                                                                                                       FILED
                                                                                               COURT OF APPEALS
                                                                                                                   11

                                                                                             2015 APR 28     AN 8: 35

                                                                                              STAT     F     SI-        GTON

                                                                                              BY
                                                                                                      DFPU




    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON



                                               DIVISION II


AVNET, INC.,                                                                  No. 45108 -5 -II


                   Respondent /Cross Appellant,
                                                                        PUBLISHED OPINION
           v.




 STATE OF WASHINGTON, DEPARTMENT
 OF REVENUE,


                   Appellant /Cross Respondent.



       BJORGEN, A.C. J. —           Avnet Inc. challenges the assessment by the Department of Revenue

Department)       of   business   and occupation ( B   &O) tax on two categories of sales of goods


delivered to Washington addresses. The trial court granted summary judgment to Avnet

regarding one category of sales and to the Department regarding the other. The Department .

appeals,   arguing that the B & O tax applies to all of Avnet' s Washington -bound sales. Avnet


cross -appeals,   arguing that both the Department'        s own rules and   the federal constitution' s
No. 45108 -5 -If



commerce clause'              prohibit the State from   imposing     the B & O   tax on either of the disputed


categories of sales.



          Because the B & O statute and regulations subject both categories of Avnet' s Washington -


bound     sales   to the B & O      tax consistently with the commerce clause, we reverse the grant of

summary judgment to Avnet and remand for entry of judgment in favor of the Department. We

otherwise affirm.



                                                           FACTS


          Avnet Inc., a New York corporation headquartered in Arizona, describes itself as " one of


the largest distributors of electronic components, computer products and embedded technology

serving     customers         globally."   Clerk' s Papers ( CP) at 194, 424. All of Avnet' s products ship

from distribution centers outside Washington. During the period at issue here, however, Avnet

maintained an office in Redmond, Washington with more than 40 employees, serving customers

in Washington and eastern Idaho and conducting other activities related to market and product

development.


          Following an audit, the Department determined that Avnet had miscalculated the amount

of   B &O   tax duet for 2003 through 2005 by improperly excluding two categories of sales of

Washington -bound products described as " National Sales" and " Third Party Drop- Shipped

Sales."     CP    at   195.    The Department determined that Avnet owed, with interest included,


    556, 330 in back taxes from the            audit period, $   386, 179 of which arose from the Washington -


bound national and drop- shipped sales at issue here.




    U. S. CONST.,      art.   I, § 8, cl. 3.

2
    Avnet   paid   B &O
                 tax on all sales during the audit period of Washington -bound products in
which its Redmond office directly participated, which amounts are not at issue here.
                                                                 2
No. 45108 -5 -II



          The national sales category involves transactions where an Avnet customer places an

order from a location outside Washington with an Avnet sales office outside Washington, but


directs Avnet to ship some or all of the products to one of the customer' s Washington facilities.

The drop- shipped sales category also involves an Avnet customer located outside Washington

placing an order with an Avnet sales office outside Washington. In this type of sale, however,

Avnet' s customer directs Avnet to ship products to a third party located in Washington, generally

the Avnet customer' s own customer. Nothing in the record indicates that Avnet' s Redmond

office participated in soliciting or filling orders, investigating customer credit, or providing

technical support to the end users in the specific sales at issue in this appeal.


             After an unsuccessful administrative appeal, Avnet paid the contested amount under


protest and filed this action in Thurston County Superior Court. Both parties moved for

summary judgment. After hearing argument, the trial court granted Avnet' s motion and denied

the Department' s as to the drop- shipped sales, but granted the Department' s motion and denied

Avnet' s as to the national sales. The Department appeals and Avnet cross -appeals.


                                                          ANALYSIS


                                                     I. STANDARD OF REVIEW


             An appellate court reviews a grant of summary judgment de novo and performs the same

inquiry      as   the trial   court.   Macias   v.   Saberhagen Holdings, Inc., 175 Wn.2d 402, 407 -08, 282


P. 3d 1069 ( 2012).           A party moving for summary judgment bears the burden of demonstrating

that there is no genuine issue of material fact. Atherton Condo. Apartment -Owners Ass 'n Bd. of

Dirs.   v.   Blume Dev. Co., 115 Wn.2d 506, 516, 799 P. 2d 250 ( 1990).             A court should grant


summary judgment only if "the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as to


                                                                3
No. 45108 -5 -II



any   material   fact   and   that the moving party is      entitled      to a judgment as a     matter of   law." CR


56( c).


