Supreme Court won't stop Iowa from requiring KFC to pay taxes

[Little-Acorn]

Somehow I get the feeling that this is not the first time this scenario has come up. What other companies charge people in other states to use their name, logo, secret recipies (or plans or patents maybe?), without the company having an actual physical presence in the state? And how have taxes for those other companies gotten worked out?

This is a little odd.

What say ye?

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http://www.businessweek.com/ap/financialnews/D9Q4SNFO0.htm

Court won't stop Iowa from forcing KFC to pay tax

The Associated Press
October 3, 2011, 10:50AM ET

WASHINGTON - The Supreme Court won't stop Iowa from forcing KFC Corp. to pay nearly $250,000 in corporate income taxes, even though it had no restaurants or employees in the state.

The high court on Monday refused to hear an appeal from the fried-chicken giant, which a decision by that state's Supreme Court overturned.

All KFC restaurants in Iowa are independent franchises, whose owners pay KFC for the use of its logo and systems. But the Iowa Department of Revenue and Finance assessed the company more than $248,000 in unpaid corporate income taxes, including interest and penalties, in 2001. The taxes were for 1997 to 1999.

KFC says it doesn't owe Iowa taxes because it doesn't have property in the state. But Iowa judges have not agreed with that argument.

[fj1200]

http://www.businessweek.com/ap/financialnews/D9Q4SNFO0.htm

But Iowa judges have not agreed with that argument.

I think we're missing some information.

[Little-Acorn]

I think we're missing some information.

Hmmmm.....

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http://thegazette.com/2010/12/30/iowa-supreme-court-rules-kfc-must-pay-over-240000-in-state-taxes/

Iowa Supreme Court rules KFC must pay over $240,000 in state taxes

by Trish Mehaffey
UPDATED: 30 December 2010 | 2:20 pm

KFC will have to pay more than $240,000 in corporate income taxes to the state of Iowa.

The Iowa Supreme Court upheld a district court decision Thursday that requires fried chicken chain KFC to pay more than $240,000 in corporate income taxes to the state.

The court determined the state could impose income tax on revenue received by a company that doesn’t have a presence in Iowa, according to the ruling. KFC doesn’t own any restaurants or have employees in Iowa. All the restaurants in the state are owned by independent franchisers.

In 2001, the Iowa Department of Revenue and Finance assessed KFC $248,658 for unpaid corporate income taxes, penalities and interest for 1997-1999, according to the ruling.

The department claimed KFC’s royalty income based on the Iowa transactions was “taxable because it is derived from Iowa customers and is made possible by Iowa’s infrastructure and legal protection of the Iowa marketplace.”

[fj1200]

http://thegazette.com/2010/12/30/iowa-supreme-court-rules-kfc-must-pay-over-240000-in-state-taxes/

The court determined the state could impose income tax on revenue received by a company that doesn’t have a presence in Iowa, according to the ruling.

The department claimed KFC’s royalty income based on the Iowa transactions was “taxable because it is derived from Iowa customers and is made possible by Iowa’s infrastructure and legal protection of the Iowa marketplace.”

That's better. Seems a bit far fetched in that it could be so far reaching that virtually any transaction that touches another state could trigger a tax return. Hopefully it's at least limited to royalties and the like.

[Little-Acorn]

Iowa's lower court also pointed out that KFC restaurant owners in Iowa, could deduct the royalty payments they made to KFC for use of their name, recipes etc., from their state corporate income taxes.

That might be the pivotal point. Once you pay Danegeld, you never get rid of the Dane.

See the opinions rendered by Iowa's Supreme Court that day, at:
http://www.iowacourtsonline.org/supreme_court/recent_opinions/20101230/index.asp

The KFC case is the second from the bottom.

[logroller]

Kinda makes sense, intellectual property is still property. Just because there's no physical presence doesn't mean you didn't still earn money. I could live on the moon and receive royalties from Earth, but I'd still pay those earthly taxes.

Though, I wonder if this could apply to e-commerce as well? Seems very similar to the internet sales tax issues.