Avnet, Inc. v. Department of Revenue , 187 Wash. 2d 44 ( 2016 )

Madsen, C.J.

¶1 Avnet Inc. is a New York corporation, headquartered in Arizona, and is a major distributor of electronic components and computer technology worldwide. Avnet sells products through its headquarters in Arizona and through its many regional sales offices, including one in Redmond, Washington. Following an audit, the Washington State Department of Revenue (Department) determined that from 2003 to 2005, Avnet un-derreported its business and occupations (B&O) tax liabilities by failing to include its national and drop-shipped sales in its tax filings. “National sales” are delivered to a Washington facility owned by Avnet’s customer, even though the customer placed the order from an office outside Washington. “Drop-shipped sales” are slightly different in that they are delivered to a third party in Washington at the request of Avnet’s customer—usually Avnet’s buyer’s customer. This case requires us to evaluate whether national and drop-shipped sales are subject to Washington’s B&O tax under the dormant commerce clause and the Department’s former “Rule 193” (i.e., former WAC 458-20-193 (1992)). U.S. Const, art. I, § 8, cl. 3. We hold that neither the dormant commerce clause nor Rule 193 bars the imposition of a B&O tax to Avnet’s national and drop-shipped sales delivered in Washington.

FACTS

¶2 Avnet is “one of the largest distributors of electronic components, computer products and embedded technology serving customers globally.” Clerk’s Papers (CP) at 424; see also CP at 194-95. From 2003 through 2005, Avnet earned more than $200 million in revenue from its wholesale of goods shipped into Washington from an out-of-state warehouse. Approximately $80 million of its gross receipts came from national and drop-shipped sales. In a “national sale,” Avnet makes a wholesale sale to a customer with branch offices in multiple states. The products are delivered to the customer at its Washington branch, but the goods are billed to the customer’s out-of-state office. For example, a corporation purchases products for delivery to its offices in Seattle, Washington, but directs Avnet to send the bill to its corporate headquarters in Delaware. In a “third-party drop shipment” or “drop shipment,” an out-of-state customer places a wholesale order and directs Avnet to deliver the product to its customer in Washington. For example, a Montana corporation places an order with Avnet and— instead of having it shipped to Montana and then reshipping it to Spokane—directs that it be delivered to its customer in Spokane.

¶3 Avnet has 35 offices in the United States, including an office in Redmond, Washington. Although all of Avnet’s products ship from distribution centers outside Washington, there is no difference between the products ordered through the Arizona branch or the Washington branch, and the staff in the Redmond office are able to serve its Washington customers whose orders are placed elsewhere. During the relevant period, Avnet employed over 40 employees at its branch office in Redmond, Washington. Although the Redmond office was not involved in the specific national and drop-shipped sales at issue, its presence and business activities in Washington were extensive. Of the over 40 employees, 16 to 18 were account managers who managed customer account portfolios that were each estimated to generate $4 million in annual sales revenue. The Redmond branch also employed sales and marketing representatives, engineers, and technology consultants. Avnet’s Washington employees were instrumental in marketing and selling products, establishing and improving customer relations, providing design services to help with the development of new products, and offering technical and engineering support to its Washington customers.

¶4 The Department audited Avnet’s taxes and concluded that from 2003 to 2005, Avnet underreported its B&O tax liabilities. In particular, the Department found Avnet failed to include national and drop-shipped sales in its tax filings. The Department auditor assessed Avnet $556,037 in taxes and interest. Avnet appealed to the administrative appeals division of the Department. The appeals division affirmed the Department’s tax assessment. Avnet paid the tax assessment under protest and filed a refund action in Thur-ston County Superior Court. The superior court ruled that the national sales, but not the drop-shipped sales, were subject to the B&O tax. Both Avnet and the Department cross appealed the superior court’s ruling. The Court of Appeals held that Avnet’s B&O tax liability included both national and drop-shipped sales. Avnet, Inc. v. Dep’t of Revenue, 187 Wn. App. 427, 448-49, 348 P.3d 1273 (2015).

¶5 Avnet petitioned this court for review, which we granted. Avnet, Inc. v. Dep’t of Revenue, 184 Wn.2d 1026, 364 P.3d 120 (2016). Avnet argues that the dormant commerce clause bars the imposition of a B&O tax on its national and drop-shipped sales into Washington, which do not utilize the Redmond office in the placing or completion of the sale. Alternatively, even if the taxes are constitutionally permissible, Avnet maintains that under these facts, Rule 193 prevented the Department from assessing the taxes. At issue is whether Avnet carried its burden of proving that its national and drop-shipped sales are sufficiently dissociated from its in-state activities to avoid B&O tax liability by showing that its Redmond office played no part in the sales. Additionally, we must determine whether Rule 193 barred the B&O taxes and, if so, whether the Department was bound to follow an interpretive rule.

