Court Opinion

ID: 4155257
Source: CourtListenerOpinion
Date Created: 2017-03-24 14:06:33.75255+00
Date Added: 2024-06-11T07:46:38.523638
License: Public Domain

IN THE SUPREME COURT OF IOWA
                             No. 15–0296

                         Filed March 24, 2017

MYRIA HOLDINGS INC. & SUBS,

      Appellant,

vs.

IOWA DEPARTMENT OF REVENUE,

      Appellee.

      Appeal from the Iowa District Court for Polk County, Michael D.

Huppert, Judge.

      An affiliated group of companies challenges the determination of

the Iowa Department of Revenue that the group’s parent company could

not be included with its subsidiaries in an Iowa consolidated tax return

because it did not receive taxable income under Iowa Code section

422.33(1). AFFIRMED.

      Kimberley M. Reeder of The Law Office of Kimberley M. Reeder,

Morehead, Kentucky, and Christopher L. Nuss and William C. Brown of

Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C., Des

Moines, for appellant.

      Thomas J. Miller, Attorney General, Donald D. Stanley Jr., Special

Assistant Attorney General, and Paxton J. Williams, Assistant Attorney

General, for appellee.
                                            2

HECHT, Justice.

       The Iowa Department of Revenue (Department) issued a final order

concluding a foreign corporation was ineligible to join a consolidated tax

return with two of its subsidiaries doing business in Iowa because it did

not derive taxable income from within Iowa under Iowa Code section

422.33(1).      On judicial review, the district court affirmed the agency’s

final order.     On appeal, the foreign corporation and its subsidiaries

contend the corporation properly joined the consolidated return because

it derived taxable income in the forms of distributed earnings and each

member’s allocated share of the group’s consolidated tax liability.                   We

conclude the Department correctly concluded the foreign corporation

lacked taxable income from within the State of Iowa and affirm the

decision of the district court.

       I. Background Facts and Proceedings.

       Myria Holdings Inc. (Myria) is a Delaware corporation with its

primary place of business in Texas. Myria holds an ownership interest in

several subsidiaries, including two Delaware limited liability companies

(LLCs) doing business in Iowa: Natural Gas Pipeline Company of

America LLC (NGPL) and NGPL PipeCo LLC (PipeCo).                      Myria holds an

eighty-percent membership interest in PipeCo, the sole member of

NGPL. 1

       Myria and its subsidiaries (the Group) are in the business of

natural gas pipeline transmission and storage.                NGPL is the principal

operating subsidiary; it owns and operates a major natural gas

       1Myria  is the sole member of Myria Acquisition LLC, a Delaware LLC that owns
the eighty-percent membership interest in PipeCo. Under Iowa’s revenue regulations, a
single-member LLC is treated like a division of its owner. Iowa Admin. Code r. 701—
45.1 (2009); see also 26 C.F.R. § 301.7701-3(a) (2009). Thus, Myria Acquisition LLC is
disregarded for tax purposes, and we regard it as a division of Myria for purposes of this
opinion.
                                           3

transmission and storage system primarily serving markets in Iowa and

other Midwestern states. PipeCo is the sole member of NGPL; it owns

real and personal property in Iowa and leases it to NGPL. As the parent

company, Myria owns the subsidiaries and assists them with setting

strategic priorities.

       During tax year 2009, Myria received two categories of payments

from NGPL and PipeCo: distributions of earnings and payments of each

member’s allocated tax liability. Myria received the distributions of

earnings in accordance with its direct and indirect membership interest

in the subsidiaries. 2 Myria received the allocated tax payments under a

February 2008 Tax Allocation Agreement that apportioned the affiliated

group’s tax liability among its members. 3

       Under the tax allocation agreement, Myria agreed to join a federal

consolidated tax return with PipeCo, NGPL, and other subsidiaries;

prepare and file all appropriate documents for the consolidated return;

and pay the Group’s consolidated tax liability. PipeCo and NGPL agreed

to make quarterly payments to Myria equal to their estimated quarterly

federal income tax liability at least thirty days before each quarterly

installment payment was due to the Internal Revenue Service (IRS).
Each entity remained responsible for contributing its proportionate share

