Global Hookah Distributors, Inc. v. Dept. of Rev.

562 August 6, 2021 No. 25 IN THE OREGON TAX COURT REGULAR DIVISION GLOBAL HOOKAH DISTRIBUTORS, INC., a North Carolina corporation, Plaintiff, v. DEPARTMENT OF REVENUE, Defendant. (TC 5272) On cross-motions for summary judgment, Plaintiff raised two issues regard- ing Oregon’s Tobacco Products Tax (TPT), one statutory and one constitutional. Plaintiff argued that the “wholesale sales price” used to determine tax liability under the TPT should not include certain shipping and handling charges. The court held that the exclusion of charges from the “wholesale sales price” will be based on consideration of four factors: (1) charges for identifiable services are more likely excludable; (2) charges for services performed by a third party are more likely excludable; (3) third-party service charges are more likely excludable if passed on at no more than a reasonable markup; and (4) charges incurred after title to the tobacco product passed to the taxpayer are more likely excludable. The court concluded that there was insufficient evidence in the record to rule on the statutory issue in this case. Plaintiff also argued that the TPT violated the US Constitution’s Commerce Clause. The court concluded that Plaintiff’s sales of tobacco products to Oregon customers established a substantial nexus with Oregon, the measure of the TPT is fairly related to the activity of selling tobacco products, and that imposing the TPT does not unduly burden interstate com- merce. Therefore, the imposition of the TPT did not violate the Commerce Clause. Oral argument on cross-motions for summary judgment was held by telephone on May 27, 2020. Amber A. Beyer, Cosgrave Vergeer Kester LLP, filed the motion and Julie A. Smith, Cosgrave Vergeer Kester LLP, Portland, argued the cause for Plaintiff. Kristen M. Gallino, Assistant Attorney General, Depart- ment of Justice, Salem, filed the motion and argued the cause for Defendant. Decision rendered August 6, 2021. ROBERT T. MANICKE, Judge. Plaintiff (taxpayer) brings statutory and constitu- tional challenges to Defendant’s (the department’s) assess- ments of Oregon’s Tobacco Products Tax (the TPT) on tobacco Cite as 24 OTR 562 (2021) 563 products other than cigarettes, codified at ORS 323.500 to 323.645 (the TPT Act or Act).1 The tax periods at issue are the 16 quarters ending December 31, 2008, and June 30, 2009 through December 31, 2012. I. INTRODUCTION & FACTS A. Overview of Taxpayer’s Business Unless noted otherwise, the facts are uncontested for the periods at issue. Taxpayer is a North Carolina corpo- ration whose commercial domicile and sole place of business are in Charlotte, North Carolina. Taxpayer buys and sells “shisha” (a form of tobacco that is smoked in hookahs) and nontobacco products (such as hookahs, accessories to hoo- kahs, and charcoal). Taxpayer does not repackage tobacco products; for example, if it buys a certain variety of shisha in 250-gram jars, it sells those jars of shisha to customers. A business wishing to order from taxpayer first sub- mits, through taxpayer’s website, an application contain- ing business information and copies of the business’s state tobacco license and sales tax license, if applicable. After tax- payer approves the application, the business customer may place orders over email, phone, and fax. Customers other than businesses typically create an account on taxpayer’s website, enabling them to place and track orders through the site. Taxpayer conducts all of its operations at ware- houses in North Carolina and ships its goods via U.S. mail or common carrier from there to customers throughout the world. Taxpayer has a website and a presence on Facebook and Twitter that are accessible by anyone. Taxpayer sends newsletters by email a few times a year regarding new prod- ucts or upcoming sales; newsletters go to customers who 1 Unless otherwise noted, all references to the Oregon Revised Statutes (ORS) are to the 2009 edition. Although the 2009 edition was published after the first period at issue, the TPT Act was, for purposes of this case, materially the same as the 2007 version of the Act. Cf. Or Laws 2009, ch 717 (adding definition of “moist snuff,” imposing tax on “moist snuff,” and imposing various adminis- trative requirements on manufacturers of smokeless tobacco products). Except for two amendments not relevant to this case, the Act was not amended between 2009 and 2012. See Or Laws 2011, ch 389, § 5 (pertaining to warrants); Or Laws 2011, ch 661, § 8 (same). 564 Global Hookah Distributors, Inc. v. Dept. of Rev. contact taxpayer seeking to subscribe. None of taxpayer’s employees has entered Oregon on business. Taxpayer acknowledges that it is a “distributor” of “tobacco products” as defined by Oregon law. See ORS 323.500(7) (defining “distributor”); ORS 323.500(14) (defin- ing “tobacco products”); ORS 323.520(1) (imposing licensing requirement for distributors). Taxpayer obtained an Oregon distributor license after receiving a request around 2007 from an Oregon business customer who had been purchas- ing nontobacco products from taxpayer but who wanted to purchase tobacco products as well. See ORS 323.530. In the course of obtaining its license, taxpayer was directed by a state employee to register with the Oregon Secretary of State as a foreign corporation, and taxpayer did so. Taxpayer has a registered agent in Oregon. Taxpayer has filed a quarterly tobacco products tax return, and remitted all reported TPT, for each of the periods at issue. Taxpayer’s total sales to customers in Oregon during the calendar year 2008 amounted to less than $10,000 in gross sales and fewer than 20 invoiced transactions, each including charges for shisha, charges for goods other than shisha, and other charges, all with two customers. Taxpayer had similar figures during the calendar year 2009: slightly more than $10,000 in gross sales and fewer than 20 invoiced transactions, all with one of the customers to which it sold in 2008. Taxpayer sent one or more invoices to the same cus- tomer each month from February 2008 through December 2009. The