¶6 We hold that merely showing that an in-state office was not involved in the placing or completion of a national or drop-shipped sale is insufficient to dissociate from the bundle of in-state activities that are essential to establishing and holding the market for its products. We also hold that under the plain language of Rule 193, imposition of the B&O taxes to Avnet’s national and drop-shipped sales was proper, and therefore decline to address whether an agency is bound by its interpretive rules.

STANDARD OF REVIEW

¶7 Questions of law on appeal from summary judgment are reviewed de novo. Dreiling v. Jain, 151 Wn.2d 900, 908, 93 P.3d 861 (2004) (citing Rivett v. City of Tacoma, 123 Wn.2d 573, 578, 870 P.2d 299 (1994)). We interpret statutes so as to implement the legislature’s intent. Dep’t of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). “When its meaning is in doubt, a tax statute ‘must be construed most strongly against the taxing power and in favor of the taxpayer.’ ” Lamtec Corp. v. Dep’t of Revenue, 170 Wn.2d 838, 842-43, 246 P.3d 788 (2011) (quoting Ski Acres, Inc. v. Kittitas County, 118 Wn.2d 852, 857, 827 P.2d 1000 (1992)). However, courts presume taxes are valid. Id. at 843. Avnet therefore bears the burden of proving an exemption applies. Id.; RCW 82.32.180 (“the burden shall rest upon the taxpayer to prove that the tax as paid by the taxpayer is incorrect”); Gen. Motors Corp. v. Washington, 377 U.S. 436, 441, 84 S. Ct. 1564, 12 L. Ed. 2d 430 (1964) (“ ‘a taxpayer claiming immunity from a tax has the burden of establishing his exemption’ ” (quoting Norton Co. v. Dep’t of Revenue, 340 U.S. 534, 537, 71 S. Ct. 377, 95 L. Ed. 517 (1951))), overruled on other grounds by Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue, 483 U.S. 232, 107 S. Ct. 2810, 97 L. Ed. 2d 199 (1987). If there is ambiguity in a provision providing an exemption or deduction, the court must strictly construe the provision against the taxpayer. Simpson Inv. Co. v. Dep’t of Revenue, 141 Wn.2d 139, 149-50, 3 P.3d 741 (2000).

ANALYSIS

Washington’s B&O Tax Structure

¶8 Washington imposes a gross receipts, or B&O, tax on wholesalers “for the act or privilege of engaging in business activities.” Former RCW 82.04.220 (1961);¹ see also Ford Motor Co. v. City of Seattle, 160 Wn.2d 32, 39, 156 P.3d 185 (2007). Every person who conducts business activities in Washington “with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly” and who “has a substantial nexus with this state” must pay a percentage of its gross receipts of any resulting proceeds. Former RCW 82.04.140 (1961); former RCW 82.04.220; Lamtec, 170 Wn.2d at 843. This court has held that “it is obvious that the legislature intended to impose the business and occupation tax upon virtually all business activities carried on within the state.” Time Oil Co. v. State, 79 Wn.2d 143, 146, 483 P.2d 628 (1971). The B&O tax is to be imposed as broadly as constitutionally allowed. See Coast Pac. Trading, Inc. v. Dep’t of Revenue, 105 Wn.2d 912, 917-18, 719 P.2d 541 (1986) (“This court has ruled repeatedly that when the Legislature enacted the business and occupation tax the Legislature intended ‘to tax all business activities not expressly excluded’.” (quoting Rena-Ware Distribs., Inc. v. State, 77 Wn.2d 514, 517, 463 P.2d 622 (1970))); RCW 82.04.4286 (“In computing tax there may be deducted from the measure of tax amounts derived from business which the state is prohibited from taxing under the Constitution of this state or the Constitution or laws of the United States.”); see also Steven Klein, Inc. v. Dep’t of Revenue, 183 Wn.2d 889, 896, 357 P.3d 59 (2015).

¶9 For wholesale sales, the statute imposes a B&O tax “equal to the gross proceeds of the sales of such business multiplied by the rate of 0.484 percent.” RCW 82.04.270. The statute defines “sale” as “any transfer of the ownership of, title to, or possession of property for a valuable consideration.” RCW 82.04.040(1). The Department’s administrative rule, WAC 458-20-103, also defines when a sale takes place:

For the purpose of determining [B&O] tax liability of persons selling tangible personal property, a sale takes place in this state when the goods sold are delivered to the buyer in this state, irrespective of whether title to the goods passes to the buyer at a point within or without this state.

¶10 “A tax on an out-of-state corporation must satisfy both the requirements of the due process clause of the Fourteenth Amendment and the commerce clause.” Lamtec, 170 Wn.2d at 843 (citing Quill Corp. v. North Dakota, 504 U.S. 298, 305, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992)). Avnet challenges the imposition of the tax under only the dormant commerce clause.

