Income derived from business other than the manufacture or
sale of tangible personal property shall be attributed to Iowa in the
proportion which the Iowa gross receipts bear to the total gross receipts.
Gross receipts are includable in the numerator of the apportionment factor in
the proportion which the recipient of the service receives benefit of the
service in this state.
(1) Services
other than those set forth in subrules 503.6(3) to 503.6(5) and rule
701-503.7 (422). With respect to
a specific contract or item of income, all gross receipts from the performance
of services are includable in the numerator of the apportionment factor if the
recipient of the service receives all of the benefit of the service in Iowa. If
the recipient of the service receives some of the benefit of the service in
Iowa with respect to a specific contract or item of income, the gross receipts
are includable in the numerator of the apportionment factor in proportion to
the extent the recipient receives benefit of the service in Iowa.
The following are noninclusive examples of the application of
this subrule.
a. A real estate
development firm from State A is developing a tract of land in Iowa. The real
estate development firm from State A engages a surveying company from State B
to survey the tract of land in Iowa. The survey work is completed and the plats
are drawn in Iowa. The gross receipts from this survey work are attributable to
Iowa and included in the numerator of the apportionment factor because the
recipient of the service received all of the benefits of the service in
Iowa.
b. A corporation
headquartered in State Y is building an office complex in Iowa. The corporation
from State Y contracts with an engineering firm from State X to oversee
construction of the buildings on the site. The engineering firm performs some
of their service in Iowa at the building site and also some of their service in
State X. The gross receipts from the engineering service are attributable to
Iowa and included in the numerator of the apportionment factor because the
recipient of the service received all of the benefit of the service in
Iowa.
c. A corporation from State A
contracts with a computer software company from State D to develop and install
a custom software application in a business office in Iowa of the company from
State A. The software firm does consulting work on the project in State A and
in Iowa. The software development is done in State D and in Iowa. The software
package is delivered to the corporation from State A in Iowa. The gross
receipts from the software development are attributable to Iowa and included in
the numerator of the apportionment factor because the recipient of the service
received all of the benefit of the service in Iowa.
d. A corporation located in Iowa performs
direct mail activities for a customer located in State X. The direct mail
activities include the preparation and mailing of materials to households
located throughout the United States. The corporation located in Iowa performed
some activities related to the direct mail contract in State X. One percent of
the direct mailings went to addresses within Iowa. One percent of the gross
receipts related to this direct mail contract are attributable to Iowa and
included in the numerator of the apportionment factor because the recipient of
the service received the 1 percent of the benefit of the service in
Iowa.
e. A corporation located in
State A performs direct mail activities for a customer located in State X. The
corporation has nexus with Iowa due to other activities of the unitary
business. The direct mail activities include the preparation and mailing of
materials to households throughout the United States. The corporation located
in State A printed and mailed the direct mail materials to households on a
mailing list prepared by the direct mailing company in State A. Five percent of
the direct mailings went to addresses within Iowa. Five percent of the gross
receipts related to this direct mail contract are attributable to Iowa and
included in the numerator of the apportionment factor.
f. A company which owns apartments in Iowa
and State A contracts with a pest control corporation for pest control
activities. One contract is entered into which covers 100 apartment units in
Iowa and 400 apartment units in State A. Twenty percent (100/500) of the gross
receipts from the pest control contract are attributable to Iowa and are
included in the numerator of the apportionment factor as 20 percent of the
apartment units are located in Iowa and in the absence of more accurate
records, it is presumed that the number of apartment units is the best measure
of the extent the recipient of the service received benefit of the service in
Iowa.
If a taxpayer does not believe that the method of
apportionment set forth in this subrule reasonably attributes income to
business activities within Iowa, the taxpayer may request the use of an
alternative method of apportionment. The request must be filed at least 60 days
before the due date of the return, considering any extensions of time to file,
in which the taxpayer wishes to use an alternative method of apportionment. The
request should be filed with Taxpayer Services and Policy Division, P.O. Box
10457, Des Moines, Iowa 50306-0457. The taxpayer must set forth in detail the
extent of the taxpayer's business operations within and without the state,
along with the reasons why the apportionment method set forth in this subrule
is inappropriate. In addition, the taxpayer must set forth a proposed method of
apportionment and the reasons why the proposed method of apportionment more
reasonably attributes income to business activities in Iowa.
If the department agrees that the proposed method of
apportionment more reasonably attributes income to business activities in Iowa,
the taxpayer may continue to use the proposed method of apportionment until the
taxpayer's factual situation changes or the department prospectively informs
the taxpayer that the method of apportionment may no longer be used.
If the taxpayer's factual situation changes and under the new
factual situation the taxpayer still believes that the method of apportionment
set forth in this subrule still is not appropriate, then the taxpayer must
submit a new request for the use of an alternative method of
apportionment.
If the taxpayer disagrees with the determination of the
department, the taxpayer may file a protest within 60 days of the date of the
letter setting forth the department's determination and the reasons therefor in
accordance with rule 701-7.9 (422). The department's
determination letter shall set forth the taxpayer's rights to protest the
department's determination.
(2) If the business activity consists of
providing services, such as the operation of an advertising agency, or the
performance of equipment service contracts, research and development contracts,
"sales" includes the gross receipts from the performance of such services
including fees, commission, and similar items.
In the case of cost plus fixed fee contracts, such as the
operation of a government-owned plant for a fee, gross receipts include the
entire reimbursed cost, plus the fee.
