennesy, Gaïtas, JJ.
Uline, Inc.,

Relator,

vs. Filed: August 7, 2024
Office of Appellate Courts
Commissioner of Revenue,

Respondent.

________________________

Aaron D. Van Oort, Tyler A. Young, Michael J. Kaupa, Faegre Drinker Biddle & Reath
LLP, Minneapolis, Minnesota, for relator.

Keith Ellison, Attorney General, Jennifer A. Kitchak, Assistant Attorney General, Saint
Paul, Minnesota, for respondent.

________________________

SYLLABUS

1. The mandatory practice of what amounts to market research performed by

an out-of-state company’s sales team in Minnesota is not considered “solicitation of

orders” under Title 15, United States Code section 381, and is therefore not protected from

Minnesota state income or franchise taxation.

1
2. The market research performed by the company’s sales team in Minnesota

was not merely de minimis and therefore is not immune from Minnesota state income or

franchise taxation.

Affirmed.

OPINION

MCKEIG, Justice.

This tax case requires us to determine whether the activities of a Wisconsin

company’s sales representatives within Minnesota created a sufficient nexus with the State

such that Minnesota may impose an income and franchise tax. Relator Uline, Inc. (Uline)

runs its industrial and packaging product business out of Wisconsin but employs a sales

team whose members make in-person sales calls to businesses in Minnesota. Uline paid

no income or franchise tax to Minnesota for the years 2014 and 2015. Following an audit,

the Minnesota Commissioner of Revenue (Commissioner) assessed taxes for those years.

Uline appealed, first administratively and then to the tax court, and the assessed taxes were

upheld. Uline now appeals to this court, arguing that 15 U.S.C. § 381 provides state income

and franchise tax immunity for its activities in Minnesota because either 1) all activities of

the sales team were protected “solicitation of orders”; or 2) any unprotected activities

created only a de minimis nexus with Minnesota. Because the market research Uline

assigned to its sales team in Minnesota went beyond the solicitation of orders, those

activities were not protected from state income or franchise taxation. Further, the

unprotected activity of Uline’s sales team was not de minimis. Therefore, we affirm the

decision of the tax court.

2
FACTS

Uline is a Wisconsin-based corporation that sells industrial and packaging products.

Though Uline’s sales business is both web- and catalog-based, Uline also employs sales

representatives who regularly call and visit customers in Minnesota. Uline operated a

distribution center in Eagan, Minnesota, until September 2013, when Uline moved the

center from Eagan to Hudson, Wisconsin. Because of the move, Uline filed a tax return

with the State of Minnesota, claiming exemption from Minnesota income tax and franchise

tax for the year 2014; Uline did not file a Minnesota tax return for 2015.

During 2014 and 2015—the years at issue—Uline employed approximately 24 sales

representatives whose territory included Minnesota customers, and each sales

representative was expected to manage up to 7,000 accounts on average. Those

representatives were required to record “Sales Notes” for every customer visit but also had

a company-mandated “goal” of preparing at least two “Market News Notes” per week. The

stipulated facts in this case outline the differences between these two types of “Notes.”

Sales Notes generally contained a summary of how each customer visit went. This

synopsis included the “date and time of a customer visit and summarize[d] pertinent

information about the customer’s business, its product needs, and other helpful information

about key customer contacts.”

Market News Notes, on the other hand, documented a much broader array of

information, including customers’ “special delivery needs, bulk pricing requests,

complaints about product or service quality, need for certain products, and what products

customers are buying from Uline competitors” as well as information about Uline’s

3
competitors themselves, including “detailed product information such as manufacturer and

brand . . . product pricing, product lead time, payment terms, annual rebates, and

discounts.”

Market News Notes were entered into a shared sales database which was accessible

by other departments, and any “[c]omments in Market News Notes regarding warehouse

issues were directed to the warehouse department at Uline.” Further, Uline’s training

manual explicitly stated that the Market News Notes were shared “to the different

departments on a weekly basis” and that getting detailed manufacturer and brand

information would “help Marketing direct the note to the correct product manager.”