¶11 The dormant commerce clause “prevents state regulation of interstate commercial activity even when Congress has not acted ... to regulate that activity” but does not “relieve those engaged in interstate commerce from their just share of state tax burden.” Black’s Law Dictionary 325 (10th ed. 2014) (see subentry for “commerce clause”); W. Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S. Ct. 546, 82 L. Ed. 823 (1938). Under modern dormant commerce clause jurisprudence, a state tax on an out-of-state corporation must (1) be “applied to an activity with a substantial nexus with the taxing State,” (2) be “fairly apportioned,” (3) “not discriminate against interstate commerce,” and (4) be “fairly related to the services provided by the State.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S. Ct. 1076, 51 L. Ed. 2d 326 (1977); see also Ford, 160 Wn.2d at 48-49. “If a local taxing scheme fails any one of these four requirements, it is invalid.” Ford, 160 Wn.2d at 48. The parties disagree as to whether the first requirement—a “substantial nexus” between Avnet’s national and drop-shipped sales and the activities of its Redmond office—has been satisfied.²

¶12 In addition to the dormant commerce clause requirements, the Department has promulgated administrative rules interpreting the B&O tax statute. Relevant here is Rule 193, former WAC 458-20-193, which was applicable at the time of the events at issue. Rule 193 explains Washington’s B&O tax and its application to inbound and outbound sales. Rule 193(7) discusses inbound sales and states that “Washington does not assert B&O tax on sales of goods which originate outside this state unless the goods are received by the purchaser in this state and the seller has nexus.” Further,

[i]f a seller carries on significant activity in this state and conducts no other business in the state except the business of making sales, this person has the distinct burden of establishing that the instate activities are not significantly associated in any way with the sales into this state. Once nexus has been established, it will continue throughout the statutory period of ROW 82.32.050 (up to five years), notwithstanding that the instate activity which created the nexus ceased.

Rule 193(7)(c). Rule 193(7)(c) goes on to provide a non-exhaustive list of circumstances that would establish that the B&O tax applies to certain sales. Among those, Rule 193(7)(c)(v) states that

[t]he out-of-state seller, either directly or by an agent or other representative, performs significant services in relation to establishment or maintenance of sales into the state, even though the seller may not have formal sales offices in Washington or the agent or representative may not be formally characterized as a “salesperson”.

¶13 Rule 193(2)(d) specifies that “ ‘[Receipt’ or ‘received’ means the purchaser or its agent first either taking physical possession of the goods or having dominion or control over them.” “Agent” is defined as “a person authorized to receive goods with the power to inspect and accept or reject them,” Rule 193(2)(e), and “nexus” is defined as “the activity carried on by the seller in Washington which is significantly associated with the seller’s ability to establish or maintain a market for its products in Washington.” Rule 193(2)(f). Avnet contends that it has established that its national sales are exempt from taxation under Rule 193(7)(c) because none of its in-state activities were significantly associated in any way with the sales at issue. Avnet further argues that its drop-shipped sales are exempt under Rule 193(7) because Avnet’s customer, the wholesale buyer, did not take physical possession of or exercise dominion and control over the goods in Washington, and that only Avnet’s buyer’s customer received the goods within the meaning of the rule.

Dormant Commerce Clause

¶14 We turn first to Avnet’s constitutional argument. Avnet asserts that it is entitled to “dissociate” the contested inbound sales from the tax base because the Redmond office was not involved in any way in those sales; i.e., the orders were placed directly with the company’s headquarters in Arizona and the Redmond office was not involved in fulfilling those sales. Avnet’s commerce clause challenge rests entirely on the Supreme Court’s 1951 decision in Norton, 340 U.S. at 538-39. According to Avnet, Norton dictates—on substantially similar facts—that Washington cannot impose a B&O tax on such national and drop-shipped sales.

¶15 The question in Norton was whether the dormant commerce clause prohibited Illinois from imposing a B&O tax on certain out-of-state sales. Id. at 535-36. Norton manufactured abrasive machines and supplies in Massachusetts. It also employed engineers in Illinois to consult with prospective customers. Norton Co. v. Dep’t of Revenue, 405 Ill. 314, 315, 90 N.E.2d 737 (1950). These engineers did not solicit or take any sales orders. Id. Nor did Norton employ any salespeople in Illinois. Id. Norton did, however, operate a local retail branch office and warehouse there. Norton, 340 U.S. at 535. Norton did not dispute Illinois’s ability to tax sales it made at its Illinois branch. But not all sales to Illinois customers were completed at the Illinois branch. Some were placed at the Illinois branch but were forwarded to the Massachusetts office for acceptance or rejection. Id. at 536. Other orders were made directly to the Massachusetts office and shipped from Massachusetts without involvement of the Illinois branch or warehouse. Id. Norton challenged Illinois’s B&O tax on those sales accepted and shipped from its Massachusetts office.

