Ooma, Inc. v. Dept. of Rev. ( 2021 )

95
Argued and submitted May 6, judgment of Tax Court affirmed
December 23, 2021
OOMA, INC.,
a foreign corporation,
Plaintiff-Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant-Respondent.
(TC 5331) (SC S067581)
501 P3d 520
Taxpayer provided Oregon customers with Voice over Internet Protocol (VoIP)
services, including access to Oregon’s emergency communication system. Oregon
imposes a tax on VoIP lines connecting to its emergency communication system
and requires the VoIP provider to collect a tax from its customers and remit the
collected amounts to the Department of Revenue. Taxpayer, a California com-
pany, argued that requiring it to collect and remit that tax violated the Due
Process Clause and the Commerce Clause. The Tax Court rejected those argu-
ments based on a stipulated factual record and granted summary judgment to
the Department of Revenue. The stipulated factual record documented taxpay-
er’s efforts to attract Oregon customers and the services that taxpayer provided
in Oregon to those customers. Held: (1) The stipulated factual record established
that taxpayer purposefully availed itself of Oregon’s market, satisfying the Due
Process Clause; and (2) the stipulated factual record established that taxpayer
availed itself of the substantial privilege of carrying on business in Oregon, sat-
isfying the Commerce Clause.
The judgment of the Tax Court is affirmed.
En Banc
On appeal from the Oregon Tax Court.*
Robert T. Manicke, Judge.
Michael J. Bowen, Akerman, LLP, Jacksonville, Florida,
argued the cause for appellant. Casey M. Nokes, Cable
Huston LLP, Portland, filed the briefs.
Darren Weirnick, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent. Also on
______________
* Ooma, Inc. v. Dept. of Rev., TC 5331, WL 1035995 (Or Tax, March 2, 2020).
96 Ooma, Inc. v. Dept. of Rev.
the brief were Ellen F. Rosenblum, Attorney General, and
Benjamin Gutman, Solicitor General.
GARRETT, J.
The judgment of the Tax Court is affirmed.
Cite as 369 Or 95 (2021) 97
GARRETT, J.
The Due Process Clause and the Commerce Clause
of the United States Constitution limit the authority of
states to impose tax obligations on out-of-state residents.
US Const, Amend XIV (Due Process Clause); US Const,
Art I, § 8, cl 3 (Commerce Clause). This case requires us to
determine whether taxpayer, Ooma, Inc., a California com-
pany, had sufficient contacts or nexus with Oregon to satisfy
those constitutional standards. The Tax Court concluded
that Ooma’s contacts and nexus with Oregon were sufficient
to satisfy those standards and granted summary judgment
to the Department of Revenue (department). For the reasons
explained below, we affirm the judgment of the Tax Court.
I. BACKGROUND
We take the following undisputed facts from the
record on summary judgment, viewing the evidence and
all reasonable inferences from that evidence in the light
most favorable to Ooma, as the nonmoving party. Portfolio
Recovery Associates, LLC v. Sanders, 366 Or 355, 357, 462
P3d 263 (2020). The relevant tax period covers 39 months,
from January 2013 through March 2016. During that time,
Ooma provided Voice over Internet Protocol (VoIP) services
to customers nationwide, including in Oregon. VoIP services
allow customers to make phone calls using a broadband
internet connection.
Federal law requires VoIP providers to ensure that
their customers have access to local emergency communica-
tion systems when calling 9-1-1. 47 CFR § 9.5 (2015). That
access is provided through something called “E911.” Ooma
complied with the federal requirement and provided its
Oregon customers with E911 access to Oregon’s emergency
communication system.
In exchange for access to its emergency commu-
nication system, Oregon imposes a tax on VoIP lines, the
revenues from which are used solely to maintain and
improve the system. ORS 403.245(1) (2015). The VoIP pro-
vider is required to collect the E911 tax from its customers
and remit the collected amounts to the department with a
quarterly tax return. ORS 403.215(1) - (2) (2015). During the
98 Ooma, Inc. v. Dept. of Rev.
time period at issue, the tax for each VoIP line was $0.75 per
month. ORS 403.200(1) (2015). Ooma neither collected nor
remitted the E911 tax during the relevant time period.
