Document: 437 U.S. 267 98 S.Ct. 2340 57 L.Ed.2d 197 MOORMAN MANUFACTURING COMPANY, Appellant,v.G. D. BAIR, etc. No. 77-454. Argued March 21, 1978. Decided June 15, Rehearing Denied Oct. 2, See 439 885, 99 233. Syllabus An Iowa statute prescribes a so-called single-factor sales formula for apportioning an interstate corporation's income state tax purposes. Under this formula, the part of from such sale tangible personal property attributable to business within State and hence subject is deemed be in that proportion which gross made bear its total sales. Appellant, Illinois corporation sells animal feed it manufactures customers through salesmen warehouses, brought action court challenging constitutionality form la. The trial held invalid under Due Process Clause Fourteenth Amendment Commerce Clause, but Supreme Court reversed. Held : 1. Iowa's not Clause. Pp. 271-275. (a) Any assumption at least some portion appellant's was generated by activities too speculative support claim fact taxed profits State. P. 272. (b) apportionment as necessarily employed rough approximation reasonably related conducted taxing will only disturbed when taxpayer has proved "clear cogent evidence" attributed "out all reasonable transacted . State," Hans Rees' Sons v. North Carolina ex rel. Maxwell, 283 123, 135, 51 385, 389, 75 L.Ed. 879 or "led grossly distorted result," Norfolk & western R. Co. Tax Comm'n, 390 317, 326, 88 995, 1001, 19 1201. Here, afforded appellant opportunity demonstrate produced arbitrary result case, record contains no showing. 272-275. 2. Nor 276-281. On record, existence duplicative taxation between (which uses three-factor property, payroll, sales—formula) speculative, even assuming overlap, argument Iowa, rather than Illinois, fault constitutional sense cannot accepted. Where does reveal sources profits, rest on premise earned were included taxable therefore whatever overlap may have existed. 276-277. itself, without implementing legislation Congress, require, urges, compute corporate net formula. If Constitution read mandate prohibition against any computation States, consequences would extend far beyond particular case require extensive judicial lawmaking. 277-281. 254 N.W.2d 737, affirmed. Donald K. Barnes, Detroit, Mich., appellant. Harry M. Griger, Des Moines, appellee. Mr. Justice STEVENS delivered opinion Court. 1 question whether apportion purposes prohibited Federal Constitution. 2 * Moorman Manufacturing Co., engaged manufacture feeds. Although products are manufactured over 500 owns six warehouses deliveries customers. account about 20% 3 Corporations, both foreign domestic, doing State's tax. federal purposes, with certain adjustments, treated "net income" statute. entirely imposes "reasonably attributable" 4 There essentially two steps computing share Iowa. First, income, "the geographical source easily identifiable," State.1 Second, if remaining derived thereof shall sales."2 This challenges case. 5 believes application subjects greater State, file statement objections submit alternative method apportionment. evidence submitted persuades Director Revenue "inapplicable inequitable" applied it, he recalculate income. 6 During fiscal years 1949 1960, Commission allowed basis consisting three, equally weighted factors sales—rather prescribed statute.3 For 1961 1964, complied directive accordance statutory Since 1965, however, resorted consent commission. 7 In 1974, revised assessment 1968 1972. based higher percentage appellant, using had reported return each disputed years.4 percentages, course correspondingly obligation those years.5 8 After rejected Moorman's appeal assessment, challenged constitutio ality District Polk County. That reversed, holding properly attack unless proves attribution transacted" concluded 9 We noted probable jurisdiction appeal, 434 953, 478, 54 311 now affirm. II 10 Appellant contends results extraterritorial violation rests premises: first, operations responsible Iowa; and, second, reaches borders violates due process. first second foreclosed prior decisions 11 suggest shown significant operations; contain separate accounting analysis showing what sales, manufacturing, other phase company's operations. But we should proceed activities. 