Blue Buffalo Company, Ltd. v. Comptroller of the Treasury, No. 495, September Term,
2018, Opinion by Adkins, J.
CORPORATE TAXATION – IMMUNITY – SOLICITATION OF ORDERS:
Because the systematic gathering of competitive information exceeded the protection
granted to the solicitation of orders, and was not de minimus, the corporation’s in-state
activities were not immune from taxation under
15 U.S.C. § 381. The circuit court
correctly upheld the tax court’s order.
Circuit Court for Baltimore City
Case No.: 24-C-17-004798
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 495
September Term, 2018
______________________________________
BLUE BUFFALO COMPANY, LTD.
v.
COMPTROLLER OF THE TREASURY
______________________________________
Kehoe,
Leahy,
Adkins, Sally D.
(Senior Judge, Specially Assigned),
JJ.
______________________________________
Opinion by Adkins, Sally D., J.
______________________________________
Filed: December 20, 2019
Pursuant to Maryland Uniform Electronic Legal
Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document is authentic.
2019-12-20
11:19-05:00
Suzanne C. Johnson, Clerk
Federal law provides immunity from state taxation to interstate corporations whose
sole business in the taxing state is the solicitation of orders. 15 U.S.C. § 381(a). When the
State asserts its rights to tax an interstate corporation that sells its goods within our borders,
we look to the Supreme Court’s decision in Wisconsin Dep’t. of Revenue v. William
Wrigley, Jr., Co.,
505 U.S. 214, 223 (1992) for instruction as to interpreting the statute. At
issue here is whether a dog food manufacturer exceeded the scope of the statutory
protection when its employees performed various activities in Maryland relating to its
product. Upon review, we hold that important aspects of the appellant’s activities went
beyond the solicitation of orders. We therefore affirm the decision of the Circuit Court for
Baltimore City.
FACTUAL OVERVIEW AND PROCEDURAL POSTURE
Appellant Blue Buffalo Co., Ltd., is a Delaware corporation that is commercially
domiciled in the state of Connecticut. Blue Buffalo is in the business of formulating and
selling premium pet food. During 2011 and 2012 (the “Tax Years”), these products were
produced by independent manufacturers located outside Maryland, shipped into the state
by common carrier, and sold through national chains and local independent retailers. Blue
Buffalo did not maintain any corporate office, warehouse, storeroom, or distribution
facilities inside the state.
Although most of Blue Buffalo’s business was conducted outside of Maryland, the
corporation maintained several employees inside the state. During the Tax Years, those
employees were: one Distributor Sales Manager, one Account Manager, two Regional
Demo Managers, and several dozen “Pet Detectives.” The parties dispute the nature, scope,
and significance of these individuals’ activities during the Tax Years.
Blue Buffalo’s management staff was responsible for building the company’s
relationships with retailers and taking advantage of market opportunities. The Distribution
Sales Manager regularly met with the managers of local independent retail stores to arrange
bulk orders of Blue Buffalo products. Likewise, the Account Manager met with
representatives of national chains that carried Blue Buffalo products—such as Pet Smart,
Petco, and Tractor Supply. From time to time, both managers served as a face for Blue
Buffalo in the broader community. The Distribution Sales Manager periodically attended
pet-related community events, such as adoption fairs and pet walks. The Account Manager
organized events in retail stores to demonstrate the advantages of Blue Buffalo’s products
to ultimate consumers.
Each Regional Demo Manager was chiefly responsible for recruiting, training, and
managing Pet Detectives in their assigned geographic area. The Pet Detectives were on-
the-ground sales representatives, stationed at retail locations where Blue Buffalo products
were sold. Their primary duty was to interact with customers and encourage them to buy
Blue Buffalo products from the retailer. They also advised retailers on the proper display
of Blue Buffalo products and encouraged retailers to place orders when inventory was
running low. The Pet Detectives would provide their Regional Demo Manager with regular
reports on detailing sales, pet visits, and hours worked at each store. These reports
occasionally included comments on customer interactions, product suggestions, the
activities of competitors, and issues encountered on the job.
