Iowa Administrative Code › Agency 701 - Revenue Department › Title VI - Corporation Income Tax › Chapter 503 - Allocation and Apportionment › Rule 701-503.1 - Basis of Corporate Tax

Current through Register Vol. 47, No. 3, July 24, 2024
Iowa Code section
				  422.33 imposes a tax on all
				  corporations incorporated under the laws of Iowa and upon every foreign
				  corporation doing business in Iowa. For tax years beginning on or after January
				  1, 1999, Iowa Code section
				  422.33 imposes a tax on all
				  corporations doing business in Iowa. For corporations or other entities subject
				  to the tax (as corporations), the tax is levied and collected only on such
				  income as may accrue or be recognized to the corporation from business done or
				  carried on in the state plus net income from certain sources without the state
				  which by law follows the commercial domicile of the corporation.
If a corporation carries on its trade or business entirely
				  within the state of Iowa, no allocation or apportionment of its income may be
				  made. The corporation will be presumed to be carrying on its business entirely
				  within the state of Iowa if its sales or other activities are carried on only
				  in Iowa, even though it received income from sources outside the state in the
				  form of interest, dividends, royalties and other sources of income from
				  intangibles. For tax years beginning on or after January 1, 1995, an
				  Iowa-domiciled corporation may apportion its income if it has income from
				  intangibles that have acquired a business situs outside Iowa even if it has no
				  other activities outside the state. For tax years beginning on or after January
				  1, 1999, an Iowa-domiciled corporation may apportion its income if the trade or
				  business is carried on partly within and partly without the state or if income
				  is derived from sources partly within and partly without the state, or if
				  income is derived from trade or business and sources, all of which are not
				  entirely in the state. (See 701-subrules 52.1(1) and 52.1(4).)
For tax years beginning on or after January 1, 1986, the
				  income from the operation of a farm may be allocated and apportioned within and
				  without the state if the business activities of the corporation are carried on
				  partly within and partly without the state. For tax years beginning on or after
				  January 1, 1995, an Iowa-domiciled corporation may apportion its income if it
				  has income from intangibles that have acquired a business situs outside Iowa
				  even if it has no other activities outside the state. For tax years beginning
				  on or after January 1, 1999, an Iowa-domiciled corporation may apportion its
				  income if the trade or business is carried on partly within and partly without
				  the state or if income is derived from sources partly within and partly without
				  the state, or if income is derived from trade or business and sources, all of
				  which are not entirely in the state. (See 701-subrules 52.1(1) and
				  52.1(4).)
See subrule 54.1(4) for the definition of carrying on a trade
				  or business partly within and partly without the state.
(1)
Definition-operation of a
				farm.
A taxpayer is engaged in the operation of a farm if the taxpayer
				cultivates, operates, or manages a farm for gain or profit, either as owner or
				tenant. For the purpose of Iowa Code section
				422.33(1), a
				taxpayer who receives a rental (either in cash or in kind) which is based upon
				farm production is engaged in the operation of a farm. However, a taxpayer who
				receives a fixed rental (without reference to production) is engaged in the
				operation of a farm only if the taxpayer participates to a material extent in
				the operation or management of the farm. A taxpayer engaged in forestry or the
				growing of timber is not thereby engaged in the operation of a farm. A taxpayer
				cultivating or operating a farm for recreation or pleasure rather than a profit
				is not engaged in the operation of a farm. For the purpose of this subrule, the
				term "farm" is used in its ordinary, accepted sense and includes stock, dairy,
				poultry, fruit, and truck farms, and also plantations, ranches, ranges, and
				orchards. A taxpayer is engaged in the operation of a farm if the taxpayer is a
				member of a partnership engaged in the operation of a farm. The operation of a
				farm includes the sale of products produced on the farm. The purchase of
				livestock for feeding purposes and subsequent resale is part of the operation
				of a farm.
(2)
Definition-property used in the operation of a farm.
Property
				used in the operation of a farm means land and buildings which are used in the
				operation of a farm. The land must be used for the production of crops, fruits,
				or other agricultural products or for the sustenance of livestock. For the
				purposes of this subrule, the term livestock includes cattle, hogs, horses,
				mules, donkeys, sheep, goats, captive furbearing animals, chickens, turkeys,
				pigeons, and other poultry. It does not include fish, frogs, reptiles, and the
				like. Land used for the sustenance of livestock includes land used for grazing
				such livestock.
Property used in the operation of a farm means property used
				  in the unitary operations of a farm whether or not the acreage is
				  contiguous.
(3)
Definition-unitary operations of a farm.
Unitary operations of
				a farm means the operation of one or more tracts of land or the conducting of
				one or more types of farming operations where the operation of a farm within
				Iowa is integrated with, dependent upon or contributes to the operations of a
				farm outside the state.
(4)
Definition-carrying on a trade or business partly within and partly
				without the state.
Carrying on a trade or business partly within and
				partly without the state means having business activities in at least one other
				state sufficient to meet the minimum constitutional standards for doing
				business in a state under the due process and commerce clauses of the United
				States Constitution. The determination of whether a corporation is carrying on
				a trade or business partly within and partly without the state must be made on
				a tax-year-by-tax-year basis. The activities of a past or future tax year have
				no bearing on the current year.
