West Virginia Supreme Court Reports

Petitioner Below, Appellee, v. MBNA AMERICA BANK, N.A.,
Respondent Below, Appellant. No. 33049 Supreme Court of
Appeals of West Virginia, September 2006 Term. Submitted:
September 19, 2006 Filed: November 21, 2006 Dissenting
Opinion Added January 2, 2007

Appeal from the Circuit Court of Kanawha County, Honorable
Louis H. Bloom, Judge, Civil Action No. 04-AA-157.



1. “A state tax on interstate commerce will not be
sustained unless it: `(1) has a substantial nexus with the
State; (2) is fairly apportioned; (3) does not
discriminate; and (4) is fairly related to the services
provided by the State.’ Maryland v. Louisiana, [451] U.S.
[725], [754], 101 S.Ct. 2114, 2133, 68 L.Ed.2d 576 (1981).”
Syllabus Point 1, Western Maryland Ry. Co. v. Goodwin, 167
W. Va. 804, 282 S.E.2d 240 (1981).

2. The United States Supreme Court’s determination in
Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904,
119 L.Ed.2d 91 (1992), that an entity’s physical presence in
a state is required to meet the “substantial nexus” prong
of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97
S.Ct. 1076, 51 L.Ed.2d 326 (1977), applies only to state
sales and use taxes and not to state business franchise and
corporation net income taxes.

Darrell V. McGraw, Jr., Esq., Attorney General, Barbara H.
Allen, Esq., Managing Deputy Attorney General, Katherine A.
Schultz, Esq., Senior Deputy Attorney General, A.M.
“Fenway” Pollack, Esq., Assistant Attorney General,
Charleston, West Virginia, Attorneys for the Tax

G. Thomas Battle, Esq., Craig A. Griffith, Esq., Spilman,
Thomas & Battle, Charleston, West Virginia and Arthur R.
Rosen, Esq. (Pro Hac Vice), Donald M. Griswold, Esq. (Pro
Hac Vice), McDermott, Will & Emery, New York, New York,
Attorneys for MBNA America Bank.

JUSTICE MAYNARD delivered the Opinion of the Court.

CHIEF JUSTICE DAVIS concurs and reserves the right to file
a concurring opinion.

JUSTICE BENJAMIN dissents and reserves the right to file a
dissenting opinion.

MAYNARD, Justice:

Appellant MBNA America Bank appeals the June 27, 2005,
order of the Circuit Court of Kanawha County that ruled
that imposition of West Virginia’s business franchise tax
and corporation net income tax on MBNA, a Delaware
Corporation, for tax years 1998 and 1999, does not violate
the Commerce Clause. For the reasons that follow, we affirm
the circuit court.



Appellant MBNA America Bank is a foreign corporation which
has its principal place of business and commercial domicile
in Wilmington, Delaware. During the two years in question,
1998 and 1999, MBNA had no real or tangible personal
property and no employees located in West Virginia. The
principal business of MBNA at the relevant times in this
case was issuing and servicing VISA and MasterCard credit
cards. This business included the extension of unsecured
credit to customers who use these credit cards. MBNA
promoted its business in West Virginia via mail and
telephone solicitation.

As noted above, the two tax years at issue are 1998 and
1999. In 1998, MBNA’s gross receipts attributable to West
Virginia customers amounted to $8,419,431.00, and in 1999,
its gross receipts amounted to $10,163,788.00. For tax year
1998, MBNA paid a West Virginia Business Franchise Tax[fn1]
of $32,010.00 and a West Virginia Corporation Net Income
tax[fn2] of $168,034.00. For tax year 1999, MBNA paid a
Business Franchise Tax in the amount of $42,339.00 and a
Corporation Net Income Tax in the amount of $220,897.00.

Thereafter, MBNA filed refund claims with the State Tax
Commissioner seeking the return of the business franchise
and corporation net income taxes paid for 1998 and 1999, on
the basis that the Tax Commissioner lacked jurisdiction
over MBNA. The Commissioner denied the refunds based on its
finding that MBNA regularly engaged in business in West
Virginia under the applicable statutes.[fn3]

MBNA subsequently filed an appeal from the Tax
Commissioner’s decision with the Office of Tax Appeals
(hereafter “OTA”). By decision dated October 22, 2004, the
Chief Administrative Law Judge (hereafter “ALJ”) of the OTA
ruled in favor of MBNA and authorized refunds to MBNA of
its 1998 and 1999 franchise and corporation net income
taxes. The ALJ reasoned that under the Commerce Clause, a
state may not subject an activity to a tax unless that
activity has a “substantial nexus” with the taxing state.
The ALJ further reasoned that a substantial nexus requires
a finding that the putative taxpayer has a physical presence
in the taxing state, and mere economic exploitation of the
market is not sufficient. Because it was agreed that MBNA
does not have a physical presence in West Virginia, the ALJ
concluded that the State’s business franchise and
corporation net income taxes could not be imposed on MBNA’s
activity within the State.

The Tax Commissioner appealed the ALJ’s decision to the
Circuit Court of Kanawha County. The circuit court reversed
the decision of the ALJ. According to the circuit court,
physical presence is not necessary in order to show a
substantial nexus for purposes of state taxation of foreign
corporations. Rather, the circuit court found that MBNA’s
significant business in the state is sufficient to meet the
substantial nexus standard. Therefore, concluded the
circuit court, MBNA had a substantial nexus with West
Virginia during the tax years in question so that
imposition of the State’s business franchise and corporate
net income taxes on MBNA did not violate the Commerce
Clause. MBNA now appeals the circuit court’s order.



The Court has previously recognized that a lower court’s
determination of whether a state tax violates the Commerce
Clause is reviewed de novo. See Hartley Marine Corp. v.
Mierke, 196 W. Va. 669, 474 S.E.2d 599 (1996) (explaining
that review of lower court judgment on whether state
legislation interferes with free flow of interstate
commerce is de novo).