of the group’s overall tax liability but only Myria would make tax

payments to the IRS. If the payments to Myria over the course of the tax

       2Myria alleges that it used the distributed earnings to make distributions to its
owners, service approximately $200 million of interest on debt it incurred for the
Group’s benefit, and pay a related third party to provide management services to Group
members.
       3The parties’ contest how these payments should be characterized.       The
Department contends the payments amount to “pass through tax payments.” The
Group responds that the payments are not tax payments because tax payments are
made to a government taxing authority and there is no state actor involved in their
arrangement.
                                          4

year exceeded the actual apportioned tax liabilities, Myria promised to

refund any overpayment.            In addition, PipeCo and NGPL assumed

liability for and agreed to indemnify Myria against responsibility for any

subsidiary’s tax obligations, thus protecting Myria from the risk of

underpayment.

       Myria filed a federal consolidated return for tax year 2009 on

behalf of the Group. In the federal return, both PipeCo and NGPL elected

to be treated as corporations.            The Group reported a net loss of

$62,695,855; only NGPL reported net income.

       The Group also filed an Iowa consolidated return for tax year 2009.

See Iowa Code § 422.37 (2009). The return reported an apportioned net

loss of $10,225,151 and an estimated overpayment of $2,192,762 for tax

year 2009, which it applied to its estimated tax liability for tax year 2010.

Myria reported no Iowa receipts.

       The Department determined Myria was ineligible to be included in

the consolidated return because it had not derived taxable income from

within the state under Iowa Code section 422.33(1) during tax year 2009.

The Department issued a “Notice of Assessment” against the Group

assessing it for corporate income tax in the amount of $2,558,989 plus

interest and penalties for tax year 2009. With Myria excluded from the

consolidated return, the Group’s tax liability was substantially greater.

       The Group protested the Department’s assessment, arguing Myria

was eligible to be included in the consolidated return because it derived

taxable income from within Iowa. 4 The Department informally rejected

the Group’s protest, and the Group sought a contested hearing.                    The

       4Although at first glance it would seem counterintuitive that Myria preferred to

be subject to taxation in Iowa, the preceding two paragraphs reveal the Group’s
consolidated tax burden would be substantially lower if Myria derived taxable income
from within the state and could therefore join the consolidated return.
                                     5

Department filed an answer, and the matter proceeded to a hearing

before an administrative law judge (ALJ).

      At the hearing before the ALJ, the Group presented testimony from

Jason Francl, tax director of SteelRiver Infrastructure Management U.S.,

LLC, an investment advisory and management-services company that

manages an investment fund holding a twenty-three percent ownership

interest in Myria.   Francl, who is also an officer and vice president of

Myria, testified that SteelRiver has a management-services agreement

with Myria under which Myria pays it to manage tax-filing obligations

and provide executive and leadership services.       He testified that he

spends ten to twenty percent of his time performing this work and that

he works closely with legal, treasury, and accounting colleagues to

manage intragroup cash distributions, make interest payments to

lenders, prepare financial reports, and manage the tax-compliance

process for the Group. Francl further testified that Myria provides long-

term financing for its subsidiaries’ business activities and—as the parent

company—sets strategic priorities for its subsidiaries.

      In its posthearing brief, the Group argued Myria was properly

included in the consolidated return because it derived income in tax year

2009 from its subsidiaries doing business in Iowa.        Specifically, the

Group asserted Myria received distributions of earnings—a portion of

which were traceable to the subsidiaries’ business activities in Iowa—and

payments under the tax allocation agreement.

      An ALJ issued a proposed decision upholding the Department’s

assessment. The Group appealed, and the director of the Department

issued a final order adopting the proposed decision with certain

amendments and clarifications.
                                      6

       The Department’s final order concluded Myria was ineligible to join

in the Group’s consolidated tax return because Myria did not derive

taxable income under Iowa Code section 422.33(1). The order concluded

that the distributed earnings Myria received incident to its ownership

interest in the subsidiaries amounted to an activity of “[o]wning and

controlling a subsidiary corporation” and therefore did not constitute

“doing business in the state or deriving income from sources within the

state” within the meaning of section 422.33(1).       See id. § 422.34A(5).

