Every corporation, organized under the laws of Iowa or
qualified to do business within this state or doing business within Iowa,
regardless of net income, shall file a true and accurate return of its income
or loss for the taxable period. The return shall be signed by the president or
other duly authorized officer. If the corporation was inactive or not doing
business within Iowa, although qualified to do so, during the taxable year, the
return must contain a statement to that effect.
For tax years beginning on or after January 1, 1989, every
corporation organized under the laws of Iowa, doing business within Iowa, or
deriving income from sources consisting of real or tangible property located or
having a situs within Iowa, shall file a true and accurate return of its income
or loss for the taxable period. The return shall be signed by the president or
other duly authorized officer.
For tax years beginning on or after January 1, 1995, every
corporation organized under the laws of Iowa, doing business within Iowa, or
deriving income from sources consisting of real, tangible, or intangible
property located or having a situs within Iowa, shall file a true and accurate
return of its income or loss for the taxable period. The return shall be signed
by the president or other duly authorized officer. For tax years beginning on
or after January 1, 1999, every corporation doing business within Iowa, or
deriving income from sources consisting of real, tangible, or intangible
property located or having a situs within Iowa, shall file a true and accurate
return of its income or loss for the taxable period. The return shall be signed
by the president or other duly authorized officer.
Political organizations described in Internal Revenue Code
Section 527 which are domiciled in this state and are required to file federal
Form 1120POL and pay federal corporation income tax are subject to Iowa
corporation income tax to the same extent as they are subject to federal
corporation income tax.
Homeowners associations described in Internal Revenue Code
Section 528 which are domiciled in this state and are required to file federal
Form 1120H and pay federal corporation income tax are subject to Iowa
corporation income tax to the same extent as they are subject to federal
corporation income tax.
(1)
Definitions.
a.
Doing business. The term "doing business" is used in a comprehensive
sense and includes all activities or any transactions for the purpose of
financial or pecuniary gain or profit. Irrespective of the nature of its
activities, every corporation organized for profit and carrying out any of the
purposes of its organization shall be deemed to be "doing business." In
determining whether a corporation is doing business, it is immaterial whether
its activities actually result in a profit or loss.
b.
Representative. A person
may be considered a representative even though that person may not be
considered an employee for other purposes such as withholding of income tax
from commissions.
c.
Tangible property having a situs within this state. The term
"tangible property having a situs within this state" means that tangible
property owned or used by a foreign corporation is habitually present in Iowa
or it maintains a fixed and regular route through Iowa sufficient so that Iowa
could constitutionally under the 14th Amendment and Commerce Clause of the
United States Constitution impose an apportioned ad valorem tax on the
property.
CentralR. Co. v. Pennsylvania,370 U.S.
607, 82 S.Ct.
1297, 8 L.Ed.2d (1962);
New York Central & H. Railroad Co. v.
Miller,202 U.S.
584, 26 S.Ct. 714, 50 L.Ed. 1155
(1906);
American Refrigerator Transit Company v. State Tax
Commission, 395 P.2d 127 (Or. 1964);
Upper Missouri River
Corporation v. Board of Review, Woodbury County, 210 N.W.2d
828.
d.
Intangible
property located or having a situs within Iowa. Intangible property
does not have a situs in the physical sense in any particular
place.
Wheeling Steel Corporation v. Fox,298 U.S.
193, 80 L.Ed.
1143, 56 S.Ct. 773 (1936);
McNamara v. George Engine Company,
Inc., 519 So.2d 217 (La. App. 1988). The term "intangible property
located or having a situs within Iowa" means generally that the intangible
property belongs to a corporation with its commercial domicile in Iowa or,
regardless of where the corporation which owns the intangible property has its
commercial domicile, the intangible property has become an integral part of
some business activity occurring regularly in Iowa.
Beidler v. South
Carolina Tax Commission,282 U.S.
1, 75 L.Ed. 131, 51 S.Ct. 54
(1930);
Geoffrey, Inc. v. South Carolina Tax Commission, 437
S.E.2d 13 (S.C. 1993), cert, denied, 114 S.Ct. 550 (1993);
Kmart
Properties, Inc. v. Taxation & Revenue Department of New Mexico,
131 P. 3d 27 (N.M. Ct. App. 2001), rev'd on other issues, 131 P. 3d 22 (N.M.
2005);
Secretary, Department of Revenue v. Gap (Apparel), Inc.,
886 So. 2d 459 (La.Ct.App. 2004);
A & F Trademark v.
