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.

 

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Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted…

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted or referenced by hundreds of other blogs, websites, and publications. He also is the editor of the Brick Gentry Trial Team blog and can help you identify the most qualified lawyer at Brick Gentry to handle your case. Our lawyers have a breadth of trial experience in personal injury, employment discrimination, business litigation, IP law, and class action cases.