Standard Pressed Steel Co. v. Department of Revenue of Wash.

Background

A Pennsylvania-based manufacturer of industrial and aerospace fasteners sold products to Boeing in Seattle. The company had plants in Pennsylvania and California and one Washington employee, an engineer named Martinson, who worked from his home near Seattle. Martinson consulted with Boeing about product needs, arranged visits by the company’s engineers, and helped resolve post-delivery problems, but he did not take orders; orders were sent out of state, filled there, and shipped directly to Boeing. Washington assessed its business-and-occupation tax on the manufacturer’s unapportioned gross receipts from those sales, and state tribunals and courts upheld the tax.

Reasoning

The central question was whether Washington’s tax had a sufficient connection to the State’s protection and benefits given the limited in-state activities. The Court found that Martinson’s regular, full-time in-state work made possible valuable contractual relations with Boeing—such as product design, testing, problem resolution, and maintaining goodwill—and thus created a reasonable relation to the State’s functions. The opinion relied on earlier decisions treating home-based sales and service representatives as creating substantial in-state activity and noted that the taxpayer did not prove a risk of multiple taxation; the Court placed the burden on the taxpayer to make that showing. For these reasons, the Court upheld the tax as applied.

Real world impact

The decision means states may tax gross receipts from sales to local customers when the seller maintains ongoing in-state activities that materially further the business relationship. Out-of-state sellers who use local engineers or sales agents should document potential taxation and any overlap with other states, since the taxpayer bears the burden to prove multiple taxation. The record also notes a stipulated potential refund of $33,444.91 if the company were to prevail on other grounds.