Although PipeCo       and NGPL are limited liability companies, the

Department concluded they must be treated as corporations for purposes

of Iowa’s tax laws since they elected to be taxed as corporations in the

Group’s federal consolidated return.         See id. § 422.32(4) (defining

“corporations,” for business tax purposes, to include “partnerships and

limited liability companies taxed as corporations under the Internal

Revenue Code”).

       The Department’s final order also determined the payments Myria

received from NGPL and PipeCo under the tax allocation agreement did

not constitute income to Myria because those payments amounted to

“pass-through tax expenses of the subsidiaries based on the subsidiaries’

income.”     The director concluded the payments were not a monetary

advance to the subsidiaries or a “working capital cushion” supplied by

Myria, contrary to the Group’s assertions; they were instead payments

equal to the subsidiaries’ allocated share of the Group’s overall tax

liability.   Myria received no interest, fees for service, or any other fees

under the tax allocation agreement in connection with its payment of the

Group’s tax liabilities.   Thus, the Department concluded KFC Corp. v.

Iowa Department of Revenue, 792 N.W.2d 308 (Iowa 2010)—which

determined certain intercompany payments were taxable even though
                                       7

they also would be offset or eliminated in a consolidated return—was

distinguishable.

      The Group filed a petition for judicial review. On September 10,

2014, the district court issued a ruling affirming the Department’s

decision, concluding Myria did not “deriv[e] income from sources within

this state” under Iowa Code section 422.33(1). The Group appealed, and

we retained the appeal.

      II. Scope and Standards of Review.

      Section 17A.19 of the Iowa Administrative Procedures Act (IAPA)

governs judicial review of final agency decisions. See Iowa Code

§ 17A.19; KFC Corp., 792 N.W.2d at 312. Under section 17A.19, we

must determine “[t]he validity of agency action . . . in accordance with

the standards of review” set forth in that provision. Iowa Code

§ 17A.19(8)(b). Under Iowa Code section 17A.19, we only grant deference

to an agency’s interpretations of law if the particular matter is clearly

vested by statute in the agency’s discretion. Id. § 17A.19(10)(c), (l); see

also Renda v. Iowa Civil Rights Comm’n, 784 N.W.2d 8, 12–14 (Iowa

2010). Even if interpretative authority has been clearly vested in the

agency, we give no deference to an interpretation of law that is

“irrational, illogical, or wholly unjustifiable.” Iowa Code § 17A.19(10)(l).

      In   this    case,   we   must   determine   whether   to   uphold   the

Department’s interpretations of Iowa Code sections 422.33(1) and

422.34A(5). To determine whether deference is owed to the Department’s

interpretations of those provisions, we determine whether the legislature

“clearly vested” the Department with discretion to interpret them. See

Renda, 784 N.W.2d at 12–14.            However, because we conclude the

Department’s interpretations of Iowa Code sections 422.33(1) and

422.34A(5) are correct, we need not reach the question of whether they
                                     8

are entitled to deference under section 17A.19(10). See KFC Corp., 792
N.W.2d at 312.

      III. Analysis.

      In this case we once again address the question of whether Iowa

can subject a foreign corporation to income taxation when the

corporation has no physical presence in Iowa but receives revenue from

entities that do business within the state. In KFC Corp., we determined

that an out-of-state corporation that licenses its intellectual property to

in-state entities has a taxable nexus with the state under Iowa Code

section 422.33. 792 N.W.2d at 328. In this case, we must determine

whether Myria lacks a taxable nexus with the State of Iowa for tax year

2009 because it meets the standard for exemption under section

422.34A(5).

