Maryland Court Further Defines Activities Availed P.L. 86-272 Immunity

The Maryland Court of Special Appeals held that gathering information on market opportunities and competitor activities at Maryland retail locations through periodic routine reports compiled by sales and account manager employees of an out-of-state business exceeded U.S. Public Law (P.L.) 86-272 (5 U.S.C. § 381(a)) protection in Blue Buffalo Company, Ltd. v. Comptroller of Treasury (Dec. 20, 2019).

The Court stated that U.S. P.L. 86-272 was not a blanket protection for industry to conduct unfettered activities in the name of sales in Maryland. This decision has great significance given the limited guidance as to the nature of activities provided by state courts and legislatures that would be protected from state income taxation under P.L. 86-272 since the U.S. Supreme Court’s decision in Wisconsin Dep’t of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 223 (1992).

Facts and procedural history

Blue Buffalo, Ltd. (Blue Buffalo or Company), a Connecticut commercially domiciled manufacturer and seller of premium dog food, employed a sales staff consisting of a distributor sales manager, an account manager, two regional demo managers and several dozen “pet detectives,” who were on-the-ground sales representatives, stationed at third-party retailer locations in Maryland. The purpose of the pet detectives was to promote the sale of Blue Buffalo’s premium dog food and other products.

For tax years 2011 and 2012, the Company filed amended corporate income tax returns claiming refunds based on its employees’ activities being limited to the solicitation of orders within P.L. 86-272. The refund claim was denied by the Comptroller and upheld by the Maryland Tax Court and the Circuit Court for Baltimore City.

Law and analysis

The Court set out P.L. 86-272, which 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).

The Court said the focus in this case was on the second prong of the federal law regarding “missionary sales” and then explained that it would use a two-step analysis distilled from Wrigley, which was the only U.S. Supreme Court decision defining the scope of the federal protection. The first step was to examine each of Blue Buffalo’s activities in Maryland to evaluate whether they were immune activities that were merely ancillary to the solicitation of orders or whether they served an independent business purpose apart from sales solicitation that would fall beyond such federal law immunity creating a Maryland income tax obligation. The second step was to evaluate the ancillary activities that went beyond solicitation of sales to determine if they were de minimis, when taken together, and therefore constituted only a trivial additional connection to Maryland.

First in the analysis, the Court evaluated Blue Buffalo Maryland staff’s consumer-relation activities within Maryland including the following:

  1. Consumer relations activities

    These activities addressed by the Court included the distributor sales manager occasionally attending community pet-related events in the state and the pet detectives frequently persuading in-store consumers to purchase Blue Buffalo products from retailers. As to the latter, the Court found that the pet detectives’ activities of building consumer relations was a quintessential form of missionary sales and the corresponding increase in sales eventually results in the retailer placing additional orders with the Company. As to the former, the Court relied on Wrigley, in which the mediation of credit disputes between retail customers and the Company’s home office were considered to be ingratiating the salesman with the customer and facilitating requests for purchases. The Court reasoned that if the goodwill generated by a transaction as attenuated and active as dispute resolution remained ancillary to solicitation, then it could see no reason why a manager’s attendance at community events should be sufficient to forfeit the statutory P.L. 86-272 immunity.

  2. Product training sessions

    This activity primarily involved pet detectives located at Maryland retailer locations educating store managers and their customers on the premium quality of their dog food and products to help promote their products. The Court found this training was limited to the dog food’s nutritional value, the product’s main selling points and merchandising strategies. In contrast to a situation involving the on-site technical training on the usage and maintenance of a product at a customer location, the Court declared this training consisted entirely of product advocacy and was within the solicitation of sales of the Company’s product.

  3. Occasional reworking of product displays and checking retail inventories

    The Court evaluated the activities of the pet detectives and account manager, who occasionally reworked product displays and checked retail inventories in the retailer stores. The Court found that the Blue Buffalo employees simply asked retailers to fill empty shelves, as this was ancillary to their missionary sales solicitation efforts. In doing so, the Court noted a distinction from the facts in Wrigley to where the traveling sales employee would replace stale gum at the retailer location with fresh product and invoice the retailer customer for the cost of such replacement, which was not the case with the Company. In Blue Buffalo’s case, the Company employee would advise the Maryland retailer to replenish empty shelves and the retailer would directly reorder product without any involvement from the on-site employees.

  4. Reporting customer complaints to out-of-state headquarters;

    While on-site at Maryland retailer locations, pet detectives gathered information from customers attempting to return their products. These on-site employees were not involved in handling any of the actual returns. The Court provided that their information gathering of reasons for customer returns was clearly ancillary to the solicitation of product sales given that it would be unreasonable to expect salespeople to ignore customers seeking to return defective products and discourage employees from reporting these complaints on threat of income taxation.

  5. Quality control

    The Court evaluated the quality control activities of the Company in which a pet detective restocked retailer shelves by pulling bad products in only two instances out of thousands of Maryland customer visits. They acknowledged that such activities served an independent business function from the solicitation of sales to potentially exceed immunity; however, they were rendered as de minimis on their own to create an income tax filing obligation given their isolated and infrequent nature in the state, along with no company policy or continuous course of conduct regarding such restocking activities.

  6. Obtaining and reporting intelligence on activities of competitors

    The account managers and pet detectives periodically collected data from Maryland retailers and their customers on market opportunities and competitor activities, which were compiled in reports provided the Company. On the basis of these facts, the Court found that these activities were not ancillary to solicitation and, as support, again cited the Wrigley case, where quality control and product servicing, when assessed in the aggregate, were recognized as being activities independent of sales solicitation efforts. Further, the Court stated that a competitive advantage was obtained by the market data reports, which resulted in a business objective distinct from solicitation of orders and noted that Blue Buffalo would have to gather this data about its competitors’ activities whether the company deployed the Maryland sales force.


The Court considered the significance of the unprotected activities and looked at whether the totality of Blue Buffalo’s activities created a nontrivial connection to Maryland, which activated both the substantiality and frequency of the activities.

The Court determined that the pet detectives’ restocking and quality control was de minimis if considered in isolation; however, the collection of competitive information was another question entirely. This included reports of the pet detectives, who could include written comments on an optional basis, on required reports submitted. In total, pet detectives filed approximately 6,900 reports; only 68 comments (less than one percent of the total) mentioned the Company’s competitors.

The Court next focused on the account managers’ activities, consisting of collecting competitive information during training and retail meetings, and found that these activities were both substantial and deliberate. The account manager was required to provide written comments with every submission of his regular reports. Of the 538 reports filed, 23 such reports (four percent of the total) discussed competitors and their activities. These comments were concrete and informative. The Court found that, perhaps most significantly, the reports’ headers were changed from “Store Contacts” to “Comments and Feedback/Competitor Updates.” This demonstrated that it was a job function of the account manager that was performed on a regular basis as a matter of the Company’s policy.

The Court reasoned that viewed in the aggregate, the activities of Blue Buffalo’s pet detectives and account managers were not de minimis and held that the Company’s unprotected activities exceeded P.L. 86-272 protection from imposition of Maryland income tax.


© Dixon Hughes Goodman LLP. All rights reserved.
DHG is registered in the U.S. Patent and Trademark Office to Dixon Hughes Goodman LLP.