12 Whatever merit might standpoint economic theory legislative policy, litigation during reveals, manufacturing marginally profitable high-volume lion's Indeed, revealed losses prevented earning more exploitation highly favorable market. Yet assume contribution profitability invalidates whenever did incorrect. 13 places restrictions power business. imposed, there minimal connection National Bellas Hess, Inc. Department Revenue, 386 753, 756, 87 1389, 1390, 18 505. requirement plainly satisfied here. must rationally "values connected State." Western 325, 14 1934 used method, unlike accounting, purport identify precise profits; rather, therefore, generally produce figure represents actual same true Both occasionally over-reflect under-reflect despite imprecision, refused impose strict restraints selection formula.6 15 Thus, repeatedly presumptively valid. Underwood Typewriter Chamberlain, 113, 41 45, 65 165, example, Connecticut's use Underwood's Connecticut. Its main office, however New York City branch offices many States where typewriters sold repaired. Applying Connecticut 47% Claiming 97% transactions outside Connecticut, contended "income arising boundaries State" Id., 120, S.Ct., 46. 16 Rejecting claim, "adopted which, appears reached, meant reach, id., 121, 47, failed carry burden proving adopted inherently arbitrary, unreasonable result." Ibid. (footnote omitted).7 17 individual cases, true, found violated Sons, 879; supra. Rees', proof 83% taxpayer's 17% actually suffice invalidate neither nor depart basic principles wide latitude formulas formula-produced appropriate U.S., 1002. General Motors Corp. Columbia, 380 553, 85 1156, 68 relies, contrary result. regulation prescribing authorized Columbia Code. It inside arise "sources" District. counterpart Constitution, clear "not mean take position ax factor alone." 561, 1161.8 Director's challenge Clause.9 III 20 also relevant imposed Clause.10 most 1970, argues longstanding alleged duplication declared unconstitutional. agree. 21 place, establish essential factual predicate taxation. Appellant's approximately $9 million. prove customers, do know together 100% computed comparing As already noted, represent Obviously, profitable. Sales although yielded much profits. well exceeded $2.5 million States. so, event, speculative.11 22 Even could accept sense. is, course, Illinois' risk figures been avoided. Rather, valid importance avoiding concern justifies invalidation 23 that, extent permitted, one shoulders shared operating State.12 To alleviate burden, invites us hold requires weighted, reasons follow, 24 conceivable invalidating prohibits precision taxation, exists follow identical rules division Accepting view logic limited asserted flaw different presently majority difference creates host division-of-income problems create precisely similarly rise proportions. 25 necessary prescribe uniform definition category regarding "sale" takes includes apparent identity emp oyed.13 A similar multiple created diversity among "nonbusiness" defined regular business.14 Some distinguish nonbusiness Other special attribute specific locations. Moreover, latter, designation locations attributable. potential plain.15 26 prevention national adoption code undeniably advance policies underlie policy decision political considerations vary neutral respect content rule. constitutionalized, they resolved manner suggested resolution diversity—the prevalent practice endorsed rule best amalgam independent decisions, unique Of importance, reflect interest, because interests whose subordinated quest uniformity excluded calculation.16 27 While freedom formulate area yield overriding interest uniformity, subscribe determined after consideration given affected granted Congress amply justify enactment requiring adhere body, Court, committed decisions. 28 Finally, exercise formalism declare unconstitutional concerns evident complaint if, instead tax, burdensome gross-receipts o receipts Standard Pressed Steel Washington Dept., 419 560, 95 706, 42 719, sustained entire into Because Steel's receipts, " 'apportioned exactly taxed.' 564, 709. 29 equivalent 1% commerce significance, Washington, 377 436, 84 1564, 430, applies imposition make profit loss. contrast, enterprises heavy high. 30 Accordingly, until rule, constitutionally taxpayers 31 judgment 32 So ordered. 