The department issued Ooma notices of assessment
regarding the unpaid E911 taxes. Ooma appealed those
notices. Ooma concedes, for the purposes of this appeal, that
ORS 403.215 required it to collect and remit the E911 tax.
But Ooma argued to the Tax Court that subjecting Ooma
to ORS 403.215 violated the Due Process Clause and the
Commerce Clause. According to Ooma, it had neither suffi-
cient contacts with Oregon to satisfy due process standards
nor a sufficient nexus with Oregon to satisfy Commerce
Clause standards.
With regard to those constitutional challenges,
Ooma and the department filed competing motions for sum-
mary judgment based on a stipulated factual record. That
record reveals that Ooma is headquartered in California.
During the relevant time, Ooma had no physical presence
and owned no property in Oregon. Ooma also had no employ-
ees in Oregon and hired no independent agents in Oregon. It
did not seek or otherwise have any license or permits from
any government entity in Oregon.
To access Ooma’s VoIP services, customers entered
a service contract with Ooma and had to use Ooma’s equip-
ment, which they could acquire directly from Ooma’s website
or through third-party retailers, including brick-and-mortar
retailers in Oregon. Ooma retained no ownership interest in
the purchased equipment. In addition to Ooma’s equipment,
customers were also required to have broadband internet
service through an independent internet service provider.
Ooma did not provide internet access.
The parties stipulated to these facts about Ooma’s
conduct soliciting and otherwise attempting to acquire cus-
tomers in Oregon:
“Ooma prepared marketing plans that targeted custom-
ers nationwide, including Oregon residents.”
“Ooma employed business strategies that targeted cus-
tomers nationwide, including Oregon residents.”
Cite as 369 Or 95 (2021) 99
“Ooma provided promotional and marketing materials
to select national retailers for use in their retail locations,
including retail locations in Oregon. In these instances, the
retailer decided where and when to use the Ooma promo-
tional marketing materials.”
“On certain occasions, at the direction of a national
retailer, Ooma shipped promotional and marketing mate-
rial to the retailer’s location(s) in the State of Oregon.”
The number of Ooma’s VoIP lines provided to
Oregon customers during the relevant time period ranged
from 6,633 to 13,467. The service billings for those lines gen-
erated $2.2 million in revenue for Ooma.
The Tax Court granted the department’s summary
judgment motion, and denied Ooma’s summary judgment
motion, after concluding that Ooma’s contacts and nexus
with Oregon were sufficient to satisfy federal constitutional
standards. Ooma appeals that decision to this court.
II. ANALYSIS
On appeal from a grant of summary judgment, we
consider whether the Tax Court erred in concluding that
there was no genuine issue of material fact and that the
department was entitled to summary judgment as a matter
of law. Tektronix, Inc. v. Dept. of Rev., 354 Or 531, 533, 316
P3d 276 (2013). The question is whether the undisputed facts
establish that Ooma’s contacts and nexus with Oregon were
sufficient to satisfy the constitutional standards imposed by
the Due Process Clause and the Commerce Clause.
A. Due Process Clause
“In the context of state taxation, the Due Process
Clause limits States to imposing only taxes that bear fiscal
relation to protection, opportunities and benefits given by
the state.” North Carolina Dept. of Revenue v. The Kimberley
Rice Kaestner 1992 Family Trust, ___ US ___, ___, 139
S Ct 2213, 2219, 204 L Ed 2d 621 (2019) (internal quotation
marks and citation omitted). There are two steps in that
analysis. First, “there must be some definite link, some min-
imum connection, between a state and the person, property
or transaction it seeks to tax.” Id. at ___, 139 S Ct at 2220(internal citation and quotation marks omitted). Second,
100 Ooma, Inc. v. Dept. of Rev.
“the income attributed to the State for tax purposes must
be rationally related to values connected with the taxing
State.” Id. at ___, 139 S Ct at 2220 (internal citation and
quotation marks omitted).
In this appeal, Ooma takes issue only with the first
step, whether Ooma had a sufficient connection to Oregon.
Under United States Supreme Court case law, the test for
assessing a taxpayer’s minimum connection to a taxing
state is “borrow[ed] from the familiar test” for establishing
specific personal jurisdiction under the Due Process Clause.
