WPC ]ʺ<=L rw3>zZ+2aBV'=ycQ#'9I?#{vj#JI tKs+6N!|$|0\r(_(MVނ2B);iϣ6V\$St>_v{mGRL*)hcC=LywcWw2j'K^4Jˀn~17_FkZ$@-q* 0W 0D A?HP LaserJet 4050 Series PCL 6,,,,0(I Z(Times New Roman (`$.8dd8    ("  Z6Times New Roman RegularP,s  C:\PROGRA~1\COREL\WORDPE~1\TEMPLATE\CUSTOM~1\REVISE~1.WPTC:\Program Files\Corel\WordPerfect Office 2000\Template\Custom WP Templates\revised standard opinion.wpt9,,9웥3|xULevel 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5  R$      2    _JusticeWhiteactuallydissentedinQuillbecausehethoughtthatNationalGeographichadoverruled_Bellas_  Hess,andhaddecoupledthetransactionalnexusfromthefirstpartoftheCompleteAutoTransittest.(#$  0    R$      1    _Thissubstitutionwouldnotbemuchofachange.Onetermisaboutasnebulousastheother.   - -(|G2$ !.8ZEdXXd8         0   d(|3X$ !.8ZEdXXd8     VVVV'dxd)!dxdx( $ Figure  1  ^_X`YE<<CLevel 1Level 2Level 3Level 4Level 5(|3X$ !.8ZEdXXd8     ($$   1  X[Z&OLE 2.0 Box <=8C HKKKK !.8ZEdd8     _  ZE89XXdd8  ZEZEOa@ ZEINTHECOURTOFAPPEALSOFTENNESSEE  @kk$ATNASHVILLE#ZEJ#Ԉ &   May6,2002Session L X9XZE #ZEXX9.#AMERICAONLINE,INC.v.RUTHE.JOHNSON,COMMISSIONER J OFREVENUEX9XZE   ^ @@ AppealfromtheChanceryCourtforDavidsonCounty  ^ @@No.973786IIIEllen_Hobbs_ԀLyle,Chancellor  J @@*AV) ` dE<` A   @@TTNo.M200100927_COA_ԄR3CVFiledJuly30,_2002_   AV) ` dE<` A      TheChanceryCourtofDavidsonCountygrantedsummaryjudgmenttoAmericaOnline,Inc.onthe  CommissionerofRevenuesclaimthatAOLsactivitiesinthisstategaveitasufficientnexusto x subjectittostatetaxes.Becausewefindthatthisquestionisfactspecificandthattherecorddoes d notshowthatAOLisentitledtoajudgmentasamatteroflaw,wereverse. P > Tenn.R.App.P.3AppealasofRight;JudgmentoftheChanceryCourt (x ReversedandRemanded  d   #ZEX9#X9X.ZEBenH.Cantrell,P.J.,M.S.,deliveredtheopinionofthecourt,inwhichWilliamC.Koch,Jr. < andD.Michael_Swiney_,JJ.,joined. ( PaulG.Summers,AttorneyGeneralandReporter;MichaelE.Moore,SolicitorGeneral;Margaret  M.Huff,AssistantAttorneyGeneral,fortheappellant,StateofTennessee.  JosephW.GibbsandPatriciaHead_Moskal_,Nashville,TennesseeandCurtisP.Lu,Washington, t  D.C.,fortheappellee,AmericaOnline,Inc. `!   OPINION #ZEXX9#X9XZE 8#"  I.  %` $     AmericaOnline,Inc.(AOL)isaDelawareCorporationprovidingvariousInternetandonline &8"& services,includingelectronicmailandInternetaccess.ItsprincipalofficeisinVirginiawhereits '$#' maincomputerfacilitiesarelocated.ForthepurposeofAOLsmotionforsummaryjudgment,the ($( CommissionerdoesnotinsistthatAOLownsorleasesanyrealpropertyinTennessee.Thereisa )$) disputeabouttheextenttowhichAOLownsorleasespersonalpropertyinthisstate. *%*   AOLdoesnothaveregularemployeesinthisstate;itsellsitsservicesthroughthemailor p,', bymagazineinserts.Thepromotionalmaterialsincludeprintedbrochuresandafloppydisk \-(- containingthesoftwarenecessarytoaccessAOLsdatacenterinVirginia.Byusingthediskthe H.). Oa    customercansignuponlineandbecomeanAOLmemberbyagreeingtothetermsandconditions  oftheoffer.Oneoftheconditionsistoreturnordestroythesoftwareuponterminationofthe  membership.    