          The meaning of a statute is a question of law we also review de novo. Dep 't ofEcology

v.   Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P. 3d 4 ( 2002). The " fundamental objective" of


statutory interpretation " is to         ascertain and    carry   out   the Legislature'   s   intent." Campbell &


Gwinn, 146 Wn.2d at 9 -10. Where a " statute' s meaning is plain on its face, then the court must

give effect   to that   plain   meaning     as an expression of         legislative intent."     Campbell & Gwinn, 146


Wn.2d at 9 -10. Such plain meaning " is discerned from all that the Legislature has said in the

statute and related statutes which disclose legislative intent about the provision in question."


Campbell & Gwinn, 146 Wn.2d at 11 - 12. If "the statute remains susceptible to more than one


reasonable meaning" after such inquiry, it is ambiguous and we must " resort to aids to

construction,    including      legislative   history."    Campbell & Gwinn, 146 Wn.2d at 12.


          The rules of statutory construction also apply to the interpretation of administrative

regulations adopted pursuant to statutory authority. Cannon v. Dep 't ofLicensing, 147 Wn.2d

41, 56, 50 P. 3d 627 ( 2002). In this          context, appellate courts "        interpret[] a WAC provision to


ascertain and give effect         to its underlying policy        and    intent." Cannon, 147 Wn.2d          at   56. " Rules


and regulations are       to be   given a rational, sensible           interpretation,"   and courts will not consider



them " ambiguous simply because different interpretations                      are conceivable."      Cannon, 147 Wn.2d


at 56 -57. As with statutes, courts do not generally apply canons of construction to unambiguous

administrative regulations.             Cannon, 147 Wn.2d         at   57. Courts   should,    however, " avoid a literal


reading   of a provision       if it   would result   in unlikely,      absurd, or strained consequences."          Cannon,


147 Wn.2d at 57.




                                                                  4
No. 45108 -5 - II



          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 ofRevenue, 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)).          Courts presume, however, that taxes are valid. Lamtec, 170 Wn.2d at

843.   A party challenging the imposition of a tax thus bears the burden of proving that some

exemption applies. Lamtec, 170 Wn.2d at 843; RCW 82. 32. 180. Where a court finds ambiguity

in a provision providing for a tax exemption or deduction, the court must strictly construe the

provision against the taxpayer. Simpson Inv. Co. v. Dep' t ofRevenue, 141 Wn.2d 139, 149 -50, 3

P. 3d 741 ( 2000).


                                            II. THE DEPARTMENT' S APPEAL


         We begin with the Department' s appeal, which challenges the trial court' s grant of


summary judgment to Avnet as to the drop- shipped sales. The Department argues that under

applicable statutes and regulations            the   drop- shipped   sales are subject   to the B & O tax. Avnet


contends   that the trial       court   correctly   ruled   that the B & O   tax does not apply to its Washington -

bound drop -shipped sales because Avnet did not receive the goods in Washington within the

meaning of the Department' s own regulations.3 The Department is correct.
A.       The B & O      Statute and Implementing Regulations

         Washington imposes the B & O                tax " for the act or privilege of engaging in business
                                                                         4
activities"   in the   state.    Former RCW 82. 04.220 ( 1961);              Lamtec, 170 Wn.2d   at   843. The statute




3 As an alternative basis, Avnet argues that the trial court was correct in granting summary
judgment, because the drop- shipped sales lacked the required constitutional nexus with
Washington. In part III.below, we conclude that constitutional nexus is present for both
categories of sales.



4 The legislature amended this provision in 2010, but the audit period here at issue predates
that amendment.


                                                                 5
No. 45108 -5 -II



requires " every person that has a substantial nexus with this state "5 and who conducts activities
here " with the object of gain, benefit, or advantage to the taxpayer or to another person or class,


directly or indirectly" to pay a percentage of the gross receipts of any resulting proceeds. Former

RCW 82. 04.220; RCW 82. 04. 140; Lamtec, 170 Wn.2d at 843.


