Moorman Manufacturing v. Bair: What the Supreme Court Really Said About the Florida Department of Revenue Sales Tax—and Why It Still Matters Today

In the world of state and local tax (SALT), few cases have had as enduring an impact as Moorman Manufacturing Co. v. Bair, decided by the U.S. Supreme Court in 1978. While it didn’t directly involve Florida, the case continues to influence how the Florida Department of Revenue—and its counterparts nationwide—structure and defend sales-based corporate income tax apportionment. As more states embrace single sales factor (SSF) apportionment and market-based sourcing, Moorman remains the go-to case on the constitutional limits of state taxing authority.

Here’s why it still matters—and what the Court actually said.

The Facts: Moorman’s Business Model and Iowa’s Formula

Moorman Manufacturing Co. was an Illinois-based company that manufactured animal feed. Although it had no factories in Iowa, it operated extensive sales operations there, including over 500 sales representatives and multiple warehouses. Iowa customers accounted for roughly 20% of its gross sales.

Iowa taxed the company’s income using a single sales factor formula. That meant Moorman’s Iowa income was calculated by taking its total net income and multiplying it by the percentage of total sales made to Iowa customers. Moorman objected, arguing that a significant portion of that income was actually earned in Illinois—where the products were made.

Rather than apply Iowa’s statutory SSF formula, Moorman used a three-factor formula (property, payroll, and sales) that reflected where it believed its value was generated. The Iowa Department of Revenue disagreed and re-computed its tax using the state’s SSF method—resulting in a higher liability. Moorman sued, claiming the Iowa formula was unconstitutional under the Due Process Clause and the Commerce Clause.

The Legal Issues: Due Process and Commerce Clause Claims

Moorman’s constitutional challenge focused on two main arguments:

1. Due Process

Moorman claimed that Iowa’s SSF formula taxed income that was actually earned in Illinois, not Iowa. The Due Process Clause, it argued, requires a rational connection between a taxpayer’s income and the taxing state’s economic activity. A formula that overreaches and taxes “out-of-state” income violates that standard.

2. Commerce Clause

Moorman also argued that using SSF unfairly burdened interstate commerce. At the time, most states—including Illinois—used a three-factor apportionment formula, which meant businesses selling across state lines could end up being taxed on more than 100% of their income if different states used different methods. Moorman argued that this potential for duplicative taxation violated the Commerce Clause’s protection of free interstate trade.

The Court’s Holding: Iowa Wins, But the Door Stays Open

The U.S. Supreme Court upheld Iowa’s SSF formula, finding no violation of either constitutional provision. Writing for the majority, Justice Stevens made a few key points:

On Due Process

The Court acknowledged that apportionment formulas are inherently imprecise, but held that states are allowed to use them as “rough approximations” of business activity. Unless a taxpayer can show by “clear and cogent evidence” that a formula leads to “grossly distorted results”, it will generally be upheld. Moorman hadn’t provided that kind of evidence.

The Court also pointed out that Iowa’s tax law allowed Moorman to request an alternative apportionment if it believed the statutory method was inequitable—but Moorman hadn’t provided a detailed separate accounting or proof of distortion.

“We have repeatedly held that a single-factor formula is presumptively valid.”

On the Commerce Clause

The Court also rejected the argument that Iowa’s formula unfairly burdened interstate commerce. Even assuming some overlap in taxation between Iowa and Illinois, the Court emphasized that uniformity isn’t constitutionally required. If states want uniformity, Congress—not the courts—is the proper body to act.

The Court made it clear that duplication alone doesn’t amount to a Commerce Clause violation, especially when it’s not proven that the overlap resulted in taxation of the same income.

“The Constitution does not require Iowa to adopt the three-factor formula simply because most other states use it.”

The Dissent: A Warning About Discriminatory Effects

Not everyone on the Court agreed. In three separate dissents, Justices Brennan, Blackmun, and Powell warned that Iowa’s formula had the effect—if not the intent—of discriminating against out-of-state businesses.

Justice Powell’s dissent is particularly notable. He argued that Iowa’s formula operated as a tariff, favoring local companies that produced goods in-state and penalizing companies like Moorman that manufactured out-of-state and sold into Iowa. Powell emphasized that 44 of the 45 taxing states used some version of the three-factor formula. Iowa’s outlier status, he said, created an unavoidable economic disadvantage for interstate commerce.

Why This Case Still Matters in 2024—Especially in Florida

While the case is over four decades old, Moorman v. Bair remains highly relevant to Florida taxpayers for a few key reasons:

1. Florida’s Use of SSF for Certain Industries

Although Florida traditionally used a three-factor formula, it has adopted single sales factor apportionment for certain businesses, especially those electing under specific statutory provisions. Moorman serves as the foundational case supporting the constitutionality of SSF formulas.

2. Market-Based Sourcing & Distortion

As Florida and other states adopt market-based sourcing for services and intangibles, more companies will find themselves being taxed in states where they have no physical presence. Moorman sets the ground rules: unless a taxpayer can prove gross distortion, courts will not intervene.

3. Alternative Apportionment Requests

Moorman also reminds taxpayers that alternative apportionment is possible—but hard to win. The burden lies with the taxpayer to demonstrate that the standard formula is unreasonably attributing income to the state. That often requires detailed economic or accounting evidence—not just a different preference.

Final Takeaway: Moorman Gives States Power—But Not a Free Pass

Moorman is often cited to support broad state taxing authority, but its message is more nuanced. The Court didn’t say that any apportionment formula is acceptable. Instead, it said that states may use different formulas as long as the result is not grossly out of proportion to in-state activity. Importantly, the Court left open the possibility of successful “as-applied” challenges—if and when a taxpayer can prove real distortion.

For tax professionals, Moorman is a reminder to:

• Understand the mechanics of each state’s apportionment rules;

• Identify when a one-size-fits-all formula may overstate a client’s income in a particular state;

• Be prepared to document the distortion if seeking alternative apportionment.

As more states, including Florida, continue to refine their sourcing rules and move toward SSF, Moorman v. Bair remains the constitutional anchor—and the starting point for any serious challenge to apportionment schemes.

© 2025 Jeanette Moffa. All Rights Reserved.