No. 33049 Tax Commissioner of the State of West Virginia v. MBNA America
Bank, N.A.
Davis, C.J., concurring:
In this case, MBNA, an out-of-state credit card company disputed the
imposition of business franchise and corporation net income taxes on its profits
(See footnote 1) generated
from West Virginia residents in the years 1998 and 1999. The majority opinion, applying
sound legal analysis, determined that the application of the taxes did not violate the
Commerce Clause because MBNA's business activity in this State constituted a significant
economic presence sufficient to meet the substantial nexus standard. I fully concur in the
majority decision and its analysis. I have chosen to write separately to emphasize the
correctness of the legal analysis articulated in the majority decision and, further, to respond
to several misconceptions contained in the dissenting opinion.
In the lone dissenting opinion, my colleague chastises the majority and states
that “[t]here is no precedential support whatsoever for the conclusions reached by the
majority decision. None. None at the state level. None at the federal level.”
See Dissenting
opinion, pgs 1-2. The critical point that the dissent fails to acknowledge is that there is no
established precedent, either way, from the United States Supreme Court. The sole decision
on this topic is from the Tennessee Court of Appeals.
See generally J.C. Penney Nat'l Bank
v. Johnson, 19 S.W.3d 831 (Tenn. Ct. App. 1999). It has long been held that “[i]n
considering and deciding the constitutionality of a tax imposed and collected by this state,
in the light of a provision of the Constitution of the United States, this Court is bound by
applicable decisions of the Supreme Court of the United States[.]” Syl. pt. 2, in part,
State
ex rel Battle v. B.D. Bailey & Sons, Inc., 150 W. Va. 37, 146 S.E.2d 686 (1965). However,
no such requirement exists as to decisions rendered by other state courts. Moreover, it is
expressly left to each state to regulate commerce inside its borders, within the confines of
constitutional directives.
The majority opinion performed a critical analysis of the United States
Supreme Court decision in
Quill Corp. v. North Dakota, 504 U.S. 298, 112 S. Ct. 1904, 119
L. Ed.2d 91 (1992). The
Quill opinion considered the Commerce Clause in connection with
use and sale taxes, not the types of taxes at issue in the present case. Therefore, while the
Quill opinion is instructive, it is not exactly on point with the case
sub judice. The majority
opinion succinctly interpreted the
Quill decision, which determined that a physical presence
was needed prior to imposing in-state sales taxes on an out-of-state mail-order house under
the Commerce Clause. In its analysis, the majority of this Court correctly observed that
physical presence is not a requirement of the substantial nexus standard with regard to the
taxes at issue herein. Taking into account the realism of today's world, the majority astutely
recognized that
Quill's physical presence requirement for showing a substantial nexus under
the Commerce Clause applies only to use and sales taxes and not to business franchise and
corporation net income taxes, which are the taxes at issue in the present case. Such an
interpretation was invited by the
Quill Court when it noted that it has not adopted a bright
line, physical presence requirement in any area except sales and use taxes.
See Majority
opinion, p. 14. In its interpretation of
Quill, the majority opinion correctly recognized the
legal differences between the Due Process Clause and the Commerce Clause, as well as the
even finer distinctions between the application of sales and use taxes as opposed to business
franchise and corporation net income taxes. The majority opinion articulates and appreciates
these distinctions; the dissenting opinion does not.
Further, the dissenting opinion, in its discussion regarding the physical
presence component of the substantial nexus prong, strays from the issue before this Court
by discussing at length the minimum contacts required under the Due Process Clause. In so
doing, the dissenting opinion accuses the majority of merging Due Process and Commerce
Clause nexus requirements. However, the majority opinion correctly addresses this
argument, which was first raised by MBNA, by recognizing the contact requirements under
both doctrines. The majority opinion concludes that “although a substantial economic
presence standard is by nature more elastic than the bright-line physical presence test, we are
convinced that when properly applied, a greater nexus is required under the substantial
economic presence standard [than] under the minimum contacts analysis.”
See Majority
opinion, pgs. 21-22.
Moreover, the dissenting opinion's lengthy discussion of the Due Process
Clause is unwarranted and prone to create confusion. The application of the Due Process
Clause is not the issue presented for resolution in this case nor does it play any role in the
decision reached by the majority of the Court. The question that was brought for our review
was, solely, “whether application of West Virginia's business franchise and corporation net
income taxes to MBNA, a business with no physical presence in this state, violates the
Commerce Clause of the United States Constitution.” Majority opinion, p. 5 (footnote
omitted). Significantly, as recognized by the majority opinion, the requirements for
satisfying the Due Process Clause and the Commerce Clause are different.
See Majority
opinion, p. 10 (“In addressing this issue, the Supreme Court first indicated that in
determining the propriety of a state use tax on an out-of-state corporation 'the nexus
requirements of the Due Process and Commerce Clauses are not identical.'” (internal citation
omitted)). The Due Process Clause is concerned with notions of fairness, while the
Commerce Clause is aimed at the effects of state regulation on the national economy. Thus,
the dissenter's analysis under the Due Process Clause is wholly irrelevant and inapplicable
to the issue before the Court in this case.
The final point I wish to address is the dissent's unexplained and rigid
adherence to a physical presence requirement for all types of taxes. The dissenting opinion
argues that the taxing scheme at issue impermissibly burdens interstate commerce, yet it fails
to explain how such an impermissible scheme occurs. See Syl. pt. 3, Battle, 150 W. Va. 37,
146 S.E.2d 686 (“A tax imposed pursuant to an act of the legislature of this state will not be
held to contravene the commerce clause of Article I, Section 8 of the Constitution of the
United States unless the imposition of the tax discriminates against or imposes an undue
burden on interstate commerce. Such a tax will not be held to violate the commerce clause
merely because it relates to or affects interstate commerce in some indirect, incidental and
inconsequential manner.”). When a company, whether out-of-state or in-state, earns millions
of dollars (See footnote 2) directly as a result of its dealings with West Virginia customers, should it not be
compelled to pay taxes? (See footnote 3) If not, then all companies would only deal with out-of-state
customers so as to avoid all business franchise and corporation net income taxes. Such a
result is perverse, especially when considering the climate of today's business world where
new technology has made it possible for businesses to span the globe. I see no reason why
a small “mom and pop” store in the State of West Virginia, with gross receipts in the
thousands, should be compelled to pay business franchise and corporation net income taxes
due to its physical presence in the State, while a large corporation, like MBNA, who makes
millions of dollars from West Virginia's economy, would be exempt from such taxes simply
because it has no physical presence here. As the majority shrewdly points out, in today's
world, a business does not necessarily need a physical presence anywhere. MBNA's
significant economic presence in this State meets the substantial nexus standard; thus, it
should not be exempt from state taxation.
Because the majority correctly addressed and resolved the issues in this case,
I respectfully concur with the opinion of the Court.
Footnote: 1