United States

Maryland: Pet Detectives’ (and Others’) Activities Exceed Scope of P.L. 86-272 Protection

Oct 23, 2017
From KPMG TaxWatch

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Recently, the Maryland Tax Court ruled that a seller of pet products and food was not protected from taxation under Public Law 86-272 and was therefore not entitled to a refund of corporate income taxes. During the tax period in question, the taxpayer employed a number of Maryland employees, including a district sales manager, an account manager, and several so-called pet detectives. The court noted that the key question before it was whether the activities were de minimis or were ancillary to requests for purchases. After reviewing the facts, the tax court concluded that the activities of the taxpayer’s employees served a business purpose other than requesting orders. Specifically, the district sales manager provided training and education as well as demonstrations to customers and potential customers. In addition, the district manager’s attendance at pet-related community events served the business purpose of building goodwill in the community and these activities were not “missionary activities” (i.e., requesting orders or ancillary to facilitating sales). The account manager’s activities also exceeded Public Law 86-272, as he/she provided product training to the taxpayer’s customers’ personnel, gathered competitive information when conducting those trainings, and engaged in quality control and reworking of displays in certain stores. The pet detectives conducted several activities that, in the court’s view, were not protected under Public Law 86-272. Notably, they regularly reported back to the taxpayer on which competitors were also demonstrating products at customer locations, as well as how those competitors were marketing their products. The pet detectives, at times, also assisted with quality control and inventory issues by pulling moldy product from shelves, providing restocking services, and providing the taxpayer information when customers returned defective products to the stores ( while not actually resolving the issue). Based on all of these facts, the tax court concluded that the taxpayer’s employees were essentially an in-state sales force, as opposed to employees merely soliciting sales of tangible personal property. Please contact Troy Young at 703-286-8626 with questions on Blue Buffalo Company v. Comptroller


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.