BLACKMUN, J., dissenting

437 U.S. if commercial activity in more than one State results in a sale in one of them, that State may not claim as all its own the gross receipts to which the activity within its borders has contributed only a part. Such a tax must be apportioned to reflect the business activity within the taxing State." General Motors Corp. v. Washington, 377 U. S. 436, 450-451 (1964) (dissenting opinion).

I would therefore reverse.

MR. JUSTICE BLACKMUN, dissenting.

The unspoken, but obvious, premise of the majority opinion is the fear that a Commerce Clause invalidation of Iowa's single-factor sales formula will lead the Court into problems and difficulties in other cases yet to come. I reject that premise.

I agree generally with the content of MR. JUSTICE POWELL'S opinion in dissent. I join that opinion because I, too, feel that the Court has a duty to resolve, not to avoid, these problems of "delicate adjustment," Boston Stock Exchange v. State Tax Comm'n, 429 U. S. 318, 329 (1977), and because the opinion well demonstrates that Iowa's now anachronistic single-factor sales formula runs headlong into overriding Commerce Clause considerations and demands.

Today's decision is bound to be regressive.1 Single-factor formulas are relics of the early days of state income taxation." The three-factor formulas were inevitable improvements and, while not perfect, reflect more accurately the realities of the business and tax world. With their almost universal adoption by the States, the Iowa system's adverse and parochial impact on commerce comes vividly into focus. But with its

1 Iowa is not a member of the Multistate Tax Commission. Tr. of Oral Arg. 33. See United States Steel Corp. v. Multistate Tax Comm'n, 434 U. S. 452 (1978).

2 Iowa's income tax was first adopted in 1934. 1933-1934 Iowa Acts, Ex. Sess., ch. 82; Tr. of Oral Arg. 29. Its single-factor sales formula was embraced in § 28 of that original Act.

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single-factor formula now upheld by the Court, there is little reason why other States, perceiving or imagining a similar advantage to local interests, may not go back to the old ways. The end result, in any event, is to exacerbate what the Commerce Clause, absent governing congressional action, was devised to avoid.

MR. JUSTICE POWELL, with whom MR. JUSTICE BLACKMUN joins, dissenting.

It is the duty of this Court "to make the delicate adjustment between the national interest in free and open trade and the legitimate interest of the individual States in exercising their taxing powers." "Boston Stock Exchange v. State Tax Comm❜n, 429 U.S. 318, 329 (1977). This duty must be performed with careful attention to the settings of particular cases and consideration of their special facts. See Raymond Motor Transp., Inc. v. Rice, 434 U. S. 429, 447-448, n. 25 (1978). Consideration of all the circumstances of this case leads me to conclude that Iowa's use of a single-factor sales formula to apportion the net income of multistate corporations results in the imposition of "a tax which discriminates against interstate commerce... by providing a direct commercial advantage to local business." Northwestern States Portland Cement Co. v. Minnesota, 358 U. S. 450, 458 (1959). I therefore dissent.

I

Iowa's use of single-factor sales-apportionment formulathough facially neutral-operates as a tariff on goods manufactured in other States and as a subsidy to Iowa manufacturers selling their goods outside of Iowa. Because 44 of the 45 other States (including the District of Columbia) which impose corporate income taxes use a three-factor formula involving property, payroll, and sales,' Iowa's practice insures that out

1 Those 44 States are as follows: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida,

of-state businesses selling in Iowa will have higher total tax payments than local businesses. This result follows from the fact that Iowa attributes to itself all of the income derived from sales in Iowa, while other taxing States-using the threefactor formula-are also taxing some portion of the same income through attribution to property or payroll in those States.

This surcharge on Iowa sales increases to the extent that a business' plant and labor force are located outside Iowa. It can be avoided altogether only by locating all property and payroll in Iowa; an Iowa manufacturer selling only in Iowa will never have any portion of its income attributed to any other State. And to the extent that an Iowa manufacturer makes its sales in States other than Iowa, its overall state tax liability will be reduced. Assuming comparable tax rates, its liability to other States, in which sales constitute only one-third of the apportionment formula, will be far less than the amount it would have owed with a comparable volume of sales in Iowa, where sales are the exclusive mode of apportioning income. The effect of Iowa's formula, then, is to penalize out-of-state manufacturers for selling in Iowa and to subsidize Iowa manufacturers for selling in other States.2

Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, and Wisconsin.

West Virginia, the 45th State, uses a two-factor formula which omits the sales component. Colorado also has a two-factor property and sales formula, and Missouri a one-factor sales formula, which are available to taxpayers at their option as alternatives to the three-factor formula.

2 A simplified example demonstrates the economic effect of the Iowa formula on out-of-state corporations.

Iowa Corp. is domiciled in Iowa, and its total property and payroll are located there. Illinois Corp. is domiciled in Illinois, with all its property and payroll in that State. Both corporations have $1 million in net income,

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This appeal requires us to determine whether these economic effects of the Iowa apportionment formula violate either the Due Process Clause or the Commerce Clause. I now turn to those questions.

and both make half their sales in Iowa and half in Illinois. A 5% corporate income tax is levied in both States.

If both States use a single-factor sales apportionment formula, both would go through the following calculation in determining the tax liability of both corporations:

Sales in States

Total Sales

=2; 2X$1,000,000×0.05-$25,000

The pattern of payments and receipts would be as follows:

If both Iowa and Illinois again levy the same 5% income tax but use

then each corporation's payment to its state of domicile would be

its payment to the state in which it is a foreign corporation would be

The pattern of tax payments and receipts would be as follows:

But where Iowa uses a single-factor sales formula and Illinois uses the

For the reasons given by the Court, ante, at 271-275, I agree that application of Iowa's formula does not violate the Due Process Clause. The decisions of this Court make it clear that arithmetical perfection is not to be expected from apportionment formulae. International Harvester Co. v. Evatt, 329 U. S. 416 (1947). It has been said that the "apportionment theory is a mongrel one, a cross between desire not to interfere with state taxation and desire at the same time not utterly to crush out interstate commerce." Northwest Airlines, Inc. v. Minnesota, 322 U. S. 292, 306 (1944) (Jackson, J., concurring). It owes its existence to the fact that with respect to a business earning income through a series of transactions beginning with manufacturing in one State and ending with a sale in another, a precise or even wholly logical-determination of the State in which any specific portion of the income was earned is impossible. Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 120-121 (1920).

Hence, the fact that a particular formula-like the one at issue here may permit a State to tax some income actually "located" in another State is not in and of itself a basis for

three-factor method, Illinois Corp. faces an increase in its overall state tax liability not encountered by Iowa Corp.:

These differences will be smaller or larger, depending upon the actual tax rates of the various States involved, and upon the actual proportions of domestic to foreign sales, the payrolls, and the properties of individual corporations. Only the magnitudes will change with these factors, however, and not the direction of the impact. The general principle will apply in all cases.