Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978)
U.S. Supreme CourtMoorman Mfg. Co. v. Bair, 437 U.S. 267 (1978)
Moorman Manufacturing Co. v. Bair
Argued March 21, 1978
Decided June 15, 1978
437 U.S. 267
An Iowa statute prescribes a so-called single factor sales formula for apportioning an interstate corporation's income for state income tax purposes. Under this formula, the part of income from such a corporation's sale of tangible personal property attributable to business within the State, and hence subject to the state income tax, is deemed to be in that proportion which the corporation's gross sales made within the State bear to its total gross sales. Appellant, an Illinois corporation that sells animal feed it manufactures in Illinois to Iowa customers through Iowa salesmen and warehouses, brought an action in an Iowa court challenging the constitutionality of the single factor formula. The trial court held the formula invalid under the Due Process Clause of the Fourteenth Amendment and the Commerce Clause, but the Iowa Supreme Court reversed.
1. Iowa's single factor formula is not invalid under the Due Process Clause. Pp. 437 U. S. 271-275.
(a) Any assumption that at least some portion of appellant's income from Iowa sales was generated by Illinois activities is too speculative to support a claim that Iowa in fact taxed profits not attributable to activities within the State. P. 437 U. S. 272.
(b) An apportionment formula, such as the single factor formula, that is necessarily employed as a rough approximation of a corporation's income reasonably related to the activities conducted within the taxing State will only be disturbed when the taxpayer has proved by "clear and cogent evidence" that the income attributed to the State is in fact "out of all reasonable proportion to the business transacted . . . in that State," Hans Rees' Sons v. North Carolina ex rel. Maxwell, 283 U. S. 123, 283 U. S. 135, or has "led to a grossly distorted result," Norfolk & Western R. Co. v. State Tax Comm'n, 390 U. S. 317, 390 U. S. 326. Here, the Iowa statute afforded appellant an opportunity to demonstrate that the single factor formula produced an arbitrary result in its case, but the record contains no such showing. Pp. 437 U. S. 272-275.
2. Nor is Iowa's single factor formula invalid under the Commerce Clause. Pp. 437 U. S. 276-281.
(a) On this record, the existence of duplicative taxation as between Iowa and Illinois (which uses the so-called three factor -- property, payroll, and sales -- formula) is speculative, but even then assuming some overlap, appellant's argument that Iowa, rather than Illinois, was necessarily at fault in a constitutional sense cannot be accepted. Where the record does not reveal the sources of appellant's profits, its Commerce Clause claim cannot rest on the premise that profits earned in Illinois were included in its Iowa taxable income, and therefore the Iowa formula was at fault for whatever overlap may have existed. Pp. 437 U. S. 276-277.
(b) The Commerce Clause itself, without implementing legislation by Congress, does not require, as appellant urges, that Iowa compute corporate net income under the Illinois three factor formula. If the Constitution were read to mandate a prohibition against any overlap in the computation of taxable income by the States, the consequences would extend far beyond this particular case, and would require extensive judicial lawmaking. Pp. 437 U. S. 277-281.
STEVENS, J., delivered the Opinion of the Court, in which BURGER, C.G., and STEWART, WHITE, MARSHALL, and REHNQUIST, JJ., joined. BRENNAN, J., post, at 437 U. S. 281, and BLACKMUN, J., post, p. 437 U. S. 282, filed dissenting opinions. POWELL, J., filed a dissenting opinion, in which BLACKMUN, J., joined, post, p. 437 U. S. 283.