On December 30, 2010, the Iowa Supreme Court ruled that a foreign corporation could be taxed on revenues received from the state of Iowa even though the company had no physical presence within the state of Iowa but rather received royalty revenues resulting from intangible property (i.e. the use of trademarks and licenses to franchisees) within the state.
KFC Corporation does not own stores within the state of Iowa. Alll stores are owned by independent franchisees. Further, the corporation has no employees within the state. But that didn’t matter to the state as a "physical presence" is not required and the state may impose a tax when:
Such part of the income of a non-resident is fairly attributable either to property located in the state or to events or transactions which, occuring there, are within the protection of the state and entitled to the numerous other benefits which it confers.
The U.S. Supreme Court recently refused to hear an appeal to overturn the decision.
An interesting post on the decision from the BlueMauMau blog is available here.
The full Iowa Supreme Court opinion can be read here.