Moorman Manufacturing Co. v. Bair

Background

Moorman Manufacturing is an Illinois company that makes animal feed and sells a sizable portion of its products in Iowa through over 500 salesmen and six Iowa warehouses. Iowa taxes corporations on the portion of their income reasonably attributable to business in the State and, by statute, divides income using a single‑factor formula based on in‑state sales. The Iowa Director of Revenue recalculated Moorman’s tax for several years under that sales-only method, increasing Moorman’s liability, and the dispute moved through state courts to the U.S. Supreme Court.

Reasoning

The Court considered whether a sales-only method for dividing corporate income violates the Constitution. It explained that due process requires a minimal connection to the taxing State and that attributed income must be reasonably related to values connected to the State. The Court treated the sales-only method as presumptively valid and said a business must produce clear, persuasive accounting proof that the method produced an arbitrary or grossly distorted result. Moorman presented no such proof, and the Court found the Commerce Clause challenge speculative because duplicative taxation was not shown. The Court also held that setting a single national rule for dividing income is a matter for Congress, not the Court.

Real world impact

The decision allows Iowa and similarly situated States to continue using a sales-only approach unless a taxpayer proves a specific distorted result. Multistate companies with a high share of sales in one State may face higher state tax bills. Taxpayers who believe the method overstates their in‑state income must submit detailed accounting evidence or an alternative formula to the tax authority.

Dissents or concurrances

Several Justices dissented, arguing the sales-only rule discriminates against out‑of‑state businesses and should be invalidated under the Commerce Clause because most other States use a three-factor formula.