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Blue Buffalo paid Maryland’s corporate income tax in 2011 and 2012 for a total
amount of $706,966 based on the activities of its Maryland employees. It later filed
amended returns for the Tax Years to request a full refund, on the grounds that its staff
were limited to the solicitation of orders, an activity protected from taxation under 15
U.S.C. §§ 381-384 (“Public Law 86-272”). After a hearing, the Comptroller determined
that Blue Buffalo had not met its burden to show that it qualified for protection under
15
U.S.C. § 381 for the Tax Years. Blue Buffalo appealed to the Maryland Tax Court,
characterizing its employees’ activities as missionary sales protected by
15 U.S.C.
§ 381(a)(2). The Tax Court found that several of Blue Buffalo’s activities served an
independent business purpose, and therefore upheld the Comptroller’s decision. The
Circuit Court for Baltimore City affirmed, and Blue Buffalo now appeals.
DISCUSSION
Standard of Review
On appeal, we review the decision of the Tax Court, rather than the circuit court.
Comptroller of Treasury v. Johns Hopkins Univ., 186 Md. App. 169, 181 (2009). We may
uphold a Tax Court decision only on the findings and reasons given by the Tax Court.
NIHC, Inc. v. Comptroller of Treasury,
439 Md. 668, 683 (2014). As the Tax Court is an
adjudicatory administrative agency, its final orders are examined under the same standards
of review governing other agencies.
Id. at 682. Findings of fact are reviewed for
substantial evidence and entitled to deference if the record reasonably supports the
agency’s conclusion.
Id. at 683. Pure questions of law are reviewed without deference.
Ramsay, Scarlett & Co., Inc. v. Comptroller of Treasury,
302 Md. 825, 834 (1985).
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Our review of the Tax Court’s application of the law to the facts is generally narrow:
“we will not substitute our judgment for the expertise of . . . the administrative agency.”
Gore, 437 Md. at 503-04 (cleaned up). Commensurate with this expertise, an agency’s
legal conclusions based on interpretations of the statutes and regulations it administers are
afforded “great weight.” Id. at 505. This principle is limited by the “plain meaning” rule
of interpretation; that is “where there is no ambiguity and the words of the statute are clear,
we simply apply the statute as it reads.” Frey v. Comptroller of Treasury, 422 Md. 111,
182 (2011) (cleaned up). Likewise, an agency’s conclusion predicated on the application
of case law presents “a purely legal issue uniquely within the ken of a reviewing court,”
and will not receive deference.
Id. (internal citation omitted).
Defining Solicitation Of Orders
The Tax Court assessed Blue Buffalo’s claim under the Interstate Commerce Tax
Act, Public Law 86-272, as codified in
15 U.S.C. § 381. Section 381 prohibits states from
taxing the net income of an out-of-state corporation whose only business inside the state
during the taxable year was one of the following:
(1) the solicitation of orders by [a] person, or his representative, in [a] 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 [a] person, or his representative, in [a] 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).
15 U.S.C. § 381(a).
-4-
Congress enacted this provision to define a “‘lower limit’ for the exercise of the
state taxing power” after the Supreme Court upheld state income taxes imposed on
interstate corporations based on the activities of their travelling salespeople. 1 Wisconsin
Dep’t. of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 223 (1992); see Comptroller
of Treasury v. World Book Childcraft Int’l, Inc.,
67 Md. App. 424, 432 (1986) (Section 381
bars taxation unless company’s activities “meet certain minimum standards”). Section
381(a)(1) protects the direct solicitation of orders by an out of state business. Section
381(a)(2) protects an activity referred to as missionary sales—solicitation of ultimate
consumers on behalf of a third-party retailer, who will eventually place an order to
replenish their inventory. Wrigley, 505 U.S. at 233–34.