Id. at ___, 139 S Ct at 2220. Thus, “[a] State has the power
to impose a tax only when the taxed entity has ‘certain min-
imum contacts’ with the State such that the tax ‘does not
offend traditional notions of fair play and substantial jus-
tice.’ ” Id. at ___, 139 S Ct at 2220 (quoting International
Shoe Co. v. Washington, 326 US 310, 316, 66 S Ct 154, 90
L Ed 95 (1945)).
“The minimum contacts inquiry is flexible and
focuses on the reasonableness of the government’s action.
Ultimately, only those who derive benefits and protection
from associating with a State should have obligations to the
State in question.” Id. at ___, 139 S Ct at 2220 (internal
quotation marks and citation omitted). The test for mini-
mum contacts may be satisfied by establishing that the
taxed party “purposefully avail[ed] itself of the privilege of
conducting activities within the forum State, thus invoking
the benefits and protections of its laws.” Hanson v. Denckla,
357 US 235, 253, 78 S Ct 1228, 2 L Ed 2d 1283 (1958). The
purposeful availment standard is intended to ensure that
“individuals have fair warning that a particular activity
may subject [them] to the jurisdiction of a foreign sovereign,”
thus allowing them “to structure their primary conduct with
some minimum assurance as to where that conduct will and
will not render them” subject to another jurisdiction. Burger
King Corp. v. Rudzewicz, 471 US 462, 472, 105 S Ct 2174, 85
L Ed 2d 528 (1985) (internal citations and quotation marks
omitted). A party may not be subject to the jurisdiction of a
state based on contacts that are “random, isolated, or fortu-
itous.” Keeton v. Hustler Magazine, Inc., 465 US 770, 774, 104
S Ct 1473, 79 L Ed 2d 790 (1984).
Cite as 369 Or 95 (2021) 101
Ooma argues that the undisputed facts in this
case fail to establish that it purposefully availed itself of
the Oregon market. We reject that argument. As described
above, the facts demonstrate that Ooma’s contacts with
Oregon were not random, isolated, or fortuitous but were,
instead, the result of its intentional efforts to serve the
Oregon market. Ooma developed marketing plans and
employed business strategies intended to reach Oregon resi-
dents (along with residents of other states), shipped products
directly into Oregon, and engaged retailers to sell its prod-
ucts in Oregon. As a result of those efforts, Ooma established
thousands of VoIP lines for Oregon customers and entered
into ongoing commercial relationships with those custom-
ers requiring Ooma to provide services to those customers
in Oregon. The services that Ooma provided included the
conduct triggering the tax obligations at issue in this case—
namely, providing access to Oregon’s emergency communi-
cation system.1
That cumulative conduct—the efforts to attract
Oregon customers and the services provided in Oregon to
those customers—establishes Ooma’s purposeful availment
of the Oregon market. See Walden v. Fiore, 571 US 277, 285,
134 S Ct 1115, 188 L Ed 2d 12 (2014) (“[W]e have upheld the
assertion of jurisdiction over defendants who have purpose-
fully reach[ed] out beyond their State and into another by,
for example, entering a contractual relationship that envi-
sioned continuing and wide-reaching contacts in the forum
State.” (Internal citation and quotation marks omitted.)).
Ooma cites no decision from any jurisdiction con-
cluding that such extensive contacts fail to establish pur-
poseful availment. And, as the department points out,
Ooma’s contacts with Oregon far exceed what this court held
sufficient to establish purposeful availment in Willemsen v.
Invacare Corp., 352 Or 191, 282 P3d 867 (2012). In that case,
the manufacturer of wheelchair battery chargers, CTE,
was sued in Oregon for injuries resulting from an alleged
1
Ooma suggests that, because federal law requires it to provide its custom-
ers in Oregon with access to Oregon’s emergency communication systems, the
provision of that service cannot be considered as part of the purposeful availment
analysis. Ooma cites no authority establishing the constitutional significance of
that fact.
102 Ooma, Inc. v. Dept. of Rev.
defect in its product. Id. at 195. This court concluded that
CTE had purposefully availed itself of the Oregon market,
and therefore could be subject to jurisdiction here, based
largely on the regularity with which wheelchairs containing
its battery chargers were sold in Oregon. Over a two-year
span preceding the injuries, more than 1,100 wheelchairs
were sold in Oregon containing CTE’s battery chargers.
