Iowa Reaching Beyond Borders with Corporate Income Tax

January 3, 2011

The Iowa Department of Revenue has issued a ruling that an Idaho-based company with no property or employees in Iowa is nevertheless subject to the Iowa state corporate income tax. From Tax Update Blog:

State taxing authorities have long despised the Supreme Court’s ruling in Quill v. North Dakota.[…] Ignoring the clear requirement of a “physical” presence, they argue that an “economic” presence” is enough to make you taxable in a state.

The states that have adopted this aggressive posture argue correctly that Quill directly involves only sales taxes. But the principles raised by the Court in Quill-the risk to interstate commerce of states overstepping with their tax powers-apply equally to any tax. It’s silly to think that the states are severely limited with sales taxes but can do whatever they want with corporate income taxes.

Iowa joins Louisiana, New Mexico, New Jersey, North Carolina, Oklahoma, and West Virginia (off the top of my head) in this destructive interpretation. Iowa’s ruling helpfully notes that a business with less than $1,000 of income is exempt from the filing requirement. But above that, if you have customers in Iowa, Iowa may come after you!

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