A recent article in Fiscal Times discusses the issue of state income tax on out-of-state franchisors, a trend that is growing in popularity among a variety of states.
Today, more than 150 businesses nationwide wrote a letter to Speaker Boehner and Leader Pelosi urging them to enact the Business Activity Tax Simplification Act this year. The businesses, which include many franchise companies, want to put an end to unfair, confusing and costly state corporate income taxation.
One of the pieces of legislation currently pending before Congress that has the potential to significantly affect franchisors is the Business Activity Tax Simplification Act, or BATSA. BATSA would clarify federal tax law by resolving the question of economic “nexus” that is required for a state to succesfully impose an income tax on out-of-state companies.
Last week, the Iowa Supreme Court issued a ruling that will require out-of-state franchisors to pay tax on income earned through royalties earned from Iowa-based franchisees. The decision has implications for any business that derives income from intangible assets (through licensing or otherwise) located in another state.