¶16 The Court concluded that Illinois could impose a B&O tax on all sales that utilized the Illinois branch or warehouse, either in receiving the order or distributing the goods. Id. at 538. But the Court found that the orders that were sent directly to Massachusetts by the customer and shipped directly to the customer from Massachusetts were “so clearly interstate in character” that Illinois could not reasonably attribute their proceeds to the local business. Id. at 539 (“Income from those [sales] we think was not subject to this tax.”).³ According to the Court, “when, as here, the corporation has gone into the State to do local business by state permission and has submitted itself to the taxing power of the State, it can avoid taxation on some Illinois sales only by showing that particular transactions are dissociated from the local business and interstate in nature.” Id. at 537. The Court then announced the test for dissociation that it has continued to apply: whether the taxpayer’s in-state activities helped establish and maintain a market for the taxpayer’s goods.

¶17 In the over 60 years since Norton, the Supreme Court has addressed the issue of dissociation under Norton several times. See, e.g., Tyler Pipe, 483 U.S. at 249; Standard Pressed Steel Co. v. Dep’t of Revenue, 419 U.S. 560, 562-63, 95 S. Ct. 706, 42 L. Ed. 2d 719 (1975); Gen. Motors, 377 U.S. at 447-48.⁴ The parties and amici dispute whether the legal rule set forth in Norton has changed or the facts of the cases have changed.

¶18 General Motors, like Norton, involved a challenge to Washington’s authority to impose a B&O tax on sales sent directly to General Motors’ (GM) Portland office where they were accepted and delivered directly to dealers in Washington. Gen. Motors, 377 U.S. at 443. Like Norton, GM also hired local employees and had a branch office in Seattle, and neither the employees nor the branch office was involved in the disputed sales. Id. at 446. The Court nevertheless upheld the tax on sales received by the Portland office and delivered to Washington dealers. According to the Court, there was a sufficient nexus between GM’s “bundle of corporate activity” in Washington to satisfy imposition of its B&O tax to these sales. Id. at 447-48. The Court reasoned:

Although mere entry into a State does not take from a corporation the right to continue to do an interstate business with tax immunity, it does not follow that the corporation can channel its operations through such a maze of local connections as does General Motors, and take advantage of its gain on domesticity, and still maintain that same degree of immunity.

Id. at 448.

¶19 Standard Pressed Steel also involved a challenge to Washington’s B&O tax. There, the Department levied the tax on sales made to an in-state customer (Boeing) directly from Standard Pressed Steel (SPS), an out-of-state manufacturer, where SPS accepted and filled the sales, and shipped the products directly to the Washington customer. 419 U.S. at 561. And like the company in Norton, SPS hired an in-state engineer to consult with customers, but that engineer was not involved in the subject sales. Id. at 561. Despite the striking similarities between the sales in Standard Pressed Steel and the sales in Norton, the Court unanimously found that Washington’s B&O tax on SPS’s inbound sales to Boeing was constitutional. Id. at 561-62. The Court specifically rejected SPS’s contentions (much like Avnet’s contentions here) that Norton controlled. Id. at 563. Instead, the Court analogized the facts of Standard Pressed Steel to those in General Motors and affirmed application of Washington’s B&O tax.

¶20 Despite their different outcomes, neither Standard Pressed Steel nor General Motors explicitly overruled Norton. To the contrary, each decision suggested that its analysis of whether the taxpayer had sufficiently dissociated its sales from its efforts to establish and maintain a market for sales in the taxing state was consistent with Norton. See Standard Pressed Steel, 419 U.S. at 562-63; Gen. Motors, 377 U.S. at 440-48.

¶21 Finally, in Tyler Pipe, the Supreme Court found Washington could impose a B&O tax on Tyler Pipe’s sales in Washington even though it had no office, no property, and no employees in Washington. 483 U.S. at 249-51. The Court found that application of a B&O tax to these sales did not offend the commerce clause because Tyler Pipe had hired an in-state contractor to call on customers and solicit orders, and that it was through these sales contacts that Tyler Pipe maintained and improved its “ ‘name recognition, market share, goodwill, and individual customer relations.’ ” Id. (quoting Tyler Pipe Indus., Inc. v. Dep’t of Revenue, 105 Wn.2d 318, 325, 715 P.2d 123 (1986)). According to the Court, these local activities were necessary for the maintenance of Tyler Pipe’s market in Washington and protection of its interests there. Id. at 250-51. In so holding, the Supreme Court adopted this court’s formulation of the nexus test: “ ‘[T]he crucial factor governing nexus is whether the activities performed in this state on behalf of the taxpayer are significantly associated with the taxpayer’s ability to establish and maintain a market in this state for the sales.’ ” Id. at 250 (quoting Tyler Pipe, 105 Wn.2d at 323).