numbers increased for 2010 to less than $35,000 in gross sales, fewer than 40 transactions, and four custom- ers. For 2011, taxpayer had about $80,000 in gross sales, around 60 transactions, and six customers. For 2012, tax- payer had around $180,000 in gross sales, about 100 trans- actions, and nine customers. As a percentage of taxpayer’s overall gross sales, taxpayer’s gross sales to Oregon custom- ers ranged from 0.5 percent to 2.0 percent. B. Taxpayer’s Suppliers’ Invoices The invoices taxpayer receives from its suppliers for tobacco products ordinarily have a line item for each type of product. That line item shows the unit of that product Cite as 24 OTR 562 (2021) 565 that taxpayer has ordered (for example, a jar of a certain weight of a certain type of shisha), the number of such units ordered, the price per unit, and the total price for the quan- tity of units ordered. Similar line items for nontobacco prod- ucts, such as charcoal, hookahs, or other smoking-related equipment, sometimes are included on the same invoice with tobacco products. Supplier invoices also often show one or more of the following charges that the court will refer to as the “Charges at Issue” in taxpayer’s statutory claim: federal tax, shipping fees, custom fees, duties, transporta- tion, palletizing, warehousing, customer service, advertis- ing, documentation and other charges. An invoice typically groups all Charges at Issue into a single line item, although some invoices list shipping or other discrete types of Charges at Issue as separate line items. Most of the invoices do not show a breakdown of the Charges at Issue by product; for example, an invoice that shows shipping as a Charge at Issue will show only one shipping charge for all items on the invoice, not separate charges for shipping of each product type or each unit shown on the invoice. In summary, each invoice clearly shows a stated price for each item of tobacco products and a stated price for each item of nontobacco prod- ucts. However, the stated amounts for Charges at Issue are, on most invoices, “bundled,” both in the sense that multiple types of Charges at Issue are included in a single amount, and in the sense that the Charges at Issue are not allocated among the various products on the invoices. C. The Department’s Audit of Taxpayer’s TPT Returns For shisha, the TPT rate is “sixty-five percent of the wholesale sales price,” which is defined as “the price paid for untaxed tobacco products to or on behalf of a seller by a pur- chaser of the untaxed tobacco products.” See ORS 323.505 (1)(c); ORS 323.500(16). On its TPT returns for the periods at issue, taxpayer calculated its “wholesale sales price” for tobacco products sold into Oregon using the line-item price for those products as shown on the invoices from suppliers. Taxpayer’s calculation did not take into account any of the Charges at Issue. In an audit in 2013, the department recal- culated taxpayer’s reported tax liability by including the Charges at Issue in the “wholesale sales price.” 566 Global Hookah Distributors, Inc. v. Dept. of Rev. The department issued notices of deficiency, which, for all periods at issue, impose total additional TPT liability of $57,501.92, plus interest, as of October 25, 2013. Taxpayer appealed to the Magistrate Division and now appeals from an adverse decision there. The parties have filed cross- motions for summary judgment.2 II. STANDARDS OF REVIEW This division of the court reviews a magistrate’s decision de novo based on the record developed in this divi- sion. ORS 305.425(1); see also ORS 305.501(6). The court grants a motion for summary judgment only if “the plead- ings * * * declarations, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to prevail as a matter of law.” Tax Court Rule (TCR) 47 C. See Christensen II v. Dept. of Rev., 23 OTR 155, 162-63 (2018) (citing Two Two v. Fujitech America, Inc., 355 Or 319, 331, 325 P3d 707 (2014)). “No genuine issue as to a material fact exists if, based upon the record before the court viewed in a manner most favorable to the adverse party, no objectively reasonable [factfinder] could [find] for the adverse party on the matter that is the subject of the motion for summary judgment.” TCR 47 C. “A material fact is ‘one that, under applicable law, might affect the outcome of a case.’ ” Ghiglieri v. Tomalak, 304 Or App 717, 718, 469 P3d 262 (2020) (quoting Zygar v. Johnson, 169 Or App 638, 646, 10 P3d 326 (2000), rev den, 331 Or 584 (2001)). As to each party’s motion, the adverse party has the burden of producing evidence on any issue raised in the motions as to which the adverse party would have the burden of persua- sion at trial. Id. III. ISSUES (1) Statutory issue: Does the “wholesale sales price” of the tobacco products taxpayer sold to Oregon customers include the Charges at Issue? 2 Taxpayer argues that the department has moved for only partial summary judgment because it did not argue in its Motion for Summary Judgment that the TPT meets the “fairly related” prong of the Complete Auto test (see 24 OTR at 583). The court does not treat the department’s motion as a motion for partial summary judgment. The department argued that taxpayer’s “constitutional objections to taxation in Oregon are without merit.” The department specifically addressed the “fairly related” prong in its response, and taxpayer responded on reply. Cite as 24 OTR 562 (2021) 567 (2) Constitutional issue: Does the Commerce Clause of the United States Constitution prevent the department from subjecting taxpayer to the Tobacco Products Tax for some, if not all, of the periods at issue? IV. ANALYSIS Taxpayer makes two claims, one statutory and one under the United States Constitution. First, taxpayer asserts that the statutory definition of the “wholesale sales price” of tobacco products refers to the per-unit price of a tobacco product and excludes all of the Charges at Issue. The department argues that all of the Charges at Issue are included in the wholesale sales price because a seller would not have sold the shisha to taxpayer if taxpayer had not paid those charges. Taxpayer’s