          For   wholesale sales,    the    statute   imposes "[ u] pon every person engaging within this state


in the business     of   making   sales at wholesale" a         B & O tax " equal to the gross proceeds of sales of


such   business   multiplied   by the      rate of   0. 484   percent."      RCW 82. 04.270. The statute defines


  s] ale" as " any transfer of the ownership of title to, or possession of property for a valuable

consideration."      RCW 82. 04. 040( 1).           In interpreting this statute, our Supreme Court has held that

  the legislature intended to impose the business and occupation tax upon virtually all business

activities carried on within       the    state,'   and to ` leave practically no business and commerce free of

    tax. "'   Simpson, 141 Wn.2d           at   149 (   alteration   in   original) (   quoting Time Oil Co. v. State, 79

Wn.2d 143, 146, 483 P. 2d 628 ( 1971) and Budget Rent -A -Car of Wash. -Or., Inc. v. Dep' t of

Revenue, 81 Wn.2d 171, 175, 500 P. 2d 764 ( 1972)).


          In the drop- shipped sales, Avnet did not deliver the products to its own buyer outside

Washington. Instead, it delivered the products to its buyer' s customer in this state. Thus, the


only transfer of possession of property to any buyer occurred within the State of Washington.

Under the terms of RCW 82. 04. 040 and . 270, read consistently with the interpretive principles

noted above,      this brought the   drop- shipped          sales within      the   reach of   the B & O   tax.




5 Avnet concedes that its activities here give it substantial nexus with Washington, which the
statute   defines   broadly. RCW          82. 04. 067.
No. 45108 -5 -II



         This conclusion is supported by WAC 458 -20 -103 ( WAC Rule 103), 6 which defines
when a' sale takes place in Washington for tax purposes:


          f]or the   purpose ofdetermining [ 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.


Again, Avnet did not deliver the products to its own buyer outside Washington. Instead, it


delivered the products to its buyer' s customer in this state. Thus, the only delivery to any buyer

that occurred was within the state of Washington. Under both the definitions of "sale" in RCW


82. 04. 040' s and WAC Rule 103' s criteria for determining when a sale takes place in this state,

the drop shipped sales took place in Washington. Therefore, RCW 82. 04.270 and WAC Rule

103   by their terms   subject   the   proceeds of   these sales to the   wholesale   B & O tax.


         Avnet   argues   to the contrary from WAC 458 -20- 193( 7) (          WAC    Rule 193( 7)),   which




provides:




         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. There must be both the receipt of the goods in Washington by the purchaser
         and the seller must have nexus for the B & O tax to apply to a particular sale. The

         B &O   tax will not apply if one of these elements is missing.

WAC Rule 193( 2)( d)      specifies also    that "` [ r] eceipt'   or ` received' means the purchaser or its


agent first either taking physical possession of the goods or having dominion and control over

them."   Avnet   contends    that,   regardless of   its   nexus with   Washington, the   wholesale    B & O tax


does not apply to the drop- shipped sales because Avnet' s customer, the wholesale buyer, did not

take physical possession of or exercise dominion and control over the goods in Washington; only

the retail customer, Avnet' s buyer' s customer, received the goods within the meaning of the rule.



6 The relevant portions of the rules at issue have not changed since the audit period. We
therefore cite the current version.


                                                             7
No. 45108 -5 - II



          Avnet' s argument relies on one of the specific examples given in WAC Rule 193( 11)( h):


          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.


Avnet asserts that this example " specifically addresses" the type of transaction at issue here,

positing itself    as "   Company    Z," its buyer   as "   Company       X," and its buyer' s customer as


 Company         Y."    Br. of Resp' t /Cross Appellant at 8 -10. Because the example states that

 Company X has not taken possession or dominion or control over the parts in Washington,"

WAC Rule 193( 11)( h), Avnet argues that its buyers do not receive the goods within the meaning

of   WAC Rule 193( 7),        and   the wholesale B & O      tax therefore does not apply to those transactions.

          This example, however, is not as apt as Avnet contends. First, it addresses the tax


liability   not of     Avnet ( Company Z), but   of   Avnet'      s   buyer ( Company X), a matter not at issue in


this   appeal.    Second, the fact that Avnet' s immediate customer ( Company X) did not take

possession of the products in Washington is not determinative. As noted above, the only buyer

who took possession or delivery did so from Avnet and in Washington. Under RCW 82. 04.270

and WAC Rule 193, that locates the sale in this state.