¶22 This court’s B&O cases are consistent with the Supreme Court’s interpretation of Norton. In Chicago Bridge & Iron Co. v. Department of Revenue, Chicago Bridge, an Illinois corporation, was in the business of designing and installing custom steel containers in Washington. 98 Wn.2d 814, 816-17, 659 P.2d 463 (1983). At issue was whether Washington could impose its B&O tax on sales orders that Washington customers placed with Chicago Bridge’s Illinois office. Id. at 817. Because the negotiation and formalization of these contracts occurred outside Washington, Chicago Bridge argued that they were not taxable sales activities within Washington. Id. We disagreed. We found there was sufficient nexus between Chicago Bridge’s sales and its in-state activities, especially when Chicago Bridge custom designed and manufactured each product for installation in Washington, opened a local office in Seattle from which it would send employees and project managers to survey project sites during the design and installation process, and maintained a warehouse in Tacoma for storage and access to equipment that would be used in the installation and maintenance of these sales. Id. at 818-19. From these facts, we held that Chicago Bridge had failed to carry its burden of proving dissociation of its out-of-state sales from its in-state activities, as they helped it maintain a market for its products in Washington. Id. at 828-29. We reasoned that “although the Seattle sales office was not involved in the contract procurement, it was involved in the passive sense of being present, aware of the transaction, and available to assist if necessary. Local [Chicago Bridge] personnel were also available to resolve any difficulties with the product and maintain the goodwill of the customer.” Id. at 828.

¶23 In so holding, we interpreted Norton to require that a company show a complete absence of any connection between the local office and the underlying sales in order to meet its burden. Id. at 821, 833. Thus, where there is general contact between the taxpayer’s in-state employees and its customers related to the taxpayer’s products, a claim that such sales are dissociated will fail. Id. at 821-22 (citing Standard Pressed Steel and General Motors). This is because the presence and activities of these employees help the taxpayer build rapport and retain goodwill with its customers and are therefore too “inexorably entwined with the establishing and holding of the local market” to be “dissociated.” Id. at 833-34, 837.

¶24 Most recently, we confirmed our interpretation of Norton’s nexus requirement in Lamtec, 170 Wn.2d 838. In Lamtec, a New Jersey manufacturer sold products to customers in Washington wholesale by telephone. Lamtec’s only presence in Washington was through three sales representatives, who visited with its major Washington customers two to three times per year. Without deciding whether a physical presence in the taxing state was necessary, rather than sufficient, to establish nexus, we held that even if a physical presence was required, it was satisfied by the three sales representatives’ occasional visits to Washington. Even though the sales representatives did not solicit the sales in question, we reasoned that “[t]he contacts by Lamtec’s sales representatives were designed to maintain its relationships with its customers and to maintain its market within Washington State. Nor were the activities slight or incidental to some other purpose or activity.” Id. at 851. We went on to hold that “Lamtec’s practice of sending sales representatives to meet with its customers within Washington was significantly associated with its ability to establish and maintain its market.” Id.

¶25 Additionally, our construction oí Norton is consistent with decisions from other jurisdictions. In Alaska v. Sears, Roebuck & Co., Sears challenged the imposition of a gross receipts tax on direct mail order sales—delivered to Alaska—that did not utilize the local Sears retail outlets. 660 P.2d 1188, 1189 (Alaska 1983). The Alaska Supreme Court held that Norton and the dormant commerce clause did not bar the imposition of the tax, even if the direct mail orders in no way involved a local outlet, because the local outlets “provided Alaska patrons with customer service on catalog items, such as returns for repair, credit, or exchange. In addition, they supplied application forms and accepted direct applications for Sears credit card accounts.” Id. at 1191. The court held that under those facts, Sears had a “substantial commercial presence” that had “a significant nexus to Sears’ direct mail order business.” Id. In J.C. Penney Co. v. Hardesty, the Supreme Court of West Virginia held a B&O tax on J.C. Penney’s out-of-state catalog sales valid, even though the sales were neither made nor shipped through its local retail outlets. 164 W. Va. 525, 532, 264 S.E.2d 604 (1979). In a concurring opinion, Justice Miller stated that “to contend that out-of-State catalog sales have no local connection is to ignore business reality.” Id. at 548.

¶26 The parties spend a portion of their briefing arguing over whether General Motors, Standard Pressed Steel, and Tyler Pipe overruled Norton. However, resolution of that question is not dispositive of the issue. While the United States Supreme Court “does not normally overturn, or so dramatically limit, earlier authority sub silentio,” we need not resolve this question today. Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18, 120 S. Ct. 1084, 146 L. Ed. 2d 1 (2000). Norton unquestionably remains good law as pertains to the principle that the taxpayer has the burden to show that the bundle of its in-state corporate activities are “dissociated from the local business and interstate in nature. The general rule, applicable here, is that a taxpayer claiming immunity from a tax has the burden of establishing [its] exemption.” Norton, 340 U.S. at 537. What has changed in the 60 years since Norton is the Supreme Court’s interpretation of how a company must demonstrate dissociation. In that, General Motors, Standard Pressed Steel, and Tyler Pipe control.

