This is another in the recent series of use tax cases. The chancellor ruled that Troll Book Club, Inc.’s sales of books in Arkansas were not subject to taxation under the Arkansas Compensating Tax Act of 1949. The Department of Finance and Administration appeals. We affirm.
Appellee Troll is a New Jersey Corporation with its principal place of business in Mahwah, New Jersey. It is neither incorporated nor registered to do business in Arkansas. It has neither a place of business, nor property, nor employees in this State. It markets and sells children’s books throughout the United States by mailing catalogs to teachers who have either previously purchased books or who have requested the catalogs. Each catalog contains about thirty-two individual order forms listing .the current book selections for a particular grade.
The catalogs instruct the teacher on how to collect student orders, how to consolidate those student orders, and how to collect the money for the orders. After collecting the student orders, the teacher fills out one master order form in his or her name and sends it to Troll. Payment is handled in one of three ways: Either (1) parents send checks payable to Troll and the teacher forwards the checks with the orders; or, (2) teachers receive cash from the students, and then, in turn, issue their personal check for the same amount to Troll; or, (3) teachers channel the order through the school’s bookkeeping department and have the school issue the check to Troll.
When the books arrive, the teacher retrieves the student order forms and distributes the books accordingly. Teachers can receive cash or merchandise “bonuses,” depending on the size of the order. Troll estimates its total annual sales in Arkansas at 2.7 to 3 million dollars.
The Director of the Department of Finance and Administration initially assessed Troll a vendor’s use tax in the arbitrary amount of $706,849.87 for the audit period from February 1, 1983, through January 31, 1989. After an administrative hearing, Troll agreed to allow the Department to examine its books, and the arbitrary assessment was recalculated to an assessment of $260,261.70 for the period for the period from 1983 through 1989. A second assessment in the amount of $104,801.85 was made for the period beginning February 1, 1989, and ending June 30, 1991. An administrative decision was issued upholding the Department’s assessments. Troll subsequently posted a bond for the taxes and brought this suit under the Arkansas Tax Procedure Act. The chancellor ruled that Troll’s sales of books to students in this State were not subject to the use tax.
The Standard of Review
The Arkansas Tax Procedure Act, Ark. Code Ann. § 26-18-101 — 904 (Repl. 1992 & Supp. 1993), provides for de novo review of administrative tax decisions by chancery courts. Ark. Code Ann. § 26-18-406(b)(l) (Repl. 1992). Troll was not claiming an exemption from a tax, but rather was claiming that a tax could not be levied upon it. Consequently, the Department had the burden of proving the propriety of the tax, Leathers v. A & B Dirt Movers, Inc. 311 Ark. 320, 325, 844 S.W.2d 314, 316 (1992), and all doubts and ambiguities had to be resolved in favor of the taxpayer. Dunhill Pharmacies, Inc. v. State, 295 Ark. 483, 749 S.W.2d 660 (1988). Although we review these cases de novo, we will not disturb the chancellor’s finding of fact unless they are clearly erroneous. Jones v. Ragland, 293 Ark. 320, 323, 737 S.W.2d 641, 643 (1987).
The Applicable Law
Sections 26-53-101 to 129 of the Arkansas Code Annotated of 1987 impose a use tax on vendors selling personal property for use, storage, or consumption in this State. Section 26-53-102(4) provides that a “vendor” is: “Every person engaged in making sales of tangible personal property by mail order, by advertising, by agent; or by . . . taking orders for sales [of tangible personal property] for use, consumption, or storage in this state;. . . .”
The foregoing statutes provide for the imposition of the tax upon a vendor located out of state if the vendor makes sales of personal property for use, storage, or consumption within this State. However, the Constitution of the United States, through the dormant Commerce Clause, art. I, § 8, cl. 3, limits a state’s ability to tax out-of-state entities when such taxation would burden interstate commerce. The Supreme Court has recently considered this issue in relation to mail order sales and determined that, for such a tax to be upheld under the dormant Commerce Clause, the entity to be taxed must maintain a physical presence in the taxing state. Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992). The Department sought to prove Troll’s “physical presence” by proving that the teachers, who were physically present in this state, were the agents of Troll. Indeed, if Troll’s agents were present in this State, Troll would be present in this State.
Procedure in This Case
In the trial court, the parties agreed that unless the Department could prove a formal agency relationship between the teachers and Troll, the necessary conclusion by the trial court would be that Troll lacked the “substantial nexus” required by the federal Constitution in order to be taxed by Arkansas. The Department’s trial brief provides: “The only issue for this court to determine is whether the teachers were agents of Troll Book Club, Inc.” Troll agreed and, in its brief to this court, states:
Since appellee [Troll] had no offices, employees, or facilities in Arkansas, the parties agreed and the Chancery Court required appellant [Department] to prove that the teachers who purchased books were appellee’s agents under Arkansas law in order to establish such “substantial nexus.” The [trial] court also concluded, and the parties agreed, that in the absence of such a showing of agency, no substantial nexus between the New Jersey company and Arkansas would exist.