      A.   Background Rules and Principles.         In Iowa, an affiliated

corporation may join a consolidated return to the extent its income is

taxable under Iowa Code section 422.33 but cannot join the return if it is

exempt from taxation.    Id. § 422.37(2)–(3); see also Iowa Admin. Code

r. 701—53.15. An affiliated corporation’s income is taxable under Iowa

Code section 422.33 if the corporation has both a taxable nexus with the

state and taxable net income.      Iowa Code § 422.33(1).     If a common

parent lacks a taxable nexus with Iowa or does not receive taxable

income, it may designate a subsidiary that is subject to Iowa’s income

tax to act on the consolidated group’s behalf.     See Iowa Admin. Code

r. 701—53.15(1).

      Iowa Code section 422.34A exempts a foreign corporation from

having a taxable nexus with the state for purposes of Iowa Code section

422.33(1) if its activities amount to “[o]wning and controlling a subsidiary

corporation” and the corporation lacks a physical presence in the state
                                       9

related   to   its   ownership   or   control.   Iowa   Code   § 422.34A(5).

“Corporation” is a defined term that includes “partnerships and limited

liability companies taxed as corporations under the Internal Revenue

Code.” Id. § 422.32(4).

      The parties agree that Myria is a parent company lacking a

physical presence in Iowa related to its ownership and control.         Our

resolution of this case therefore turns on whether the Department

correctly concluded Myria’s activities with NGPL and PipeCo constitute

activities of “[o]wning and controlling a subsidiary corporation” within

the meaning of Iowa Code section 422.34A(5).

      B. Interpretation of Section 422.34A(5).           When interpreting

statutes, our primary objective is to ascertain the legislature’s intent.

Branstad v. State ex rel. Nat. Res. Comm’n, 871 N.W.2d 291, 295 (Iowa

2015). We begin with the statute’s language. Des Moines Flying Serv.,

Inc. v. Aerial Servs. Inc., 880 N.W.2d 212, 220 (Iowa 2016). If a word is

not defined by the statute, however, we assign the word its common,

ordinary meaning, interpreted within the context of the statute and its

history. Bank of Am., N.A. v. Schulte, 843 N.W.2d 876, 880 (Iowa 2014).

We do not extend, expand, or change the meaning of a statute under the

guise of construction, even if we believe doing so would mitigate the

hardship of a consequence or if we question the statute’s wisdom. Reg’l

Util. Serv. Sys. v. City of Mount Union, 874 N.W.2d 120, 124 (Iowa 2016).

We construe statutes “in light of the legislative purpose,” In re A.J.M.,

847 N.W.2d 601, 605 (Iowa 2014) (quoting State v. Erbe, 519 N.W.2d
812, 815 (Iowa 1994)), and “give weight to explanations attached to bills

as indications of legislative intent,” Homan v. Branstad, 887 N.W.2d 153,

166 (Iowa 2016).
                                    10

      The terms “owning” and “controlling” as they are used in section

422.34A(5) are not defined by statute or interpreted in the associated

regulations. Therefore, we assign to the words their common, ordinary

meaning, in the context of the statute and its history. See Bank of Am.,

N.A., 843 N.W.2d at 880.

      Black’s Law Dictionary defines “ownership” to mean “[t]he bundle

of rights allowing one to use, manage, and enjoy property, including the

right to convey it to others” and “implies the right to possess a thing,

regardless of any actual or constructive control.”     Ownership, Black’s

Law Dictionary (10th ed. 2014). “Control” is defined as “[t]he direct or

indirect power to govern the management and policies of a person or

entity, whether through ownership of voting securities, by contract, or

otherwise; the power or authority to manage, direct, or oversee.” Control,

Black’s Law Dictionary. Thus, as used in Iowa Code section 422.34A, we

conclude “owning . . . a subsidiary corporation” plainly means the

holding of a possessory interest in the subsidiary that provides the owner

the right to use and manage it. In this context, the phrase “controlling a

subsidiary corporation” plainly means the holding or exercising of the

power or authority to directly or indirectly manage, govern, or oversee the

management and policies of a subsidiary.