Tolson, 605 S.E. 2d 187 (N.C.App. 2004), cert, denied 126 S.Ct. 353
(2005);
Lanco, Inc. v. Director, Division of Taxation, 879 A.2d
1234 (N.J.Super.A.D. 2005), aff'd, 908 A.2d 176 (N.J. 2006) (per curiam), cert,
denied 127 S.Ct. 2974 (June 18, 2007);
Geoffrey, Inc. v. Oklahoma Tax
Commission, 132 P. 3d 632 (Okla. Ct. Civ. App. 2005), cert, denied
(Mar. 20, 2006), as corrected (Apr. 12, 2006);
FIA Card Services, Inc.
v. Tax Comm 'r, 640 S.E.2d 226 (W. Va. 2006), cert, denied, 127 S.Ct.
2997 (June 18, 2007);
Capital One Bank v. Commissioner of
Revenue, 899 N.E.2d 76 (Mass. 2009);
Geoffrey, Inc. v.
Commissioner of Revenue, 899 N.E.2d 87 (Mass. 2009);
RFC
Corporation v. Iowa Department of Revenue, 792 N.W. 2d 308 (Iowa
2010), cert, denied 132 S. Ct. 97 (October 3, 2011). The following is a
noninclusive list of types of intangible property: copyrights, patents,
processes, trademarks, trade names, franchises, contracts, bank deposits
including certificates of deposit, repurchase agreements, mortgage loans,
consumer loans, business loans, shares of stocks, bonds, licenses, partnership
interests including limited partnership interests, leaseholds, money, evidences
of an interest in property, evidences of debts such as credit card debt,
leases, an undivided interest in a loan, rights-of-way, and interests in
trusts.
The term also includes every foreign corporation which has
acquired a commercial domicile in Iowa and whose property has not acquired a
constitutional tax situs outside of Iowa.
(2)
Corporate activities not creating
taxability.Public Law
86-272,
15 U.S.C.A., Sections 381-385, in
general prohibits any state from imposing an income tax on income derived
within the state from interstate commerce if the only business activity within
the state consists of the solicitation of orders of tangible personal property
by or on behalf of a corporation by its employees or representatives. Such
orders must be sent outside the state for approval or rejection and, if
approved, must be filled by shipment or delivery from a point outside the state
to be within the purview of Public Law
86-272. Public Law
86-272 does not
extend to those corporations which sell services, real estate, or intangibles
in more than one state or to domestic corporations. For example, Public Law
86-272 does not extend to brokers or manufacturers' representatives or other
persons or entities selling products for another person or entity.
a. If the only activities in Iowa of a
foreign corporation selling tangible personal property are those of the type
described in the noninclusive listing below, the corporation is protected from
the Iowa corporation income tax law by Public Law
86-272.
(1) The free distribution by salespersons of
product samples, brochures, and catalogues which explain the use of or laud the
product, or both.
(2) The lease or
ownership of motor vehicles for use by salespersons in soliciting
orders.
(3) Salespersons'
negotiation of a price for a product, subject to approval or rejection outside
the taxing state of such negotiated price and solicited order.
(4) Demonstration by salesperson, prior to
the sale, of how the corporation's product works.
(5) The placement of advertising in
newspapers, radio, and television.
(6) Delivery of goods to customers by foreign
corporation in its own or leased vehicles from a point outside the taxing
state. Delivery does not include nonimmune activities, such as picking up
damaged goods.
(7) Collection of
state or local-option sales taxes or state use taxes from customers.
(8) Audit of inventory levels by salespersons
to determine if corporation's customer needs more inventory.
(9) Recruitment, training, evaluation, and
management of salespersons pertaining to solicitation of orders.
(10) Salespersons' intervention/mediation in
credit disputes between customers and non-Iowa located corporate
departments.
(11) Use of hotel
rooms and homes for sales-related meetings pertaining to solicitation of
orders.
(12) Salespersons'
assistance to wholesalers in obtaining suitable displays for products at retail
stores.
(13) Salespersons'
furnishing of display racks to retailers.
(14) Salespersons' advice to retailers on the
art of displaying goods to the public.
(15) Rental of hotel rooms for short-term
display of products.
(16) Mere
forwarding of customer questions, concerns, or problems by salespersons to
non-Iowa locations.
b.
For tax years beginning on or after January 1,1996, a foreign corporation will
not be considered doing business in this state or deriving income from sources
within this state if its only activities within this state are one or more of
the following activities:
(1) Holding
meetings of the board of directors or shareholders, or holiday parties, or
employee appreciation dinners.
(2)
Maintaining bank accounts.
(3)
Borrowing money, with or without security.
(4) Utilizing Iowa courts for
litigation.
(5) Owning and
controlling a subsidiary corporation which is incorporated in or which is
transacting business within this state where the holding or parent company has
no physical presence in the state as that presence relates to the ownership or
control of the subsidiary.
