In 2011 a devastating taxpayer case in the SALT corporate income tax was decided. This slightly different spin on the case was introduced by a famous colonel and his chicken company. The company, known as Kentucky Fried Chicken, was incorporated in Delaware with a headquarters in Kentucky. KFC licensed its valuable name to franchisors nationwide, including into Iowa. Slightly different than the related trademark license in the Geoffrey cases, KFC licensed its trademark to franchisor’s who independently owned KFC’s. Certainly the use of the KFC trademark in Iowa could not force Kentucky based KFC to pay Iowa income tax could it?
The Supreme Court of Iowa ruled that it could in 2010. Lacking physical presence, the court said KFC was economically present in Iowa because its trademarks were firmly rooted in Iowa. Further, the court opined that such intangibles were functionally equivalent of physical presence. The court concluded “the intangibles in Iowa” provided sufficient nexus. How an intangible trademark could be firmly rooted anywhere or be present in Iowa is beyond me. In its liberal reading of Quill the court stated that physical presence was limited to sales and use tax cases because the burdens of filing income tax are far less than that of a sales and use tax. Following the logic in this case, there is no telling how far states can go to tax foreign trademark holding companies.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, and Florida probate. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.