7 Avnet points to a number of e -mails and internal memoranda, obtained from the Department
through discovery, concerning proposed amendments to the rule, which documents Avnet asserts
show that the Department itself recognized that WAC Rule 193 as written precludes application
of   the B & O
            tax to these transactions. At most, these documents show a concern among certain
department staff that parties would rely on the disputed language in WAC Rule 193 to make the
argument that Avnet makes here. Because such arguments apparently ran counter to the
Department' s position, the staff members suggested clarifying the rule to preclude parties from
making them. Regardless, Avnet points to no authority suggesting that an agency' s internal
debates concerning possible amendments to a rule bear on a court' s interpretation of the rule.


                                                              8
No. 45108 -5 -II



         Avnet' s approach also elevates form over substance in a way similar to that rejected by

the   court   in Chicago Bridge &        Iron Company v. Department ofRevenue, 98 Wn.2d 814, 824,

659 P. 2d 463 ( 1983):


                    Chicago Bridge &         Iron] argues rigorously that it is immune from the B &
          O tax because the contract " procurement" activities occurred outside Washington,
         thus    leading   to the   conclusion     that   no " sales"   activities occurred    in   state.   Such an
         argument      ignores the        practicalities      of modern       business     practice.     As many
         corporations engage in business and maintain branch offices in numerous foreign
         jurisdictions, it is not surprising that contracts are negotiated and signed at locations
          other    than    the   jurisdiction       for    which      the   product   is   intended.     Corporate

          convenience, however, is not controlling in the context of the incidence of a tax.
          Were it otherwise, substantial taxes could be avoided simply by consummating all
          contracts outside the borders of the taxing state.

 Internal     citations omitted.)    As in Chicago Bridge &             Iron, corporate convenience in negotiating

or contracting out of state cannot distract from the central facts establishing the location of sale:

where the buyer took delivery and possession.

B.        Legal Effect of WAC Rule 193


          A more profound infirmity in Avnet' s argument, though, lies in the nature of WAC Rule

193 itself. " An `interpretive rule' is a rule, the violation of which does not subject a person to a


penalty or sanction, that sets forth the agency' s interpretation of statutory provisions it

administers."      RCW 34. 05. 328( 5)(      c)(   ii).   WAC Rule 193 does not impose any sanction for

noncompliance with         its terms:     it merely explains the Department' s view of when a party must

pay the tax. Thus, WAC Rule 193 is an " interpretive" rule. See also Ass 'n of Wash. Bus. v.

Dep' t   of Revenue, 155 Wn.2d 430, 446 -47, 120 P. 3d 46 ( 2005) (                   discussing the difference

between legislative and interpretive agency regulations).

          Interpretative    rules   do   not constrain      the   courts.   Our Supreme Court held in Ass 'n of

Wash. Bus., 155 Wn.2d at 447 ( emphasis omitted) that interpretive rules




                                                                  9
No. 45108 -5 -II



       are not binding on the courts and are afforded no deference other than the power of
       persuasion.   Accuracy and logic are the only clout interpretive rules wield. If the
       public violates an interpretive rule that accurately reflects the underlying statute,
       the public may be sanctioned and punished, not by authority of the rule, but by
       authority of the statute. This is the nature of interpretive rules.

More specifically, in Coast Pacific Trading, Inc. v. Department ofRevenue, 105 Wn.2d 912,

917 -18, 719 P. 2d 541 ( 1986), our Supreme Court rejected an argument, similar to Avnet' s, that


the related rule governing international transactions, WAC 458- 20 -193C, exempted more sales

from the B & O      tax than the statute or the constitution required. Because the statute clearly aimed

to tax imports and exports to the fullest extent constitutionally permissible, the Coast Pacific

Trading court held that the language of the rule could not provide a broader exemption than the

constitution required:



                    The Department of Revenue cannot use Rule 193C to expand the tax

       immunity of exporters beyond the exemptions provided by statute or required by
       the constitution. The Legislature has allocated to the Department the authority only
       to    establish   procedural    rules.    The Department cannot contradict a substantive

       legislative enactment by administrative regulation.

105 Wn.2d     at   917 ( footnote   omitted).   More recently, we rejected an argument almost

indistinguishable from Avnet' s that a different example from WAC Rule 193( 11) provided a


broader   exemption      than the B & O statute or the dormant commerce clause8 required. Space Age


Fuels, Inc.   v.   State, 178 Wn.   App.   756, 764 -65, 315 P. 3d 604 ( 2013), review denied, 180 Wn.2d


1010 ( 2014). Under our case law, WAC Rule 193 is an interpretive rule that cannot subtract


from the force of the statute or WAC Rule 103, discussed above.




