Editor’s Note: Here’s a must read article as your franchise increasingly appears in the cross hairs of states seeking new sources of income tax revenue. Look for the complete article in Franchising World’s August magazine.
By Hugh W. Goodwin
The United States Supreme Court’s decision to decline review of the Iowa KFC decision will likely further embolden states to assert income tax nexus against out-of-state franchisors. Franchisors can and should challenge unreasonable nexus assertions by state revenue agencies when the state’s position is unwarranted. The changing state tax landscape, however, may force franchisors to deal with complex income apportionment and allocation provisions in multiple jurisdictions. Franchisors that face increased state tax filing obligations in a post-KFC world can still minimize their tax liabilities by understanding the nuances of state income tax laws.