(6)
Recruiting personnel where hiring occurs outside the state.
c. For tax years beginning on or
after January 1, 1997, a foreign corporation will not be considered doing
business in this state or deriving income from sources within this state if its
only activities within this state, in addition to the activities listed in
paragraph"b " above, are training its employees or educating
its employees, or using facilities in this state for this purpose.
d. For tax years beginning on or after
January 1, 2006, a foreign corporation will not be considered to be doing
business in Iowa or deriving income from sources within Iowa if its only
activities within Iowa, in addition to the activities listed in paragraphs "b"
and "c" of this subrule, are utilizing a distribution facility in Iowa, owning
or leasing property at a distribution facility in Iowa, or selling property
shipped or distributed from a distribution facility in Iowa.
A distribution facility is an establishment at which
shipments of tangible personal property are processed for delivery to
customers. A distribution facility does not include an establishment at which
retail sales of tangible personal property or returns of such property are
undertaken with respect to retail customers more than 12 days in a year.
However, an exception to the 12-day requirement is allowed for distribution
facilities that process customer orders by mail, telephone, or electronic
means, if the distribution facility also processes shipments of tangible
personal property to customers, as long as no more than 10 percent of the goods
are delivered or shipped to a purchaser in Iowa.
The following nonexclusive examples illustrate how this
subrule applies:
EXAMPLE 1: A, a foreign corporation, stores its inventory of
books at a facility in Iowa. The facility processes orders for these books
solely by mail, telephone and the Internet on behalf of A, and customers are
not allowed to purchase books at the facility's site in Iowa. The facility
processes shipments of these books, and 5 percent of the books at this facility
are delivered to purchasers located in Iowa. A does not conduct any other
business activities in Iowa. A is not considered to be doing business in Iowa
because less than 10 percent of the books at the facility are delivered to an
Iowa customer.
EXAMPLE 2: B, a foreign corporation, stores its inventory of
compact disks at a facility in Iowa. The facility processes orders for these
compact disks solely by mail, telephone and the Internet on behalf of B, and
customers are not allowed to purchase compact disks at the facility's site in
Iowa. The facility processes shipments of these compact disks, and 15 percent
of the compact disks at the facility are delivered to purchasers located in
Iowa. B does not conduct any other business activities in Iowa. B is considered
to be doing business in Iowa because more than 10 percent of the compact disks
at the facility are delivered to an Iowa customer.
EXAMPLE 3: C, a foreign corporation, stores its inventory of
doors and windows at a facility in Iowa. The facility processes orders for
these windows and doors solely by mail, telephone and the Internet, and
customers are not allowed to purchase these windows and doors at the facility's
site in Iowa. The facility processes shipments of these windows and doors, and
7 percent of the windows and doors are delivered to purchasers located in Iowa.
C will also install these windows and doors in Iowa upon customer request. C is
considered to be doing business in Iowa even though less than 10 percent of the
windows and doors are delivered to Iowa customers because C is also conducting
installation activities in Iowa which are not protected under Public Law
86-272.
EXAMPLE 4: D, a foreign corporation, stores its inventory of
home decorating and craft kits at a facility in Iowa. The facility does not
process any customer orders by mail, telephone or the Internet, and does not
process any shipments of these kits directly to customers. D allows customers
to come to the facility 14 days each year to directly purchase these kits, and
customers must arrange for their own delivery of the kits. D is considered to
be doing business in Iowa because sales to retail customers are conducted more
than 12 days in a year, and the facility does not process customer orders or
shipments to customers.
(3)
Corporate activities creating
taxability. "Solicitation of orders" within Public Law
86-272 is
limited to those activities which explicitly or implicitly propose a sale or
which are entirely ancillary to requests for purchases. Activities that are
entirely ancillary to requests for purchases are ones that serve no independent
business function apart from their connection to the soliciting of orders. An
activity that is not ancillary to requests for purchases is one that a
corporation (taxpayer) has a reason to do anyway whether or not it chooses to
allocate it to its sales force operating in Iowa (such as repair, installation,
service-type activities, or collection on accounts). Activities that take place
after a sale ordinarily will not be entirely ancillary to a request for
purchases and, therefore, ordinarily will not be considered in "solicitation of
orders."
Wisconsin Department of Revenue v. William Wrigley, Jr.
Company,505 U.S.
214, 120 L.Ed.2d 174, 112 S.Ct. 2447 (1992).
De minimis activities which are not "solicitation of orders"
are protected under Public Law 86-272. Whether in-state nonsolicitation
activities are sufficiently de minimis to avoid loss of tax immunity depends
upon whether those activities establish only a trivial additional connection
with the taxing state. Whether a corporation's nonsolicitation in-state
activities are de minimis should not be decided solely by the quantity of one
type of such activity but, rather, all types of nonsolicitation activities of
the taxpayer should be considered in their totality.Wisconsinv.
Wrigley505U.S. 214, 120 L.Ed.2d 174,112 S.Ct. 2447 (1992). Frequency
of the activity may be relevant, but an isolated activity is not invariably
trivial. The mere fact that an activity involves small amounts of money or
property does not invariably mean it is trivial.