      In interpreting statutes we generally “give weight to explanations

attached to bills as indications of legislative intent.” Homan, 887 N.W.2d

at 166.   Iowa Code section 422.34A was adopted to permit foreign

corporations to carry on activities that “are very meager in effect” without

acquiring a taxable nexus in Iowa.          See H.F. 2166, 76th G.A.,

explanation (Iowa 1995).     Given the legislature’s explanation of the

statute and the plain meaning of the words used in it, we conclude the

purpose of the legislation was to establish a safe harbor for foreign
                                       11

corporations lacking a physical presence in Iowa to engage in activities of

ownership and control of their subsidiaries doing business here without

establishing a nexus for purposes of income taxation. Our interpretation

of Iowa Code section 422.34A(5) as exempting activities of using,

managing, and enjoying a subsidiary (ownership) and managing,

directing, and overseeing a subsidiary (control) is consistent with this

purpose.

      We also construe statutes harmoniously with other “statutes

relate[d] to the same subject matter or to closely allied subjects.” State v.

McSorley, 549 N.W.2d 807, 809 (Iowa 1996) (per curiam).             The plain

meaning of “owning” and “controlling” in Iowa Code section 422.34A(5)

aligns smoothly with the legislature’s treatment of the concepts of

ownership and control within our rules of law governing business

corporations and LLCs.      In the corporate context, Iowa Code section

490.801 vests the power to manage, direct, and oversee the entity in the

hands of the board of directors or shareholders that have acquired all or

part of the board’s authority under Iowa Code section 490.732.           Iowa

Code § 490.801.     Under our rules governing LLCs, the members (i.e.

owners) are vested with the power to manage the entity or to oversee its

management by managers.           Id. § 489.407(1)–(3).   In both contexts, an

entity’s owners may also hold the power of control—the right to manage,

direct, and oversee the entity.

      C. Discussion.     In this case, the Group contends Myria is not

exempt from taxation under section 422.34A(5) because Myria provided

significant managerial, administrative, strategic planning, and financial

support to NGPL and PipeCo in tax year 2009—functions the Group

insists extend beyond or are distinct from activities of owning and
                                           12

controlling a subsidiary corporation. 5 The Group also asserts Myria has

a taxable nexus with Iowa because it owns two types of intangible

property with a situs in Iowa: shares of stock and money.

       1. Myria’s activities.       With respect to Myria’s involvement with

NGPL and PipeCo, the Group alleges Myria oversees the subsidiaries and

extensively coordinates with them on matters related to tax compliance,

financial reporting, intragroup distributions of earnings, and other legal

and financial matters, as well as setting strategic priorities for the

Group’s underlying enterprises. Further, the Group alleges Myria assists

NGPL and PipeCo with day-to-day business operations, makes interest

payments to lenders at each level of the parent–subsidiary hierarchy, and

implements a tax allocation agreement providing “working capital” for the

subsidiaries. Although Myria has no employees, the Group contends the

foreign corporation provides these services to NGPL and PipeCo through

       5The   Group argues that by virtue of the legal nature of LLCs, as a member of two
Delaware LLCs, Myria’s activities of management are distinct from activities of
managing a subsidiary corporation. In particular, the Group posits the ownership and
management paradigm of an LLC is distinct from that of a corporation because while
the owners of an LLC are typically active in its management (like partners in a
partnership), the corporate form typically separates the functions of ownership and
management. We reject this argument. Our focus in determining whether Myria’s
activities fell within the safe harbor is upon the nature of the activities, not Myria’s
status as a member of the subsidiaries.
         Moreover, the distinction Myria draws between the authority of shareholders in
owning and controlling a corporation and the authority of members in owning and
controlling limited liability companies is neither apt nor dispositive here. While the
Group is correct that it can actively participate in management as a member of a
Delaware LLC, so too can the owners of some Delaware corporations. Compare Del.
Code Ann. tit. 6, § 18-402 (West, Westlaw current through 81 Laws 2017, ch. 2)
(describing LLC member management), with id. tit. 8, § 354 (providing stockholders of a
close corporation are permitted “to treat the corporation as if it were a partnership or to
arrange relations among the stockholders or between the stockholders and the
corporation in a manner that would be appropriate only among partners”). Because
shareholders of some private corporations—like LLC members—can be active in the
management of the entity they own, we cannot say as a matter of law that Myria’s
activities as a member extended beyond—or were distinct from—activities of ownership
and control that can be undertaken by shareholders.
                                          13