In 2017, the Commissioner investigated Uline’s business activities in Minnesota for

2014 and 2015 and determined that Uline was subject to state taxes, despite Uline’s claim

of exemption. 1 The Commissioner then issued a tax order and audit report in October

2017, which assessed Uline for income and franchise tax for the years 2014 and 2015.

Uline appealed the audit report administratively, and the Commissioner denied the appeal.

Uline then appealed the decision to the tax court in 2020. The tax court found that

the “regular and systematic preparation of Market News Notes accessible to non-sales

personnel went beyond mere solicitation of orders for purposes of [tax] immunity” and

1
This determination was based on four factors, which the Commissioner claimed
created a sufficient nexus to be subject to Minnesota tax: 1) Uline’s sales representatives’
collecting, compiling, and reporting of Market News Notes; 2) Uline’s participation in job
fairs and recruitment efforts in Minnesota; 3) sales representatives’ roles in customer
complaints and returns; and 4) a Uline executive’s occasional work from his Minnesota
residence. The tax court ruled against the Commissioner on issues 2–4 and those
determinations were not cross-appealed. Only the Market News Notes are relevant to the
issue before this court.

4
accordingly ordered the parties to stipulate to the tax amounts due. Uline, Inc. v. Comm’r

of Revenue, No. 9435-R, 2023 WL 4189923, at *19 (Minn. T.C. June 23, 2023).

Uline now appeals the tax court’s decision.

ANALYSIS

We review a final order of the tax court to determine if “the order of the Tax

Court . . . was not in conformity with law, or that the Tax Court committed any other error

of law.” Minn. Stat. § 271.10, subd. 1 (2022). The facts here are undisputed, and “[w]here

the facts are undisputed, we review the tax court’s legal determinations, including the

interpretation of statutes, de novo.” Manpower, Inc. v. Comm’r of Revenue, 724 N.W.2d

526, 528 (Minn. 2006). The Commissioner’s tax assessments are presumed valid and

correct, and the taxpayer bears the burden of proving otherwise. Cities Mgmt., Inc. v.

Comm’r of Revenue, 997 N.W.2d 348, 353 (Minn. 2023).

The issue before us is whether certain activities of Uline’s sales representatives in

Minnesota during 2014 and 2015 subjected the company to Minnesota state income tax

and franchise tax. Under the federal Interstate Income Tax Act of 1959, states are not

permitted to impose income taxes on any income derived from within the state by an out-

of-state business if the only activities conducted by the business within the state are the

“solicitation of orders.” 15 U.S.C. § 381(a)(1). The relevant language reads:

No State, or political subdivision thereof, shall have power to impose, for
any taxable year ending after September 14, 1959, a net income tax on the
income derived within such State by any person from interstate commerce if

5
the only business activities within such State by or on behalf of such person
during such taxable year are . . . 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 . . . .

Id. Notably, the term “solicitation of orders” is not defined in the statute. This federal

statute is directly incorporated into Minnesota law governing the minimum contacts

required for jurisdiction to tax trades or businesses. See Minn. Stat. § 290.015, subd. 3(a)

(2022) (“A person is not subject to tax under this chapter if the person is engaged in the

business of selling tangible personal property and taxation of that person under this chapter

is precluded by Public Law 86-272, United States Code, title 15, sections 381 to 384 . . . .”).

The United States Supreme Court interpreted the phrase “solicitation of orders” in

Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992), a case

involving a gum manufacturer based in Chicago and its sales representatives’ activities in

Wisconsin. When discussing the purpose of the law, the Court noted that the law was, in

part, “ ‘designed to define clearly a lower limit’ for the exercise of state taxing power. Id.

at 223 (quoting Heublein, Inc. v. S.C. Tax Comm’n, 409 U.S. 275, 280 (1972)). In

attempting to define the “somewhat less than entirely clear” standard for the term

“solicitation of orders,” the Court found that the common understanding of “the term

includes not just explicit verbal requests for orders, but also any speech or conduct that

implicitly invites an order,” including “extol[ling] the virtues of [the] company’s product

to the retailer of a competitive brand.” Id. The Court then went on to determine “whether,

6
and to what extent, ‘solicitation of orders’ covers activities that neither explicitly nor

implicitly propose a sale.” Id.

