Commonwealth v. National Private Truck Council

Present: All the Justices
COMMONWEALTH OF VIRGINIA,
DEPARTMENT OF TAXATION
v. Record No. 960575 OPINION BY JUSTICE ELIZABETH B. LACY
January 10, 1997
NATIONAL PRIVATE TRUCK COUNCIL
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA
Donald H. Kent, Judge
In this declaratory judgment action, we determine whether
a regulation issued by the Virginia Department of Taxation
regarding corporate income taxation violates federal statutory
law.
In 1959, Congress passed Public Law 86-272, codified as 15
U.S.C. § 381 (§ 381). That statute provides, in pertinent
part:
(a) No State . . . shall have power to impose . . . a
net income tax on the income derived within such
State by any person from interstate commerce if the
only business activities within such State by or on
behalf of such person . . . are . . . :
(1) the solicitation of orders by such
person . . . in such State for sales of
tangible personal property, which orders
are sent outside the State for approval or
rejection, and, if approved, are filled by
shipment or delivery from a point outside
the State. [Emphasis added.]
The Virginia Department of Taxation (the Department)
maintains that the solicitation of goods and the delivery of
goods are two separate transactions and considers § 381 to
provide immunity for solicitation only. Based on this premise,
the Department adopted a regulation extending the immunity from
state income taxation afforded under § 381 only to those
instances in which the shipment or delivery of goods is
accomplished by common carrier. Va. Reg. § 630-401(G) (1985)
(the Virginia Regulation). Thus, under the Department's
interpretation, any foreign company that solicits and approves
orders for its merchandise under the conditions described in
§ 381, but delivers the merchandise to Virginia using its own
vehicles, is subject to Virginia tax on the income derived from
such sales.
The National Private Truck Council (the Council), a
national trade association representing more than 1,000
companies that operate their own private truck fleets, filed a
bill of complaint for declaratory judgment seeking a
declaration that the Virginia Regulation violates § 381 because
it limits immunity from state income taxation to those
instances in which goods are delivered by common carrier.
Cross motions for summary judgment were filed, and the trial
court entered an order granting summary judgment to the
Council. We awarded the Department an appeal and will affirm
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the judgment of the trial court.
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The Department initially filed a demurrer challenging
the standing of the Council, see Carnes v. Board of Supervisors
of Chesterfield County, 252 Va. 377, ___ S.E.2d ___ (1996), but
withdrew the demurrer prior to a ruling by the trial court.
Therefore, that issue has been waived. Princess Anne Hills
Civic League, Inc. v. Susan Constant Real Estate, 243 Va. 53,
59 n.1, 413 S.E.2d 599, 603 n.1 (1992); Lynchburg Traffic
Bureau v. Norfolk and Western Railway Co., 207 Va. 107, 108,
147 S.E.2d 744, 745 (1966). Similarly, the Department did not
assert a claim that its sovereign immunity had not been waived
for declaratory judgment actions, see Virginia Physical Therapy
Ass'n v. Virginia Board of Medicine, 245 Va. 125, 427 S.E.2d
183 (1993), and, therefore, we do not address that issue.
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Section 381, by plain and clear language, extends immunity
to a particular income-generating transaction. This
transaction consists of soliciting orders, approving the
orders, and shipping or delivering the goods ordered. To limit
the tax immunity granted by § 381 to the activity of
solicitation only, as the Department suggests, renders the
protection intended by that section meaningless. Potentially
taxable income is not generated within the taxing state until
there has been a successful "shipment or delivery" of goods.
Exempting merely "solicitation" is no exemption at all.
Whether a particular activity constitutes solicitation,
approval, or delivery may require construction of those terms.
Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 505
U.S. 214, 223-231 (1992) (whether certain actions constitute
solicitation). A joint congressional committee studying the
matter of state taxation of interstate commerce has stated
that, although § 381 "makes it clear that delivery of goods
into a State does not deprive the selling company of statutory
immunity, there can be doubt about the meaning of delivery."
H.R. Rep. No. 88-1480, at 146 (1964). Thus, while the meaning
of the word "delivery" may be disputed in a particular factual
situation, delivery is a protected activity under § 381 when
undertaken in conjunction with the other elements of the
immunized income-producing transaction.
In this case, the Department has conceded that the use of
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company-owned trucks constitutes "delivery" of the goods as
that term is used in § 381. The only issue is whether the
Virginia Regulation, which defines the manner of delivery
necessary to qualify for immunity from state taxation under
§ 381, violates federal law. Code § 58.1-205.
In enacting § 381, Congress did not identify any manner of
delivery necessary to qualify for the immunity. Section 381
does not specify common carrier, contract or private carrier,
or any other particular method of delivery. In the absence of
a qualification in the federal statute, the Department may not
add conditions to, or otherwise limit, the protection offered
by § 381. See Comm'r of Revenue v. Kelly-Springfield Tire Co.,
643 N.E.2d 458, 461 (Mass. 1994). Therefore, the Virginia
Regulation violates the plain meaning of § 381 because it
limits the conditions under which a company is entitled to
immunity from state taxation.
Accordingly, we will affirm the judgment of the trial
court.
Affirmed.
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