If a foreign corporation has greater than a de minimis amount
of Iowa nonsolicitation activity which includes activity of the types described
in the noninclusive listing below, whether done by the salesperson, other
employee, or other representative, it is not immunized from the Iowa
corporation income tax by Public Law 86-272.
a. Installation or assembly of the corporate
product.
b. Ownership or lease of
real estate by corporation.
c.
Solicitation of orders for, or sale of, services or real estate.
d. Sale of tangible personal property (as
opposed to solicitation of orders) or performance of services within
Iowa.
e. Maintenance of a stock of
inventory.
f. Existence of an
office or other business location.
g. Managerial activities pertaining to
nonsolicitation activities.
h.
Collections on regular or delinquent accounts.
i. Technical assistance and training given
after the sale to purchaser and user of corporate products.
j. The repair or replacement of faulty or
damaged goods.
k. The pickup of
damaged, obsolete, or returned merchandise from purchaser or user.
l. Rectification of or assistance in
rectifying any product complaints, shipping complaints, etc., if more is
involved than relaying complaints to a non-Iowa location.
m. Delivery of corporate merchandise
inventory to corporation's distributors or dealers on consignment.
n. Maintenance of personal property which is
not related to solicitation of orders.
o. Participation in recruitment, training,
monitoring, or approval of servicing distributors, dealers, or others where
purchasers of corporation's products can have such products serviced or
repaired.
p. Inspection or
verification of faulty or damaged goods.
q. Inspection of the customer's installation
of the corporate product.
r.
Research.
s. Salespersons' use of
part of their homes or other places as an office if the corporation pays for
such use.
t. The use of samples for
replacement or sale; storage of such samples at home or in rented
space.
u. Removal of old or
defective products.
v. Verification
of the destruction of damaged merchandise.
w. Independent contractors, agents, brokers,
representatives and other individuals or entities who act on behalf of or at
the direction of the corporation (taxpayer) and who do non-de minimis amounts
of nonsolicitation activities remove the corporation from the protection of
Public Law
86-272. However, the maintenance of an office in Iowa or the making
of sales in Iowa by independent contractors does not remove the corporation
from the protection of Public Law
86-272. The term "independent contractors"
means commission agents, brokers, or other independent contractors who are
engaged in selling or soliciting orders for the sale of tangible personal
property or perform other services for more than one principal and who hold
themselves out as such in the regular course of their business activities. If a
person is subject to the direct control of the foreign corporation that person
may not qualify as an independent contractor.
(4)
Taxation of corporations having
only intangible property located or having a situs in Iowa. For tax
years beginning on or after January 1, 1995, corporations whose only connection
with Iowa is their ownership of intangible property located or having a situs
in Iowa are subject to Iowa income tax and must file an Iowa income tax return.
Intangible property is located or has a situs in Iowa if the corporation's
commercial domicile is in Iowa and the intangible property has not become an
integral part of some business activity occurring regularly within or without
Iowa. Regardless whether the corporation's commercial domicile is in or out of
Iowa, intangible property is located or has a situs in Iowa if the intangible
property has become an integral part of some business activity occurring
regularly in Iowa.
Geoffrey Inc. v. South Carolina Tax
Commission, 437 S.E.2d 13 (S.C. 1993), cert, denied, 114 S.Ct. 550
(1993);
Arizona Tractor Company v. Arizona State Tax
Commission, 115 Ariz. 602, 566 P2d 1348 (Ariz. App. 1977);
KFC
Corporation v. Iowa Department of Revenue, 792 N.W. 2d 308 (Iowa
2010), cert, denied 132 S.Ct. 97 (October 3, 2011). In the event that the
intangible property interest is a general or limited partnership interest, the
location or situs of that partnership interest is the place(s) where the
partnership conducts business.
Arizona Tractor Company v. Arizona State
Tax Commission, supra.
The following nonexclusive examples illustrate how this
subrule applies:
Example 1: A, a corporation with a commercial domicile in
State X, has a limited partnership interest in a partnership which does a
regular business in Iowa. A has no physical presence in Iowa and has no other
contact with Iowa. A's interest in the limited partnership is intangible
personal property. A is required to file an Iowa income tax return because A's
intangible personal property limited partnership interest has a business situs
in Iowa.Arizona Tractor Company v. Arizona State Tax
Commission, supra.
EXAMPLE 2: B, a corporation with a commercial domicile in
State X, owns stock in a subsidiary corporation doing business regularly in
Iowa. B has no physical presence in Iowa and has no other contact with Iowa. B
controls the subsidiary and has a unitary relationship with it. B pledged the
subsidiary stock to secure a line of credit from a bank and used the loaned
funds in B's business. Under these circumstances, the subsidiary stock is not
an integral part of the subsidiary's business and, therefore, the stock does
not have a location or situs in Iowa. Accordingly, B is not required to file an
Iowa income tax return as a result of any dividends received by B or capital
gains received by B from the sale of the stock.McNamara v. George
Engine Company, Inc., 519 So.2d 217 (La. App. 1988).
