Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 54 - Allocation and Apportionment › Rule 701-54.6 - Apportionment of Income Derived From Business Other Than the Manufacture or Sale of Tangible Personal Property

Current through Register Vol. 47, No. 3, July 24, 2024
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 54.6(3) to 54.6(5) and rule
				701-547.
				(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
				  701-78. (17A). The
				  department's determination letter shall set forth the taxpayer's rights to
				  protest the department's determination.