2017 Iowa Code Title X - FINANCIAL RESOURCES Chapter 422 - INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES Section 422.8 - Allocation of income earned in Iowa and other states.
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INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES, §422.8
422.8 Allocation of income earned in Iowa and other states.
Under rules prescribed by the director, net income of individuals, estates, and trusts shall
be allocated as follows:
1. The amount of income tax paid to another state or foreign country by a resident
taxpayer of this state on income derived from sources outside of Iowa shall be allowed as a
credit against the tax computed under this chapter, except that the credit shall not exceed
what the amount of the Iowa tax would have been on the same income which was taxed by
the other state or foreign country. The limitation on this credit shall be computed according
to the following formula: Income earned outside of Iowa and taxed by another state or
foreign country shall be divided by the total income of the resident taxpayer of Iowa. This
quotient multiplied times the net Iowa tax as determined on the total income of the taxpayer
as if entirely earned in Iowa shall be the maximum tax credit against the Iowa net tax.
2. a. Nonresident’s net income allocated to Iowa is the net income, or portion of net
income, which is derived from a business, trade, profession, or occupation carried on
within this state or income from any property, trust, estate, or other source within Iowa.
However, income derived from a business, trade, profession, or occupation carried on within
this state and income from any property, trust, estate, or other source within Iowa shall
not include distributions from pensions, including defined benefit or defined contribution
plans, annuities, individual retirement accounts, and deferred compensation plans or any
earnings attributable thereto so long as the distribution is directly related to an individual’s
documented retirement and received while the individual is a nonresident of this state. If
a business, trade, profession, or occupation is carried on partly within and partly without
the state, only the portion of the net income which is fairly and equitably attributable to
that part of the business, trade, profession, or occupation carried on within the state is
allocated to Iowa for purposes of section 422.5, subsection 1, paragraph “j”, and section
422.13 and income from any property, trust, estate, or other source partly within and partly
without the state is allocated to Iowa in the same manner, except that annuities, interest on
bank deposits and interest-bearing obligations, and dividends are allocated to Iowa only
to the extent to which they are derived from a business, trade, profession, or occupation
carried on within the state. Net income described in section 29C.24, subsection 3, paragraph
“a”, subparagraph (3), and paragraph “b”, subparagraph (2), shall not be allocated and
apportioned to the state, as provided in section 29C.24.
b. A resident’s income, or the income of an estate or trust with a situs in Iowa, allocable to
Iowa is the income determined under section 422.7 reduced by items of income and expenses
from an S corporation that carries on business within and without the state when those items
of income and expenses pass directly to the shareholders under provisions of the Internal
Revenue Code. These items of income and expenses are increased by the greater of the
following:
(1) The net income or loss of the corporation which is fairly and equitably attributable to
this state under section 422.33, subsections 2 and 3.
(2) Any cash or the value of property distributions which are made only to the extent that
they are paid from income upon which Iowa income tax has not been paid, as determined
under rules of the director, reduced by the amount of any of these distributions that are made
to enable the shareholder to pay federal income tax on items of income, loss, and expenses
from the corporation.
3. Taxable income of resident and nonresident estates and trusts shall be allocated in the
same manner as individuals.
4. The amount of minimum tax paid to another state or foreign country by a resident
taxpayer of this state from preference items derived from sources outside of Iowa shall be
allowed as a credit against the tax computed under this division except that the credit shall
not exceed what the amount of state alternative minimum tax would have been on the same
preference items which were taxed by the other state or foreign country. The limitation on
this credit shall be computed according to the following formula: The total of preference
items earned outside of Iowa and taxed by another state or foreign country shall be divided
by the total of preference items of the resident taxpayer of Iowa. In computing this quotient,
those items excludable under section 422.5, subsection 2, paragraph “b”, subparagraph (1),
Wed Feb 08 03:44:36 2017
Iowa Code 2017, Section 422.8 (20, 2)
§422.8, INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES
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shall not be used in computing the preference items. This quotient multiplied times the net
state alternative minimum tax as determined in section 422.5, subsection 2, on the total of
preference items as if entirely earned in Iowa shall be the maximum tax credit against the
Iowa alternative minimum tax. However, the maximum tax credit will not be allowed to the
extent that the minimum tax imposed by the other state or foreign country is less than the
maximum tax credit computed above.
5. a. The director may, in accordance with the provisions of this subsection, and
when cost-efficient, administratively feasible, and of mutual benefit to both states, enter
into reciprocal agreements with tax administration agencies of other states to further
tax administration and eliminate duplicate withholding by exempting from Iowa taxation
income earned from personal services in Iowa by residents of another state, if the other
state provides a tax exemption for the same type of income earned from personal services
by Iowa residents in the other state. For purposes of this subsection, “income earned from
personal services” means wages, salaries, commissions, and tips, and earned income from
other sources. This subsection does not authorize the department to withhold taxes on
deferred compensation payments, pension distributions, and annuity payments when paid
to a nonresident of the state of Iowa. All the terms of the agreements shall be described in
the rules adopted by the department.
b. A reciprocal agreement entered into on or after April 4, 2002, with a tax administration
agency of another state shall not take effect until such agreement has been authorized by a
constitutional majority of each house of the general assembly and approved by the governor.
A reciprocal agreement in effect on or after January 1, 2002, shall not be terminated by the
state of Iowa unless the termination has been authorized by a constitutional majority of each
house of the general assembly and approved by the governor. An amendment to an existing
reciprocal agreement does not constitute a new agreement.
6. If the resident or part-year resident is a shareholder of an S corporation which has in
effect an election under subchapter S of the Internal Revenue Code, subsections 1 and 3 do
not apply to any income taxes paid to another state or foreign country on the income from the
corporation which has in effect an election under subchapter S of the Internal Revenue Code.
[C35, §6943-f8; C39, §6943.037, 6943.040, 6943.050; C46, 50, 54, 58, §422.5, 422.8, 422.18;
C62, 66, 71, 73, 75, 77, 79, 81, §422.5, 422.8; 82 Acts, ch 1226, §3, 6]
83 Acts, ch 16, §1, 2; 85 Acts, ch 243, §3; 88 Acts, ch 1028, §16; 92 Acts, ch 1224, §1, 2, 4; 94
Acts, ch 1149, §1, 2; 96 Acts, ch 1197, §16 – 18; 97 Acts, ch 111, §5, 6, 8; 2002 Acts, ch 1005,
§10, 11; 2002 Acts, ch 1069, §5, 12, 14; 2009 Acts, ch 133, §242; 2011 Acts, ch 25, §143; 2013
Acts, ch 140, §121, 123, 124; 2016 Acts, ch 1095, §3, 14, 15
Referred to in §2.48, §29C.24, §260E.2, §422.5, §422.9, §422.12B, §422.13, §422.16
2013 amendment to subsection 2, paragraph b, takes effect June 20, 2013, and applies retroactively to January 1, 2013, for tax years
beginning on or after that date; 2013 Acts, ch 140, §123, 124
2016 amendment to subsection 2, paragraph a, takes effect April 21, 2016, and applies retroactively to January 1, 2016, for tax years
beginning on or after that date; 2016 Acts, ch 1095, §14, 15
Subsection 2, paragraph a amended
Wed Feb 08 03:44:36 2017
Iowa Code 2017, Section 422.8 (20, 2)
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