IFA Urges U.S. Supreme Court to Recognize Franchise Business Model

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For immediate release





Contact:
Alisa Harrison, 202-628-8000
Matthew Haller, 202-662-0770



aharrison@franchise.org


mhaller@franchise.org


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Amicus Brief Filed in Support of KFC Corporation v. Iowa Department of Revenue

WASHINGTON, June 8, 2011- The International Franchising Association has filed an amicus brief urging the U.S. Supreme Court to review and overturn the Iowa Supreme Court’s flawed ruling to allow the state to tax out-of-state franchisors that do not have a physical presence in the state and protect franchise businesses’ forty years of economic growth and job creation.
  



“The lower court’s ruling, if upheld, would have a devastating impact on job creation and economic growth by franchise businesses, and would cause a decline in job growth and economic activity in a sector responsible for one out of every eight jobs,” said IFA President & CEO Steve Caldeira. “Granting the petition of KFC is important and necessary to protect the settled interests of thousands of franchisors, hundreds of thousands of franchisees, millions of individuals employed by them and trillions of dollars of economic impact that franchising provides to the U.S. economy.”
  



While other states have attempted to collect corporate income taxes from out-of-state franchisors for the royalties paid by franchisees operating in the state, the challenge in Iowa is the first case to rise to the U.S. Supreme Court. The court held that the State of Iowa has the authority to impose its corporate income tax on franchisors based solely on the use of their intangibles by franchisees located in the state. This decision will lead to increased enforcement efforts in Iowa, and encourage other states looking to raise revenues during a down economy. 
  



When Iowa seeks to tax KFC on the royalties paid by its Iowa franchisees, it does so acknowledging that KFC itself has no physical connection to or presence in Iowa. Instead, Iowa argues that because it has provided an infrastructure that allowed KFC’s intellectual property to flourish, that is a sufficient economic nexus to justify a tax on the royalty KFC’s Iowa franchisees pay. What Iowa chooses to ignore is that its infrastructure is paid for by the Iowa franchisees that operate within its borders, the sales taxes its citizens pay and the income, property and school taxes that the franchisees and their employees pay. 



  



KFC Corp.




is an appropriate candidate for the Supreme Court to resolve the mixed answers and at-odds approaches offered by the sixteen states that have addressed the “physical presence/economic nexus” issue outside of the franchise context. Granting the petition also provides an opportunity to reaffirm the Court’s decision in
Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and protect the long-settled expectations of the thousands of franchisors and franchisees who have carefully arranged their economic lives in reliance on it.
  



Additionally, the IFA has worked for the past several years to build support for federal legislation to clarify state nexus standards. The IFA strongly supports the Business Activity Tax Simplification Act (BATSA), bipartisan legislation
introduced by Reps. Bob Goodlatte (R-VA) and Congressman Bobby Scott (D-VA)to b
ring greater certainty to franchise small businesses seeking to comply with state tax laws.
  



IFA member
Corey Schroeder, vice president and CFO of Outdoor Living Brands, Inc.testified before a House subcommittee last month in support of BATSA and
spoke of the difficulty his company faces navigating the unpredictable nature of state tax nexus decisions across multiple jurisdictions, and the impact those decisions have on the nearly 825,000 franchise small businesses that collectively account for nearly 18 million jobs in the United States.
  


IFA’s amicus brief was prepared with the support of counsel at Nixon Peabody LLP. For a copy of the brief, please

click here

.

 

 

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About the International Franchise Association

The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. Celebrating 50 years of excellence, education and advocacy, IFA protects, enhances and promotes franchising through government relations, public relations and educational programs. Through its awareness campaign highlighting the theme,
Franchising: Building Local Businesses, One Opportunity at a Time,IFA promotes the nearly 18 million jobs and $2.1 trillion of economic activity generated by franchising. IFA members include franchise companies in over 90 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.

 

 

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