The year was 1947. Harry S. Truman was president, Chuck Yeager broke the sound barrier, and on October 17, 1947, the Manufacturers’ Agents National Association joined the community of not-for-profit trade associations.

To celebrate our 70th MANAversary year, each Agency Sales magazine through October will include a “blast from the past” article from the early issues of The AGENT and Representative magazine, which eventually became Agency Sales.

These nostalgic looks back at how our counterparts from seven decades ago conducted their businesses and their lives are really eye-opening, in some cases because they conducted their business so differently from a modern manufacturers’ representative, and in some cases because it seems that nothing has changed in all that time. Enjoy!

Legal and Legislative Review
By Thomas Connell

(Reprinted from October 1949 The AGENT and Representative magazine)

INTRASTATE BUSINESS:
This column has had something to say in previous issues concerning the tendency of state tax authorities to tax out-of-state businesses on what might often seem a pretext.

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State courts and legislatures, in recent years, have expanded the definition of “doing business” to the point where every firm accepting orders from another state must be careful to consider whether or not that state regards its activities in obtaining the orders as local business, which is to say as intrastate business, within that state.

Since litigation is actually unusual in the experience of the average businessman, the serious consequences of “doing business” in a state other than in the state where the headquarters of the business is located, may not be understood until it is too late to avoid such consequences.

A distinction, however, must be drawn between individuals and partnerships, as opposed to corporations, when the subject of “doing business” in other states is under consideration. What constitutes doing business by a corporation in states foreign to the state of its creation, appears to be a matter entirely separate from what constitutes doing business by an individual or a partnership in states foreign to the state of his or their business residence. Briefly, the consideration behind this difference is that the corporation exists by right only in the state of its incorporation, while the individual exists in all states as a citizen of the United States.

This brief discussion shall concern itself with corporations only.

Many states prohibit a foreign corporation from enforcing an obligation where the corporation was not “qualified to do business” in that state but which has done acts considered by that state to be “doing business” in that state.

A manufacturer might consider that the sale was made at its home office, since the order was obtained by its travelling salesmen and clearly subject to headquarters’ approval before being valid, but the state in which the buyer resides might determine that the selling activities of the manufacturer brought that corporation into intrastate trade in the buyer’s state. Under such circumstances, the selling corporation might be unable to recover for the goods sold because it had failed to “qualify to do business” in the buyer’s state.

Some states will hold foreign corporations liable for Unemployment Taxes and other levies if salesmen traveling in that state solicit orders even though final acceptance of the orders must come from the out-of- state headquarters office. This liability exists whether or not the selling firm “qualifies to do business” in that state. One way to avoid such tax liability is by limiting sales in such states to “independent agents,” but it is well to avoid any sort of subterfuge in doing so. It will be recalled that the MANA “Standard Form of Agreement With Manufacturers’ Agent,” in Clause 1(b), sets up the manufacturers’ agent as an “independent contractor and free agent.”

Several states hold that the stock-holders and officers of a foreign corporation, which has failed to “qualify to do business” locally, may be personally liable on local obligations of the foreign corporation. And while these penalties apply to foreign corporations and not to out-of-state proprietary businesses or partnerships, the numerous local state sales and use taxes and income taxes apply alike to corporations and all other businesses.

Of recent years, the tendency has been for states to impose penalties of more serious nature on violations in connection with local sales and use taxes, and income taxes.

The manufacturer that operates throughout 48 states, particularly if a corporation, must become familiar with the laws of all states, for the decisions of the United States Supreme Court have allowed the states to define “doing business” in about whatever manner the states have determined for themselves, thus making this problem from the point of view of a national organization a matter of geography.

Where an order is accepted at a corporation’s headquarters in one state, but was solicited in and then shipped into another state, the following activity preceding the sale has variously been held to be “doing business,” or to be intrastate business, in the buyer’s state:

• Employing salesmen or agents who deliver locally the products sold.
• Maintaining and operating local branch stores.
• Leasing and operating departments in other local stores.
• Doing construction work under contract in the state.
• Upkeep and maintenance of equipment within the state.
• Maintaining local stocks of goods or repair parts, in private or public warehouse, or delivery to customers within the state.
• Renting or leasing machinery or equipment to customers within the state.
• Assisting and aiding local firms in making sales to customers by sending men into the state for that purpose.

Thus the question whether corporations are lawfully subject to statutes in the various states requiring the obtaining of authority to do intrastate business within them, or are exempt from such requirements, depends on whether the character of the business in the state constitutes interstate business, or doing business intrastate in such a manner as to localize the business and to make the doing of it an operation within the state in question.

The statement of the rule sounds quite simple, but its application to particular cases has proved difficult and is constantly coming up for decision in both State and Federal courts.