## Facts

- Washington imposed a Business and Occupation (B&O) tax on engaging in specified business activities, including manufacturing in Washington and wholesaling (selling) in Washington.
- The manufacturing tax was measured by the value of the manufactured product; the wholesale tax was measured by gross proceeds of sales.
- Washington’s “multiple activities exemption” prevented in-state manufacturers from paying both the manufacturing and wholesale taxes on products also subject to wholesaling in Washington.
- As applied, in-state manufacturers paid wholesale tax on in-state sales and only manufacturing tax on out-of-state sales, while out-of-state manufacturers selling into Washington paid the wholesale tax.
- Tyler Pipe Industries, Inc., an out-of-state manufacturer, had no property or employees in Washington but used an in-state independent contractor to solicit sales and maintain customer contacts.
- Tyler Pipe and other taxpayers sought refunds in state court, alleging the scheme violated the Commerce Clause; Tyler Pipe also challenged nexus.
- The Washington courts upheld the tax scheme and found sufficient nexus for Tyler Pipe.

## Issues

1. Whether Washington’s manufacturing tax, as modified by the multiple activities exemption, discriminates against interstate commerce in violation of the Commerce Clause.
2. Whether Washington had a constitutionally sufficient nexus to impose the B&O wholesale tax on Tyler Pipe’s Washington sales when Tyler Pipe had no in-state property or employees and acted through an in-state independent contractor.

## Decision

- The Supreme Court held that the manufacturing tax, through operation of the multiple activities exemption, facially discriminated against interstate commerce because it effectively burdened only Washington-manufactured goods sold out of state.
- The Court rejected the argument that the discrimination could be justified or “offset” by considering tax burdens imposed by other states.
- The Court held Washington had substantial nexus to tax Tyler Pipe’s wholesale sales because the in-state independent contractor’s activities were significantly associated with Tyler Pipe’s ability to establish and maintain a Washington market.
- The Court reversed in part and affirmed in part the Washington Supreme Court and remanded for further proceedings.

## Legal Principles

- Under the Commerce Clause, a state tax may not impose a burden on interstate commerce that is not imposed on local commerce; facially discriminatory exemptions favoring local businesses are invalid.
- A discriminatory state tax is not cured by comparing it to other states’ tax systems or by claiming that overall interstate burdens even out.
- For Commerce Clause purposes, substantial nexus can be established when in-state representatives, including independent contractors, perform continuous activities significantly associated with the taxpayer’s ability to maintain a local market, even without in-state property or employees.

## Conclusion

Washington’s manufacturing tax scheme was unconstitutional because the multiple activities exemption operated to discriminate against interstate commerce, but Tyler Pipe’s use of an in-state independent contractor created sufficient nexus for Washington to tax its wholesale sales if imposed under a nondiscriminatory structure.


Tyler Pipe Indus., Inc. v. Wash. State Dep’t of Revenue, 483 U.S. 232 (1987)