8 From the federal constitution' s grant to Congress of authority to regulate interstate commerce,
the United    States Supreme Court has implied         a "   dormant Commerce Clause,"         which prohibits

 certain state     taxation   even when    Congress has failed to legislate   on   the   subject."   Oklahoma Tax
Comm' n v. Jefferson Lines, Inc., 514 U. S. 175, 179, 115 S. Ct. 1331, 131 L. Ed. 2d 261 ( 1995).

                                                         10
No. 45108 -5 -II



          No specific statutory exemption applies to the sales at issue here. Avnet instead relies

entirely on its constitutional nexus argument, addressed below, and the plain language of WAC

Rule 193. Under the precedents just discussed, however, the language of the rule can provide


Avnet    no more       haven than the B & O           statute   does. As discussed, the B & O statute aims to tax


interstate   commerce almost as            far   as   the dormant        commerce clause permits:         absent a specific




statutory exemption, every party with the requisite nexus to Washington must pay it on every

transaction occurring here. Former RCW 82. 04. 220; RCW 82.04. 040, .                                140; Coast Pac. Trading,

105 Wn.2d at 917 -18. Avnet' s argument that the State may not tax the sales because Avnet' s

customer did not receive the goods in Washington under WAC Rule 193 must fail.


          As the analysis above shows, under RCW 82. 04. 040, . 270 and WAC Rule 103, Avnet' s


proceeds     from the     drop- shipped     sales are subject            to the   wholesale     B & O tax. Neither the terms


nor the legal status of WAC Rule 193 call that conclusion into question.

                                                 III. AVNET' S CROSS- APPEAL


A.        WAC Rule 193


          Avnet cross -appeals the order on summary judgment ruling that its national sales are

subject   to the B & O     tax. Avnet first contends that its national sales are exempt under a regulation

that   purports   to   exclude   from taxation sales            "' not   significantly   associated    in any way   with '   the



taxpayer' s activities in Washington.9 Br. of Resp' t/Cross- Appellant at 17 -20. This argument
relies on    WAC Rule 193( 7)(       c),    which warns that


          a seller [ who] carries on significant activity in this state and conducts no other
          business in the     state except       the    business    of    making    sales ...    has the distinct burden
          of establishing that the instate activities are not significantly associated in any way
          with the sales into this state.




9 Avnet advances the same argument as an alternative basis for affirming the summary judgment
in its favor regarding its drop -shipped sales. We reject it for the reasons here articulated.
                                                                    11
No. 45108 -5 -II .



The   rule goes on    to   give a nonexclusive   list   of circumstances    that   would establish   that the B & O



tax applies to     certain sales.   WAC Rule 193( 7)(      c)(   i) -(vi). Avnet maintains that, with respect to


the disputed sales, its Redmond office engages in none of the activities described, and that its


 instate activities are [ thus] not significantly associated in any way with the sales" at issue. Br.

of Resp' t /Cross Appellant 19 ( quoting WAC Rule 193( 7)( c)).

         From this, Avnet argues that even if the dormant commerce clause does not exempt the

disputed   sales   from the B & O tax, the plain language of WAC Rule 193 does. This argument


fails because, as shown above, the language of this interpretive rule can provide Avnet no more

haven than the B & O        statute does, and the statute, subject to any express exemptions, aims to tax

all sales that the commerce clause allows the State to reach. Coast Pac. Trading, 105 Wn.2d at

917 -18. Avnet' s claims of exemption must therefore succeed or fail on the merits of its

constitutional arguments, to which we now turn.


B.       Constitutional Limits on the State' s Taxing Power

         A tax on an out -of -state corporation must satisfy both the requirements of the Fourteenth

Amendment' s due process clause and the commerce clause. Quill Corp. v. North Dakota, 504

U. S. 298, 305, 112 S. Ct. 1904, 119 L. Ed. 2d 91 ( 1992).               Due process requires only sufficient

contacts between the corporation and the taxing state such that imposing the tax " does not offend

 traditional   notions of    fair play   and substantial   justice. "'   Int' l Shoe Co. v. Washington Office of

Unemployment         Comp. & Placement, 326 U. S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 ( 1945)

 quoting Milliken      v.   Meyer, 311 U. S. 457, 463, 61 S. Ct. 339, 85 L. Ed. 278 ( 1940)). Avnet does


not expressly argue that the tax at issue offends due process, basing its argument instead on the

commerce clause.