statutory claim would eliminate the deficiencies because all of the department’s assessments are based on increasing the tax base by the amount of the Charges at Issue. Taxpayer’s second claim is that, as applied to taxpayer, the TPT violates the Commerce Clause of the United States Constitution for at least some of the periods at issue. See generally US Const, Art I, § 8, cl 3. Taxpayer’s second claim would both eliminate the assessed deficiencies and result in a refund of tax that taxpayer paid when it filed its returns. The court begins with taxpayer’s statutory claim. Health Net, Inc. v. Dept. of Rev., 22 OTR 128, 134 (2015), aff’d, 362 Or 700, 415 P3d 1034 (2018) (“Under the ‘first things first’ doctrine, Oregon courts first examine state statutory issues and state constitutional claims before addressing any federal statutory or federal constitutional claims.”). When construing statutes, the court applies the analytical steps set forth in State v. Gaines, starting with the text and con- text, proceeding to the legislative history to the extent use- ful, and, if the legislature’s intent remains unclear, consult- ing general maxims of statutory construction. 346 Or 160, 171-72, 206 P3d 1042 (2009). A. Statutory Issue The TPT Act governs the taxation of tobacco prod- ucts other than cigarettes. ORS 323.505 imposes the tax and specifies the tax base and rates for various tobacco products: 568 Global Hookah Distributors, Inc. v. Dept. of Rev. “(1) A tax is hereby imposed upon the distribution of all tobacco products in this state. The tax imposed by this section is intended to be a direct tax on the consumer, for which payment upon distribution is required to achieve convenience and facility in the collection and administra- tion of the tax. The tax shall be imposed on a distributor at the time the distributor distributes tobacco products. “(2) The tax imposed under this section shall be imposed at the rate of: “(a) Sixty-five percent of the wholesale sales price of cigars, but not to exceed 50 cents per cigar; “(b) One dollar and seventy-eight cents per ounce based on the net weight determined by the manufacturer, in the case of moist snuff, except that the minimum tax under this paragraph is $2.14 per retail container; or “(c) Sixty-five percent of the wholesale sales price of all tobacco products that are not cigars or moist snuff. “* * * * * “(5) No tobacco product shall be subject to the tax if the base product or other intermediate form thereof has previously been taxed under this section.” Key terms are defined in ORS 323.500: “(3) ‘Consumer’ means any person who purchases tobacco products in this state for the person′s use or con- sumption or for any purpose other than for reselling the tobacco products to another person. “* * * * * “(6) ‘Distribute’ means: “(a) Bringing, or causing to be brought, into this state from without this state tobacco products for sale, storage, use or consumption; “(b) Making, manufacturing or fabricating tobacco products in this state for sale, storage, use or consumption in this state; “(c) Shipping or transporting tobacco products to retail dealers in this state, to be sold, stored, used or consumed by those retail dealers; Cite as 24 OTR 562 (2021) 569 “(d) Storing untaxed tobacco products in this state that are intended to be for sale, use or consumption in this state; “(e) Selling untaxed tobacco products in this state; or “(f) As a consumer, being in possession of untaxed tobacco products in this state. “(7) ‘Distributor’ means: “(a) Any person engaged in the business of selling tobacco products in this state who brings, or causes to be brought, into this state from without the state any tobacco products for sale; “(b) Any person who makes, manufactures or fabri- cates tobacco products in this state for sale in this state; “(c) Any person engaged in the business of selling tobacco products without this state who ships or transports tobacco products to retail dealers in this state, to be sold by those retail dealers; “(d) Any person, including a retail dealer, who sells untaxed tobacco products in this state; or “(e) A consumer in possession of untaxed tobacco prod- ucts in this state. “* * * * * “(12) ‘Sale’ means any transfer, exchange or bar- ter, in any manner or by any means, for a consideration, and includes and means all sales made by any person. It includes a gift by a person engaged in the business of sell- ing tobacco products, for advertising, as a means of evading the provisions of ORS 323.500 to 323.645, or for any other purpose. “* * * * * “(14) ‘Tobacco products’ means cigars, cheroots, sto- gies, periques, granulated, plug cut, crimp cut, ready rubbed and other smoking tobacco, snuff, snuff flour, moist snuff, cavendish, plug and twist tobacco, fine-cut and other chew- ing tobaccos, shorts, refuse scraps, clippings, cuttings and sweepings of tobacco and other kinds and forms of tobacco, prepared in such manner as to be suitable for chewing or smoking in a pipe or otherwise, or both for chewing and 570 Global Hookah Distributors, Inc. v. Dept. of Rev. smoking, but shall not include cigarettes as defined in ORS 323.010. “(15) ‘Untaxed tobacco products’ means tobacco prod- ucts for which the tax required under ORS 323.500 to 323.645 has not been paid. “(16) ‘Wholesale sales price’ means the price paid for untaxed tobacco products to or on behalf of a seller by a purchaser of the untaxed tobacco products.” The TPT Act thus imposes the TPT on any “distrib- utor” at the time the distributor “distributes” tobacco prod- ucts, except that no TPT applies if the “base product or other intermediate form thereof has previously been taxed under this section.” ORS 323.505(5). The tax base is the “wholesale sales price,” defined as the “price paid for untaxed tobacco products,” except that for cigars the tax base is capped at 50 cents per cigar, and for moist snuff the tax is not measured by wholesale sales price at all, but by the ounce with a min- imum tax per retail container. ORS 323.505(2). For shisha, the TPT applies at 65 percent of the wholesale sales price, i.e., the price paid for untaxed shisha. ORS 323.505(2)(c). The parties dispute whether “the price paid for untaxed tobacco products” includes the Charges at Issue. The court begins with the statute’s text. See Gaines, 346 Or at 171-72. 