Although § 381 does not define “solicitation of orders,” the Supreme Court has
issued one decision defining the scope of these protections. In Wrigley, it upheld the
imposition of Wisconsin’s franchise tax on the world’s largest manufacturer of chewing
gum. Id. Wrigley, an international corporation based in Chicago, did not have an office
or facility in Wisconsin, did not own or lease property in Wisconsin, did not process orders
in Wisconsin, and was not licensed to do business in Wisconsin. Between 1973 and 1978,
Wisconsin nevertheless taxed Wrigley based on the in-state income generated by its sales
1
See Northwestern States Portland Cement Co. v. State of Minnesota, 358 U.S. 450,
454 (1959) (“We conclude that net income from the interstate operations of a foreign
corporation may be subjected to state taxation provided the levy is not discriminatory and
is properly apportioned to local activities within the taxing State forming sufficient nexus
to support the same.”); Heublein, Inc. v. South Carolina Tax Comm’n,
409 U.S. 275, 280
(1972) (observing the prevailing state of confusion regarding the nature and amount of in-state activities sufficient to impose an income tax).
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force. After the Wisconsin Supreme Court disallowed the tax, the Supreme Court granted
the State’s petition for certiorari. Id. at 219–220.
Concluding that § 381 “covers more than what is strictly essential to making
requests for purchases,” the Court reasoned that the statute immunizes the entire process
associated with requesting orders. Id. at 228 (emphasis in original). Solicitation, in
common parlance,2 includes both “explicit verbal requests for orders” and “speech or
conduct that implicitly invites an order,” such as a salesperson’s acclamation of the
advantages and virtues of his products. Id. at 223. Moreover, restricting the immunity to
requests alone would defeat its purpose, as salespeople must be provided with logistical
support and supplies to enable their solicitation efforts. Therefore, the Court held that 15
U.S.C. § 381 protects activities that are entirely ancillary to the solicitation process—those
that serve “no independent business function apart from their connection to the soliciting
of orders . . . .”
Id. at 229. That an activity is not ancillary does not end this analysis;
unprotected activities only forfeit the statutory immunity when they establish a nontrivial
additional connection with the taxing State.
Id. at 232.
Ultimately, most of Wrigley’s activities were ancillary to solicitation and protected.
Wrigley, 505 U.S. at 234–35. The company’s in-state recruitment, training, and evaluation
of salespeople were immunized, as the solicitation of orders is the only reason to develop
and maintain an in-state sales force. Id. at 235. Furnishing and refilling display racks,
2
The Wrigley Court defined “solicitation” as “asking” for, or “enticing” to,
something; alternatively, “to approach with a request or plea (as in selling or begging).”
Id. at 223.
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providing free samples, and distributing promotional literature were likewise protected, as
these activities were designed to facilitate missionary sales. Additionally, the regional
manager’s periodic mediation of credit disputes between key accounts and corporate
headquarters was accepted as ancillary to solicitation: “[t]he purpose of the activity . . . was
to ingratiate the salesperson with the customer, thereby facilitating requests for purchases.”
Id. at 235.
Nevertheless, several of Wrigley’s activities went beyond the solicitation process.
Wrigley’s sales representatives maintained a personal stock of gum in the state,
occasionally renting dedicated space for storage. Every time a sales representative visited
a retailer, they would inspect the retailer’s inventory for freshness, replacing and disposing
of stale gum at no cost. Additionally, sales representatives used their stock to refill empty
displays, and issue “agency stock checks” to bill the retailer for the cost of the gum
replaced. Taken together, these activities represented a nontrivial connection with
Wisconsin sufficient to forfeit the statutory immunity. Id. at 233-34.
Evaluating Blue Buffalo’s Activities
From Wrigley we distill a two-step analysis to review the decision of the Tax Court.
First, we will examine each of Blue Buffalo’s activities to evaluate whether they are
ancillary to the solicitation of orders—whether they serve no independent business
purpose. Second, we will evaluate whether the non-ancillary activities are de minimis—
whether, taken together, they constitute only a trivial additional connection to the State of
Maryland.
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Since Wrigley, there have been only a handful of reported decisions interpreting 15
U.S.C. § 381(a), and few of any import to our issue today. The Comptroller relies heavily
on Kennametal, Inc. v. Comm’r of Revenue,
686 N.E.2d 436 (Mass. 1997) in support of
taxation, and although we ultimately reject that court’s disposition, we agree with its
recognition that “[t]here exists no bright line to distinguish those activities that are entirely
ancillary to the solicitation of orders from those that also serve an independent business
function.”
Id. at 441. The activities and pursuits of salespeople exist “along a continuum”
and must be evaluated “on an individual basis.”
