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Text: Shell Oil Company (Shell) is a unitary business,[1] incorporated in Delaware. Its activities include producing, transporting, and marketing oil and gas and the products that are made from them. Shell extracts oil and gas not only within various States but also on the OCS, which is defined by the OCSLA as all those submerged lands three or more geographical miles from the United States coastline.[2] Between 1977 and 1980, the tax years at issue in this case, a portion of Shell's gross revenues was derived from the sale of oil and gas extracted from the OCS and the sale of products made from OCS oil and gas.

During the years at issue, Shell sold all of its OCS natural gas directly at the wellhead platform located above the OCS. Nearly all of its OCS crude oil, by contrast, was transferred via pipelines to the continental United States, where Shell either sold it to third parties or refined it. The refining process typically involves the commingling of OCS crude oil with crude oil purchased or drawn by Shell from other places. Thus, the original source of oil in any Shell-refined product is indeterminable.

Shell's principal business in the State of Iowa during the years at issue was the sale of oil and chemical products which it had manufactured and refined outside of Iowa. These products included OCS crude oil that had been commingled with non-OCS crude oil.

Iowa imposes an income tax on corporations doing business in Iowa. Iowa Code § 422.33(2) (1987). For a unitary business like Shell, that income tax is determined by a single-factor apportionment formula based on sales. Under that formula, Iowa taxes the share of a corporation's overall net income that is "reasonably attributable to the trade or business within the state." Ibid.[3] We have previously upheld Iowa's sales-based apportionment formula against Due Process and Commerce Clause challenges in Moorman Manufacturing Co. v. Bair, 437 U. S. 267 (1978).

Between 1977 and 1980, Shell filed Iowa tax returns in which it adjusted the Iowa formula to exclude a figure which it stated reflected "income earned" from the OCS.[4] The Iowa Department of Revenue audited Shell's returns and rejected this modification. Accordingly, the Iowa Department of Revenue found Shell's tax payment deficient. Shell challenged that determination, claiming at a hearing before the Iowa Department of Revenue that inclusion of OCS-derived income in the tax base of Iowa's apportionment formula violated the OCSLA. The hearing officer rejected that contention. Shell appealed to the Polk County District Court, which affirmed the administrative decision, No. AA952 (Oct. 3, 1986), App. to Juris. Statement 15a (Polk County opinion), and to the Iowa Supreme Court, which also affirmed. Kelly-Springfield Tire Co. v. Iowa State Board of Tax Review, 414 N. W. 2d 113 (1987).[5] Both courts concluded, based upon an examination of the text and history of the OCSLA, that the OCSLA did not pre-empt Iowa's apportionment formula. We noted probable jurisdiction, 484 U. S. 1058 (1988), and now affirm.