1. Text Each party claims support for its position in the plain meaning of “price.” The contemporaneous dictionary definition of “price” is, in relevant part:3 “2a : the quantity of one thing that is exchanged or demanded in barter or sale for another : a ratio at which commodities and services are exchanged b : the amount of 3 The TPT was enacted in 1985. See Or Laws 1985, ch 816. As noted below in the analysis of statutory context, the 1985 act defined “wholesale sales price” as “the established price for which a manufacturer sells a tobacco product to a distributor, after any discount or other reduction for quantity or cash.” Id. at § 15 (emphasis added). In 2003, the legislature replaced that definition with the current text, which does not include an adjective modifying “price.” See Or Laws 2003, ch 804, § 31. For its text analysis, the court refers to the 2002 edition of Webster’s Third as contemporaneous with the 2003 amendment. In any event, the definition of “price” available in 1985 was identical. See Webster’s Third New Int’l Dictionary at 1798 (unabridged ed 1976). Cite as 24 OTR 562 (2021) 571 money given or set as the amount to be given as a consider- ation for the sale of a specified thing 3 : the terms or consideration for the sake of which something is done or undertaken * * * 4 : the cost at which something is obtained or offered ”) (italics in original). This court finds both of those elements present on these facts. Taxpayer knew from its customers’ shipping addresses that it was selling shisha into Oregon. Cf. Asahi Metal Industry., Ltd. v. Superior Court of California, Solano County, 480 US 102, 111-12, 107 S Ct 1026, 94 L Ed 2d 92 (1987) (plurality opinion of Justice O’Connor; concluding that “placement of a product into the stream of commerce, without more, is not an act * * * purposefully directed toward the forum State”). As soon as taxpayer began making sales into Oregon, it did so regularly, generally monthly, during all tax periods at issue. The remaining term is “substantial.” In Wayfair, that word is part of the term being defined (“substantial nexus”), as well as part of the definition (“substantial priv- ilege”). The court views “privilege” as a binary concept: a state either grants the privilege of carrying on business, or it does not. There are, therefore, no minor, midrange, or maximum gradations of the privilege itself. There are, however, many gradations of business activity. This court interprets the Wayfair test to mean that a taxpayer whose activity rises to the level of “carrying on business” neces- sarily exercises a privilege that is substantial in character. Conversely, to avoid substantial nexus, the taxpayer’s activ- ities either must avoid the intentional connection with the state that is implicit in the term “avail,” or the activities must lack the continuity implicit in “carrying on” business.26 26 The phrase “substantial privilege of carrying on business” derives from cases decided on other constitutional grounds. The Court in Wayfair quotes the phrase as used in Polar Tankers, Inc. v. City of Valdez, 557 US 1, 8, 129 S Ct 2277, 174 L Ed 2d 1 (2009). Polar Tankers was decided exclusively under the Tonnage Clause, US Const, Art I, § 10, cl 3, and the Court in that case used the quoted phrase as a reference in passing to the Due Process test as articulated in Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 US 425, 428, 100 S Ct 1223, 63 L Ed 2d 510 (1980) (income tax apportionment case). Polar Tankers, 557 598 Global Hookah Distributors, Inc. v. Dept. of Rev. The court concludes that, under Wayfair’s Commerce Clause analysis, taxpayer availed itself of the substantial privilege of carrying on business in Oregon in all of the periods at issue. (3) Applying Due Process test as a check Finally, the court applies a Due Process analysis to the facts of this case in order to test for a different result that might indicate a flaw in the Commerce Clause reason- ing. Under the Due Process Clause, a court has specific, as opposed to general, jurisdiction over nonresident persons who have “certain minimum contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” International Shoe Co. v. State of Wash, Office of Unemployment Compen- sation and Placement, 326 US 310, 316, 66 S Ct 154, 90 L Ed 95 (1945) (internal quotation marks omitted). “Minimum contacts” exist when a nonresident person “purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 US 235, 253, 78 S Ct 1228, 2 L Ed 2d 1283 (1958). “Purposeful availment” refers to the nonresident person’s deliberate actions, as opposed to “ran- dom, fortuitous, or attenuated contacts.” Burger King Corp. v. Rudzewicz, 471 US 462, 475, 105 S Ct 2174, 85 L Ed 2d 528 (1985) (internal quotation marks omitted). A nonresident person fulfills the purposeful availment requirement when it has “deliberately * * * engaged in significant activities within a State or has created continuing obligations between himself and residents of the forum.” Id. at 475-76 (internal citations and quotation marks omitted); cf. World-Wide Volkswagen Corp. v. Woodson, 444 US 286, 295, 100 S Ct 559, 62 L Ed 2d 490 (1980) (out-of-state automobile retailer and wholesaler did not have “minimum contacts” with forum state because they did not carry on any activity, make sales, perform ser- vices, solicit business, or advertise in the forum state, nor did they “avail themselves of [any] of the privileges and benefits US at 11. Mobil, in turn, quotes the phrase as used in the Due Process Clause analysis in Wisconsin v. J.C. Penney Co., 311 US 435, 444-45, 61 S Ct 246, 85 L Ed 267 (1940) (referring to the “substantial privilege of carrying on business in Wisconsin”). Cite as 24 OTR 562 (2021) 599 of Oklahoma law.”).27 By deliberately engaging in signif- icant activities or creating ongoing obligations in a state, a nonresident person “should reasonably anticipate being haled