The Court ultimately drew a line “between those activities that are entirely ancillary

to requests for purchases—those that serve no independent business function apart from

their connection to the soliciting of orders—and those activities that the company would

have reason to engage in anyway but chooses to allocate to its in-state sales force.” Id. at

228–29. The former is part of the “solicitation of orders” and thus not subject to taxation,

while the latter can subject the company to taxation by the state.

For example, the sales representatives in Wrigley were each supplied with company

cars with which to make sales calls in Wisconsin, and a stock of around $1,000 worth of

gum, which was stored in Wisconsin and primarily used to replace stale product or perform

“agency stock checks.” 2 Id. at 217–18. The Court reasoned that the company would have

had no other reason to supply its sales representatives with company cars outside of

facilitating requests for purchase, so that activity was “entirely ancillary” to the solicitation

of orders, and thus protected from taxation. Id. at 228–29. The gum stored in Wisconsin,

however, was found to have a business purpose “quite independent from the purpose of

soliciting customers” because that gum was used to swap out stale gum, and the company

2
“Agency stock checks” were a practice by which sales representatives would fill a
retail display rack with gum from the stock they kept in their car. Wis. Dep’t of Revenue
v. William Wrigley, Jr., Co., 505 U.S. 214, 218 (1992). Rather than sending the order for
goods out of state as required for protection under section 381, the sales representatives
would fill the display rack and send a copy of the “agency stock check” to the Chicago
office or the wholesaler, which would then bill the retailer. Wrigley, 505 U.S. at 218. For
exemption from state taxation, 15 U.S.C. § 381(a)(1) requires that goods be delivered from
“a point outside the State.” (Emphasis added.)

7
made the retailers pay for any gum used when setting up display stands. Id. at 234. This

practice consequently subjected the company to taxation—despite the activity having been

performed by sales representatives. Id. Accordingly, the Court reasoned that business

activities that may help increase purchases but are “not ancillary to requesting purchases

. . . cannot be converted into ‘solicitation’ by merely being assigned” to sales

representatives. Id. at 229.

The Court also agreed with the Wisconsin Supreme Court that a company does not

necessarily forfeit its tax immunity under section 381 if some in-state activities that go

beyond the solicitation of orders are “de minimis activities.” Wrigley, 505 U.S. at 231

(citing William Wrigley, Jr. Co. v. Wis. Dep’t of Revenue, 465 N.W.2d 800, 811 (Wis.

1991) (internal quotation marks omitted)). The Court held that “whether in-state activity

other than ‘solicitation of orders’ is sufficiently de minimis to avoid loss of the tax

immunity conferred by § 381 depends upon whether that activity establishes a nontrivial

additional connection with the taxing State.” Id. at 232. Even though “the relative

magnitude of [the company’s] activities was not large compared to” its other in-state

activities, the Court had “little difficulty” concluding that the activities “constituted a

nontrivial additional connection with the State.” Id. at 235.

Uline argues that the preparation of Market News Notes by its sales team in

Minnesota falls within the protected “solicitation of orders” under section 381, or if such

activity is not protected, that it was de minimis. We address each argument in turn.

8
I.

Uline claims that the preparation of Market News Notes was a component of the

solicitation process used by its sales team and was therefore part and parcel of the

“solicitation of orders” under section 381. This argument is based on the Wrigley Court’s

statement that “the term ‘solicitation’ ” in a general sense “includes not merely the ultimate

act of inviting an order but the entire process associated with the invitation.” Id. at 225

(emphasis added). But this misreads Wrigley, which expressly rejected Uline’s argument,

stating:

We reject this “routinely-associated-with-solicitation” or “customarily-
performed-by-salesmen” approach, since it converts a standard embracing
only a particular activity (“solicitation”) into a standard embracing all
activities routinely conducted by those who engage in that particular activity
(“salesmen”). If, moreover, the approach were to be applied (as respondent
apparently intends) on an industry-by-industry basis, it would render the
limitations of § 381(a) toothless, permitting “solicitation of orders” to be
whatever a particular industry wants its salesmen to do.