Id. at 203. CTE was paid $30,929 for those battery chargers,
which were built to the specifications of the wheelchair man-
ufacturer. Id. at 195-96. Ooma’s contacts with Oregon were
more extensive than CTE’s contacts. Unlike Ooma, CTE had
no direct contacts with the Oregon market, either in solic-
iting customers or providing ongoing services to custom-
ers. During the relevant 39 months at issue, Ooma earned
$2.2 million in revenue directly from Oregon purchasers of
its VoIP services.2
In attempting to avoid the conclusion that it pur-
posefully availed itself of the Oregon market, Ooma does not
contend that Willemsen, as a products liability case, is inapt
or that the department’s argument misapplies Willemsen
or misrepresents the extent of Ooma’s contacts in Oregon.
Instead, Ooma presents its own argument based on another
products liability case, J. McIntyre Machinery, Ltd. v.
Nicastro, 564 US 873, 131 S Ct 2780, 180 L Ed 2d 765 (2011).
That argument has two steps. First, Ooma argues that this
case presents novel facts that require us to apply a test for
purposeful availment articulated in Justice Kennedy’s non-
controlling plurality opinion in Nicastro.3 Second, accord-
ing to Ooma, applying Justice Kennedy’s Nicastro opinion
to the facts of this case requires concluding that Ooma did
not purposefully avail itself of Oregon’s market. We need
not address the first step in Ooma’s argument because we
2
Ooma also generated additional revenue from the direct sale of its equip-
ment to Oregon consumers, although the record is unclear as to the extent or
value of those sales.
3
On this point, Ooma notes that Justice Breyer’s controlling opinion in
Nicastro concluded that, because the facts of that case did “not implicate modern
concerns,” the case was “an unsuitable vehicle for making broad pronouncements
that refashion basic jurisdictional rules.” Nicastro, 564 US at 890 (Breyer, J.,
concurring). Ooma argues that this case implicates those modern concerns and
that only the test articulated by Justice Kennedy properly accounts for those
concerns.
Cite as 369 Or 95 (2021) 103
conclude that the argument fails at the second step. That
is, even under the test described in that plurality opinion
(assuming that it is both controlling and applicable here),
Ooma still purposefully availed itself of the Oregon market.
The plaintiff in Nicastro was injured in New Jersey
while using a large industrial metal shearing machine made
by the defendant, J. McIntyre Machinery. Id. at 878. The
plaintiff sued McIntyre in a New Jersey court. McIntyre was
a British company with no direct contacts in New Jersey and
no direct sales to customers in the United States. Instead,
McIntyre engaged an independent distributor to sell its
products in the United States. Id. Other than the marketing
efforts of the distributor, McIntyre’s own marketing efforts
in the United States were limited to sending its executives
to an annual trade show in the United States to present
their products. Those trade shows were never held in New
Jersey, and the record contained no evidence as to whether
those executives were aware of New Jersey residents attend-
ing the trade shows. The volume of sales was small. No more
than four (possibly as few as one) of McIntyre’s products
ended up in New Jersey. Id.
Although a majority of the Court agreed that the
record failed to establish that McIntyre purposefully availed
itself of the New Jersey market, a majority did not agree
on the reasoning that supported that conclusion. Justice
Breyer wrote a narrow concurring opinion, joined by Justice
Alito, which represents the controlling opinion in the case.
See Willemsen, 352 Or at 201 (“[W]e look to Justice Breyer’s
opinion concurring in the judgment for the ‘holding’ in
Nicastro that guides our resolution of this case[.]”). Justice
Breyer concluded that the facts of Nicastro did not present
an opportunity to announce new law, because the conclusion
that McIntyre did not purposefully avail itself of the New
Jersey market was compelled by existing case law: “None
of our precedents finds that a single isolated sale, even if
accompanied by the kind of sales effort indicated here, is
sufficient.” Nicastro, 564 US at 888 (Breyer, J., concurring).