Id. The facts in Wrigley, although not
dispositive, provide “examples at each end of that continuum,” and will serve as a useful
starting point for our analysis.
Id. 3
3
Beyond Wrigley and Kennametal, the parties largely cite to unreported decisions
of tax courts in other jurisdictions. The Comptroller provides passing mention of state
appellate cases decided before Wrigley that rest on a narrower construction § 381. E.g.,
U.S. Tobacco Co. v. Martin, 801 S.W.2d 256 (Ark. 1990); Drackett Products Co. v.
Conrad,
370 N.W.2d 723 (N.D. 1985); National Tires, Inc. v. Lindley,
426 N.E.2d 793
(Ohio App. 1980). Our independent research reveals only a handful of reported appellate
cases applying Wrigley. Most of these decisions reference Wrigley in passing, and do not
provide a relevant analysis. E.g., Troester v. Starbucks Corp.,
421 P.3d 1114 (Cal. 2018)
(referencing Wrigley to illustrate the de minimis principle); Disney Enterprises, Inc. v. Tax
Appeals Tribunal of the State,
888 N.E.2d 1029 (N.Y. 2008) (turning entirely on corporate
synergy between Disney and its corporate subsidiary); Agley v. Tracy,
719 N.E.2d 951
(Ohio 1999) (applying Wrigley but turning primarily on Ohio corporate law). The
decisions offering more substantive discussion of Wrigley have typically engaged in a factspecific analysis that is of limited value to our decision. E.g., Kelly-Springfield Tire Co. v.
Bajorski,
635 A.2d 771 (Conn. 1993) (in-state visits from creditors to ensure collectability
of payments constitutes an independent business purpose); Commonwealth, Dept. of Tax’n
v. National Private Truck Council,
480 S.E.2d 500 (Va. 1997) (company did not exceed
solicitation by using its own vehicles to ship goods into the state in response to orders filled
out of state).
-8-
The Tax Court found that several activities pursued by Blue Buffalo’s Maryland
salesforce systematically exceeded the scope of 15 U.S.C. § 381. These activities may be
generally categorized as: (1) consumer relations activities intended to build customer
relationships and community goodwill; (2) product trainings designed to educate retailers;
and (3) retail services including inventory management and competitive market research.
Blue Buffalo maintains that the bulk of these activities are ancillary to the solicitation
process, with only trivial exceptions.
Consumer Relations
The Tax Court found Blue Buffalo’s Distributor Sales Manager occasionally
attended pet-related community events, and the Pet Detectives frequently persuaded in-
store consumers to purchase Blue Buffalo products from retailers. The Comptroller further
highlights that this latter activity routinely featured conversations with customers about
their shared appreciation for pets. The Tax Court determined, and the Comptroller argues,
that these activities serve an independent objective of “building general goodwill in the
community, ingratiating consumers, and taking advantage of market opportunities.” See
Kennametal, 686 N.E.2d at 441 (“The activities here in question were designed not only to
solicit orders, but to ingratiate customers and to assist buyers in knowing what to order.”).
We are not persuaded by the tax court’s legal conclusion or the Comptroller’s argument as
to this point.
A salesperson’s ingratiation of the retail customer is a quintessential form of
missionary sale and a classic solicitation technique. When such conversation occurs in a
retail setting, the consumer is directly—if not explicitly—invited to purchase the
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salesperson’s products from the wholesaler’s customer. The corresponding increase in
sales eventually results in the retailer placing additional orders with the company.4
Requiring a salesperson to refrain entirely from building consumer relationships to avoid
taxation would restrain any sales activity other than direct requests for orders. Such a
narrow construction contravenes the statute’s express grant of immunity to missionary
sales. See Wrigley, 505 U.S. at 226 (rejects a definition of solicitation that precludes “any
activity other than requesting the customer to purchase the product”). Therefore, we
decline to treat consumer goodwill as an independent business purpose in this context.
The Distribution Sales Manager’s attendance at community events is another matter.
Certainly, in some circumstances, the connection between a company’s consumer relations
activity and the solicitation of orders might be too tenuous to sustain the claimed immunity.