                                                            12
No. 45108 -5 -II



            The limits imposed by courts under the dormant commerce clause have changed

significantly over time. See Oklahoma Tax Comm' n v. Jefferson Lines, Inc., 514 U.S. 175, 179-

84, 115 S. Ct. 1331, 131 L. Ed. 2d 261 ( 1995) and Complete Auto Transit, Inc. v. Brady, 430


U. S. 274, 279 -88, 97 S. Ct. 1076, 51 L. Ed. 2d 326 ( 1977). Modern dormant commerce clause


jurisprudence requires only that a state tax imposed on an out -of -state corporation ( 1) be " applied

to   an   activity    with a substantial nexus with            the   taxing State," ( 2) be " fairly   apportioned," (   3) be


nondiscriminatory with respect to interstate commerce, and ( 4) be " fairly related to the services

provided      by    the State."      Complete Auto Transit, 430 U.S. at 279. The parties' dispute focuses on


the substantial nexus requirement. Our Supreme Court has held that, to establish such nexus, the


instate activities of an out -of -state company " must be substantial and must be associated with the

company'       s   ability to   establish and maintain         the company'      s market within     the   state."   Lamtec,


170 Wn.2d at 851.


C.          Transactional Nexus and Dissociation


            Avnet     concedes       that it has " taxpayer ...       nexus,"   or connections with Washington


sufficient for the state to constitutionally tax its interstate business activities here. Br. of

Resp' t /Cross -Appellant            at   19. The   parties'   dispute     centers on "   transactional nexus "; specifically,



whether the dormant commerce clause allows Avnet to " dissociate" its Washington -bound


national and drop- shipped sales by showing that its instate personnel played no significant role in

those transactions. Br. of Appellant /Cross -Resp' t at 13 -27, 30 -46; Br. of Resp' t /Cross -Appellant

at 2 -9, 20 -28.


            Avnet argues that " states may impose a tax on interstate sales only if there is a substantial

nexus between the seller' s activities and the state and those activities are significantly associated

with      the sales   at   issue."    Br. of Resp' t /Cross -Appellant at 16 ( citing Allied -Signal, Inc. v. Dir.,



                                                                      13
No. 45108 -5 -II



Div. of Taxation, 504 U. S. 768, 778, 112 S. Ct. 2251, 119 L. Ed. 2d 533 ( 1992)).             However, the


authority Avnet cites for this proposition, Allied Signal,
                                                   -       does not support it:

       The principle that a State may not tax value earned outside its borders rests on the
       fundamental requirement of both the Due Process and Commerce Clauses that there
       be " some definite link, some minimum connection, between a state and the person,
       property    or   transaction it   seeks   to   tax."   Miller Brothers Co., 347 U.S. at 344 -45.
       The reason the Commerce. Clause includes this limit is self -evident: In a Union of
        50 States, to permit each State to tax activities outside its borders would have drastic
       consequences for the national economy, as businesses could be subjected to severe
       multiple taxation. But the Due Process Clause also underlies our decisions in this
       area.   Although our modern due process jurisprudence rejects a rigid, formalistic
       definition of minimum connection, we have not abandoned the requirement that, in
       the case of a tax on an activity, there must be a connection to the activity itself,
       rather than a connection only to the actor the State seeks to tax, see Quill Corp.,
        504 U. S. at 306 -08.


Allied-Signal, 504 U. S.    at   777 -78.   This precedent shows that the taxing state must have a

sufficient connection both to the taxpayer and the activity taxed, but it does not impose a

requirement that the taxpayer' s activities creating the requisite connection to the taxing state

have some direct connection to the specific sales taxed.


       Avnet contends, though, that Norton Company v. Department ofRevenue ofState of

Illinois, 340 U.S. 534, 71 S. Ct. 377, 95 L. Ed. 517 ( 1951) and B.F. Goodrich Company v. State,

38 Wn.2d 663, 231 P. 2d 325 ( 1951), control and do impose such a requirement. In Norton, a


Massachusetts company with a branch office in Chicago challenged Illinois' s imposition of a

gross receipts tax on all of its Illinois -bound sales. 340 U. S. at 535 -37. The Norton Court held


that, notwithstanding the presence of the Chicago office, Illinois could not tax transactions where

Illinois customers placed orders with Norton' s Massachusetts office, which office filled them


and delivered the goods directly to the buyer via common carrier. 340 U. S. at 539. These sales

were " so clearly interstate in character that the State could not reasonably attribute their proceeds

to the local business."     Norton 340 U. S. at 539.