Example 3: C, a corporation with a commercial domicile in
State X, owns trademarks and trade names which it, by license agreements,
allows other corporations to use. Some of those other corporations do business
in Iowa. The trademarks and trade names are used by these other corporations at
their Iowa stores in connection with their business activities at those stores.
C has no physical presence in Iowa and has no other contact with Iowa. C is
paid royalties of 1 percent of net sales of the licensed products or services.
C is required to file an Iowa income tax return because C's intangible property
interests in the trademarks and trade names have situses in
Iowa.Geoffrey, Inc. v. South Carolina Tax Commission, 437
S.E.2d 13 (S.C. 1993), cert, denied, 114 S.Ct. 550 (1993).
EXAMPLE 4: D, a corporation with a commercial domicile in
Iowa, is a holding company which does not sell any tangible personal property
or sell any business service but which does own the stock of five subsidiaries,
all of which do business outside of Iowa. D has no physical presence outside of
Iowa and has no other contact outside of Iowa. D has a unitary relationship
with each subsidiary. Under these circumstances, the stock is not an integral
part of each subsidiary's business so the stock does not have a location or
situs outside of Iowa. The location or situs of the stock is in Iowa because
D's commercial domicile is in Iowa. Accordingly, all of the dividends from the
stock paid to D and any capital gains incurred as a result of D's sale of the
stock are wholly taxed by Iowa.
Example 5: E, a corporation with a commercial domicile in
Iowa, owns trademarks and trade names which it, by license agreements, allows
other corporations, located outside of Iowa, to use. The trademarks and trade
names are used by these other corporations at their non-Iowa stores in
connection with their business activities at those stores. E has no physical
presence outside of Iowa and has no other contact outside of Iowa. E has
business activities in Iowa. The fees and royalties paid to E are part of E's
unitary business income. Under these circumstances, E is entitled to apportion
its net income within and without Iowa because E's intangible property
interests in the trademarks and trade names have situses outside of Iowa and E
has business activities in Iowa.
Example 6: F, a corporation with a commercial domicile in
State X, owns all of the stock of a subsidiary corporation doing business in
Iowa. F has no physical presence in Iowa and no other contact with Iowa. F
loans funds to the subsidiary which the subsidiary uses in its Iowa business.
Under these circumstances, the interest-bearing asset is not an integral part
of the subsidiary's business and, therefore, that intangible asset does not
have a location or situs in Iowa. Accordingly, F is not required to file an
Iowa income tax return.Beidlerv. South Carolina Tax
Commission,282 U.S. 1, 75 L.Ed.131, 51 S.Ct. 54 (1930).
Example 7: G, a corporation with a commercial domicile in
State X, earns fees from the licensing of custom computer software. G has no
physical presence in Iowa and no other contact with Iowa. G licenses the
software to other corporations which do business in Iowa and which use the
software in that business in Iowa. Under these circumstances, regardless
whether the fees constitute royalties or something else, the license fees are
earned from intangible personal property with a location or situs in Iowa.
Accordingly, G is required to file an Iowa income tax return.
EXAMPLE 8: H, a corporation with a commercial domicile in
State X, has no physical presence in Iowa. H has entered into a contract with
an independent contractor to solicit sales of H's magazines in Iowa. The
independent contractor does business in Iowa and receives payment for the
magazines and deposits the funds in an Iowa bank for H's account. H earns
interest on this account. Under these circumstances which are H's only contact
with Iowa, H's interest-bearing account is an integral part of business
activity in Iowa. Accordingly, H is required to file an Iowa income tax return
and include the interest income in the numerator of the business activity
formula.
EXAMPLE 9: J, a corporation with a commercial domicile in
State X, earns income from mortgages that the corporation has purchased. J has
no physical presence in Iowa and no other contact with Iowa. J earns interest
income from the mortgages on property located in Iowa. Under these
circumstances, the interest income is an integral part of business activity in
Iowa. Accordingly, J is required to file an Iowa income tax return and include
the interest income from the mortgages related to Iowa property in the
numerator of the apportionment factor.