The simple fact that an activity is related to sales is not sufficient to invoke § 381. See id.
at 229 (“Repair and servicing may help to increase purchases; but it is not ancillary to
requesting purchases, and cannot be converted into ‘solicitation’ by merely being assigned
to salesmen.”) (emphasis in original). Moreover, the Wrigley Court rejected a standard that
would immunize any and all business activities routinely accompanying the solicitation
process. Id. at 227. Such a sweeping definition would render the immunity entirely subject
to corporate discretion.
4
This relationship is clearly articulated in Blue Buffalo’s Pet Detective Manual. It
describes a detailed, four-step process for bonding with customers, with the specific
objective of discovering their pet’s needs, steering them towards the product they are more
likely to purchase, and welcoming them into the brand. This targeted, deliberate
ingratiation is missionary solicitation in its purest form.
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Nevertheless, Wrigley’s treatment of the mediation of credit disputes between retail
customers and the company’s home office is instructive. See id. at 235 (“The purpose of
the activity . . . was to ingratiate the salesman with the customer, thereby facilitating
requests for purchases.”); Kennametal, 686 N.E.2d at 441 (when evaluating the scope of
15 U.S.C. § 381, “Wrigley guides our analysis . . . with examples at each end of that
continuum.”). If the goodwill generated by a transaction as attenuated and active as dispute
resolution remains ancillary to solicitation, we see no reason why a manager’s attendance
at community events should be sufficient to forfeit the immunity absent something more.
At a minimum, such conduct implicitly invites an order and is a natural component of the
solicitation process. Accordingly, we hold that this class of activities does not exceed the
statutory protection.
Product Training Sessions
The Tax Court found that Blue Buffalo’s Distributor Sales Manager “met with
customers and potential customers in Maryland and provided them with education,
training, and demonstrations on the advantages and selling points of Blue Buffalo
products.” Likewise, the Account Manager provided product trainings to retail personnel.5
5
Although the Tax Court opinion does not discuss the substance of the Account
Manager trainings, the record demonstrates that they were functionally equivalent to the
trainings conducted by the Distributor Sales Manager. As acknowledged and accepted by
the parties in their Joint Stipulation of Facts and Issues, the Account Manager’s “Product
Trainings” involved “providing Petco and Pet Smart personnel with information on the
attributes of Blue Buffalo products.”
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The Tax Court concluded that each of these activities went beyond the solicitation of orders
and are not ancillary to facilitating sales.6 We disagree.
To support the Tax Court’s finding, the Comptroller relies primarily on the
Kennametal case, in which the Supreme Judicial Court of Massachusetts held that a
machine manufacturer’s on-site presentations on the proper use of equipment was not
protected by § 381. These trainings are distinguishable in degree and in kind. Kennametal
produced over 20,000 variants of cutting bits, a machine component that requires precise
calibration. Its training sessions were necessarily extensive, running as long as six hours
in length before as many as 200 employees. The Kennametal Court held that this activity
served at least three independent business functions, as the proper use of Kennametal
products would improve their efficiency, alleviate the need for detailed instruction
manuals, and enhance the company’s reputation among buyers. Id. at 441–42.
Comparatively, Blue Buffalo makes dog food. Its advice to retailers was limited to
the food’s nutritional value, its main selling points, and merchandising strategies. This
difference is dispositive: where Kennametal had an independent interest in maximizing the
effective use of its products, information on the basic nutritional qualities of pet food does
6
The Comptroller separately argues that the training provided to Pet Detectives by
Blue Buffalo’s Regional Demo Managers is not ancillary to solicitation because the Pet
Detectives are best characterized as “product specialists,” not “sales representatives.”
Compare Wrigley, 505 U.S. at 234 (“Wrigley’s in-state recruitment, training, and
evaluation of sales representatives . . . served no purpose apart from their role in facilitating
solicitation.”), with Kennametal,
686 N.E.2d at 441 (finding “frequent in-plant
presentations . . . on the use of Kennametal’s products” to customers’ employees “exceeded
the permissible scope of solicitation of orders”). This semantical distinction belies the
essence of the Wrigley inquiry, which turns on the nature of the activities performed by the
employee, not on their title or job description.