Id. at 227. Uline’s sales process involved requiring its sales representatives to create

Market News Notes, which certainly made those practices part of Uline’s sales process.

But Wrigley made clear that simply because a company makes a particular activity part of

its sales process, that decision does not mean those activities are protected by section 381.

After all, gum storage was a duty assigned to Wrigley’s sales representatives—and

arguably made for more effective sales representatives—but the activity was still found to

have had a purpose distinct from solicitation of orders and consequently was unprotected

from taxation. Wrigley, 505 U.S. at 234.

9
The question remains, however, of whether the preparation and sharing of Market

News Notes by Uline’s Minnesota sales team went beyond the bounds of the solicitation

of orders for taxation purposes under section 381 as interpreted by Wrigley. Because the

preparation of Market News Notes neither explicitly nor implicitly proposes a sale, we

must evaluate the nature of the activity as it relates to requests for purchase. More

specifically, we must determine whether the preparation of Market News Notes was

“entirely ancillary to requests for purchases,” or if it was an activity that Uline “would

have reason to engage in anyway but [chose] to allocate to its in-state sales force.” Wrigley,

505 U.S. at 228–29. The Market News Notes that sales representatives were expected to

prepare report on information gleaned not only about Uline’s customers, but Uline’s

competitors as well. This information included details about fringe benefits and alternative

payment arrangements offered by competitors, the scope of customers’ accounts with

national competitors, prices that competitors offered on products of which Uline had

comparable items, and the collection of samples of competitors’ products for comparison

and marketing purposes.

Considering the scope of the stated use and purpose of the Market News Notes, it

would be difficult to classify them as anything other than market research. Certainly, this

information would be helpful to sales representatives in their endeavor to solicit orders, as

it can inform their tactics related to prices/discounts offered, suggest potential avenues for

new product positioning, and pinpoint the likes/dislikes of various customers. But whether

an activity is helpful to making a request for purchase is not the test laid out by the Wrigley

Court. We must ask instead whether Uline would have “good reason” to produce the

10
Market News Notes “whether or not the company has a sales force.” Id. at 229.

Uline claims that the preparation of the Market News Notes is, first and foremost,

an activity that is purely intended to facilitate requests for purchase as outlined by Wrigley.

To support this claim, Uline insists that any corollary benefits produced by an activity

purely associated with the solicitation of orders cannot transform a protected activity into

an unprotected one. And that may be true. But that is not the question we must answer

here. The Market News Notes clearly fall outside the protective umbrella of section 381

because, as shown by Uline itself, the company had good reason to prepare the Notes

whether it has a sales force or not.

The competitive advantage provided by the information gathered and shared in the

Market News Notes is apparent in how the Notes are used. Uline claims that the Notes are

merely the result of its efforts to field an efficient sales team, driven to solicit more and

more orders by collecting pertinent customer data. Yet that interpretation suggests that the

Market News Notes are simply another form of the Sales Notes, and it downplays what the

record shows about Uline’s use of the Market News Notes. As noted above, Uline’s sales

representatives already record detailed Sales Notes for every customer visit, which include

information about customer needs, the products customers currently order, the products

customers order from competitors, opportunities for new product placement, and

customers’ personal lives.

But Uline also requires its sales representatives to record at least two Market News

Notes per week, which detail information more relevant to other departments in the

company than to the sales department. The Market News Notes are organized by topic—

11
Competitor, Operational, and Marketing—to denote the nature of the information, and

certain information was actively directed to relevant departments outside the sales

department. For example, comments in the Market News Notes regarding warehouse

issues were directed to the warehouse department. The Market News Notes were stored in

a sales department database, and that database was accessible by several departments other

than the sales department. As evidenced by Uline’s training manual, the marketing

department accessed the Notes, and in some cases, “direct[ed] the note to the correct

product manager.”