into court there.” See World-Wide Volkswagen Corp. v. Woodson, 444 US 286, 297, 100 S Ct 559, 62 L Ed 2d 490 (1980). This is not a case in which taxpayer’s products entered Oregon because of a “random” or “fortuitous” event. See Burger King, 471 US at 474-75. Nor is this a case in which taxpayer made “a single isolated sale” of shisha into Oregon. See J. McIntyre Machinery, Ltd. v. Nicastro, 564 US 873, 888-89, 131 S Ct 2780, 180 L Ed 2d 765 (2011) (Breyer, J., concurring in the judgment) (“[A] single sale of a prod- uct in a State does not constitute an adequate basis for asserting jurisdiction over an out-of-state defendant, even if that defendant places his goods in the stream of com- merce, fully aware (and hoping) that such a sale will take place.”).28 As discussed, even in 2008, taxpayer regularly sold and shipped shisha to Oregon retailers. Cf. Volkswagen, 444 US at 295 (no regular sales to in-state customers). The invoices for taxpayer’s sales to Oregon retailers for 2008 show that taxpayer sold shisha to one Oregon retailer monthly from February 2008 to December 2008. Over time, taxpayer added more Oregon customers and made greater dollar amounts of Oregon sales. The court finds these activ- ities sufficient to satisfy the “purposeful availment” and “minimum contacts” required for Due Process purposes. Taxpayer does not argue otherwise. It stated in its motion that “[taxpayer] certainly does have a nexus with Oregon in the sense that it does avail itself of the privilege of doing business in Oregon”; arguing its economic and virtual 27 See also Cox v. HP Inc., 368 Or 477, 506-09, 492 P3d 1245 (2021) (applying Ford Motor Co. v. Montana Eighth Judicial Dist. Court, 592 US ___, 141 S Ct 1017, 209 L Ed 2d 225 (2021), in concluding that out-of-state party’s “nontargeted internet postings” did not suffice to “create the relationship that due process demands” for specific jurisdiction over party). 28 This case also does not involve sales to an intermediary in one location that distributes the goods to a state asserting jurisdiction. Cf. Asahi Metal Industry., Ltd. v. Superior Court of California, Solano County, 480 US 102, 107 S Ct 1026, 94 L Ed 2d 92 (1987) (differing opinions); Willemsen v. Invacare Corp., 352 Or 191, 282 P3d 867 (2012) (sale of 1,102 wheelchairs including defendant’s battery char- gers established regular flow or regular course of sales justifying court’s exercise of specific jurisdiction over defendant). 600 Global Hookah Distributors, Inc. v. Dept. of Rev. contacts with Oregon not “substantial” for Commerce Clause purposes. (4) The department’s waiver argument The department points to taxpayer’s decisions, before making its first sales of shisha into Oregon, to regis- ter with the department as a “distributor” of tobacco prod- ucts and with the Secretary of State as a foreign business entity qualified to do business in Oregon, and to engage an Oregon registered agent to accept service on its behalf. The department argues that, by registering as a distribu- tor, taxpayer “waived” any defense based on lack of nexus. The court rejects this argument, which is based on a line of sales tax cases from other states that involve so-called “vol- untary” registration provisions in statutes or regulations. Those provisions provide a mechanism for unregistered remote sellers that claim immunity from tax to neverthe- less start filing returns, thereby limiting their exposure to that state’s tax, interest, and penalties. Such a provision preserves the taxpayer’s argument that its contact with the taxing state is insufficient to subject the taxpayer to tax, which might be important if the taxpayer anticipates a dis- pute with another state with which it has a similar level of contact. Unsurprisingly, a taxpayer that registers pursu- ant to such a provision is required to follow through and actually collect and remit that state’s tax; it generally will not be heard to argue that the tax does not apply to it. See Hellerstein, 2 State Taxation ¶ 19.11[3][a] (discussing cases). For purposes of this case, however, it is significant that a “voluntary registration” statute or regulation describes the registrant as “not engaged in business in [the taxing] state,” or otherwise assumes that the registrant is immune from tax. 18 Cal Code Regs § 1684(b) (2001) (cited in In Re B&D Litho, Inc. 2001 WL 1034733, at *1 (Cal St Bd Equaliz May 31, 2001); see 18 Cal Code Regs § 1684(e)(2) (2021) (same); see also Ohio Rev Code § 5741.17(B) (1994) (“A seller who does not have nexus with this state may voluntarily register with the Commissioner.” (Cited in Dunhall Pharms., Inc. v. Tracy, No. 94-T-1340, 1995 WL 640699, at *4 (Ohio Bd Tax App Oct 27, 1995).)). No comparable provision exists in the TPT Act. Cite as 24 OTR 562 (2021) 601 The court concludes that taxpayer’s activities sat- isfy all requirements for “substantial nexus” with Oregon under Wayfair. 2. “Fairly related” test under Complete Auto Taxpayer argues that the TPT is not fairly related to the services taxpayer receives from Oregon because the burden imposed on distributors “who conduct[ ] a relatively small amount of business in Oregon is disproportionately high compared to the benefits the distributor would ever gain from Oregon services.” Taxpayer also argues that the TPT is “overly complex and idiosyncratic and thus increases [tax- payer]’s compliance costs disproportionately.” As a result, tax- payer argues, it “is being asked to shoulder more than its fair share of the state’s services.” Moreover, “because [taxpayer] operates entirely outside of * * * Oregon, it does not have the opportunity to avail itself of any of the services the tobacco tax revenues might fund.” The department argues that the TPT is fairly related to taxpayer’s activities in Oregon because it is measured “as a percentage of the ‘wholesale sales price’ of only that tobacco that enters Oregon.” The department is correct. Under the “fairly related” component of the Complete Auto test, the state need not pro- vide a “detailed accounting of the services provided to the tax- payer on account of the activity being taxed, nor, indeed, is a State limited to offsetting the public costs created by the taxed activity. If the event is taxable, the proceeds from the tax may ordinarily be used for purposes unrelated to the taxable event. Interstate commerce may thus be made to pay its fair share of state expenses and ‘contribute to the cost of providing all government services, including those services from which it arguably receives no direct benefit.’ ” Oklahoma Tax Com’n v. Jefferson Lines, Inc., 514 US 175, 199-200, 115 S Ct 1331, 131 L Ed 2d 261 (1995) (quoting Goldberg v. Sweet, 488 US 252, 267, 109 S Ct 582, 102 L Ed 2d 607 (1989)) (emphasis in original). Rather, as explained in Commonwealth Edison Co. v. Montana, “the fourth prong of the Complete Auto Transit test imposes the additional limitation that the measure of the tax must 602 Global Hookah Distributors, Inc. v. Dept. of Rev. be reasonably related to the extent of the contact, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a just share of state tax burden.” 453 US 609, 626, 101 S Ct 2946, 69 L Ed 2d 884 (1981) (emphasis in original). The tax at issue in Commonwealth Edison was a severance tax on the mining of coal, measured as a percentage of the “contract sale price.” The Court had “little difficulty concluding that the Montana tax satis- fies the fourth prong of the Complete Auto Transit test. The operating incidence of the tax is on the mining of coal within Montana. Because it is measured as a percentage of the value of the coal taken, the Montana tax is in proper proportion to appellants’ activities within the State and, therefore, to their consequent enjoyment of the opportuni- ties and protections which the State has afforded in con- nection with those activities. When a tax is assessed in proportion to a taxpayer’s activities or presence in a State, the taxpayer is shouldering its fair share of supporting the State’s provision of police and fire protection, the benefit of a trained work force, and the advantages of a civilized society.” Id. at 625-27 (internal footnotes, quotation marks, and citations omitted). Similarly, the TPT is fairly related to the extent of taxpayer’s activities in Oregon because it is imposed only on the tobacco products that taxpayer distrib- utes in Oregon. It is irrelevant whether taxpayer believes that it does not “avail itself of any of the services the tobacco tax revenues might fund” because “interstate commerce may * * * be made to pay its fair share of state expenses and ‘contribute to the cost of providing all government ser- vices, including those services from which it arguably receives no direct benefit.’ ” Jefferson Lines, Inc., 514 US at 199-200 (quoting Goldberg, 488 US at 267) (emphasis added). The court concludes that the “fairly related” component of the Complete Auto test is satisfied in this case. 3. Balancing test under Pike v. Bruce Church, Inc. The Court in Wayfair suggested that the “balancing framework” of Pike v. Bruce Church, Inc., 397 US 137, 90 S Ct 844, 25 L Ed 2d 174 (1970), may be relevant in determin- ing whether the Commerce Clause forbids imposition of a Cite as 24 OTR 562 (2021) 603 particular state tax. Wayfair, 138 S Ct at 2099; see also id. at 2091 (“undue burden” analysis under Pike and other cases, one of two principles that “animate” state tax precedents under Commerce Clause); Dept. of Rev. of Ky. v. Davis, 553 US 328, 333, 128 S Ct 1801, 170 L Ed 2d 685 (2008) (refer- ring to Pike, but deciding case on other grounds). Taxpayer in this case raises that issue, asserting that the TPT fails the Pike balancing test.29 Under Pike, a state law may violate the Commerce Clause if “the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits. * * * [T]he extent of the burden that will be tolerated * * * depend[s] on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on inter- state activities.” 397 US at 142. At issue in Pike was an Arizona law that prohibited the transportation of Arizona-grown cantaloupes that were not packed for shipment in the manner required by the Arizona Fruit and Vegetable Standardization Act. Id. at 138. A company that grew cantaloupes in Arizona chal- lenged the constitutionality of the law under the Commerce Clause after Arizona ordered the company to cease shipping its cantaloupes from Arizona to its California packing facil- ity, which was 31 miles away from where the cantaloupes were grown, because the company’s California facility lacked “packing sheds” as required under the Act. Id. at 138-40. No compliant facilities were available in Arizona, and the cost 29 Although it is appropriate to apply Pike balancing given the Supreme Court’s statements in Wayfair and Davis, the court does so with little guidance specifically regarding state taxes. See Michael T. Fatale, Wayfair, What’s Fair, and Undue Burden, 22 Chap L Rev 19, 49 (2019) (“What an undue burden liti- gation claim [under Pike] might look like [in a post-Wayfair tax case] * * * is an open question.”); Jared Walczak and Janelle Cammenga, State Sales Taxes in the Post-Wayfair Era, Tax Foundation Fiscal Fact No. 680 32 (Dec 2019) (“That Pike has traditionally applied to regulatory analysis is not necessarily a barrier; the Supreme Court said in Wayfair that either the Pike balancing test or something similar to it may be an avenue for challenging overly burdensome remote sales tax regimes, and while the contours of those limitations remain unknown, the Court should be taken at its word.” (Emphasis added.)); Walter Hellerstein and Andrew Appleby, Substantive and Enforcement Jurisdiction In a Post-Wayfair World, State Tax Notes 292 (Oct 22, 2018) (“Few courts have applied the Pike bal- ancing test to analyze state tax laws, but it has been used frequently to analyze other types of state laws.”). 