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not serve any similar purpose. The only functions of Blue Buffalo’s presentations were to
directly solicit orders from potential customers, to encourage existing customers to place
more orders, and to enable customers to more effectively solicit orders from the ultimate
consumer.7
Stated more plainly, Blue Buffalo’s trainings consisted entirely of product
advocacy. To the extent that Kennametal can be read to proscribe this conduct, such a
ruling is contrary to Wrigley. See Wrigley, 505 U.S. at 223 (“[A] salesman who extols the
virtues of his company's product to the retailer of a competitive brand is engaged in
‘solicitation’ even if he does not come right out and ask the retailer to buy some.”); see
also Amgen Inc. v. Comm’r of Revenue,
693 N.E.2d 175, 178 n.5 (1998) (“[P]roduct
programs for prospective purchasers . . . should not be considered to exceed solicitation of
orders as a per se rule.”). Discussions of the benefits of Blue Buffalo products are not
merely ancillary to solicitation—they are solicitation, categorically within the ambit of
15
U.S.C. § 381(a)(1). Accordingly, we hold that Blue Buffalo’s product trainings are entirely
ancillary to solicitation.8
7
Although the record demonstrates Blue Buffalo’s Account Manager frequently
advised retailers on the placement and marketing of Blue Buffalo products, this form of
merchandising falls squarely within the spectrum of activities contemplated by Wrigley.
Id. at 234 (“Advice to retailers on the art of displaying goods to the public can hardly be
more thoroughly solicitation.”).
8
In reaching this conclusion, we do not categorically hold that all forms of product
training are protected by solicitation. Trainings of a more substantial nature, such as those
in Kennametal, may serve an independent purpose irrespective of their role in the
solicitation process. Trainings that consist entirely of product advocacy, such as those
presented under the facts of this case, are not sufficient to obviate the immunity provided
by Pubic Law 86-272.
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Retail Services
Finally, the Tax Court found that Blue Buffalo’s Account Manager and Pet
Detectives provided the company with various activities that are best characterized as retail
services. Activities noted by the Tax Court include: (1) reworking product displays and
ensuring products were in stock; (2) reporting customer complaints to headquarters; (3)
providing quality control assistance; and (4) obtaining and reporting intelligence on the
activities of competitors. The Tax Court concluded that each of these activities is unrelated
to solicitation, and that their totality is significant enough to forfeit the statutory immunity.
We will consider each of these arguments in turn.
First, the Account Manager and the Pet Detectives occasionally reworked product
displays and checked retail inventories to ensure Blue Buffalo products were in stock. The
Tax Court concluded these inventory management activities are unrelated to solicitation.
We disagree. “Advice to retailers on the art of displaying goods to the public can hardly
be more thoroughly solicitation.” Wrigley, 505 U.S. at 234 (internal quotation omitted).
Moreover, unlike the salesmen in Wrigley, who sold products directly to retailers through
“agency stock checks,” Pet Detectives did not maintain a personal stock, did not charge
retailers for replacements, and were prohibited from handling orders directly. Cf. Peterson
v. State Tax Assessor,
724 A.2d 610, 613 (Me. 1999) (transactions conducted within the
state forfeit immunity). Rather, the Pet Detectives were simply instructed to ask retailers
to fill empty shelves. This is entirely ancillary to their missionary solicitation efforts—a
salesperson cannot rightly persuade a consumer to purchase a product that is not available
on the shelf.
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Second, the Pet Detectives gathered information from customers attempting to
return their products. Nevertheless, it appears undisputed that the Pet Detectives were
instructed to report these complaints to Blue Buffalo’s corporate headquarters and refrain
from handling returns. The Wrigley Court found that a salesperson’s reporting of disputes
to an out-of-state home office is ancillary to solicitation by virtue of its role in ingratiating
the customer and facilitating continued requests for purchases. Id. at 235. As other states
have recognized, the reporting of complaints is entirely analogous to this mediating
function. See Alcoa Bldg. Products, Inc. v. Comm’r of Revenue, 797 N.E.2d 357, 361 n.2
(Mass. 2003) (recognizing this analogy to distinguish between in-state resolution of
complaints, and merely passing complaints to home office). This is good policy and
accords with common sense: It would be unreasonable to expect salespeople to ignore
customers seeking to return defective products, and it would be deleterious to discourage
employees from reporting these complaints on threat of taxation.