33 BRENNAN, dissenting. 34 I agree review, distinction agree, meets "fairly apportioned carried state." Live Stock Bureau 303 250, 256, 58 546, 549, 82 823 (1938). previously explained: 35 "[Where sale] exhibits contacts commercial activity volume, determines apportioned. ratio in-state out-of-state often taken others firm's see, e. g., description 'Massachusetts Formula' Note, Harv.L.Rev. 1011 (1962), nevertheless remains them, own contributed part. Such 450-451, 1573, 430 (1964) (dissenting opinion). 36 reverse. 37 BLACKMUN, 38 unspoken, obvious, fear lead difficulties cases yet come. reject premise. 39 POWELL'S dissent. join I, too, feel duty resolve, avoid, these "delicate adjustment," Boston Exchange 429 318, 329, 97 599, 606, 50 514 (1977), demonstrates anachronistic runs headlong demands. 40 Today's § bound regressive.1 Single-factor relics early days taxation.2 inevitable improvements while perfect, accurately realities world. With their almost universal system's adverse parochial im pact comes vividly focus. upheld little reason why perceiving imagining advantage local interests, go back old ways. end result, exacerbate absent governing congressional action, devised avoid. POWELL, whom BLACKMUN joins, "to delicate adjustment free open trade legitimate exercising powers." (1977). performed careful attention settings facts. Raymond Motor Transp., Rice, 429, 447-448 n. 25, 787, 797, 664 (1978). Consideration circumstances leads me conclude multistate corporations "a discriminates providing direct business." Northwestern Portland Cement Minnesota, 358 450, 458, 79 357, 362, 421 (1959). 43 sales-apportionment though facially neutral—operates tariff goods (including Columbia), subsidy manufacturers selling 44 45 taxes involving sales,1 insures outof-state businesses payments businesses. follows attributes itself States—using formula—are payroll surcharge increases business' plant labor force located can avoided altogether locating pay oll manufacturer never And makes overall liability reduced. Assuming comparable rates, constitute one-third less amount owed volume exclusive mode effect then, penalize subsidize States.2 determine effects violate either turn questions. 46 ante, 271-275, m ke arithmetical perfection expected formulae. International Harvester Evatt, 329 416, 67 444, 91 (1947). said "apportionment mongrel one, cross desire interfere time utterly crush out commerce." Northwest Airlines, 322 292, 306, 64 950, 957, 1283 (1944) (Jackson, J., concurring). owes series beginning ending another, precise—or wholly logical—determination impossible. 120-121, 46-47, 165 (1920). 47 Hence, formula—like issue here—may permit "located" another finding process violation.3 Were otherwise, deviating smallest detail invalid. ideal means "locating" rightful share, dictated claiming show transacted." (1931). showing, 48 conclusion ipso facto strictures well. Court's dealing levies discriminate business, does, compel detailed inquiry. A. 49 principle jurisprudence "[n]either police destination aim establishing barrier competition residents." Baldwin G. F. Seelig, Inc., 294 511, 527, 55 497, 502, 1032 (1935); accord, H. Hood Du Mond, 336 525, 532, 69 657, 662, 93 865 (1949); Exchange, 335-336, 14, 610. Those barriers "an clog upon mobility comme ce." Baldwin, supra, 502. One "discriminating legislation." Welton Missouri, 275, 280, 347 (1876). consistently struck down unjustifiably benefit expense Ibid.; Exchange; Halliburton Oil Well Reily, 373 64, 83 1201, 202 (1963); Nippert Richmond, 327 66 586, 90 760 (1946); Hale Bimco Trading, 306 375, 59 526, 771 (1939); I. Darnell Son Memphis, 208 247, 52 413 (1908); Guy Baltimore, 100 434, 743 (1880). ban terms explicitly sellers rates sellers. "in practical operation [work] discriminatorily very threat incidence." 