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Moorman Mfg. Co. v. Bair

Supreme Court of the United States

March 21, 1978, Argued ; June 15, 1978, Decided

No. 77-454

Opinion

 [*269]  [***202]  [**2342]    MR. JUSTICE STEVENS delivered the opinion of the Court.

The question in this case is whether the single-factor sales formula employed by Iowa to apportion the income of an interstate business for income tax purposes is prohibited by the Federal Constitution.

Appellant, Moorman Manufacturing Co., is [****5]  an Illinois corporation engaged in the manufacture and sale of animal feeds. Although the products it sells to Iowa customers are manufactured in Illinois, appellant has over 500 salesmen in Iowa and it owns six warehouses in the State from which deliveries are made to Iowa customers. Iowa sales account for about 20% of appellant's total sales.

] Corporations, both foreign and domestic, doing business in Iowa are subject to the State's income tax. The taxable income for federal income tax purposes, with certain adjustments, is treated as the corporation's "net income" under the Iowa statute. If a corporation's business is not conducted entirely within Iowa, the statute imposes a tax only on the portion of its income "reasonably attributable" to the business within the State.

] There are essentially two steps in computing the share of a corporation's income "reasonably attributable" to Iowa. First, certain income, "the geographical source of which is easily identifiable," is attributed entirely to a particular State. 2  [*270]  Second, if the remaining income is derived from the manufacture or sale of tangible personal property, "the part thereof attributable to business within [****6]  the state shall be in that  [**2343]  proportion which the gross sales made within the state bear to the total gross sales." 3 This is the single-factor formula that appellant challenges in this case.

If the taxpayer believes that application of [****7]  this formula subjects it to taxation on a greater portion of its net income than is "reasonably attributable" to business within the State, it may file a statement of objections and submit an alternative method of apportionment. ] If the evidence submitted by the taxpayer  [***203]  persuades the Director of Revenue that the statute is "inapplicable and inequitable" as applied to it, he may recalculate the corporation's taxable income.

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437 U.S. 267 *; 98 S. Ct. 2340 **; 57 L. Ed. 2d 197 ***; 1978 U.S. LEXIS 111 ****

MOORMAN MANUFACTURING CO. v. BAIR, DIRECTOR OF REVENUE OF IOWA

Prior History:  [****1]  APPEAL FROM THE SUPREME COURT OF IOWA.

Disposition:  254 N. W. 2d 737, affirmed.

CORE TERMS

formula, sales, single-factor, three-factor, taxation, profits, manufacturers, apportion, net income, invalidation, out-of-state, apportionment formula, taxing state, duplicative, attributed, taxpayer, taxed, income tax, apportionment, decisions, compute, train, interstate commerce, interstate, taxable income, discriminates, Typewriter, regulation, payroll, customers

Tax Law, Income Taxes, Corporations & Unincorporated Associations, General Overview, Federal Income Tax Computation, Contracts Law, Personal Property, State & Local Taxes, Constitutional Law, Fundamental Rights, Procedural Due Process, Scope of Protection, Sales Taxes