(5)
Taxation of "S" corporations,
domestic international sales corporations and real estate investment
trusts. Certain corporations and other types of entities, which are
taxable as corporations for federal purposes, may by federal election and
qualification have a portion or all of their income taxable to the shareholders
or the beneficiaries. Generally, the state of Iowa follows the federal
provisions (with adjustments provided by Iowa law) for determining the amount
and to whom the income is taxable. Examples of entities which may avail
themselves of pass-through provisions for taxation of at least part of their
net income are real estate investment trusts, small business corporations
electing to file under Sections 1371-1378 of the Internal Revenue Code,
domestic international sales corporations as authorized under Sections 991-997
of the Internal Revenue Code, and certain types of cooperatives and regulated
investment companies. The entity's portion of the net income which is taxable
as corporation net income for federal purposes is generally also taxable as
Iowa corporation income (with adjustments as provided by Iowa law) and the
shareholders or beneficiaries will report on their Iowa returns their share of
the organization's income reportable for federal purposes as shareholder income
(with adjustments provided by Iowa law). Nonresident shareholders or
beneficiaries are required to report their distributive share of said income
reasonably attributable to Iowa sources. Schedules shall be filed with the
individual's return showing the computation of the income attributable to Iowa
sources and the computation of the nonresident taxpayer's distributive share
thereof. Entities with a nonresident beneficiary or shareholder shall include a
schedule in the return computing the amount of income as determined under
701-Chapter 54. It will be the responsibility of the entity to make the
apportionment of the income and supply the nonresident taxpayer with
information regarding the nonresident taxpayer's Iowa taxable income.
For tax years beginning on or after January 1, 1995, S
corporations which are subject to tax on built-in gains under Section 1374 of
the Internal Revenue Code or passive investment income under Section 1375 of
the Internal Revenue Code are subject to Iowa corporation income tax on this
income to the extent received from business carried on in this state or from
sources in this state.
a. The starting
point for computing the Iowa tax on built-in gains is the amount of built-in
gains subject to federal tax after considering the federal income limitation.
The starting point for computing the capital gains subject to Iowa tax is the
amount of capital gains subject to federal tax. The starting point for
computing the passive investment income subject to Iowa income tax is the
amount of passive investment income subject to federal tax. To the extent that
any of the above three types of income exist for federal income tax purposes,
they are combined for Iowa income tax purposes.
b. No adjustment is made to the above amounts
for either 50 percent of federal income tax or Iowa corporation income tax
deducted in computing the federal net income of the S corporation for tax years
beginning prior to January 1, 2008, and for tax years beginning on or after
January 1, 2014. The 50 percent of federal income tax and Iowa corporation
income tax deducted in computing federal net income are adjustments to the Iowa
net income which flows through to the shareholders for tax years beginning
prior to January 1, 2008, and for tax years beginning on or after January 1,
2014. For tax years beginning on or after January 1, 2008, but before January
1, 2014, an adjustment is made to the above amounts for either 50 percent of
federal income tax or Iowa corporation income tax deducted in computing the
federal net income of the S corporation.
c. The allocation and apportionment rules of
701-Chapter 54 apply to nonresident shareholders if the S corporation is
carrying on business within and without the state of Iowa.
d. Any net operating loss carryforward
arising in a taxable year for which the corporation was a C corporation shall
be allowed as a deduction against the net recognized built-in gain, capital
gains, or passive investment income of the S corporation for the taxable year.
For purposes of determining the amount of any such loss which may be carried to
any of the 15 subsequent taxable years, after the year of the net operating
loss, the amount of the net recognized built-in gain shall be treated as
taxable income. For taxable years beginning after August 5, 1997, a net
operating loss can be carried forward 20 taxable years.
e. Except for estimated and other advance tax
payments and any credit carryforward under Iowa Code section
42233.
arising in a taxable year for which the corporation was a C corporation no
credits shall be allowed against the built-in gains tax or the tax on capital
gains or passive investment income.
For tax years beginning after 1996, Iowa recognizes the
federal election to treat subsidiaries of a parent corporation that has elected
S corporation status as "qualified subchapter S subsidiaries" (QSSSs).
To the extent that, for federal income tax purposes, the
incomes and expenses of the QSSSs are combined with the parent's income and
expenses, they must be combined for Iowa tax purposes.
(6)
Exempted corporations
and organizations filing requirements.
a.
Exempt status. An
organization that is exempt from federal income tax under Section 501 of the
Internal Revenue Code, unless the exemption is denied under Section 501, 502,
503 or 504 of the Internal Revenue Code, is exempt from Iowa corporation income
tax except as set forth in paragraph"e " of this subrule. The
department may, if a question arises regarding the exempt status of an
organization, request a copy of the federal determination letter.
b.
Information returns.
Every corporation shall file returns of information as provided by Iowa Code
sections
42215. and
42216.
and any regulations regarding information returns.
c.
Annual return. An
organization or association which is exempt from Iowa corporation income tax
because it is exempt from federal income tax is not required to file an annual
income tax return unless it is subject to the tax on unrelated business income.
The organization shall inform the director in writing of any revocation of or
change of exempt status by the Internal Revenue Service within 30 days after
the federal determination.
d.
Tax on unrelated business income for tax years beginning on or after
January 1, 1988. A tax is imposed on the unrelated business income of
corporations, associations, and organizations exempt from the general business
tax on corporations by Iowa Code section
42234.,
subsection 2, to the extent this income is subject to tax under the Internal
Revenue Code. The exempt organization is also subject to the alternative
minimum tax imposed by Iowa Code section
42233(4)..