604 Global Hookah Distributors, Inc. v. Dept. of Rev. to construct one would have amounted to approximately $200,000, while the gross value of the Arizona-grown crop was $700,000. Id. at 140. The Court concluded that the law violated the Commerce Clause because the burden imposed on the company was clearly excessive in relation to the benefits to Arizona. Id. at 146. The Court described the benefits to Arizona: “The impetus for the Act was the fear that some growers were shipping inferior or deceptively packaged produce, with the result that the reputation of Arizona growers generally was being tarnished and their financial return concomitantly reduced. It was to prevent this that the Act was passed in 1929. The State has stipulated that its pri- mary purpose is to promote and preserve the reputation of Arizona growers by prohibiting deceptive packaging.” Id. at 142-43. As for the burden imposed on the company: “The cantaloupes grown by the company [in Arizona] are of exceptionally high quality. The company does not pack them in Arizona and cannot do so without making a capi- tal expenditure of approximately $200,000. * * * [Arizona’s] order would forbid the company to pack its cantaloupes out- side Arizona, not for the purpose of keeping the reputation of its growers unsullied, but to enhance their reputation through the reflected good will of the company’s superior produce.” Id. at 144. The Court concluded that “the State’s tenu- ous interest in having the company’s cantaloupes identi- fied as originating in Arizona cannot constitutionally jus- tify the requirement that the company build and operate an unneeded $200,000 packing plant in the State.” Id. at 145; see also id. at 146 (“[T]he State’s interest is minimal at best[.]”). Applying Pike to this case, the court starts with the benefits to Oregon from imposing the TPT. As with any tax, revenue generation is an obvious benefit to the state.30 The court takes judicial notice that the TPT (including on cigars 30 In Wayfair, the Court observed that the South Dakota tax at issue provided over 60 percent of the state’s general fund, as the state had not adopted an income tax. Wayfair, 138 S Ct at 2088. Cite as 24 OTR 562 (2021) 605 and moist snuff) in recent years has been budgeted to raise more than $30 million annually.31 Slightly less than one-half the TPT revenue is ded- icated to programs to improve health. A 1997 law raised the TPT rate from 35 percent of the wholesale sales price to the present 65 percent and added a provision dedicating 41.5 percent of the revenue to the Oregon Health Plan and 4.62 percent to a “Tobacco Use Reduction Account” created in the same act. See Or Laws 1997, ch 2, §§ 9 - 15. Funds in that account are continuously appropriated for “prevention and education programs designed to reduce cigarette and tobacco use,” including grants to educate children on the health hazards of tobacco use and grants to fund programs to prevent smoking-related diseases. Or Laws 1997, ch 2, §§ 13 - 14. A distinctive feature of the TPT, as amended in 2003, is its application to virtually any transaction in the chain leading from manufacturer to consumer. The depart- ment argues, based on the legislative history of the 2003 amendments, that this feature reduces the number of sales that avoid tax altogether by allowing the department to enforce the tax as soon as products enter the state, and taxpayer does not refute this. The department stated in its response brief that “The purpose of the [2003] legislation was to strengthen and enhance taxpayer compliance with the cigarette and tobacco products tax laws, especially in the wake of increased online sales to Oregon customers. To that end, the legislature amended ORS 323.505(1) to provide that it intended the tobacco product tax to be * * * collected by the distributor as a matter of administrative convenience.” (Footnote citing portion of legislative history omitted.) The court compares these benefits to the state with the burdens the TPT places on tobacco product dis- tributors. The court finds it significant that the Supreme Court in Wayfair, which twice mentioned Pike’s balancing test, apparently saw no need to apply that test to the South 31 Oregon Economic and Revenue Forecast, Vol XXXIX, No. 1, Office of Economic Analysis 43-44 (Feb 27, 2019), available at https://www.oregon.gov/das/ OEA/Documents/forecast0319.pdf. 606 Global Hookah Distributors, Inc. v. Dept. of Rev. Dakota tax before it. However, the Court commented favor- ably on South Dakota’s annual thresholds of $100,000 in sales of goods or 200 “separate transactions” before the tax could apply, characterizing those amounts as “considerable,” and “clearly sufficient” to establish a substantial nexus with the state. Wayfair, 138 S Ct at 2098, 2099. The Court also noted that South Dakota’s tax (1) is administered solely at the state level; (2) has a simplified structure for accommo- dating varying local rates; (3) operates on state-provided compliance software that immunizes taxpayer users from audit liability; and (4) is uniform in important respects with the taxes imposed by the other 20-plus states joining in the SSUTA. Id. at 2099-100. Comparing the burdens of the two taxes, the court first finds that both the TPT and the South Dakota sales tax are administered solely at the state level. As to the sec- ond factor above, the TPT outperforms the South Dakota tax by preempting all similar local Oregon taxes. See ORS 323.640(1). This is a marked simplification compared to the usual sales tax regime that allows cities, counties, and other local taxing districts to adopt local add-on rates that typi- cally require software to determine the total rate to apply based on the buyer’s shipping address. See, e.g., Streamlined Sales and Use Tax Agreement (as amended through May 20, 2021) § 305(F) (“Each member state that has local juris- dictions that levy a sales or use tax shall[ ] [p]rovide and maintain a database that assigns the proper tax rates and jurisdictions to each five digit and nine digit zip code within a member state. * * * For the purposes of this section, there is a rebuttable presumption that a seller or CSP [(Certified Service Provider)] has exercised due diligence if the seller or CSP has attempted to determine the tax rate and juris- diction by utilizing [state-provided] software * * *.”). As to the third and fourth factors, the South Dakota tax appears comparatively less burdensome, as