¶27 Here, Avnet admits that its “Redmond office performs a variety of functions for Avnet’s Washington customers, including soliciting orders, responding to requests for quotes, receiving orders, responding to questions and otherwise meeting the needs of Avnet’s Washington customers.” Avnet Inc.’s Suppl. Br. at 2. Although Avnet contends that its Redmond office did not provide any postshipment services related to the drop-shipped or national sales, it does not indicate that it would not do so if requested. In Chicago Bridge, we indicated that it was enough that the local office was involved in the “passive sense of being present, aware of the transaction, and available to assist if necessary.” 98 Wn.2d at 828-29. In addition, Avnet’s employees in the Redmond office also provided its corporate office with “market intelligence” regarding Washington markets, met with Avnet’s sales teams and suppliers to strategize on how to create a greater demand for Avnet’s products and services, and worked with customers in improving existing products and designing new prototypes. CP at 353-55. Avnet has failed to offer any evidence that those local activities in Washington are not significantly associated with its ability to establish and maintain a Washington market even when its local office or employees are not directly involved with the inbound sales. Avnet’s in-state activities therefore were at least minimally associated with its ability to establish and maintain a market in Washington for the sale of its products. Avnet’s presence creates a climate for Washington residents to want to order from the company. We hold that under Tyler Pipe and Chicago Bridge, there is a sufficient nexus between Avnet’s in-state activities and the state to support Washington’s imposition of its B&O tax on the gross receipts derived from all of Avnet’s inbound sales.

Rule 193

¶28 We now turn to Avnet’s argument that Rule 193 bars the imposition of a B&O tax on both categories of sales. Avnet first argues that Rule 193(7), which states that “Washington does not assert B&O tax on sales of goods which originate outside this state unless the goods are received by the purchaser in this state and the seller has nexus,” exempts its drop-shipped sales. Avnet contends that even if there is a nexus, its buyer never received possession or exercised control or dominion over the goods. Avnet further argues that a B&O tax on its national and drop-shipped sales is barred by Rule 193(7)(c), claiming that none of the nonexclusive examples of nexus set forth in Rule 193(7)(c)(i)-(vi) are applicable. Avnet next asserts that the Department has disavowed its own interpretive rule and should be estopped from so doing. The Department argues that it has not disavowed anything, but that Avnet misconstrues Rule 193. We agree with the Department.

¶29 The plain language of Rule 193(7) does not provide Avnet with an exemption. First, the rule defines “received” as the “purchaser or its agent... taking physical possession of the goods or having dominion and control over them.” Rule 193(2)(d) (emphasis added). “Agent” is then defined as “a person authorized to receive goods with the power to inspect and accept or reject them.” Rule 193(2)(e). As the Department argues, the only person “authorized to receive [the] goods with the power to inspect and accept or reject them” would be the person Avnet’s buyer designates— Avnet’s buyer’s customer—bringing them squarely within the rule’s definition of “agent.” Id. For each sale at issue, Avnet’s customer contracted to pay for the goods and provided Avnet with the name and address of the person or company authorized to receive the goods. Furthermore, as the Court of Appeals below correctly pointed out, “the only transfer of possession of property to any buyer occurred within the state ofWashington.” Avnet, 187 Wn. App. at 436. The person designated by Avnet’s customer to receive the goods was the customer’s “agent” as defined in Rule 193.

¶30 However, even if the company that places the order and requests it be drop-shipped to Washington is not the purchaser—that would make the ultimate recipient the purchaser and Avnet’s customer the purchaser’s agent. A commonsense breakdown of a drop-shipped sale demonstrates that the “purchaser” is the ultimate recipient in Washington. Avnet and the Department treat the sale as beginning with the out-of-state company placing an order with Avnet. However, the out-of-state company is presumably placing the order with Avnet only because it first received an order from its customer in Washington. For example, a Washington customer orders a piece of electronic equipment from a company located in Colorado. The Colorado company then places an order with Avnet and requests it be delivered to its customer in Washington. The payment for Avnet’s product originates in Washington, and the product is delivered in Washington. If the Colorado company is not the purchaser, then it must be acting as an agent of the Washington customer. The result is that the ultimate recipient in Washington is, for all intents and purposes, the purchaser of Avnet’s goods. Depending where we place the focus, the Washington customer is either the commonsense purchaser or the agent of the purchaser. Regardless, Rule 193 is satisfied.