Justice Kennedy wrote a plurality opinion joined
by three other members of the Court, which provides the
grounds for Ooma’s argument in this case. Justice Kennedy
104 Ooma, Inc. v. Dept. of Rev.
wrote that he would have used Nicastro to resolve a con-
flict between competing nonmajority opinions by Justice
Brennan and Justice O’Connor in Asahi Metal Industry Co.
v. Superior Court of California, 480 US 102, 107 S Ct 1026,
94 L Ed 2d 92 (1987).
In Asahi, Justice Brennan had reasoned that a
manufacturer with no direct contact to the forum state
purposefully avails itself of that state’s market when the
manufacturer knows that “the regular and anticipated
flow” of commerce brings the manufacturer’s products into
that state, thus establishing the manufacturer’s reasonable
expectation that its products will end up there. Id. at 117(Brennan, J., concurring). Justice O’Connor had rejected that
standard as too permissive. According to Justice O’Connor,
“[t]he placement of a product into the stream of commerce,
without more, is not an act of the defendant purposefully
directed toward the forum State.” Id. at 112 (O’Connor, J.,
plurality opinion). She would have required that the out-of-
state party engage in some “[a]dditional conduct * * * [that]
indicate[s] an intent or purpose to serve the market in the
forum State.” Id. In Justice O’Connor’s view, such additional
conduct might include “designing the product for the market
in the forum State, advertising in the forum State, estab-
lishing channels for providing regular advice to customers
in the forum State, or marketing the product through a dis-
tributor who has agreed to serve as the sales agent in the
forum State.” Id.Justice Kennedy’s opinion in Nicastro would have
rejected Justice Brennan’s test in favor of Justice O’Connor’s.
Nicastro, 564 US at 883 (Kennedy, J., plurality opinion) (con-
cluding, after describing the competing tests, that “Justice
Brennan’s concurrence, advocating a rule based on general
notions of fairness and foreseeability, is inconsistent with
the premises of lawful judicial power”). Echoing Justice
O’Connor’s emphasis on the defendant’s intent and purpose,
Justice Kennedy wrote that “[t]he principal inquiry in cases
of this sort is whether the defendant’s activities manifest an
intention to submit to the power of a sovereign.” Id. at 882.
Further, according to Justice Kennedy, “[t]he defendant’s
transmission of goods permits the exercise of jurisdiction
Cite as 369 Or 95 (2021) 105
only where the defendant can be said to have targeted the
forum; as a general rule, it is not enough that the defendant
might have predicted that its goods will reach the forum
State.” Id.Justice Kennedy then explained that assessing the
sufficiency of a party’s contact “requires a forum-by-forum,
or sovereign-by-sovereign, analysis.” Id. at 884. As a result,
“[b]ecause the United States is a distinct sovereign, a defen-
dant may in principle be subject to the jurisdiction of the
courts of the United States but not of any particular State,”
although Justice Kennedy thought that that “would be an
exceptional case.” Id. Justice Kennedy concluded that, by
engaging a United States distributor and attending national
trade shows in the United States, McIntyre merely “directed
marketing and sales efforts at the United States,” thus sub-
jecting itself to the potential jurisdiction of the federal gov-
ernment, if a federal law applied. Id. at 885. But, according
to Justice Kennedy, McIntyre had not “engaged in conduct
purposefully directed at New Jersey.” Id. at 886.
Ooma argues that it is like McIntyre, in that Ooma
targeted its marketing and sales efforts at the entire coun-
try but not at Oregon or any other particular state. Ooma
relies on the stipulated facts that Ooma “prepared market-
ing plans that targeted customers nationwide, including
Oregon residents” and “employed business strategies that
targeted customers nationwide, including Oregon resi-
dents.” In its briefing to this court, Ooma argues that those
facts do not establish that it purposefully availed itself of
Oregon’s market because “Ooma did not tailor its business
plans, advertising, or online presence to focus its solicitation
efforts on Oregon residents.”
Ooma’s argument appears to take Justice Kennedy’s
opinion to mean that conduct “targeting a forum” means con-
duct targeting that forum to the exclusion of other forums.