The exempt corporation, association, or organization must
file Form IA 1120, Iowa Corporation Income Tax Return, to report its income and
complete Form IA 4626 if subject to the alternative minimum tax. The exempt
organization must make estimated tax payments if its expected income tax
liability for the year is $1,000 or more.
The tax return is due the last day of the fourth month
following the last day of the tax year and may be extended for six months by
filing Form IA 7004 prior to the due date. For tax years beginning on or after
January 1, 1991, the tax return is due on the fifteenth day of the fifth month
following close of the tax year and may be extended six months if 90 percent of
the tax is paid prior to the due date.
The starting point for computing Iowa taxable income is
federal taxable income as properly computed before deduction for net operating
losses. Federal taxable income shall be adjusted as required in Iowa Code
section 422.35.
If the activities which generate the unrelated business
income are carried on partly within and partly without the state, then the
taxpayer should determine the portion of unrelated business income attributable
to Iowa by the apportionment and allocation provisions of Iowa Code section
422.33.
The provisions of 701-Chapters 51, 52, 53, 54, 55 and 56
apply to the unrelated business income of organizations exempt from the general
business tax on corporations.
e.
Certain posts or organizations of
past or present armed forces members may be tax-exempt corporations for tax
years beginning after May 21, 2003. An organization that would have
qualified as an organization exempt from federal income tax under Section
501(c)(19) of the Internal Revenue Code but for the fact that the requirement
that 75 percent of the members need to be past or present armed forces members
is not met because the membership includes ancestors or lineal descendants is
considered to be an organization exempt from federal income tax.
This change is effective for tax years beginning after May
21, 2003.
f.
Out-of-state business performing work in Iowa due to state-declared
disaster. On or after January 1, 2016, see 701-Chapter 242 for filing
requirements for an out-of-state business who enters Iowa to perform disaster
and emergency-related work during a disaster response period as those terms are
defined in Iowa Code section
29C24..
(7)
Income tax of corporations in
liquidation. When a corporation is in the process of liquidation, or
in the hands of a receiver, the income tax returns must be made under oath or
affirmation of the persons responsible for the conduct of the affairs of such
corporations, and must be filed at the same time and in the same manner as
required of other corporations.
(8)
Income tax returns for corporations dissolved. Corporations
which have been dissolved during the income year must file income tax returns
for the period prior to dissolution which has not already been covered by
previous returns. Officers and directors are responsible for the filing of the
returns and for the payment of taxes, if any, for the audit period provided by
law.
Where a corporation dissolves and disposes of its assets
without making provision for the payment of its accrued Iowa income tax,
liability for the tax follows the assets so distributed and upon failure to
secure the unpaid amount, suit to collect the tax may be instituted against the
stockholders and other persons receiving the property, to the extent of the
property received, except bona fide purchasers or others as provided by
law.
(9)
Income tax
returns for corporations storing goods in an Iowa warehouse. For tax
years beginning on or after January 1, 2001, foreign corporations are not
required to file income tax returns if their only activities in Iowa are the
storage of goods for a period of 60 consecutive days or less in a warehouse for
hire located in Iowa, provided that the foreign corporation transports or
causes a carrier to transport such goods to that warehouse and that none of
these goods are delivered or shipped to a purchaser in Iowa.
The following nonexclusive examples illustrate how this
subrule applies:
Example 1: A, a foreign corporation, stores goods in a
warehouse for hire in Iowa for a period of 45 consecutive days. The goods are
then delivered to a purchaser outside Iowa. If this is A's only activity in
Iowa, A is not required to file an Iowa income tax return.
Example 2: B, a foreign corporation, stores goods in a
warehouse for hire in Iowa for a period of 75 consecutive days. The goods are
then delivered to a purchaser outside Iowa. B is required to file an Iowa
income tax return because the goods were stored in Iowa for more than 60
consecutive days.
Example 3: C, a foreign corporation, stores goods in a
warehouse for hire in Iowa for a period of 30 consecutive days. One percent of
these goods are shipped to a purchaser in Iowa, and the other 99 percent are
shipped to a purchaser outside Iowa. C is required to file an Iowa income tax
return because a portion of the goods were shipped to a purchaser in
Iowa.
Example 4: D, a foreign corporation, has retail stores in
Iowa. D also stores goods in a warehouse for hire in Iowa for a period of 30
consecutive days. The goods are then delivered to a purchaser outside Iowa. D
is required to file an Iowa income tax return because its Iowa activities are
not limited to the storage of goods in a warehouse for hire in Iowa.
Example 5: E, a foreign corporation, has goods delivered by a
common carrier, F, into a warehouse for hire in Iowa. The goods are stored in
the warehouse for a period of 40 consecutive days, and are then delivered to a
purchaser outside Iowa. If this is E's only activity in Iowa, E is not required
to file an Iowa income tax return. However, F is required to file an Iowa
income tax return because it derives income from transportation operations in
Iowa.
