Sent via email

 

August 10, 2015

 

 

            Re:      Nonresident 1099-PATR for an Iowa Cooperative

 

Dear :

 

The Iowa Department of Revenue (“Department”) has received your email regarding your client and patronage dividends (1099-PATR) for a cooperative located in Iowa.

 

Facts as You Provided

 

Your email contains the follow facts:

·         The taxpayer is a resident of Minnesota with no other income sourced to Iowa.

·         The taxpayer has farming operations, a hog barn (solely in Minnesota; no Iowa operations).

·         The taxpayer receives a 1099-PATR from a co-op located in Iowa for patronage dividends (Box 1 on the 1099-PATR).

·         There is no other income indicated on the 1099-PATR, such as Box 3 (per-unit retain allocations) or Box 5 (redemption of nonqualified notices and retain allocations).

·         The taxpayer is just an investor in the co-op and does not participate in any farming operations through the co-op (i.e. delivering grain, etc.).

 

Law & Analysis:

 

The Iowa Code states that tax is imposed only on those “doing business in this state or deriving income from sources within the state. See Iowa Code § 422.33(1).  For nonresidents, under Iowa Admin. Code r. 701—40.16, “all income of nonresidents derived from sources within Iowa is subject to Iowa income tax,” unless otherwise provided in the rule.  Subsection (5) states that “income of nonresidents from intangible personal property, such as share of stock in corporations, bonds, notes, bank deposits and other indebtedness is not taxable as income from sources within this state except where such income is derived from a business, trade, profession, or occupation carried on within this state by the nonresident.”  Additionally, Iowa Code section 422.8(2)(a)  states that a nonresident’s net income of 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.”

 

It must be determined whether the income from the membership interest is derived from a business carried on within Iowa by the nonresident. Under the facts you provided, your client does not participate in any farming operations through the co-op.  Since your client is just an investor in the co-op and does not actively participate in the operations of the co-op, it is likely that the patronage dividends will not be found to be derived from a business carried on within this state by the nonresident.  Therefore, the patronage dividends will likely qualify as income of nonresidents from intangible property that is not taxable as income from sources within the state, and the dividends should not be sourced to Iowa.  The dividends may not be exempt from taxation; they are just not taxable in Iowa.

 

I hope this information has been helpful to you. Please remember that this letter is an informal opinion based only on the facts you provided and on the current law. In the future, the Department could take a position contrary to that stated in this letter. Any written advice or opinion rendered to members of the public by Department personnel that is not pursuant to a Petition for Declaratory Order under 701 IAC 7.24 is not binding upon the Department. If you have any additional questions regarding this matter, please do not hesitate to contact me.

 

 

Sincerely,

 

 

Theresa A. Dvorak

Policy Section

Taxpayer Services and Policy Division

Iowa Department of Revenue

(515) 281-3194

theresa.dvorak@iowa.gov