Supreme Court Refuses To Hear KFC Appeal On Paying Corporate Taxes

WASHINGTON -- The Supreme Court won't stop Iowa from forcing KFC Corp. to pay nearly $250,000 in corporate income taxes, even though it had no restaurants or employees in the state.

The high court on Monday refused to hear an appeal from the fried-chicken giant, which wants a decision by that state's Supreme Court overturned.

All KFC restaurants in Iowa are independent franchises, whose owners pay KFC for the use of its logo and systems. The company also requires franchises to adhere to its requirements for menu items, marketing and facilities.

But the Iowa Department of Revenue and Finance assessed the company more than $248,000 in unpaid corporate income taxes, including interest and penalties, in 2001. The taxes were for 1997 to 1999.

Delaware-based KFC challenged the assessment, claiming that under Iowa law it was not subject to taxes because it didn't have property in the state. But Iowa judges have not agreed with that argument, saying a physical presence is not required when a state taxes income.

One judge said that "because KFC's marks and trademarks were an `integral part of business activity occurring regularly in Iowa,' the income derived from the use of that property was taxable under Iowa law."

The case is KFC Corp. v Iowa, 10-1340.

Comments

[ayisha]

09:20 PM on 10/05/2011

i am not a tax expert, but from a common sense approach, they make money in the state, so they should pay taxes in the state. i was shocked to learn that i owed NY state taxes despite not presently being a resident there, but i made money in NY, so i have to pay taxes there. why is it okay that there are one set of laws for the public and a different set for corporations?

[Drama Llama]

12:35 PM on 10/05/2011

Who cares about the taxes.. Now I want a bucket of Chicken.

[picaman]

12:14 PM on 10/05/2011

Franchisees pay 5% of their gross sales back to KFC. The franchisees deduct this as a business expense so there is no tax collected by the state. The state's argument is that it is owed taxes on this revenue.

[jasev01]

10:59 AM on 10/05/2011

I would say this is an outrage unless they were paying tax on the franchise fees and goods sold to the franchises.

[Progressive Badger]

10:39 AM on 10/05/2011

For those that don't think this makes sense.

The franchises sell product and make money in Iowa. The franchises pay the corporation for use of their logo, branding, intellectual property, etc. The corporation makes money from Iowa franchises (that make money in Iowa).

I completely agree with the supremes on this one. Does KFC really believe that because they don't have employees there, they're not earning money from Iowa? If they really don't believe they're making money in Iowa, then they should remove their signs/logos, and divest themselves from all franchises in Iowa.

[DarthVee]

09:46 AM on 10/05/2011

Dang! I wonder what Gary Larson would have to say about this?

[bobcouchman]

09:19 AM on 10/05/2011

iowa is saying, KFC makes an income off the franchises and that income is therefore taxable. i am sure the franchises deduct all the money they pay KFC, so why shouldnt KFC pay incometax on that money. if i go inyo another state and make money, that money is taxable by the state i make the money in.

[leavegakalone]

09:06 AM on 10/05/2011

Which begs the question..which came first the chicken or the court?

[chaspharrington]

09:04 AM on 10/05/2011

DO THEY ACTUALLY REALLY SELL CHICKEN? GIVEN THE IOWA WAS THE STATE WITH THE BIGGEST EGG RECALL IN HISTORY, IT MAKES YOU QUESTION, DOES KFC GET CHICKENS FROM IOWA??? JUST A THOUGHT, PERSONALLY I DON'T EAT FAST FOOD!

[noslices]

08:58 AM on 10/05/2011

So, the state of Iowa is saying one of two things:

1. The franchises of KFC in Iowa do NOT pay any corporate taxes.

or

The state of Iowa wants to collect DOUBLE taxes, on both the Franchises AND the Corporate KFC.

That sounds fair.

[bobcouchman]

09:21 AM on 10/05/2011

no the franchise would deduct the amount they pay the corp. as expenses and not pay taxes on it.

[Animal53]

08:32 AM on 10/05/2011

I dont like chicken, but I do have agree that this does not make sense. The owners of the restaurants should have to pay the taxes not the corporation in this case.

[Mikey Ritter]

10:34 AM on 10/05/2011

you are missing the point here. The owners do pay taxes. But they deduct the payments to KFC as a business expense. KFC makes millions on income derived from the use of their trademark. The income is earned in Iowa. Many coporations do not have employees, nor buildings. Since the business deucts the expense, and KFC is earning income in the state, thus they are taxed on that income. Even the pro-buisness U S Supreme Court, along with every other court ruled against KFC. It's Bus 101

[KMoore4318]

11:10 AM on 10/05/2011

If KFC sold the franchise rights across the internet, could they then avoid the taxes, like any other busness that sells over the internet, but does not have a physical presance in a state?

[laurabwva]

08:16 AM on 10/05/2011

If its such a big deal why doesn't KFC just stop the use of its logos and systems by independent owners. After all they don't have to lease their franchise. Since Iowa is the only state money hungry enough to tax for a business you don't own, then I wouldn't want to be affiliated in any way. Just pull all the KFCs out of Iowa. That would be like me having relatives in Iowa and me living in Ohio. Just because i have relatives in Iowa doesn't mean i have to pay Iowa taxes. Its absurd. Glad i don't live in Iowa.

[leavegakalone]

09:07 AM on 10/05/2011

Why would you want to live in Ohio?

[Coffee Table]

08:07 AM on 10/05/2011

"...a physical presence is not required when a state taxes income."

"...marks and trademarks were an `integral part of business activity occurring regularly in Iowa"

So are Web based businesses next? Amazon? Ebay? the Huffington Post? Their marks and trademarks appear all over Iowa's computers and smart phones and business is conducted there without a physical presence. What about small mom and pop businesses that use the Internet and sell products in Iowa?

The thought of it is...taxing!

[consult1on1]

07:48 AM on 10/05/2011

Could we see Corporate Financial protection slipping a little? :)

[mhsden]

06:43 AM on 10/05/2011

Tax Tax Tax ugh