Iowa Admin. Code r. 701-404.7 - Determination of composite Iowa tax

(1) The tax will be computed in accordance with Iowa Code section 422.5, including the alternative minimum tax as though a resident.

(2) Deduct from the computed tax one personal exemption credit of $20 ($40 for tax years beginning on or after January 1, 1998) for each nonresident partner, shareholder, employee, or beneficiary included in the composite return.

EXAMPLE: For tax year 1991, X corporation is an S corporation, all of whose shareholders but one are nonresidents who have elected to join in the filing of a composite return. The three electing shareholders' share of income or loss is 87 percent of the corporation's total income. The S corporation's net income is $800,000, and income items totaling $6,000 and expenses of $500,000 flow directly to the shareholders. The corporation has 25 percent of its sales with an Iowa destination. The corporation has tax preferences and adjustments of $475,000. The composite tax liability would be computed as follows:

Net income attributable to electing shareholders $800,000 × 87%	$696,000
Add: electing shareholders' share of income items which flow separately to shareholders $6,000 × 87%	5,220
Less: electing shareholders' share of expenses which flow separately to shareholders $500,000 × 87%	<435,000>
Income attributable to electing shareholders	$266,220
Times the Iowa business activity ratio	25%
Net income attributable to Iowa	$ 66,555
Less: one standard deduction per shareholder 3 × $1,280	<3,840>
Federal tax deduction $66,555 × 5%	<3,328>
Iowa taxable income	$ 59,387
Computed tax	$ 4,515
Less: one personal exemption credit per shareholder 3 × $20	<60>
Iowa tax	$ 4,455

The alternative minimum tax would be computed as follows:

Iowa taxable income	$ 59,387
Add: tax preferences and adjustments attributable to electing shareholders times Iowa activity ratio $475,000 × 87% × 25%	103,313
	$162,700
Less: exemption	35,000
Minimum taxable income	$127,700
times minimum tax rate 7.5%	× .075
Computed minimum tax	$ 9,578
Less regular tax	<4,455>
Minimum tax liability	$ 5,123

This rule is intended to implement Iowa Code section 422.13.

Notes

Iowa Admin. Code r. 701-404.7

ARC 1303C, IAB 2/5/14, effective 3/12/14; Editorial change: IAC Supplement 11/2/22