the department has not rebutted taxpayer’s assertions that the department makes no software available, and that the TPT is “idiosyncratic” compared to other tobacco taxes. Furthermore, taxpayer complains of a general lack of published guidance as to how to determine the “price paid for untaxed tobacco products,” at least at the time taxpayer was preparing its returns, Cite as 24 OTR 562 (2021) 607 and the department has pointed to no publications or return instructions that would have addressed the question proactively. The foregoing does not fully address the comparison, however. The South Dakota tax statutes at issue in Wayfair, like the use taxes at issue in Quill and Bellas Hess, required the taxpayer seller to determine the tax on each transaction “up front” and to promptly remit the collected tax to the state. South Dakota Codified Laws 10-45-27.3 (2021 ed) (absent an exception, requiring monthly remittance);32 State v. Wayfair Inc., 2017 SD 56, 901 NW2d 754, 756 (2017), rev’d, 138 S Ct 2080 (2018) (“Pursuant to state statute, sales tax is generally collected by sellers selling merchandise in this state at the point of sale * * *.”); 1991 North Dakota Laws, ch 681, § 2 (“If total sales and purchases subject to sales and use taxes for the preceding calendar year equal or exceed three hundred thirty-three thousand dollars, the tax levied by this chap- ter shall be payable monthly * * *.”); Illinois Laws 1955, at 2027-2037 (Illinois Use Tax Act), §§ 3, 9 (requiring retailers to collect tax from purchasers at time of sale and remit tax monthly); see Quill, 504 US at 302 (“North Dakota requires every retailer maintaining a place of business in the State to collect the tax from the consumer * * *.” (Internal quota- tion marks omitted.)); Dept. of Rev. v. National Bellas Hess, Inc., 34 Ill 2d 164, 167, 214 NE2d 755 (1966), rev’d, 386 US 753, 87 S Ct 1389, 18 L Ed 2d 505 (1967) (citing 1955 Illinois Use Tax Act). Wayfair does not describe to what extent the state-provided software may have simplified these duties, but the fact remains that the South Dakota tax retained the standard use tax feature of deputizing sellers as collection agents. 138 S Ct at 2088; see Capital One, 22 OTR at 339-40 (juxtaposing sellers’ collection burden associated with sales- and-use taxes and corporate excise and income taxes that have no such collection burden). The TPT Act does not do this. On balance, the court finds the burdens imposed by the TPT Act no heavier than those in the South Dakota tax at issue in Wayfair. The benefits to Oregon from the TPT are manifest and are qualitatively at least as significant as the 32 This statute was last amended in 2017. 608 Global Hookah Distributors, Inc. v. Dept. of Rev. benefits to South Dakota from its tax. The court concludes that the burdens imposed on out-of-state distributors are not “clearly excessive” in relation to the benefits to Oregon of supporting the General Fund programs that support most of the state’s operations, as well the state’s Medicaid plan and programs specifically related to the health hazards of tobacco use. 4. Department’s “regulatory measure” argument After oral argument in this case, the Florida Court of Appeal issued an opinion in a case brought by taxpayer contesting imposition of Florida’s “Tax on Tobacco Products Other Than Cigarettes or Cigars” on Commerce Clause grounds. Glob. Hookah Distributors, Inc. v. Dep’t of Bus. & Pro. Regul., 318 So 3d 613, No. 1D20-822, 2021 WL 1345233 (Fla Dist Ct App Apr 12, 2021), reh’g denied (June 8, 2021). The Florida court concluded that the tax at issue was a “regu- latory measure enacted pursuant to this state’s police power to protect the health of its citizens,” citing statutes requir- ing proceeds of the tax to be used for certain health-related purposes. Id. at *3. The court relied on the Florida Supreme Court’s statement that “[g]enerally speaking, statutes that represent the exercise of a state’s police power are given less scrutiny under the Commerce Clause than those statutes enacted to raise revenue for the state.” Dep’t of Banking & Fin., State of Fla. v. Credicorp, Inc., 684 So 2d 746, 750 (Fla 1996); see 2021 WL 1345233 at *4. Applying a more permis- sive Commerce Clause standard for regulatory measures, as set forth in Credicorp, the Court of Appeal in Global Hookah concluded that no physical-presence requirement applied. The court found it unnecessary to consider whether Quill or Wayfair applied. See id. at *2. Accordingly, the court upheld the tax assessment. See id. at *2. Citing Camps Newfound / Owatonna, Inc. v. Town of Harrison, Me., 520 US 564, 607, 117 S Ct 1590, 1613, 137 L Ed 2d 852 (1997), the department brought the Florida Court of Appeal case to this court’s attention, arguing that the TPT Act is a regulatory measure comparable to the Florida tax and that a more permissive standard applies than addressed in the parties’ earlier briefings. However, this court concludes that its holdings under the more stringent Cite as 24 OTR 562 (2021) 609 standard for taxes under Wayfair make it unnecessary to address the department’s argument. V. CONCLUSIONS The Charges at Issue are excluded from the “whole- sale sales price” to the extent that they are consideration for something other than tobacco products and to the extent the amounts are accurately allocated. Taxpayer’s activi- ties of selling tobacco products to Oregon customers had a substantial nexus with Oregon during the periods at issue, and the measure of the TPT is fairly related to taxpayer’s activity in Oregon. Imposing the TPT on taxpayer does not unduly burden interstate commerce. Therefore, imposing the TPT on taxpayer does not violate the Commerce Clause. For those reasons, now, therefore, IT IS ORDERED that Plaintiff’s Motion for Summary Judgment is granted in part and denied in part with respect to the statutory issue and denied with respect to the constitutional issue; and IT IS FURTHER ORDERED that Defendant’s Motion for Summary Judgment is granted in part and denied in part with respect to the statutory issue and granted with respect to the constitutional issue.