Third, the Tax Court concluded that the Pet Detectives and Account Manager each
engaged in various forms of quality control. Specifically, the Tax Court found that “at
least one Pet Detective restocked retailer shelves on at least one occasion,” and that another
Pet Detective pulled bad product from shelves. Blue Buffalo disputes the extent of these
activities but acknowledges that they occurred. At a minimum, we concur with the Tax
Court that these functions are not ancillary to solicitation. As the Wrigley Court
recognized, quality control and product servicing would be provided by any responsible
company independently of its solicitation efforts. Id. at 229 (“[E]mploying salesmen to
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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.”).
Fourth, the Pet Detectives and Account Managers periodically provided information
regarding market opportunities and competitor activities in their routine reports. The Tax
Court characterized this conduct as competitive research and the collection of market data.
We agree that competitive advantage is a business objective distinct from the solicitation
of orders. As the Tax Court concluded, Blue Buffalo would have reason to gather data
about the activities of its competitors independently of whether it deployed a Maryland
sales force. Accordingly, we hold that the collection of this information is not ancillary to
solicitation and is not categorically protected under 15 U.S.C. § 381.
Significance of Unprotected Activities
Having determined some of Blue Buffalo’s activities are not ancillary to the
solicitation process, we next ask whether the totality of these activities creates a nontrivial
additional connection to the State of Maryland. Wrigley, 505 U.S. at 232 ([“W]hether 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.”).
The Supreme Court in Wrigley explained that “the venerable maxim de minimis non
curat lex (‘the law cares not for trifles’) is part of the established background of legal
principles against which all enactments are adopted, and which all enactments (absent
contrary indication) are deemed to accept.” Id. at 231. As the Court also said,
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It would be especially unreasonable to abandon normal
application of the de minimis principle in construing § 381,
which operates in such stark, all-or-nothing fashion: A
company either has complete net-income tax immunity or it
has none at all, even for its solicitation activities. Wisconsin’s
reading of the statute renders a company liable for hundreds of
thousands of dollars in taxes if one of its salesmen sells a 10-
cent item in state.
Id.
As implemented by the Supreme Court, this inquiry turns on both the substantiality
and frequency of the activities in question. In Wrigley, the exchange and disposal of stale
gum, the in-state storage of gum, and the in-state sales of gum—endorsed by the company
and carried out on a systematic basis—created a substantial connection with Wisconsin
independent of the company’s solicitation efforts. Id.; accord Peterson, 724 A.2d at 613
(“[T]he activities are not ‘de minimis’ when viewed in the aggregate, because they occurred
regularly and consistently over the audit period and thereby established a ‘nontrivial
additional connection’ with the State of Maine.”).
Blue Buffalo’s employees went beyond solicitation by assisting with restocking and
quality control and collecting information on competitors during their retail visits. Yet,
applying the second step in our analysis, the quality control activity occurred on isolated
occasions and, if considered in isolation, would be de minimis. The record discloses only
two instances—among thousands of visits—in which Pet Detectives provided the support
services referenced by the Tax Court.9 On this basis, the Tax Court apparently reached its
9
The Comptroller did not identify any other instances, and we have found none in
the record.
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conclusion that the Pet Detectives “assist[ed] with quality control and inventory issues as
they arose.” Even applying the deferential substantial evidence standard, these two
instances do not surpass the floor of the de minimis standard, particularly as the record does
not reveal any company policy or continuous course of conduct.
The collection of competitive information, however, is another question entirely.
On this point, the Tax Court focused its analysis on the Pet Detectives’ reports to the
Regional Demo Managers. In these reports, the Pet Detectives were required to track their
hours and sales but could provide written comments on an optional basis. In total, Pet
Detectives filed approximately 6900 reports during the Tax Years. 10 Only 68 comments—
less than one percent of the total—either mentioned or referenced Blue Buffalo’s
competitors in any form. Those that did were vague and of marginal use to the Company.11
The question of whether these observations occurred “regularly or consistently”—instead
of being “deviations from the norm”—is a close call, one we decline to make. See
Peterson, 724 A.2d at 613; Wrigley,
505 U.S. at 231.
10
Of this total, only 735—roughly ten percent—contained written comments of any
sort. The vast majority of these comments were limited to casual discussions of the
weather, the pace of sales, conditions on the job, suggestions for the company, or
interactions with customers and their pets.