                                                              14
No. 45108 -5 -I1



          Our Supreme Court followed Norton in B.F. Goodrich, 38 Wn.2d at 673 -76, where a

New York        corporation    that conducted extensive sales        activities   in Washington   challenged   B &O


tax assessments on various types of transactions, including sales of goods delivered to J. C.

Penny stores in Washington. B. F. Goodrich' s New York office received the orders directly and

shipped the goods from outside Washington, without the Washington sales force' s direct


participation. B.F. Goodrich, 38 Wn.2d at 666. Following Norton, the court held that the

dormant commerce clause prohibited Washington from taxing these sales. B.F. Goodrich, 38

Wn.2d at 674.


          The Department does not dispute that this case involves facts " substantially similar" to

those in Norton and Goodrich, and concedes that those cases have not been expressly overruled.

Reply     Br.   of   Appellant /Cross -Resp' t   at   5.   Instead, it argues that subsequent dormant commerce


clause precedents " have greatly expanded the scope of activities deemed relevant in determining

whether an interstate sale is ` dissociated' from a taxpayer' s business activities in the taxing

state,"   and that these more recent precedents demonstrate that Avnet' s activities in Washington


create sufficient nexus for taxation of all its Washington -bound sales. Reply Br. of

Appellant /Cross =Resp' t at 5 - 13 ( citing Tyler Pipe Indus., Inc. v. Wash. Dep' t ofRevenue, 483

U. S. 232, 107 S. Ct. 2810, 97 L. Ed. 2d 199 ( 1987);               Standard Pressed Steel Co. v. Wash. Dep' t

of Revenue, 419 U. S. 560, 95 S. Ct. 706, 42 L. Ed. 2d 719 ( 1975);                 Gen. Motors Corp. v.

Washington, 377 U. S. 436, 84 S. Ct. 1564, 12 L. Ed. 2d 430 ( 1964)).


           As an initial matter, we note that Norton' s foundations have been eroded by subsequent

precedent. For example, the Norton Court based its conclusion in part on a then -prevailing view

that



                   w]here a corporation chooses to stay at home in all respects except to send
           abroad advertising or drummers to solicit orders which are sent directly to the home

                                                               15
No. 45108 -5 -II



        office for acceptance, filling, and delivery back to the buyer, it is obvious that the
        State of the buyer has no local grip on the seller.

340 U.S. at 537. The Court has long since rejected that view. Scripto, Inc. v. Carson, 362 U. S.

207, 210 -13, 80 S. Ct. 619, 4 L. Ed. 2d 660 ( 1960).          The Norton Court' s reasoning also relied on

the " immunity" from state taxation that interstate commerce then enjoyed. Norton, 340 U.S. at

538. The Court soundly rejected this immunity in Complete Auto Transit, expressly overruling

precedents to the contrary. 430 U.S. at 288 -89. Thus, the United States Supreme Court has

explicitly removed at least two of Norton' s chief doctrinal underpinnings.

        More to the point, the Department is correct that subsequent precedents have expanded


the range of activities relevant to the substantial nexus analysis. In General Motors, the


company     challenged   imposition   of   the B & O   tax on various transactions, including sales of parts

to independent dealers in Washington, which orders were placed with and filled from its


Portland, Oregon office. 377 U. S. 443 -46. The General Motors Court declined to look at


particular transactions in isolation, instead considering whether General Motors could show that

 the bundle of corporate activity" in Washington           was   not a "   decisive factor[]   in establishing and

holding" the market for its goods here, and concluding that it could not. Gen. Motors Corp., 377

U.S. at 447 -48.


        In Tyler Pipe Industries, the Court found          sufficient nexus     for imposition    of B   & O tax on


all of Tyler Pipe' s sales into Washington even though it


        maintains no office, owns no property, and has no employees residing in the State
            and i] ts solicitation of business in Washington is directed by executives who
        maintain their offices out -of -state and by an independent contractor located in
        Seattle.


