Tyler Pipe v. Washington Department of Rev.

Supreme Court of the United States · 1987 · Constitutional Law

483 U.S. 232 (1987)

Updated July 29, 2026

Constitutional LawCommerce ClauseState Taxationdiscrimination against interstate commercemultiple activities exemptioncompensating taxsubstantially equivalent eventsinternal consistency

Facts

Washington's business and occupation tax applies to manufacturing in the state and wholesaling in the state, but its multiple activities exemption means a person subject to the wholesale tax for an item is not also subject to the manufacturing tax for that same item. As a result, local manufacturers selling within Washington pay only the wholesale tax, while manufacturers producing in Washington and selling out of state pay the manufacturing tax, and out-of-state manufacturers selling in Washington pay the wholesale tax. Tyler manufactured its products outside Washington, sold substantial amounts in Washington, had no office, property, or resident employees there, but used in-state sales representatives who daily solicited customers and maintained Tyler's market. Tyler sought a refund, arguing both discrimination and that Washington lacked nexus and fair apportionment for its wholesale tax.

Issue

Does Washington's multiple activities exemption violate the Commerce Clause by discriminating against interstate commerce because only goods manufactured in Washington and sold out of state bear the manufacturing tax, while goods manufactured and sold within Washington are exempt from that burden? Also, did Washington have sufficient nexus and fair apportionment to impose its wholesale tax on Tyler's in-state sales of goods manufactured elsewhere?

Rule

A State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State. A manufacturing tax cannot be justified as a compensating tax for a wholesale tax unless the taxed events are substantially equivalent and interstate commerce receives equal treatment; manufacturing and wholesaling are not substantially equivalent events. For nexus, the relevant inquiry is whether the activities performed in the State on behalf of the taxpayer are significantly associated with the taxpayer's ability to establish and maintain a market there.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Oregon imposes a 0.5% tax on manufacturing goods in Oregon and a 0.5% tax on wholesale sales made in Oregon. Under a multiple-activities exemption, a business that manufactures in Oregon and also wholesales the same goods in Oregon owes only the wholesale tax on those goods, but an Oregon manufacturer that ships all of its output to buyers in Idaho still owes the manufacturing tax.

If an Oregon manufacturer that sells only to out-of-state buyers challenges the manufacturing tax under the dormant Commerce Clause, which is the best result?

Explanation. A state may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the state. Here, only the combination of in-state manufacturing and in-state wholesaling escapes the multiple burden, while in-state manufacturing tied to out-of-state sales remains taxed. Under the majority's reasoning, the defect is facial discrimination apparent from the state's own statute; the taxpayer need not prove actual taxation by another state.