If an Iowa Department of Revenue position on interstate income taxation stands, the limits set by Congress in 1959 on taxation of out-of-state corporations (PL 86-272) will become a dead letter. The Department is attempting to tax Jack Daniels — whose only connection to Iowa is the sale of liquor to the Iowa state wholesale liquor monopoly — based on the use of its trademarks in Iowa.
PL 86-272, enacted under the Constitutional authority given to Congress to regulate interstate commerce, prohibits states from taxing corporations whose only business in the state is the shipping of goods from out-of-state. The states are always trying to get around this, and Iowa gave itself a victory on this score when the Iowa Supreme Court ruled that KFC was taxable on royalties received from its Iowa franchisees even though KFC itself had no property, employees or operations in Iowa. Now the Department is turning this victory up to 11. From the Administrative Law Judge ruling in favor of the Department in an appeal by Jack Daniels Properties, Inc. and Southern Comfort Properties, Inc, members of the Brown-Forman group.
The department
Tags: Branstad tax policy, Iowa tax administration, iowa tax policy, PL 86-272
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As usual, this is terrific commentary by you, Joe!
Mike, thank you!
Didnt the Supreme Court stated that Quill only applied to sales tax and not other state business taxes like corporate income? Also, I thought that PL 86-272 only applied to sales of tangible products–is my understanding correct?
Daniel:
While Quill was a sales tax case, the Supreme Court didn’t limit its holding to only sales taxes.
While 86-272 applies to sales of goods, the Department is applying the “use of intangibles” argument as a back-door way of imputing nexus to otherwise exempt activities.