Topic Code: I171 Intangible Property - Nonresident Charity          Document Reference: 09201022

April 7, 2009


James R. Monroe

P.O. Box 41355

Des Moines, IA  50311


RE:   Jenna M. Peitzman

         Docket No.  08-20-1-0303

         Individual Income Tax Protest


Dear Mr. Monroe:


The review unit of the Iowa Department of Revenue has considered the above-referenced protest.  After reviewing the facts in this matter, the review unit takes the position that your client’s protest should be sustained.


For the year 2007, protester timely filed her Iowa individual income tax return.  On that return, protester, a nonresident of Iowa, showed income from the sale of protester’s ownership interest in an Iowa S-Corporation, Integrity Home Mortgage (Integrity), in the amount of $99,800.00.  This income was not apportioned to Iowa.  The Department subsequently reviewed protester’s 2007 Iowa return and determined that the sale of protester’s ownership interest in Integrity was taxable to the State of Iowa and issued an assessment on November 5, 2008.  Protester filed her protest to the Department’s assessment on December 17, 2008, contending that she was not taxable to Iowa on the sale of her interest in Integrity as she was a resident of Texas and not a resident of Iowa.


Whether a nonresident of Iowa must pay tax to Iowa on the sale of ownership interest in an Iowa business entity is discussed in Departmental rule 701 IAC 40.16(9).  The situation in this matter is specifically discussed at 701 IAC 40.16(9)(a), which states as follows:


a.     Capital gains from sales or exchanges of stock in C corporations and S corporations. When a nonresident of Iowa sells or exchanges stock in a C corporation or an S corporation, that shareholder is selling or exchanging the stock, which is intangible personal property. The capital gain received by a nonresident of Iowa from the sale or exchange of capital stock of a C corporation or an S corporation is taxable to the state of the personal domicile or residence of the owner of the capital stock unless the stock attains an independent business situs apart from the personal domicile of the individual who sold the capital stock. The stock may acquire an independent business situs in Iowa if the stock had been used as an integral part of some business activity occurring in Iowa in the year in which the sale or exchange of the stock had taken place.


In this instance, there is no evidence that the stock was used by protester as in integral part of some business activity in the year of the sale.  Therefore, the Department erred in apportioning the sale of protester’s ownership interest in Integrity to Iowa.  As a result, the review unit will direct the Department’s collection section to cancel the assessment.  A copy of this letter will be forwarded to the Director authorizing the Director to close the protest in favor of the protester.


If you have any questions regarding this matter, please contact Dennis Schutt at (515) 281-7994 or by email at




Jim McNulty, Program Manager

Taxpayer Services and Policy Division

Audit Services Section