Court won't stop Iowa from forcing KFC to pay tax

October 3, 2011 - 12:50 PM

WASHINGTON (AP) — 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.