Amgen Inc. v. Commissioner of Revenue

• Decision Date: 23 April 1998
• Citation: 693 N.E.2d 175,427 Mass. 357
• Parties: AMGEN INC. v. COMMISSIONER OF REVENUE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 175

693 N.E.2d 175

427 Mass. 357

AMGEN INC. v. COMMISSIONER OF REVENUE.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Feb. 6, 1998.

Decided April 23, 1998.

Jonathan M. Zorn, Boston (Steven A. Kaufman, with him), for taxpayer.

Thomas A. Barnico, Assistant Attorney General, for Commissioner of Revenue.

Before WILKINS, C.J., and ABRAMS, LYNCH, GREANEY, FRIED, MARSHALL and IRELAND, JJ.

IRELAND, Justice.

This is an appeal from a decision of the Appellate Tax Board (board), denying the applications of Amgen Inc. (Amgen), for abatement of the Massachusetts excise on foreign corporations doing business in Massachusetts. Amgen argues that its activities in the Commonwealth during the years in question ¹ do not subject it to the excise, as provided in G.L. c. 63, § 39. Amgen relies on a Federal statute, Pub.L. 86-272, codified at 15 U.S.C. § 381 (1994), that prohibits a State from imposing an excise on foreign corporations whose only business activities involve the solicitation of certain orders. We conclude that the activities of Amgen in the Commonwealth exceeded those protected under Pub.L. 86-272 during the years in question and that, therefore, Amgen was subject to payment of the excise on foreign corporations for those years. We need not reach the question, also argued by Amgen, whether Amgen's dealings with independent contractors in Massachusetts performing research for Amgen would also constitute "doing business" in the Commonwealth for purposes of G.L. c. 63, § 39.

The following facts were set forth in the parties' statement of agreed facts. Amgen, a Delaware corporation with its principal place of business in Thousand Oaks, California, develops, manufactures, and markets pharmaceutical products. During the years in question, Amgen sold two products in the United States, both of which were available to patients by prescription only. ² Amgen manufactured these products exclusively in California and sold them to wholesale distributors, physicians, hospitals, and other health care institutions. All orders for Amgen's products were placed with Amgen's offices in California for approval or rejection. Accepted orders were shipped via common carrier from outside Massachusetts directly to the purchaser. Amgen did not maintain any manufacturing facilities, research facilities, offices, warehouses, or other places of business in Massachusetts.

Amgen solicited sales of its products in Massachusetts through a sales force that consisted primarily of professional sales representatives (PSRs) and clinical support specialists (CSSs). Amgen also employed district managers who supervised the PSRs, and a corporate accounts manager who was responsible for certain larger accounts within Massachusetts.

Amgen employed seven PSRs in Massachusetts at various times. The primary responsibility of the PSRs was to call on doctors and nurses to encourage them to prescribe Amgen's products. When making calls, the PSRs would describe the product and provide a copy of the package insert approved by the Food and Drug Administration (FDA). The PSRs were not medical professionals, nor did they carry or distribute samples of Amgen's products.

Amgen also employed two CSSs in Massachusetts at various times. The primary responsibilities of the CSSs included accompanying PSRs on calls and giving programs on Amgen's products to groups of nurses at hospitals and other health care facilities in Massachusetts. These programs were given on a frequent basis and were sometimes attended by patients, as well as nurses. In addition, the CSSs were sometimes asked to review patient charts or answer questions about the use or proper dosage of Amgen's products for specific patients. ³ The CSSs were nurses.

The Commissioner of Revenue (commissioner) assessed, and Amgen paid, the excise for the years in question. Amgen filed timely applications for abatement in the aggregate amount of $356,036. The commissioner denied the applications and Amgen appealed to the board.

General Laws c. 63, § 39, imposes an excise on "every foreign corporation ... actually doing business in the commonwealth ... in a corporate form." However, the Commonwealth's broad taxing authority over foreign corporations is limited by the Federal government's plenary power to regulate interstate commerce pursuant to the commerce clause of the United States Constitution. See Kennametal, Inc. v. Commissioner of Revenue, 426 Mass. 39, 41, 686 N.E.2d 436 (1997), cert. denied, --- U.S. ----, 118 S.Ct. 1386, 140 L.Ed.2d 646 (1998) (Kennametal ); Heublein, Inc. v. South Carolina Tax Comm'n, 409 U.S. 275, 279-281, 93 S.Ct. 483, 486-488, 34 L.Ed.2d 472 (1972). Congress in 1959 enacted Pub.L. 86-272, which restricts the authority of a State to impose an income tax on foreign corporations whose business within the State consists solely of "the solicitation of orders ... for sales of tangible personal property, which orders are [then] sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State."

Public Law 86-272 does not define "solicitation of orders." Although a number of State courts attempted to define the term more precisely, ⁴ there was no Federal case law dealing directly with this issue until Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 112 S.Ct. 2447, 120 L.Ed.2d 174 (1992) (Wrigley). In that case, the United States Supreme Court concluded that solicitation of orders "covers more than what is strictly essential to making requests for purchases" (emphasis in original). Id. at 228, 112 S.Ct. at 2456. As such, some activities within the State may involve more than a direct request for purchases, but still be protected by Pub.L. 86-272. Wrigley also held that certain activities could qualify for the protection of Pub.L. 86-272 on a de minimis basis. Id. at 231-232, 112 S.Ct. at 2457-2458. However, Wrigley drew a "clear line ... between those activities that are entirely ancillary to requests for purchases--those that serve no independent business function apart from their connection to the soliciting of orders--and those activities that the company would have reason to engage in anyway but chooses to allocate to its in-state sales force" (emphasis in original). Id. at 228-229, 112 S.Ct. at 2456.

The board ruled that the activities of Amgen's PSRs and district managers either did not exceed solicitation of orders or qualified as a de minimis exception. However, the board also ruled that various activities of the CSSs exceeded solicitation of orders. The board further ruled that these activities, taken both individually and as a whole, were not de minimis, and that Pub.L. 86-272 thus did not protect Amgen from the Massachusetts excise on foreign corporations. We granted Amgen's application for direct appellate review.

We first addressed the issue of defining solicitation of orders in Kennametal. That factually similar case involved a foreign corporation engaged in the business of developing, manufacturing, and selling cutting bits for the machining of metals, alloys, and plastics. Id. at 39-40, 686 N.E.2d 436. We held that the corporation was subject to the Massachusetts excise because the activities of its in-State sales force exceeded the solicitation of orders in:

"(1) using samples for testing the performance of [its] products and preparing reports based on the test result, (2) preparing inventory analyses as part of a broader tool standardization program, and (3) making frequent in-plant presentations (up to six hours in length and involving as many as 200 employees of current and prospective customers) on the use of [its] products" (footnote omitted).

Id. at 44-45, 686 N.E.2d 436. We concluded that these activities went beyond solicitation, and held that they fell outside of the protection afforded by Pub.L. 86-272 because, under Wrigley, protected activities must facilitate the actual solicitation of orders, rather than merely serve to increase general sales. See id. at 45, 686 N.E.2d 436.

In Kennametal we also noted that Wrigley created no bright line to distinguish those activities that are entirely ancillary to solicitation of orders from those that also serve an independent business function, and thus are not protected under Pub.L. 86-272. Id. We concluded instead that the activities in cases such as Kennametal occur along a continuum, and that Wrigley guides our analysis merely with examples at each end. Id. In the end, the cases must be considered on an individual basis. See id.

We will not reverse or modify a decision of the board if it is based on a correct application of the law and on...