The chancellor ruled on the only issue submitted to her, which was whether an agency relationship had been created. One paragraph of the final order provides:
The Defendant [Department] alleged that teachers are the agents of the Plaintiff [Troll] in the State of Arkansas, thus attempting to bring Plaintiff within the definition of vendor under the Arkansas Compensating Tax Act and provide the substantial nexus between Plaintiff and the State of Arkansas which is required to impose the tax under the Commerce Clause under the United States Constitution. The Defendant has the burden of proof with respect to establishing that teachers are agents of the Plaintiff in the State of Arkansas. The Defendant and the Plaintiff further acknowledge that the Court finds that the Plaintiff does not have a “substantial nexus” with the State of Arkansas unless an agency relationship exists between the teachers and Plaintiff.
The chancellor initially opined that, in order to find an agency relationship, Arkansas law requires both a showing that an agent is authorized to perform for and to bind a principal, and that the principal has a right to control the agent. Next, the chancellor found that the evidence failed to show that Troll authorized the teachers to bind it. In addition, she found that the catalogs which directed the method of sales were for display and convenience, and did not constitute an implied contract to control the teachers’ actions. Finally, the chancellor found that the bonus points were not compensation. In sum, the chancellor found that the Department had failed to prove an agency relationship. In the absence of proof of an agency agreement, the chancellor ruled that Troll could not be subjected to the use tax under Ark. Code Ann. §§ 26-53-101-129 (1987 & Supp. 1993) (R. 133-34).
In oral argument before this court, there was considerable discussion about whether a “substantial nexus” might be found with proof of something less than agency. However, that is an issue we do not reach because it was not raised below, and we have often written that we will not address an issue on appeal which was not raised below. Hubbard v. The Shores Group, Inc., 313 Ark. 498, 855 S.W.2d 924 (1993). Accordingly, the holding in this case is limited to the one issue argued, whether an agency relationship existed.
The burden of proving an agency relationship lies with the party asserting its existence. B.J. McAdams, Inc. v. Best Refrigerated Express, Inc., 265 Ark. 519, 579 S.W.2d 608 (1979). This court has used different definitions of agency that were appropriate for the particular cases, but each of them includes the element of control by the principal. In Evans v. White, 284 Ark. 376, 682 S.W.2d 733 (1985) and Campbell v. Bastain, 236 Ark. 205, 365 S.W.2d 816 (1968), we adopted the definition of agency contained in the Restatement (Second) of Agency. We said the two essential elements of an agency relationship are (1) that an agent have the authority to act for the principal and (2) that the agent act on the principal’s behalf and be subject to the principal’s control. In Hinson v. Culberson-Stowers Chevrolet, Inc., 244 Ark. 853, 427 S.W.2d 539 (1968), we examined the Restatement definition together with a quote from 2 Am. Jur. 13, Agency § 2 and concluded that the essential elements for a showing of the agency relationship were authorization and control. Id. at 855, 427 S.W.2d at 541-42.
The Department contends that the chancellor’s finding was clearly erroneous because Troll exercised control over the teachers through the language contained in its brochures. The brochures describe the books, set dates to tally and return the order forms and money, and instruct the teachers on distributing the enclosed newsletter and filling out the master order. Such instructions fall far short of establishing authorization and control. In fact, the testimony showed that about eighty percent of the teachers who received the brochures did nothing with them except to throw them away.
The Department, in its argument that the chancellor should have found an agency relationship, relies heavily on a California decision, Scholastic Book Clubs, Inc. v. State Board of Equalization, 255 Cal. Rptr. 77 (Cal. App. 1 1989). In that case, involving almost an identical arrangement for selling books, the appellate court held that (1) the teachers operated under the authority of Scholastic in taking the orders, (2) an implied contract existed between Scholastic and the teachers, and (3) Scholastic’s use of teachers to solicit book orders was a sufficient nexus for the California use tax. Id. at 81. The case is on point, but it is clearly distinguished for two reasons. First, it was decided before the Supreme Court decided Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992), which mandated the bright-line physical presence test for interstate mail order sales. The California appellate court viewed physical presence as only one of the factors to be considered in determining whether a nexus should be found rather than viewing it as the dispositive factor. Second, California agency law, unlike Arkansas agency law, allows the relationship of agency to be implied retroactively by ratification. In Arkansas, the agency relationship must be shown to exist by proof of both authorization and control or else the doctrine of ratification is inapplicable. See E.P. Dobson, Inc. v. Richard, 17 Ark. App. 155, 158, 705 S.W.2d 893, 893 (1986) (citing Runyan v. Community Fund of Little Rock, 182 Ark. 441, 31 S.W.2d 742 (1930)).
Finally, the Department contends that its position is supported by our case of Ragland v. Quality School Plan, Inc., 279 Ark. 256, 651 S.W.2d 447 (1983). Again the argument is without merit for the reason that the case is clearly distinguished. In that case the taxpayer, Quality, represented one hundred publishers of magazines. Quality’s agents, who were present in this State, went to various school districts within the State and recruited students to sell magazines for the publishers. The students sold the magazines throughout the State. The Department assessed a use tax against Quality. Quality sought a refund of the use tax and argued that the students, rather than Quality, were the vendors. See Quality School Plan, 279 Ark. at 257-58, 651 S.W.2d at 448. We held that, under the language of the statute, Quality was a vendor. Id. at 257, 651 S.W.2d at 448-49. The case has no application to the sole issue now before us, whether an agency relationship was proven between Troll and the teachers.
The chancellor’s finding that an agency relationship was not proven is not clearly erroneous.
Affirmed.
Hays, J., dissents. Brown, J., concurs.