The record shows that the purpose of the Market News Notes clearly went beyond

effectuating more effective requests for purchase. Preparing the Market News Notes

undoubtedly helps to increase sales—as do many activities engaged in by a company in

the business of selling products. But “there is good reason” to get the market research done

“whether or not the company has a sales force,” and the Market News Notes were not

entirely ancillary to the “solicitation of orders.” Wrigley, 505 U.S. at 229. Activities “not

ancillary to requesting purchases . . . cannot be converted into ‘solicitation’ by merely

being assigned to” sales representatives. Id. Therefore, the preparation of Market News

Notes by Uline’s sales representatives is not exclusively the “solicitation of orders,” and is

consequently not protected from state taxation by section 381.

II.

Having determined that the preparation of Market News Notes is not siloed

exclusively within the “solicitation of orders” under section 381, we must now determine

whether the activity was of such a de minimis nature that it would not create the required

12
nexus for taxation. When creating a de minimis exception for non-solicitation activities,

Wrigley stated that “whether in-state activity other than ‘solicitation of orders’ is

sufficiently de minimis to avoid loss of the tax immunity conferred by § 381 depends upon

whether that activity establishes a nontrivial additional connection with the taxing State.”

505 U.S. at 232.

The unprotected activity in Wrigley included sales representatives’ replacement of

stale gum, maintaining an in-state “stock of gum worth several thousand dollars,” and gum

sales from “agency stock checks,” which “accounted for only 0.00007% of [the

company’s] annual Wisconsin sales.” Id. at 235. The Court stated: “Although the relative

magnitude of these activities was not large compared to Wrigley’s other operations in

Wisconsin, we have little difficulty concluding that they constituted a nontrivial additional

connection with the State.” Id. Important to the Wrigley Court’s de minimis analysis was

whether an activity is “regular and systematic.” See, e.g., id. at 220, 221, 233 n.8. In its

analysis, the Court found instructive the fact that the company “deliberately chose to use

its sales force to engage in regular and systematic replacement of stale product on a level

that amounted to several thousand dollars per year, which is a lot of chewing gum.” 3 Id.

at 233 n.8.

3
Courts in other states accordingly ask whether an activity was “regular and
systematic” when performing a de minimis analysis. See, e.g., Chester A. Asher, Inc. v.
Dir., Div. of Taxation, 22 N.J. Tax 582, 599 (N.J. Tax Ct. 2006) (reasoning that “the fact
that there is a company policy, whether written or not” for the unprotected activity made
“the activity sufficiently systematic” to find a nontrivial nexus); Santa Fe Nat. Tobacco
Co. v. Dep’t of Revenue, No. TC 5372, 2022 WL 3647621, at *18 (Or. T.C. Aug. 23, 2022)
(stating in its de minimis analysis that “the court readily concludes that each of Taxpayer’s
activities at issue was ‘regular and systematic,’ as in Wrigley”).

13
Uline argues that even if some aspect of the preparation of Market News Notes fell

outside the scope of section 381, those activities were ultimately de minimis and did not

create the requisite nexus with Minnesota to support taxation. The basis for this argument

is that Uline’s sales team had many more customers and prepared many more Sales Notes

than the total number of Market News Notes prepared. But this argument is unpersuasive.

As noted above, the “relative magnitude” of the unprotected activities is not a

compelling reason to find only a trivial connection. Wrigley, 505 U.S at 235. The fact that

Uline’s two dozen sales representatives prepared over 1,600 individual Market News Notes

in Minnesota during the 2 years at issue shows that the activity was regular and systematic.

If a few thousand dollars’ worth of chewing gum is a nontrivial connection with Wisconsin,

Uline’s 1,600 market research entries on Minnesota businesses are certainly no different.

Accordingly, the unprotected preparation of the Market News Notes by Uline’s sales team

was not a merely de minimis activity and is therefore not immune from Minnesota income

and franchise taxation.

CONCLUSION

For the foregoing reasons, we affirm the decision of the tax court.