425, 590. invalidated fixed-fee license collected "drummers," appeared fell heavily businesses, since occasion solicit manner. Robbins Shelby County Taxing District, 120 489, 592, 694 (1887). West Point Wholesale Grocery Opelika, 354 390, 77 1096, 1420 (1957); Memphis Steam Laundry Cleaner, Stone, 342 72 424, 96 436 (1952); Best 454, 61 334, 275 (1940); Real Silk Hosiery Mills Portland, 268 982 (1925); Corson Maryland, 655, 699 inquiry relates simply several indicated Part above, single factor-sales context general formulae, inevitably handicaps competing handicap diminish locates competitive disadvantage remain relocated Iowa.4 absence constrains retaining levy preference economy. See, 440-442, 793-794; Pike Bruce Church, 397 137, 142, 844, 847, 174 (1970); Di Santo Pennsylvania, 273 34, 44, 267, 271, 71 524 (1927) (Stone, dissenting); Dowling, Interstate Power, Va.L.Rev. 1, 14-15, (1940). B 53 level revenues predicted certainty formula.5 needs revenue, adjust rates. discriminatory impact flowing choice sustained, virtue protecting fisc No justification offered. uphold consistent developed States' imprecise C argued occasions scheme regarded suspect embody theory. reveals distinguishable. (1920), corporation. clearly terms. resulting attend locate office place disadvantage. Cf. Allied Stores Ohio, Bowers, 522, 528, 437, 441, 480 56 Bass, Ratcliff Gretton, Ltd. 266 82, 282 ( 924), comprised real bills accounts receivable, stock corporations. observing plaintiff error "application 283, 84. Typewriter, State; indeed, tend increase Leather Massachusetts, 277 413, 534, 935 (1928); Shoe Shartel, 279 73 781 (1929); Latrobe, 421, 79, 776 Hump Hairpin Emmerson, 258 290, 305, 622 (1922); United Glue Oak Creek, 247 321, 499, 62 1135 (1918). Somewhat troublesome Ford Beauchamp, 308 331, 60 273, 640 (1939). Texas' outstanding capital stock, surplus, undivided long-term obligations franchise seen standing proposition formulae per se illegal, controlling present case.7 virtually conflicting type determining Texas Discrimination being shown, opposite manufacturers. question, saved nature depends context: unanimous opposing past difficult offensive other. D occasions, compared statute's validity Southern Pacific Arizona el. Sullivan, 325 761, 1515, 89 1915 (1945), limiting passenger trains cars freight 70 cars. Noting enforced restriction train lengths,8 specifically considered law background States: "Enforcement Arizona, lengths unregulated regulated varying standards states, impairment efficient railroad railroads subjected application. Compliance length lawful states broken up reconstituted enter according limitations lengths. carrier conform lowest limit pass, laws thus control carriers' regulating 773, 1522. (Emphasis added.) implication practices them. Had Morgan Virginia, 328 373, 1050, 1317 Hall DeCuir, 485, 547 (1878). looked mudguard Bibb Navajo Freight Lines, 359 520, 962, 1003 banned trucks required Arkansas permitted pointed conflict regulations went consider relevance rules: 63 "A insists design line requirements sometimes great delay inconvenience motor carriers entering crossing territory. new safety device—out States—may so compelling innovating need give way. showing—balanced commerce—is inconclusive meet test." 529-530, 968. seems discussion led latter's before merely nearly looking opposed line" relatively simple one. justified increased safety, 444-446, 795-797. Most point 114 (1965). unlawful District's Income Franchise Act 1947. turned interpretation, applicable inquiry: "The imposing corp rate gives equal weight distribution plant, factor, approach, ordinarily sheer inconsistency prevailing unhealthy fragmentation enterprise uneconomic pattern location, presents added proper meaning provisions Code." 559-560, 1160 omitted). expressly evaluated former dangers commerce. These believe regulatory significantly rules, Bibb, 530, 968, departure burdens commerce, scrutiny triggered, purpose outweighing harm 847; Hughes Alexandria Scrap Corp., 426 794, 804, 2488, 2495, 220 (1976). probably fixed how countervailing be; 35, 45. inquiries run channels. degree weighed difficulty engaging weighing avoid allow erect commerce," taking commendable trend toward uniformity. us. Forty-four forty-five utilize formula.9 45th two-factor payroll. individually rational see 1161. Past differing inability various methods best; long unfair, upheld. Compare Sons. recent permits identification like line," irrational. sellers, administrative basis, provides: "Interest, dividends, rents, royalties (less expenses) received state, allocated Code 422.33(1)(a) describing section, stated "certain identifiable, 739. rental located. section operated exclude investment base. 422.33(1)(b) briefly described. yields representing average three ratios: percentages multiplied adjusted arrive then taxpayer. resulted following percentages: Fiscal Year Factor Three-Factor Ended Percentage ---------- ----------- 3/31/68 21.8792% 14.1088% 3/31/69 21.2134% 14.3856% 3/31/70 19.9492% 14.0200% 3/31/71 18.9544% 13.2186% 3/31/72 18.6713% 12.2343% computed, n.3, 1968, $81,466, whereas $121,363. 