Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.7 - Out-of-state Tax Credit for Minimum Tax

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
General rule.
Iowa
				residents are allowed an out-of-state tax credit for minimum taxes or income
				taxes paid to another state or foreign country on preference items derived from
				sources outside of Iowa. Part-year residents who pay minimum tax to another
				state or foreign country on preference items derived from sources outside Iowa
				will be allowed an out-of-state tax credit only to the extent that the minimum
				tax paid to the other state or foreign country relates to preference items that
				occurred during the period the taxpayer was an Iowa resident. Taxpayers who
				were nonresidents of Iowa for the entire tax year are not eligible for an
				out-of-state tax credit on their Iowa returns for minimum taxes paid to another
				state or foreign country on preference items.
If the Iowa resident is a partner, shareholder, member, or
				  beneficiary of a partnership, S corporation, limited liability company, or
				  trust which files a composite income tax return and pays minimum tax in another
				  state on behalf of the partners, shareholders, members or beneficiaries, the
				  out-of-state tax credit will be allowed for the Iowa resident. The Iowa
				  resident must provide a schedule of the resident's share of the minimum tax
				  paid to another state on a composite basis, and the out-of-state tax credit is
				  limited based upon the calculation set forth in subrule 42.7(2).
However, if the partnership, S corporation, limited liability
				  company, or trust is directly subject to minimum tax in another state and the
				  minimum tax is not directly imposed on the resident taxpayer, then the
				  out-of-state tax credit is not allowed for the Iowa resident on the minimum tax
				  directly imposed on the partnership, S corporation, limited liability company,
				  or trust. For example, if another state does not recognize the S corporation
				  election for state tax purposes and a corporation income tax is imposed
				  directly on the S corporation which includes minimum tax, then the out-of-state
				  tax credit is not allowed for the Iowa resident shareholder on the corporation
				  income tax, including minimum tax, paid to the other state.
(2)
Limitation of out-of-state tax
				credit for minimum tax.
The limitation on the out-of-state tax credit
				for minimum tax is that the credit shall not exceed the Iowa minimum tax that
				would have been computed on the same preference items which were taxed by the
				other state or foreign country. The limitation may be determined according to
				the following formula: The total of preference items earned outside of Iowa and
				taxed by another state or foreign country shall be divided by the total of
				preference items of the resident taxpayer. This quotient, multiplied by the
				state minimum tax on the total of preference items as if entirely earned in
				Iowa, shall be the maximum credit against the Iowa minimum tax. However, if the
				minimum tax imposed by the other state or foreign country is less than the
				minimum tax computed under the limitation formula, the out-of-state credit for
				minimum tax will not exceed the minimum tax imposed by the other state or
				foreign country.
No out-of-state credit will be allowed on the Iowa return for
				  minimum tax paid to another state or foreign country to the extent that the
				  minimum tax of the other state or foreign country is imposed on items of tax
				  preference not subject to the Iowa minimum tax. In addition, no out-of-state
				  credit will be allowed for minimum tax paid to another state or foreign country
				  of capital gains or losses from distressed sales which are excluded from the
				  Iowa minimum tax. Capital gains or losses from distressed sales are described
				  in rule 701-40.27 (422).
(3)
Proof of claim for
				out-of-state tax credit for minimum tax.
The out-of-state credit for
				minimum tax may be claimed on the return of a taxpayer if proof of payment of
				minimum tax to the state or foreign country is included with the return.
				Documents needed for proof of payment are a photocopy of the minimum tax form
				of the state or country to which minimum tax was paid as well as instructions
				from the minimum tax form or other information which specifies how the minimum
				tax is imposed and what preference items are subject to the minimum tax of that
				state or foreign country.
In the case of audit by the department of a taxpayer claiming
				  an out-of-state tax credit for minimum tax paid, the department may require
				  additional proof of payment of the out-of-state tax credit. The department will
				  accept any of the following documents as verification of payment of the minimum
				  tax:
a. A photocopy, or other similar
				reproduction, of either:
(1) The receipt
				issued by the other state or foreign country for payment of the tax, including
				the minimum tax, or
(2) The
				canceled check (both sides) which was used for payment of the minimum tax to
				the other state or foreign country.