However, that opinion did not suggest that a party’s sin-
gle course of conduct cannot target multiple forums at the
same time. As we understand it, Justice Kennedy’s conclu-
sion that McIntyre targeted “the United States” rather than
New Jersey was based on the fact that McIntyre’s effort to
reach customers in New Jersey was so limited, not because
106 Ooma, Inc. v. Dept. of Rev.
its effort to reach customers in other states was so wide-
spread. Nothing in Justice Kennedy’s opinion indicates that,
if a court finds contacts sufficient to support a conclusion
that a company has targeted a state, the court should none-
theless avoid that conclusion based on a finding that the
company’s efforts targeted other states as well. As a result,
Ooma’s effort to target customers in other states does not
affect or diminish the constitutional significance of its effort
to target customers in Oregon.4
Additionally, by focusing only on its conduct to
attract customers and ignoring its conduct providing ser-
vices in Oregon, Ooma takes an unduly narrow view of what
constitutes “targeting” in Justice Kennedy’s opinion. Justice
Kennedy referred to McIntyre’s “marketing and sales activ-
ities,” id. at 885, because that was the only conduct that
McIntyre engaged in that arguably constituted targeting. It
does not follow that other types of activities are irrelevant to
the analysis, so long as they inform the question of whether
the party (in Justice Kennedy’s words) “manifest[ed] an
intention to submit to the power of a sovereign.” Id. at 882.
Here, Ooma not only engaged in marketing and sales activi-
ties, it actually entered into contracts and provided services
to Oregon residents, in Oregon. We readily conclude that,
4
In an effort to buttress its argument that purposeful availment can be sat-
isfied only through conduct specific to each state, Ooma cites Quill Corp. v. North
Dakota, 504 US 298, 112 S Ct 1904, 119 L Ed 2d 91 (1992), overruled on other
grounds by South Dakota v. Wayfair, Inc., ___ US ___, 138 S Ct 2080, 201 L Ed
2d 403 (2018). In Quill, the Court concluded that a state did not violate the Due
Process Clause by imposing a duty to collect use taxes on an out-of-state mail-
order company that annually delivered 24 tons of catalogs and flyers into the
state, which generated almost $1 million in annual sales made to about 3,000
customers. Id. at 302, 304, 308. Ooma maintains that, “[u]nlike the taxpayer in
Quill, Ooma did not pursue Oregon sales by pinpointing individual Oregon resi-
dents or businesses.”
But the Court in Quill never identified the manner of solicitation—that is,
whether the solicitation was sent to an individual or broadcast to many individuals—
as relevant to its analysis. In fact, the Court suggested that the manner of solic-
itation was not relevant. After noting that the mail-order company “engaged in
continuous and widespread solicitation of busines” within the taxing state, the
Court held that, “[i]n ‘modern commercial life[,]’ it matters little that such solic-
itation is accomplished by a deluge of catalogs rather than a phalanx of drum-
mers.” Id. at 308. Further, such a distinction based on the manner of solicitation
would be in tension with the Court’s effort to “abandon[ ] more formalistic tests
* * * in favor of a more flexible inquiry” into the reasonableness of the government
action. Id. at 307.
Cite as 369 Or 95 (2021) 107
even under the test that Justice Kennedy articulated, Ooma
purposefully availed itself of Oregon’s market.5
B. Commerce Clause
Under the Commerce Clause, a state tax will be sus-
tained so long as it “applie[s] to an activity with a substan-
tial nexus with the taxing State, is fairly apportioned, does
not discriminate against interstate commerce, and is fairly
related to the services provided by the State.” Complete Auto
Transit, Inc. v. Brady, 430 US 274, 279, 97 S Ct 1076, 51
L Ed 2d 326 (1977). In this case, Ooma challenges only the
“substantial nexus” part of the test. The parties agree that
“ ‘[s]uch a nexus is established when the taxpayer [or collec-
tor] avails itself of the substantial privilege of carrying on
business in that jurisdiction.’ ” South Dakota v. Wayfair, Inc.,
___ US ___, ___, 138 S Ct 2080, 2099, 201 L Ed 2d 403 (2018)
(quoting Polar Tankers, Inc. v. City of Valdez, 557 US 1, 11,
129 S Ct 2277, 174 L Ed 2d 1 (2009)). The parties disagree,
however, as to the facts necessary to satisfy that standard.
Both parties ground their arguments in the Court’s
analysis of the nexus issue in Wayfair. In that case, the tax-
ing state, South Dakota, enacted a statute requiring out-
of-state retailers—those without a physical presence in the
state—to collect and remit sales taxes. The statute applied
only to those retailers that annually delivered more than
$100,000 of goods or services into South Dakota or engaged
in 200 or more separate transactions for the delivery of
goods or services into South Dakota. Id. at ___, 138 S Ct at
2089.