a management-services agreement with a third party and through the

actions of Myria’s board of directors. 6

       We conclude that the activities Myria performed for NGPL and

PipeCo were all activities of owning and controlling a subsidiary

corporation. As we have already noted, NGPL and PipeCo are considered

subsidiary corporations for purposes of Iowa Code section 422.34A. The

term “corporation” includes LLCs that are taxed as corporations by the

federal taxing authority. See Iowa Code § 422.32(4). NGPL and PipeCo

elected to be taxed as corporations in the Group’s federal consolidated

return, so we treat them as corporations for purposes of Iowa Code

section 422.34A.

       Myria’s activities with NGPL and PipeCo are activities of ownership

and control. As set forth above, the terms “owning” and “controlling” as

they are used in Iowa Code section 422.34A(5) mean, respectively, the

holding of the possessory right to use and manage a subsidiary and the

holding of the power or authority to directly or indirectly manage, direct,

or oversee a subsidiary’s management and policies.                      Myria has a

controlling ownership interest in PipeCo and NGPL by virtue of its eighty-

percent ownership interest in PipeCo, the sole member of NGPL. In tax

year 2009, Myria’s agents performed various oversight and management

       6The   management-services agreement is between Myria and SteelRiver
Infrastructure Management U.S., LLC, an investment-advisory and management-
services company that manages an investment fund holding a twenty-three percent
ownership interest in Myria. The management-services agreement under which the
Group asserts Myria pays SteelRiver to provide management services to the Group is
not in the record. As noted above, Jason Francl, SteelRiver’s tax director and an officer
and vice president of Myria, testified that he spends ten to twenty percent of his time
working with legal, treasury, and accounting colleagues in overseeing and managing the
Group’s operations. We do not decide the significance of the fact that Myria did not
provide direct services to the Group but instead contracted with a management
company to do so. For purposes of this opinion, we assume without deciding that
hiring a management company to provide services can constitute an “activity” under
section 422.34A.
                                    14

activities for the subsidiaries, including coordination of tax compliance

and financial reporting; direction of intragroup distributions of earnings;

assistance with other legal and financial matters; establishment of

strategic priorities for the companies; and assistance with day-to-day

operations, including the making of interest payments to lenders at each

level of the parent–subsidiary hierarchy.      All of these activities are

routine features of a parent corporation’s ownership and control of its

subsidiary entities—features comfortably within the safe harbor from

taxation established in section 422.34A(5) for foreign parent corporations

without a physical presence in Iowa.

      The Group further posits that Myria is subject to taxation because

it provided “working capital” to the subsidiaries under the tax allocation

agreement. Because the subsidiaries’ tax obligations accrued daily but

were paid to Myria on a quarterly basis, the Group contends Myria

provided working capital to NGPL and PipeCo and thus engaged in an

activity distinct from the routine functions of ownership and control

contemplated by the safe harbor of section 422.34(5).        We disagree.

Under Iowa’s tax regulations, Myria was responsible for filing any

consolidated return on behalf of the Group because it was the common

parent of the Group under federal income tax law.        See Iowa Admin.

Code r. 701—53.15; see also 26 C.F.R. § 1.1502-77(c) (2009).       Myria’s

implementation of a tax allocation agreement in furtherance of its legal

responsibility as parent is no less an activity of ownership and control

than it would have been if Myria had required payments on a daily—not

quarterly—basis. Given its substantial ownership stake in the entities

and its resulting ability to exercise control over them, Myria had the

power to dictate the coordination of the Group’s payment of its

consolidated tax liability and the timing of the intragroup transfers.
                                     15

Accordingly, we conclude Myria’s decision as parent to permit the

subsidiaries to make payments on a quarterly basis does not remove it

from the safe harbor of section 422.34A(5).