165; 282; 640. supra; 297 682, 625, 80 977. expressed doubts wisdom assumptions underlying intent, interpretation. his concurring opinion, McCormick point: "In attempt involved. Therefore presented comparison era sophisticated techniques, impossible unitary state. However, showed substantially Having unfair Thus unconstitutionality applied." N.W.2d, 757. adopt possibility year. 34.38% 34.51% 1971, 37.01% years, als speculative. Equal Protection company, company answer, disparity existed treats hand; consequence combined statutes, latter. "discrimination" way consequences, rule; inhere assign destination, "sales assigned origin, located, employee making carries order accepted, shipment made." Taxation Businesses Multistate Compact: Search Delicate Uniformity, Colum.J.Law Soc.Prob. 231, 237 n.20 (1975) (citation Uniform Division Purposes 1(a). include formula; deem "commercial domicile" company; third considering "legal company. supra n.13, 239. especially unsettling Iowa's, becomes object recently neighbor. member Commission. Tr. Oral Arg. 33. 452, 799, 682 1934. 1933-1934 Acts, Ex.Sess., ch. 82; 29. embraced original Act. follows: Alabama, Alaska, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, Hampshire, Jersey, Mexico, York, Carolina, Dakota, Oklahoma, Oregon, Rhode Island, South Tennessee, Utah, Vermont, Wisconsin. omits component. Colorado Missouri one-factor available option alternatives simplified example domiciled there. $1 half Illinois. 5% levied calculation corporations: --------------- = 1/2; 1/2 X $1,000,000 0.05 $25,000 Total Taxes Paid Corporation ------------------------------------------------------------------- ------------------------------------------------------------------ $50,000 25,000 50,000 TOTAL again is: Property Payroll + ----------------------------------------, payment domicile 0.5 ------------ $41,667, 0 $8,333. $41,667 $ 8,333 41,667 faces encountered Corp.: $33,333 66,667 differences smaller larger, depending involved, proportions domestic payrolls, properties Only magnitudes change factors, direction impact. apply cases. mean, suggests, 277-280, disabled ever (1965); (1924); Regardless segment earned, mathematical definitions, skewed effects. When predictably effect, triggered. III, infra. strictly focuses general. here "multiple burdens" warned 255-256, 548-549, (1938); J. Adams Mfg. Storen, 304 307, 311-312, 913, 915-916, 1365 Gwin, White Prince, Henneford, 305 439, 272 Evco Jones, 409 91, 349, (1972), Washingto , (1964). additional Hunt Apple Advertising 432 333, 351, 2434, 2445, 383 shift decrease. Out-of-state face prospect burdens. discrimination corporations, imposed. switched retained decrease, longer attributing Revenues increase, corporations' Given infinite variety taxes, possible alter structure discrimination, perhaps avoids scrutiny. Barrett, "Substance" vs. "Form" Application Taxation, 101 U.Pa.L.Rev. 740, 748 (1953). deter striking obvious presented. shrunk past. abandon effort applying measures. say always forbidden offer incentives encourage industry achieve goals. programs, served, case-by-case basis. overruling ripe reconsideration. Hellerstein, Local 324 (3d ed. 1969). 1161, (1965), sales-only illogical methods, geographic dubious significance indicating locus either" social costs generates. willingness solely "measure" "subject." 336, 276. adheres formalistic labels, "economic realities" schemes. Complete Auto Transit, Brady, 274, 279, 1076, 1079, 326 Oklahoma. 773-774, 3, definitions 309-310, 1969); Businesse Colum.J. Law 235-238 (1975). dramatic fashion dissimilar work direction, here, de minimis suffices dispose clings method.

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