(3) Business income of a financial
organization, excepting a financial institution exempted from the corporation
income tax under Iowa Code section
422.34(1)
attributable to Iowa shall be:
a. In the case
of taxable income of a taxpayer whose income-producing activities are confined
solely to this state, the entire net income of such taxpayer.
b. In the case of taxable income of a
taxpayer who conducts income-producing activities as a financial organization
partially within and partially without this state, that portion of its net
income as its gross business in this state is to its gross business everywhere
during the period covered by its return, which portion shall be determined as
the sum of:
(1) Fees, commission or other
compensation for financial services rendered for a customer located in this
state or an account maintained within this state;
(2) Gross profits from trading in stocks,
bonds or other securities rendered for a customer located within this
state;
(3) Interest income from a
loan on real property located in this state. Interest and other receipts from
assets in the nature of loans and installment obligations if the borrower is
located within this state. Other fees and other miscellaneous earnings if
connected with loans to borrowers within this state;
(4) Interest charged to customers within this
state or to accounts maintained within this state for carrying debit balances
of margin accounts, without deduction of any costs incurred in carrying such
accounts;
(5) Interest, lease
payments, or other receipts from financing leases, installment sales contracts,
leases or other financing instruments received from customers within this
state; and
(6) Any other gross
income resulting from the operation as a financial organization within this
state.
A "financial organization" means any finance company or
investment company doing business in Iowa. A finance company includes any
consumer finance company, sales finance company, or commercial finance company
making loans to individuals and businesses. An investment company includes a
company primarily engaged in the business of investing, reinvesting, owning,
holding or trading in securities.
(4) Net business income of construction
contractors shall be attributed to Iowa in the proportion which Iowa gross
receipts bear to total gross receipts. Iowa gross receipts are those gross
receipts from contracts performed in Iowa.
(5) A corporation's distributive share of net
income or loss from a joint venture, limited liability company, or partnership
is subject to apportionment within and without the state. If the income of the
partnership, limited liability company, or joint venture is received in
connection with the taxpayer's regular trade or business operations, the
partnership, limited liability company, or joint venture income shall be
apportioned within and without Iowa on the basis of the taxpayer's business
activity ratio. The corporation's distributive share of the gross receipts of
the partnership, limited liability company, or joint venture shall be included
in the computation of the business activity ratio in accordance with the
provisions of this chapter.
EXAMPLE 1: A, a corporation with a commercial domicile in
State X, is engaged in business within and without Iowa whereby A sells
tangible personal property. A also has an interest in a limited partnership
whose business is conducted within and without Iowa. Five percent of the
limited partnership's gross receipts are derived from the sale of tangible
personal property to Iowa purchasers and 95 percent are derived from sales and
deliveries to purchasers outside of Iowa. A will include 5 percent of its
distributive share of the gross receipts of the partnership in the numerator
along with A's destination Iowa sales in calculating its business activity
ratio. A will include 100 percent of its distributive share of the gross
receipts in the denominator along with A's total sales in calculating its
business activity ratio.
EXAMPLE 2: B, a corporation with a commercial domicile in
State X, has no physical presence in the state of Iowa. B's only contact with
Iowa is B's interest in a limited partnership whose business is conducted
within and without Iowa. Ten percent of the limited partnership's gross
receipts are derived from the sale of tangible personal property to Iowa
purchasers and 90 percent are derived from sales and deliveries to purchasers
outside of Iowa. B will include 10 percent of its distributive share of the
gross receipts of the partnership in the numerator in calculating its business
activity ratio. B will include 100 percent of its distributive share of the
gross receipts in the denominator along with B's total sales in calculating its
business activity ratio.
(6) Gross receipts from rent or royalties or
other fees received for the use of real property are attributable to this state
if the real property is located in this state.
Gross receipts from rent, royalties, license fees, or other
fees received for the use of tangible personal property are attributable to
this state to the extent that the property is utilized in this state. The
extent of utilization of tangible personal property in this state is determined
by multiplying the rents, royalties, license fees or other fees by a fraction,
the numerator of which is number of days or other measure of physical location
of the property in the state during the rental period in the taxable year and
the denominator of which is the number of days or other measure of physical
location of the property everywhere during all rental periods in the taxable
year. If the physical location of property during the rental period is unknown
or not ascertainable by the taxpayer, tangible personal property is utilized in
the state in which the property was located at the time the rental payer
obtained possession.
An example of another measure of physical location of
property is where a lessee of transportation equipment is required to report to
the lessor miles traveled by state.
a.
A lessee takes possession of a rental car in this state. Six days later after
driving 1,500 miles, the rental car is returned to the lessor in this state.
Absent evidence to the contrary, the rental receipts are attributable to this
state.
b. A lessee takes possession
of a rental car in this state. Six days later after driving 1,500 miles, the
rental car is returned to the lessor in an adjacent state. Absent evidence to
the contrary, it is assumed that 50 percent of the rental receipts are
attributable to this state.
c. A
lessee takes possession of a rental semi-truck in another state. The lessee is
required to maintain mileage records by state for purposes of special fuel tax.
The lessee provides copies of these records to the lessor. The lessor must use
these records to determine the portion of the rental receipts that are
attributable to this state.
(7) Allocation and apportionment of
out-of-state business due to state-declared disaster. On or after January 1,
2016, see 701-Chapter 276 for allocation and apportionment of income derived
from an out-of-state business that enters Iowa to perform disaster and
emergency-related work during a disaster response period as those terms are
defined in Iowa Code section
29C.24.
This rule is intended to implement Iowa Code Supplement
section 422.33(1).