The following nonexclusive list of activities on a non-de
				  minimis basis determined by aggregating all activities if physically carried on
				  in a regular, systematic, and continuing basis by corporate officers or
				  employees or representatives in at least one other state would constitute the
				  minimum activities which would meet the constitutional standards for doing
				  business in a state under the due process and commerce clauses of the United
				  States Constitution:
The term "representative" means independent contractors,
				  agents, brokers, and other individuals or entities who act on behalf of or at
				  the direction of the corporation. 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.
a. The free distribution of product samples,
				brochures, and catalogues which explain the use of or laud the product, or
				both.
b. Negotiation of a price for
				a product.
c. Demonstration of how
				the corporation's product works.
d.
				Delivery of goods to customers by the corporation in its own or leased
				vehicles.
e. Audit of inventory
				levels.
f. Recruitment, training,
				evaluation, and management of employees, officers, or
				representatives.
g.
				Intervention/mediation in credit disputes between customers and Iowa-located
				corporate departments.
h. Use of
				hotel rooms and homes for business meetings.
i. Assistance to wholesalers in obtaining
				suitable displays for products.
j.
				Furnishing of display racks at no charge.
k. Advice to sellers on the art of displaying
				goods to the public.
l. Rental of
				hotel rooms for short-term display of products.
m. Mere forwarding of customer questions,
				concerns, or problems.
n.
				Installation or assembly of the corporate product.
o. Ownership or lease of real estate by the
				corporation and used for a business purpose.
p. Solicitation of orders for, or sale of,
				services or real estate.
q.
				Solicitation of sales or sale of tangible personal property (as opposed to
				solicitation of orders).
r.
				Maintenance of a stock of inventory.
s. Existence of an office or other business
				location.
t. Managerial
				activities.
u. Collections on
				regular or delinquent accounts.
v.
				Technical assistance and training given to purchaser and user of corporate
				products.
w. The repair or
				replacement of faulty or damaged goods.
x. The pickup of damaged, obsolete, or
				returned merchandise from purchaser or user.
y. Rectification of or assistance in
				rectifying any product complaints or shipping complaints, for
				example.
z. Delivery of corporate
				merchandise inventory to corporation's distributors or dealers on
				consignment.
aa. Maintenance of
				personal property.
ab.
				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.
ac. Inspection or verification of faulty or
				damaged goods.
ad. Inspection of
				the customer's installation of the corporate product.
ae. Research.
af. Employees' or officers' use of part of
				their homes or other places as an office if the corporation pays for such
				use.
ag. The use of samples for
				replacement or sale; storage of such samples at home or in rented
				space.
ah. Removal of old or
				defective products.
ai.
				Verification of the destruction of damaged merchandise.
aj. Repair or warranty work on company goods
				or products after sale.
ak. Any
				other activities carried on in advancement, promotion, or fulfillment of the
				business of the corporation.
Some of the above activities may not create a tax liability
				  in another state because of the protections afforded by
				  Public Law
				  86-272,
				  15 U.S.C.A. Sections
				  381-385, which prohibit the taxation of a
				  corporation if its only activities in the state are the solicitation of orders
				  which are approved and filled by shipment or delivery from outside the state.
				  Irrespective of whether the corporation is taxable in another state, it may
				  apportion its income if it carries on one or a combination of the above
				  activities in a regular and continuing basis by corporate officers or employees
				  in at least one other state.
The mere shipment of goods via common carrier or the United
				  States Postal Service to non-Iowa destinations does not constitute doing
				  business partly within and partly without the state.
Irvine Co. v.
				  McColgan,
26 Cal.2d 160, 157 P.2d 847 (1945);
W.J. Dickey
				  & Sons, Inc. v. State Tax Commission,
212 Md. 607, 131 A.2d 277
				  (1957);
State of Georgia v. Coca-Cola Bottling Co.,
214 Ga.
				  316, 104 S.E.2d 574 (1958);
E.F. Johnson Company v. Commissioner of
				  Taxation,
224 N.W.2d 150 (Minnesota 1975); 1980 O.A.G. 588, and
Kuehn to Bair
#85-5-53(L).
For tax years beginning on or after January 1, 1989, a
				  corporation domiciled in this state whose trade or business is carried on
				  partly within and partly without the state or whose income is derived from
				  sources partly within and partly without the state may allocate and apportion
				  its income within and without the state. "Income from sources partly within and
				  partly without the state" means income from real or tangible property located
				  or having a situs within and without the state.
The term "tangible property having a situs without the state"
				  means that a tangible property is habitually present in a state other than Iowa
				  or it maintains a fixed and regular route through another state sufficient that
				  the other state could constitutionally under the 14th Amendment and Commerce
				  Clause of the United States Constitution impose an apportioned ad valorem tax
				  on the property.
Central R. 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. 155
				  (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.
For tax years beginning on or after January 1, 1995, a
				  corporation whose trade or business is carried on partly within and partly
				  without the state of Iowa or whose income is derived from sources partly within
				  and partly without the state may allocate and apportion its income within and
				  without the state. "Income from sources partly within and partly without the
				  state" means income from real, tangible, or intangible property located or
				  having situses within and without the state.
This rule is intended to implement Iowa Code section
				  422.33(1)  as
				  amended by 1999 Iowa Acts, chapter 151.