The primary question for the Court in Wayfair
was whether to affirm or abandon precedent holding that
a state violates the Commerce Clause by imposing a sales
tax on retailers without a physical presence in the state.
See Quill, 504 US at 317-18 (applying the physical-presence
rule); National Bellas Hess, Inc. v. Department of Revenue of
Ill., 386 US 753, 758, 87 S Ct 1389, 18 L Ed 2d 505 (1967)
5
Ooma separately argues that requiring it to comply with the E911 tax
obligations violates traditional notions of “fair play and substantial justice.” See
Burger King, 471 US at 476. We reject that argument, which largely overlaps with
Ooma’s arguments about minimum contacts and purposeful availment.
108 Ooma, Inc. v. Dept. of Rev.
(same). After deciding to abandon the physical-presence rule
by overruling its prior cases, the Court had no trouble con-
cluding that the out-of-state retailers challenging the tax
had availed themselves of the substantial privilege of carry-
ing on business in that state, thus satisfying the substantial
nexus requirement:
“Here, the nexus is clearly sufficient based on both the
economic and virtual contacts respondents have with the
State. The Act applies only to sellers that deliver more than
$100,000 of goods or services into South Dakota or engage
in 200 or more separate transactions for the delivery of
goods and services into the State on an annual basis. This
quantity of business could not have occurred unless the
seller availed itself of the substantial privilege of carrying
on business in South Dakota. And respondents are large,
national companies that undoubtedly maintain an exten-
sive virtual presence. Thus, the substantial nexus require-
ment of Complete Auto is satisfied in this case.”
Wayfair, ___ US at ___, 138 S Ct at 2099 (internal citation
omitted).
Both parties contend that the quoted paragraph
supports their respective positions. The department reads
that paragraph to mean that retailers that annually do
more than $100,000 worth of business in a state, or engage
in more than 200 transactions, meet the substantial nexus
requirement as set out in Wayfair. Because Ooma did more
than $2.2 million in business in 39 months6 and provided
thousands of lines of VoIP service, the department reasons,
the substantial nexus test is easily satisfied.
Ooma argues that the quoted paragraph indi-
cates that a court assessing whether the substantial nexus
requirement has been satisfied must determine the extent
of the company’s economic activity in the state. It is not
enough, according to Ooma, to simply establish that a com-
pany did more than $100,000 worth of business in a state or
engaged in more than 200 transactions. And Ooma argues
that a court may not conclude that an out-of-state company
satisfies the substantial nexus requirement without finding
6
Ooma’s services to Oregon customers generated monthly revenue ranging
from $32,222.04 to $102,096.87.
Cite as 369 Or 95 (2021) 109
that the company maintains an “extensive virtual pres-
ence.” Id. at ___, 138 S Ct at 2099.
Ooma’s reading is unpersuasive. The Court explained
in Wayfair that the sales in excess of South Dakota’s thresh-
olds “could not have occurred unless the seller availed itself
of the substantial privilege of carrying on business” in the
state. Id. It necessarily follows that a company that earned
far greater revenue and engaged in far more transactions
than involved in Wayfair must be deemed to have also availed
itself of the substantial privilege of carrying on business in
Oregon. And, while the Court noted that the taxpayers in
Wayfair undoubtedly had an extensive virtual presence,
the Court did not articulate that as a requirement, and
Ooma offers no explanation as to why it would make sense
to impose such a requirement when a nexus is otherwise
established through sales, marketing, and service delivery
efforts. See Jerome R. Hellerstein & Walter Hellerstein,
2 State Taxation ¶ 19.02[2][c][i], 19-30 n 142 (3rd ed Supp
2018) (“Clearly, a virtual presence (in the modern sense of
having a website) is not required to establish substantial
nexus. For example, a traditional mail-order company like
National Bellas Hess, Inc. or Quill Corporation would have
substantial nexus with South Dakota if its in-state sales or
transactions exceeded the minimum thresholds prescribed
by the South Dakota statute.”). As a result, the lack of record
evidence as to Ooma’s virtual presence does not establish a
genuine issue of material fact that precludes the grant of
summary judgment to the department.
The judgment of the Tax Court is affirmed.