Stale gum: Oregon Tax Court denies cigarette maker PL 86-272 protection


The Oregon Tax Court, Ordinary Division, held that PL 86-272 did not prevent Oregon from imposing its excise (income) tax on a manufacturer of cigarettes and other out-of-state tobacco products based on two activities. First, the court found that the manufacturer’s mandate that state wholesalers accept product returns was not a protected business. The manufacturer contractually required local wholesalers of its products to accept returns of all products. If the products were unsellable, the manufacturer gave a credit to the wholesaler. Rejecting a common law “agency” analysis, the court found that these activities were conducted, in the language of PL 86-272, “on behalf” of the manufacturer. The court therefore treated the activities as if the manufacturer had performed them himself. As the court explained, “the absence of a right of control may nullify an agency relationship, but it does not nullify the ability to act on behalf of another.” Second, the court held that the manufacturer’s “pre-order” process was not a protected activity. Manufacturer employees solicited sales for state wholesalers and used the “pre-order” process to ensure retailers closed sales. Specifically, the court found that “remedying retailer non-compliance with orders” by implementing the process was something the manufacturer had reason to do in addition to soliciting orders and was therefore not protected. .

Based on the court’s broad interpretation of “on behalf of” and the narrow interpretation of “solicitation”, taxpayers relying on PL 86-272 for Oregon purposes must assess their facts in light of the Santa Fe decision.

Santa Fe Natural Tobacco Co. c. Ministry of RevenueTC 5372 (Or. Tax Court, Rev. Div., August 23, 2022).


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