(10)
Deferment of income for start-up companies. For tax periods
beginning on or after January 1, 2002, but before January 1, 2008, a business
that qualifies as a "start-up" business can defer taxable income for the first
three years that the business is in operation. The deferment of income for
start-up companies is repealed effective for tax years beginning on or after
January 1, 2008.
a.
Definition of
start-up business. A start-up business for purposes of this subrule
does not include any of the following:
(1) An
existing business locating in Iowa from another state.
(2) An existing business locating in Iowa
from another location in Iowa.
(3)
A newly created business which is the result of the merger of two or more
businesses.
(4) A newly created
subsidiary or new business of a corporation.
(5) A previously existing business which has
been dissolved and reincorporated.
(6) An existing business operating under a
different name and located in a different location.
(7) A newly created partnership owned by two
or more of the same partners as an existing business and engaging in similar
business activity as the existing business.
(8) A business entity that reorganizes or
experiences a change in either the legal or trade name of the
business.
(9) A joint
venture.
b.
Criteria for deferment of taxable income. In order to qualify
for the deferment of taxable income for a start-up business, each of the
following criteria must be met:
(1) The
taxpayer is a business that is a wholly new start-up business beginning
operations during the first tax year for which the deferment of taxable income
is claimed.
(2) The business has
its commercial domicile, as defined by Iowa Code section
42232.,
in Iowa.
(3) The operations of the
business are funded by at least 25 percent venture capital moneys. "Venture
capital moneys" means an equity investment from an individual or a private seed
and venture capital fund whose only business is investing in seed and venture
capital opportunities. "Venture capital moneys" does not mean a loan or other
nonequity financing from a person, financial institution or other
entity.
(4) The taxpayer does not
have any delinquent taxes or other debt outstanding and owing to the state of
Iowa.
c.
Request for deferment of income. A taxpayer must submit a request to
the department for the deferment of taxable income. The request must provide
evidence that all of the criteria to qualify as a start-up business have been
met. The request should be made as soon as possible after the close of the
first tax year of the business. The request is to be filed with the Iowa
Department of Revenue, Policy Section, Compliance Division, P.O. Box 10457, Des
Moines, Iowa 50306-0457. Upon determination that the criteria have been met,
the department will notify the taxpayer that the deferment of taxable income is
approved. If the request for deferment of taxable income is denied, the
taxpayer may file a protest within 60 days of the date of the letter denying
the request for deferment of taxable income. The department's determination
letter shall set forth the taxpayer's rights to protest the department's
determination.
d.
Filing
of tax returns. If the request for deferment of taxable income is
approved, taxable income for the first three years that the business is in
operation is deferred. The taxpayer shall pay taxes on the deferred taxable
income in five equal annual installments during the five tax years following
the three years of deferment. Tax returns must be filed for each tax year in
which the deferment is approved. If the taxpayer has a net loss during any tax
year during the three-year deferment period, the loss may be applied to any
deferred taxable income during that period. For purposes of assessing penalty
and interest, the tax on any deferred income is not due and payable until the
tax years in which the five equal annual installments are due and payable.
The following nonexclusive examples illustrate how this
subrule applies:
EXAMPLE 1: A qualifying start-up business reports Iowa
taxable income of $1,000 in year one, $5,000 in year two and $10,000 in year
three. The total tax deferred is $60 in year 1, $300 in year two and $600 in
year three, or $960. The taxpayer shall pay $192 ($960 divided by 5) in
deferred tax for each of the next five tax returns. No penalty or interest is
due on the deferred annual tax of $192 if the returns for years four through
eight are filed by the due date and the tax is timely paid. After the return
for year three is filed, the department will issue a schedule to the qualifying
business indicating that $ 192 of additional tax is due annually for years four
through eight, and when the additional payments of $192 are due.
Example 2: A qualifying start-up business reports an Iowa
taxable loss of $10,000 in year one, a loss of $2,000 in year two and taxable
income of $22,000 in year three. The losses for year one and year two can be
netted against the income in year three, resulting in deferred taxable income
of $10,000. The tax of $600 computed on income of $10,000 will be paid in five
equal installments of $120 for the next five tax returns. No penalty or
interest is due on the deferred annual tax of $120 if the returns for years
four through eight are filed by the due date and the tax is timely paid. After
the return for year three is filed, the department will issue a schedule to the
qualifying business indicating that $120 of additional tax is due annually for
years four through eight and when the additional payments of $120 are
due.
This rule is intended to implement Iowa Code sections
42221.,
422.32,
42233.,
42234.,
42234A.,
and
42236. and Iowa Code
section
42224A.
as amended by 2008 Iowa Acts, Senate File 2400, section 66.