11
The lack of detail in these reports is demonstrative of their triviality. Two
examples are typical—“Nutro demo in store,” or “Competitive demo was from Simply
Nourish.” About five to ten comments could be characterized as more detailed, but these
comments still amount to casual observations made on the job or recorded customer
feedback. Perhaps the most informative comment came on July 17, 2011, when one Pet
Detective wrote: “Two pet parents inquired about Blue having a special breeder program
like Eukanuba. Eukanuba offers startup packets of food for breeders that use Eukanuba
food and provide proof by redeeming UPC codes from food bags. Main issue with [B]lue
was cost.”
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But because we do not view evidence in a vacuum, we also look at other evidence
of competitive activity—the Account Manager’s collection of competitive information.
The Tax Court found that the Account Manager collected competitive information during
his trainings and retailer meetings. Although the Tax Court does not describe this activity,
our review of the record demonstrates that it was both substantial and deliberate.
Several facts inform this conclusion. Unlike the Pet Detectives, the Account
Manager was required to provide written comments with every submission of his regular
reports. Of the 538 reports filed during the Tax Years, 23 such reports—four percent of
the total—discussed competitors and their activities.12 Although not numerous, these
comments were more concrete and informative than the trivial observations of the Pet
Detectives—ranging from the inventory status of competitive products to detailed insights
into competitors’ marketing strategies.13 Perhaps most significantly, in February 2012, the
header for the comment column in the Account Manager reports was changed from “Store
Contacts” to read “Comments and Feedback / Competitive Updates.” This shows that the
Account Manager’s collection of competitive insights was not merely incidental. Rather,
12
Excluded from this analysis are a substantial number of comments that mention
competitors in the context of updates on store displays. For example, on August 9, 2012,
the Account Manager wrote: “Tammy has agreed to replace Nutro endcap with [Blue
Buffalo] endcap after reviewing sales & growth.” These comments are a reflection of the
Account Manager’s solicitation efforts and cannot reasonably construed as competitive
market research.
13
For example, on February 6: “Nutro spending more time in Banfield dropping off
10$ coupons to staff & bringing by food.” Likewise, on November 5: “Nutro has sent huge
amounts of inventory here and to other Petcos in support of their current promotion.” And
on December 4: “Chris indicates that Nutro send in [sic] 50-75% on regular natural choice
sales as bonus bags in addition to regular bag sales.”
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it was a function of her job responsibilities and a regular incident of her discussions with
retailers.
Much like the gum transactions in Wrigley, the Account Manager’s collection of
competitive information was carried out on a regular basis as a continuing matter of
company policy. The relative infrequency of the reports does not meaningfully undermine
this finding. Viewed in the aggregate and taken alongside the more vague reports provided
by the Pet Detectives, the competitive intelligence gathered by Blue Buffalo constitutes a
nontrivial additional business activity conducted in the State of Maryland. Accordingly,
we hold that Blue Buffalo’s unprotected activities exceed the scope of the protections
provided by 15 U.S.C. § 381.
CONCLUSION
As interpreted by the Supreme Court, the grant of immunity provided by 15 U.S.C.
§ 381 is broader than the construction it was afforded by the Tax Court, but nonetheless
remains limited in scope.
Id. at 226. This statute does not provide a blanket protection for
an industry to conduct unfettered activities in the name of sales. Rather, corporations may
only claim immunity when the totality of their in-state activities is ancillary to the
solicitation process—as judicially defined—with only trivial exceptions. While we
recognize that some of Blue Buffalo’s activities were protected, we nonetheless hold that
collection of competitive information by the Pet Detectives and Account Managers is
sufficient to forfeit this immunity. Accordingly, we affirm.
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JUDGMENT OF THE CIRCUIT
COURT FOR BALTIMORE CITY
AFFIRMED. COSTS TO BE PAID
BY APPELLANT.
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