¶31 The common law also supports our interpretation that the Washington customer is Avnet’s de facto purchaser. “[I]t is a well-established rule that delivery to a person appointed by the buyer to receive the goods or to any third person at the buyer’s request or with his consent is sufficient delivery to the buyer.” Middleton v. Evans, 86 Utah 396, 403, 45 P.2d 570 (1935); Weiner v. Am. Credit-Indem. Co. of N.Y., 245 Mich. 418, 423, 222 N.W. 699 (1929) (“It is not unusual in business for orders to direct delivery to be made to a party other than the one giving the order, and a delivery so made is in legal effect a delivery to the party ordering the shipment.”).⁵

¶32 Finally, it is worth noting that Avnet’s interpretation of Rule 193 creates a class of “nowhere sales” that because the goods are not physically received by the purchaser cannot be classified as inbound or outbound sales. Avnet’s interpretation results in no sale occurring, and is inconsistent with the language of the B&O statutes and the legislature’s intent that the B&O tax apply to virtually every business activity and to the extent permitted by the constitution.⁶ The legislature did not intend the applicability of the B&O tax to turn on whether the purchaser designates a third party to take possession of the goods at the shipping destination. This is especially true when that designation is completely within the control of the parties and could lead to substantial tax avoidance. Cf. Wash. Imaging Servs., LLC v. Dep’t of Revenue, 171 Wn.2d 548, 556, 252 P.3d 885 (2011) (independent contractor could not avoid its B&O tax obligation by purporting to disclaim an ownership interest in the amounts owed for services rendered); Ford, 160 Wn.2d at 43-44 (out-of-state seller could not avoid B&O tax by contractually transferring title at the point of shipment); Chi. Bridge, 98 Wn.2d at 824 (construction contractor could not avoid B&O tax by bifurcating the design and manufacturing components of contracts for construction services from the installation of products in Washington); Wasem’s, Inc. v. State, 63 Wn.2d 67, 69-70, 385 P.2d 530 (1963) (retailer could not avoid state excise taxes by having a nonresident purchaser sign a bill of lading agreeing to deliver goods to himself at a point outside the state). Properly interpreted, Rule 193 ensures that the B&O tax avoids both multiple taxation and no taxation anywhere.

¶33 Avnet and the dissent rely on one of the specific examples given in Rule 193(1 l)(h) to assert that Avnet’s buyer does not receive the goods under the meaning of the rule. Rule 193(1 l)(h) provides:

Company X is located in Ohio and has no office, employees, or other agents located in Washington or any other contact which would create nexus. Company X receives by mail an order from Company Y for parts which are to be shipped to a Washington location. Company X purchases the parts from Company Z who is located in Washington and requests that the parts be drop shipped to Company Y. Since Company X has no nexus in Washington, Company X is not subject to B&O tax or required to collect retail sales tax. Company X has not taken possession or dominion or control over the parts in Washington. Company Z may accept a resale certificate from Company X which will bear the registration number issued by the state of Ohio. Company Y is required to pay use tax on the value of the parts.

Avnet maintains that it is “Company Z,” its buyer is “Company X,” and its buyer’s customer is “Company Y.” This example is not on point. First, it addresses the tax liability not of Avnet (Company Z), but of Avnet’s buyer (Company X), which is not at issue. Second, the fact that Avnet’s immediate customer (Company X) did not take possession of the products in Washington is not determinative. Again, “the only buyer who took possession or delivery did so from Avnet and in Washington.” Avnet, 187 Wn. App. at 438. Rule 193(11)(h) is therefore not helpful.

¶34 We hold that Rule 193(7) does not exempt Avnet’s drop-shipped sales. Likewise, Avnet will find no exemption in the examples listed in Rule 193(7)(c)(i)-(vi). First, regardless of the examples, subsection (7)(c) deals with nexus, and “nexus” is defined as “the activity carried on by the seller in Washington which is significantly associated with the seller’s ability to establish or maintain a market for its products in Washington.” Rule 193(2)(f). As previously discussed, Avnet’s in-state activities meet this standard. Avnet attempts to evade this conclusion by arguing that subsection (2)(f) pertains to “taxpayer nexus,” whereas subsection (7)(c) relates to “transactional nexus.” Avnet Inc.’s Suppl. Br. at 17 n.9. Under Avnet’s interpretation, subsection (7)(c) would be sale specific. However, Avnet’s distinction between subsections (2)(f) and (7)(c) ignores language from (7)(c) that provides that the nexus will be deemed to exist for taxing purposes for up to five years even when the in-state activity has ceased. This undermines the interpretation that Avnet advances, which would require a transaction-by-transaction nexus determination. Second, one of the examples listed states that there is a sufficient nexus if

[t]he out-of-state seller, either directly or by an agent or other representative, performs significant services in relation to establishment or maintenance of sales into the state, even though the seller may not have formal sales offices in Washington or the agent or representative may not be formally characterized as a “salesperson”.