      2. Other nexus arguments. We also reject the Group’s contention

that Myria has a taxable nexus with Iowa because it owns two types of

intangible property with a situs in Iowa: shares of stock and money. The

Department’s regulations list both “shares of stock” and “money” as

types of intangible property that may acquire a situs in Iowa. See Iowa

Admin. Code r. 701—52.1(1)(d).    Even assuming without deciding that

Myria’s ownership interests in the LLCs can be considered “shares of

stock” within the meaning of rule 701—52.1(1)(d) and that such interests

had an Iowa locus during the relevant tax period, they do not create a

taxable nexus for Myria in Iowa. Iowa Code section 422.34A(5) clearly

contemplates that an entity engaging in activities of owning a subsidiary

corporation necessarily holds some evidence of its ownership interest. If

the statute is to have any meaning or effect as a safe harbor, the

certificates evidencing Myria’s ownership interest in NGPL and PipeCo

cannot themselves create a taxable nexus with the state sufficient to

remove Myria from the safe harbor.

      We also reject the Group’s argument that Myria established a

taxable nexus with the state by permitting its subsidiaries to use its

“money” under the tax allocation agreement. We conclude the quarterly

payments by the subsidiaries of amounts equal to their respective shares

of the Group’s income tax obligation did not constitute Myria’s money

with a situs in Iowa under rule 701—52.1(1)(d) promulgated by the

Department. The payments were property of the subsidiaries transferred

to Myria under the tax allocation agreement and paid to the taxing

authority.   And although the subsidiaries’ obligations under the
                                          16

agreement accrued daily and the payments to Myria were made

quarterly, we conclude the temporal lag did not transform the payments

to assets of Myria in the interim between the day the obligation accrued

and the day the quarterly payments were made. During that interim, the

funds remained the property of the subsidiaries. And, as we explained

above, the tax allocation arrangement was well within the ownership-

and-control safe harbor under section 422.34A(5).

       3. Summary. Thus, we conclude all of Myria’s activities with its

subsidiaries doing business in Iowa were activities of owning and

controlling NGPL and PipeCo within the meaning of section 422.34A(5)

and Myria did not acquire a taxable nexus by virtue of owning “shares of

stock” or “money” in Iowa. Because we conclude Myria lacked a taxable

nexus with Iowa, we need not consider whether either the distributed

earnings or payments under the tax allocation agreement would

constitute taxable income within the meaning of section 422.33(1). 7

       IV. Conclusion.

       By electing to have PipeCo and NGPL taxed as corporations, the

Group chose to receive not only the tax advantages of corporate taxation

but any disadvantages, as well.             The legislature has exempted from
income taxation the activities of owning and controlling a subsidiary

corporation under Iowa Code section 422.34A(5). All of Myria’s activities

with its subsidiaries doing business in Iowa in tax year 2009 were

       7Our   decision here is compatible with our holding in KFC Corp., 792 N.W.2d
308. In KFC Corp., we found that Iowa could tax a foreign corporation whose only
connections with Iowa were franchise agreements in which it licensed its trademarks
and systems to independent franchisees doing business in Iowa. See KFC Corp., 792
N.W.2d at 324. Unlike the parent corporation in KFC Corp., Myria received no royalty
payments, license fees, or other earned fees in connection with an integral aspect of the
affiliated group’s business activities. KFC Corp. was decided under section 422.33(1)
and did not address the range of activities constituting ownership and control of
subsidiaries under section 422.34A(5), the focus of this case.
                                      17

activities of owning and controlling a subsidiary corporation within the

meaning of Iowa Code section 422.34A(5).           Myria has not otherwise

established a taxable nexus with the state. Thus, because Myria lacked

a taxable nexus with the State of Iowa in tax year 2009, the Department

correctly concluded Myria could not join the consolidated return.

      We find no error in the Department’s rulings.        Accordingly, we

affirm the district court’s ruling on judicial review.

      AFFIRMED.