483 U. S.   at   249, 251. The Court   agreed with our      Supreme Court that ' the crucial factor


governing nexus is whether the activities performed in this state on behalf of the taxpayer are


                                                          16
No. 45108 -5 -II



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 Indus., Inc. v. Dep' t ofRevenue,

105 Wn.2d 318, 323, 715 P. 2d 123 ( 1986)).            Significantly, in the portion of its opinion affirmed

by the United States Supreme Court, our Supreme Court rejected an argument very similar to

Avnet' s, that the portion of Tyler Pipe' s sales attributable to orders placed directly with its main

office were exempt         from tax. Tyler Pipe, 105 Wn.2d at 326 -27; Tyler Pipe, 483 U. S. at 250 -51.


          These precedents show a progressive broadening of the types of activities that may

establish substantial nexus for purposes of state taxation of interstate commerce. They show that

a state need not demonstrate a direct connection between a taxpayer' s nexus -creating activities

and particular sales into the state in order to tax those sales.'°

D.        Avnet' s Washington Activities and Its Market for the Taxed Sales


          Although United States Supreme Court precedent does not require a direct connection


between Avnet' s activities in Washington and these specific sales, it does require some


connection     to     sustain application of   the B & O   tax. To find that connection, both General Motors,


377 U. S. at 447 -48, and Tyler Pipe, 483 U.S. at 250 -51; looked to whether the taxpayer' s instate


activities were significant in establishing and maintaining a market for its goods in the state. The

Tyler Pipe Court quoted with approval our Supreme Court' s description of some of the activities,


other than building or maintaining direct relationships with customers, held to give rise to

sufficient nexus there:




1° Avnet further asserts that delivery by common carrier into the taxing state does not qualify as
in -state activity for purposes of substantial nexus. This argument relies on Quill Corporation,
504 U. S. 298, which upheld on stare decisis grounds a rule that states may not impose a use tax
collection duty on out -of -state sellers whose only contact with the taxing state is by mail and
common carrier. The Quill Court, however, limited its holding to sales and use taxes, 504 U.S.
at 314 -15, robbing it of precedential force in this appeal.
                                                            17
No. 45108 -5 -II



                 Tyler Pipe   sells   in   a   very   competitive market          in Washington.     The sales

       representatives provide Tyler Pipe with virtually all their information regarding the
       Washington market, including: product performance; competing products; pricing,
       market conditions and     trends; existing        and      upcoming      construction products; ...   and


       other critical information of a local nature concerning Tyler Pipe' s Washington
       market.




483 U.S. at 249 -50 ( quoting Tyler Pipe, 105 Wn.2d at 325).

       The taxpayer carries a heavy burden in showing the absence of such a connection. In

American Oil   Company v.     Neill, 380 U. S. 451, 458, 85 S. Ct. 1130, 14 L. Ed. 2d 1 ( 1965), the


Court described the burden as follows:


       when a corporation, pursuant to permission given, enters a State and proceeds to do
       local business the ` link' is strong. In such instances there is a strong inference that
       it exists between the State and transactions which result in economic benefits
       obtained    from   a source within        the State'   s   territorial   limits.   The corporation can,

       however, exempt itself by a clear showing that there are no in -state activities
       connected with out -of -
                              state sales.



       Employees at Avnet' s Redmond office concededly engaged in a wide variety of market

research and product development activities aimed at building and maintaining the company' s

worldwide market. Those activities included the servicing of new and existing accounts by

account managers and sales and marketing managers and representatives, the development and

implementation of marketing programs, the recruiting of new customers, and extensive

engineering support. Avnet' s marketing materials give the contact information for the Redmond

office. These activities all served the creation and maintenance of Avnet' s market in


Washington, as well as other locations. These activities lie at the .core of the market sustenance


which both General Motors Corporation, 377 U. S. at 447 -48, and Tyler Pipe, 483 U.S. at 250-

51, found sufficient for constitutional nexus. That nexus is present for both Avnet' s national


sales and drop- shipped sales into Washington.




                                                           18
No. 45108 -5 -II



                                                      CONCLUSION


         Under the uncontroverted facts and governing legal standards, both Avnet' s national sales

and   drop- shipped   sales   here   at   issue   are subject   to Washington'   s   B & O tax. We affirm the trial


court' s grant of summary judgment to the Department as to Avnet' s Washington -bound national

sales. As to the drop- shipped sales, we reverse the grant of summary judgment to Avnet and

remand for entry of judgment in favor of the Department. We otherwise affirm.




                                                                                          A,c.r.
 We concur:




                                                                19