Withthesoftwareinplaceandtheagreementconsummated,amembercanaccessAOLs ` servicesbydialingatelephonenumbersuppliedbyathirdpartynetworkserviceprovider(NSP), L  whichroutesthecalltoitsgeneraldatanetworkandontoAOLsdatacenterinVirginia.During 8  therelevantperiod,AOLusedtwotypesofpublicdatanetworksprovidedby_NSPs_.Thex.25data $ t networkswereprovidedbypubliccompanies,suchasSprintandTymnet,thatprovidedthesame  ` servicestoothercustomers.In1994AOLbeganusing_AOLnet_,whichhaditsownnetworkof  L  NSPs.EachNSPin_AOLnet_,oneofwhichwas_ANSCO_+RESystems,Inc.(ANS),asubsidiaryof  8  AOL,operatedapublicdatanetworkusedbyothercustomersinadditiontoAOLmembers.But, $  inthissystemtheservicewasprovidedtoAOLmembersthroughdedicatedmodemsandother   componentpartsleasedbyAOLandlocatedinTennessee.Theownershipof_AOLnet_Ԁitselfis   disputed.     SomeofAOLsmembersinTennesseeweredesignatedas remotestaff.Theywereunpaid p persons,workingfromtheirhomes,andtrainedbyAOLtomoderaterealtimeconferences.They \ weresubjecttocallatanytimetohelpenforceAOLsrules,suchastherulesagainstvulgarityor H harassment.Theydidnot,however,solicitbusinessinTennessee. 4 @) II.   \   ArticleI8oftheUnitedStatesConstitutiongivesCongressthepowertoregulate 4 commerceamongtheseveralstates.Fromaveryearlytimeinourhistoryasanation,thisgrantof   powertotheCongresshasbeeninterpretedtomeanthatthestatesmaynotinterferewithinterstate   commerce.SeeQuillCorp.v.NorthDakota,112_S.Ct_.1904(1992).Atonetime,astatetaxon  interstatecommercewasconsideredperseinterference.See_Leloup_Ԁv.PortofMobile,127U.S.640  (1888).But,inthefullnessoftime,theSupremeCourtrecognizedthatnotallstatetaxeson  interstatecommerceinterferedwithitandthatstatesshouldbecompensatedforthevaluableservices l theyrenderedinmakingtheflowofcommercepossible.Therefore,inCompleteAutoTransit,Inc. X  v.Brady,430U.S.274,_rehg_.denied,430U.S.976(1977),theCourtannouncedafourparttestto D! determineifataxonanoutofstatesellercouldbesustained.TheCourtsaidthetaxwouldbe 0"  sustainedsolongasit [1]isappliedtoanactivitywithasubstantialnexuswiththetaxingState, #l! [2]isfairlyapportioned,[3]doesnotdiscriminateagainstinterstatecommerce,and(4)isfairly $X" relatedtotheservicesprovidedbytheState.Id.at279. $D #   Thiscaseisallaboutthenexusprongofthetest.ThechancellorheldthattheSupreme &"% Courtsdecisionsinthisarea,asinterpretedbythiscourtin_J.C._ԀPenney_Natl_ԀBankv.Johnson,19 '#& S.W.3d831(Tenn.Ct.App.1999),appealdenied,(Tenn.May8,2000),cert.denied,Johnsonv._J.C._ (#' Penney_Natl_ԀBank,531U.S.927(2000),hadheldfasttoabrightlinetestrequiringanoutofstate )$( companytohavea physicalpresenceinthisstateinordertohaveasubstantialnexuswithit.We |*%) think,however,thatthatreadingof_J.C._ԀPenneywouldsimplysubstitute physicalpresencefor h+&*  nexus #  1      ׀asthefirstprongoftheCompleteAutoTransittest.Aswereadthecases,neithercourthas  madethatsuggestion.Whatweactuallysaidin_J.C._ԀPenneywas,  8  Itisnotourpurposetodecidewhether physicalpresenceisrequiredunderthe t CommerceClause.However,theCommissionerhaspointedtonocaseinwhichthe ` SupremeCourtoftheUnitedStateshasupheldastatetaxwheretheoutofstate L  taxpayerhadabsolutelynophysicalpresenceinthetaxingstate.8    19S.W.3dat842.  `   PerhapsitwouldhavebeenmoreaccuratetosaythattheSupremeCourthadrejectedstate  8  taxesoninterstatecommercewherenoactivitieshadbeencarriedoninthetaxingstateonthe $  taxpayersbehalf.Theclearestcaseinvolvedamailorderhousethathadneitheroutletsnorsales   representativesinthetaxingstateandtheownershipoftangiblepropertyinthetaxingstatewas   eitherinsignificantornonexistent.#ZEXX9 #X9XZE_Bellas_ԀHessv.DepartmentofRevenue,386U.S.753(1967).   TheCourtsaidthatavendorwhoseonlycontactswiththestatearebymailorcommoncarrierlacks   asubstantialnexuswiththestate.InQuillCorp.v.NorthDakota,504U.S.298(1992),theCourt p reachedthesameresultinacasewherethevendordidbusinessthroughtheInternet,andtheCourt \ discountedthefactthatthecompanyretainedownershipofa fewfloppydiskettesthathadbeen H sentintothestatecontainingpromotionalmaterials. 4   Inothercaseswheretheoutofstatetaxpayerdidnotactuallyhaveofficesoremployeesin  \ thetaxingstate,thecourt,nevertheless,foundasubstantialnexusbasedoninstateactivitiescarried H onbyaffiliatesorindependentcontractorsonthetaxpayersbehalf.SeeTylerPipeIndustriesv. 4 Washington,483U.S.232(1987);_Scripto_Ԁv.Carson,362U.S.207(1960).IneachcasetheCourt   madenodistinctionbetweenregularemployeesandindependentcontractorsforthepurposeof   findinganexusundertheCompleteAutoTransittest.    Inacasewithaninterestingtwist,theCourtinNationalGeographicSocietyv.California  Bd.ofEqualization,430U.S.551(1977),foundasubstantialnexuswiththetaxingstateeven l thoughtheinstateactivitydidnotrelatetotheactivitythestatesoughttotax.Inthatcasethe X  companyhadtwoofficesinthestatethatsolicitedadvertisingtobeplacedintheNational D! Geographicmagazine.Buttheadvertisingemployeesperformednofunctionsrelatedtoamailorder 0"  businessconductedforthesaleofmaps,atlases,globes,andbookswhichthestatesoughttotax. #l! Itseemstousthatthemailorderbusinessstoodinthesamerelationshiptothestateasthebusinesses $X" inQuilland_Bellas_ԀHessandthatagoodargumentcouldbemadethatthetaxwasnotappliedtoan $D # activitythathadasubstantialnexuswiththestate.T #  2      ׀Nevertheless,theCourtfoundthatthe %0!$ solicitationofmorethan$1millioninadrevenueeachyearestablishedmorethanaslightpresence &"% inthestate.Wewouldagreethatthatlevelofbusinessbyinstateemployeesisasubstantialnexus,  butthatisnotallofthenexustest.Theactivitytaxedmusthaveasubstantialnexuswiththestate.  @^^( III.  t   Rule56oftheTennesseeRulesofCivilProcedurerequiresthe_movant_Ԁtoshowthatthere L  arenomaterialfactsindisputeandthatthe_movant_Ԁisentitledtoajudgmentasamatteroflaw.Byrd 8  v.Hall,847S.W.2d208(Tenn.1993).Wedonotthinkundisputedfactsshowthatthetaxessought $ t bytheCommissionerwouldviolatetheCommerceClauseoftheUnitedStatesConstitution.  `   WedonotthinkthatitisconclusivethatAOLdoesnothaveofficesoremployeesinthestate  8  orthatitdoesnotownorrentrealpropertyhere.Weknowthatasubstantialnexusmaybe $  establishedbyactivitiescarriedonwithinthestatebyaffiliatesandindependentcontractors.See   TylerPipeIndustriesv.Washington,483U.S.232(1987);_Scripto_Ԁv.Carson,362U.S.207(1960).   Infacttheonlysituationwhereweknowthatasubstantialnexusdoesnotexistiswheretheonly   contactwiththestateisbytheInternet,mailandcommoncarriers.SeeQuillCorp.v.NorthDakota,   504U.S.298(1992);_Bellas_ԀHessv.DepartmentofRevenue,386U.S.753(1967).Where,onthe p otherhand,activitiesare beingconductedinthetaxingstatethatsubstantiallycontributetothe \ taxpayersabilitytomaintainoperationsinthetaxingstate,asubstantialnexusdoesexist._J.C._ H Penney,19S.W.2dat841(referencingTylerPipe,483U.S.232and_Scripto_,362U.S.207). 4   Inthiscasethereareasubstantialnumberofbusinessesoperatinginthisstatehelpingmake  \ theAOLserviceavailabletoTennesseecustomers.TheNSPsprovideservices,somethroughtheir H ownequipment,andsomebyusingequipmentleasedbyAOLandlocatedhere.OneoftheNSPs 4 isanAOLsubsidiary.Whiletherecordisnotdevelopedtoapointofclarity,wedonotthinkthe   recordshowsthattheactivitiesconductedhereonAOLsbehalfcouldbetermedinconsequential   orofonlyslightsignificance.WethinkthatAOLsconnectionwiththisstateamountstomorethan  theInternet,mailandcommoncarrierconnectioninQuilland_Bellas_ԀHess.Finally,althoughthe  CourtconsideredQuillsretentionofownershipofa fewfloppydiskettesthatithadsentintothe  stateforpromotionalpurposestobeinsignificant,wethinkatsomepointthenumbermailedinto l thestatedoesbecomeafactortobeaddedtothebalance.Consideringtherecordasawhole,we X  thinkthequestionofwhetherAOLsnexuswiththisstatesatisfiestheCompleteAutoTransittest D! isstillopen. 0"    TheCommissionerhasraisedaquestionabouthowthetrialcourtlimiteddiscovery.With $X" ourholdinghere,wethinkthequestionforthepurposeofthisappealismoot.Buttheinformation $D # concerningAOLsrelationshiptotheNSPs!especiallyitssubsidiary,ANS!ishighlyrelevantto %0!$ thequestionofwhatactivities,ifany,arebeingconductedonAOLsbehalf.Thesameobservation &"% appliestotheremotestaffoperatingforAOLinTennesseeeventhoughtheydidnotsolicitbusiness '#& inTennessee.AnyinformationabouttheiractivitiesonAOLsbehalfisrelevant. (#'  h+&* @dd) IV.     AOLarguedinitsbriefandatoralargumentthatthetaxesassessedbytheCommissioner  werenotfairlyapportionedtoTennessee.Onthisissue,however,andtheotherissues_pretermitted_ t bythechancellor,wedonotthinktherecordhasbeensufficientlydevelopedtoallowustoruleon ` them. L    ThejudgmentofthecourtbelowisreversedandthecauseisremandedtotheChanceryCourt $ t ofDavidsonCountyforfurtherproceedings.TaxthecostsonappealtoAOL.  `    `     h   _________________________________________      `     h   BENH.CANTRELL,PRESIDINGJUDGE,M.S.