TYLER PIPE V. WASH. DEPT. OF REV., 483 U. S. 232 (1987)

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U.S. Supreme Court

Tyler Pipe v. Wash. Dept. of Rev., 483 U.S. 232 (1987)

Tyler Pipe Industries, Inc. v. Washington State

Department of Revenue

No. 85-1963

Argued March 2, 1987

Decided June 23, 1987*

483 U.S. 232


Washington imposes a business and occupation (B & O) tax on the privilege of engaging in business activities in the State, including manufacturing in the State and making wholesale sales in the State. The measure of the wholesale tax is the gross proceeds of sales, and the measure of the manufacturing tax is the value of the manufactured product. However, under the B & O tax's "multiple activities exemption," local manufacturers are exempted from the manufacturing tax for the portion of their output that is subject to the wholesale tax. Application of the exemption results in local manufacturers' paying the wholesale tax on local sales, local manufacturers' paying only the manufacturing tax on their out-of-state sales, and out-of-state manufacturers' paying the wholesale tax on their sales in Washington. The same tax rate is applicable to both wholesaling and manufacturing activities. In both of the cases under review, which originated as state court tax refund suits by appellants, local manufacturers who sold their goods outside Washington and out-of-state manufacturers who sold their goods in Washington, the trial court held that the multiple activities exemption did not discriminate against interstate commerce in violation of the Commerce Clause. In No. 85-1963, appellant Tyler Pipe Industries, Inc. (Tyler) -- an out-of-state manufacturer who sold its products in Washington but had no property or employees in Washington, and whose solicitation of business in Washington was conducted by an independent contractor located in Washington -- also asserted that its business did not have a sufficient nexus with Washington to justify the collection of the tax on its wholesale sales there. The trial court upheld the B & O tax. The Washington Supreme Court affirmed in both cases.


1. Washington's manufacturing tax discriminates against interstate commerce in violation of the Commerce Clause because, through the operation of the multiple activities exemption, the tax is assessed only on those products manufactured in Washington that are sold to out-of-state customers. The exemption for local manufacturers that sell their products

Page 483 U. S. 233

within the State has the same facially discriminatory consequences as the West Virginia tax exemption that was invalidated in Armco Inc. v. Hardesty, 467 U. S. 638, and the reasons for invalidating the tax in that case also apply to the Washington tax. The facial unconstitutionality of Washington's tax cannot be alleviated by examining the effect of other States' tax legislation to determine whether specific interstate transactions are subject to multiple taxation. Nor can Washington's imposition of the manufacturing tax on local goods sold outside the State be saved as a valid "compensating tax." Manufacturing and wholesaling are not "substantially equivalent events," id. at 467 U. S. 643, such that taxing the manufacture of goods sold outside the State can be said to compensate for the State's inability to impose a wholesale tax on such goods. Henneford v. Silas Mason Co., 300 U. S. 577, distinguished. To the extent that the ruling here is inconsistent with the ruling in General Motors Corp. v. Washington, 377 U. S. 436 -- where the B & O tax was upheld as against claims that it unconstitutionally taxed unapportioned gross receipts and did not bear a reasonable relation to the taxpayer's in-state activities -- that case is overruled. Pp. 483 U. S. 239-248.

2. The activities of Tyler's sales representative in Washington adequately support the State's jurisdiction to tax Tyler's wholesale sales to in-state customers. The showing of a sufficient nexus cannot be defeated by the argument that the taxpayer's representative was properly characterized as an independent contractor, rather than an agent. Cf. Scripto, Inc. v. Carson, 362 U. S. 207. Nor is there any merit to Tyler's contention that the B & O tax does not fairly apportion the tax burden between its activities in Washington and its activities in other States. Such contention rests on the erroneous assumption that, through the B & O tax, Washington is taxing the unitary activity of manufacturing and wholesaling. The manufacturing tax and the wholesaling tax are not compensating taxes for substantially equivalent events, and, thus, the activity of wholesaling -- whether by an in-state or an out-of-state manufacturer -- must be viewed as a separate activity conducted wholly within Washington that no other State has jurisdiction to tax. Pp. 483 U. S. 248-251.

3. Appellee's argument against retroactive application of any adverse decision here should be considered, in the first instance, by the Washington Supreme Court on remand. Cf. Bacchus Imports, Ltd. v. Dias, 468 U. S. 263. Pp. 483 U. S. 251-253.

105 Wash.2d 318, 715 P.2d 123, and 105 Wash.2d 327, 715 P.2d 128, vacated and remanded.

STEVENS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, and O'CONNOR, JJ., joined, and in Part

Page 483 U. S. 234

IV of which SCALIA, J., joined. O'CONNOR, J., filed a concurring opinion, post p. 483 U. S. 253. SCALIA, J., filed an opinion concurring in part and dissenting in part, in Part I of which REHNQUIST, C.J.,joined, post p. 483 U. S. 254. POWELL, J., took no part in the consideration or decision of the cases.

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