Rule 193(7)(c)(v) (emphasis added). This example is an iteration of the Tyler Pipe standard, and Avnet’s activities fall squarely within it. We hold that Rule 193, which interprets Washington’s B&O tax statutes, does not bar the imposition of a gross receipts tax on Avnet’s national and drop-shipped sales.⁷

CONCLUSION

¶35 Washington’s B&O tax is intended to extend as far as permitted by the dormant commerce clause and to reach “virtually all business activities carried on within the state.” Time Oil, 79 Wn.2d at 146. The dormant commerce clause would permit Avnet to dissociate its national and drop-shipped sales if it could show that the bundle of its corporate in-state activities were not “ ‘significantly associated with the taxpayer’s ability to establish and maintain a market in this state for the sales.’ ” Tyler Pipe, 483 U.S. at 250 (quoting Tyler Pipe, 105 Wn.2d at 323). During the time in question, Avnet had an office in Redmond, Washington, with over 40 employees, consisting of account managers, sales and marketing representatives, engineers, and technology consultants. The Redmond office was significantly associated with establishing and holding the market for its products in Washington, and therefore we hold that the dormant commerce clause does not prevent the imposition of a B&O tax. Furthermore, we hold that the plain language of Rule 193 does not bar the B&O tax. The Court of Appeals is affirmed.

Owens, Fairhurst, and Wiggins, JJ., concur.

1 In 2010, the legislature rewrote this provision to read:

There is levied and collected from every person that has a substantial nexus with this state a tax for the act or privilege of engaging in business activities. The tax is measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be.

Laws of 2010, 1st Spec. Sess., ch. 23, § 102. We do not consider the impact, if any, of the revision of the statute.

2 The dissent draws a distinction between “business nexus’’ and “transactional nexus’’ as two separate but interrelated tests. Dissent at 74 (citing Gen. Motors, 377 U.S. at 441). General Motors, however, draws no such distinction, and in our review of the case law, no other cases use the terms “business’’ and “transactional’’ when evaluating the nexus necessary in a dormant commerce clause analysis. The dissent also asserts that our reliance on Tyler Pipe and Lamtec is misplaced because both of those cases are about business nexus, not transactional nexus. Dissent at 76 & n.12. But again, neither Tyler Pipe nor Lamtec distinguishes between a “business” and a “transactional” nexus.

3 That same year we decided B.F. Goodrich Co. v. State, 38 Wn.2d 663, 231 P.2d 325 (1951). We applied Norton and ruled that two classes of sales fell outside the reach of our state’s B&O tax. Id. at 674. The first class (class E sales) involved mail orders sent to Goodrich’s out-of-state office for products sold exclusively through its out-of-state salespeople and stored in its out-of-state facilities. Id. at 666. The second class (class F sales) involved sales made and fulfilled pursuant to a contract negotiated with a national corporation outside Washington. Id. Because neither class of sales involved orders sent to or fulfilled by a local office or salesperson, this court felt “compelled” to hold that a B&O tax on either class of sales would offend the dormant commerce clause as interpreted by Norton. Id. at 674. We concluded that “such a tax may not be levied upon the proceeds from sales with which the local outlet had nothing to do.” Id. at 675 (emphasis added). We have since clarified the meaning of B.F. Goodrich, explaining that the relevant “local outlet” should not be construed narrowly. Chi. Bridge & Iron Co. v. Dep’t of Revenue, 98 Wn.2d 814, 833, 659 P.2d 463 (1983).

4 Overruled on other grounds by Tyler Pipe, 483 U.S. at 242-48 (holding Washington’s tax exemption for “multiple activities” discriminates against interstate commerce).

5 See also Williamsburgh Stopper Co. v. Bickart, 104 Conn. 674, 134 A. 233 (1926) (delivery to the buyer’s customers in accordance with his instructions is delivery to the buyer); Francis v. Merkley, 59 Cal. App. 196, 198, 210 P. 437 (1922) (delivery to purchaser’s designee deemed delivery to purchaser for purpose of consummating contract of sale); Fergus County Hardware Co. v. Crowley, 57 Mont. 340, 343, 188 P. 374 (1920) (“[I]t is too well settled to be open to question that delivery of goods to one designated by the buyer to receive them is delivery to the buyer himself.”); Roy v. Griffin, 26 Wash. 106, 66 P. 120 (1901) (delivery to shipper designated by purchaser constituted delivery to purchaser for purposes of consummating a sale of lumber); Wing v. Clark, 24 Me. 366, 373 (1844) (“The cases are numerous, which show that, a delivery of an article sold, to a person appointed by the vendee to receive it, is a delivery to the vendee.”).

6 Avnet’s interpretation would even bar the imposition of a B&O tax on orders placed by a Washington company through the Redmond office and sent to Arizona for fulfillment, so long as the Washington company directed that the goods be delivered to someone else in Washington.

7 The Department’s reading of Rule 193, which interprets the B&O taxing statutes, is correct. Therefore, it is unnecessary to determine whether the Department disavowed an interpretive rule and whether it should be estopped from doing so if a taxpayer relies on it.