Myria Holdings Inc. & Subs v. Iowa Department of Revenue
2017 Iowa Sup. LEXIS 28
| Iowa | 2017Background
- Myria Holdings Inc. (Delaware, Texas principal place) is parent of PipeCo LLC (80% via Myria Acquisition LLC) and sole member of NGPL; PipeCo and NGPL elected to be taxed as corporations for federal purposes and do business in Iowa.
- For tax year 2009 the affiliated group filed federal and Iowa consolidated returns; federal return reported a large net loss but NGPL had income; the Iowa consolidated return showed an apportioned net loss and an estimated overpayment.
- Myria received two types of payments in 2009 from its subsidiaries: (1) distributions of earnings tied to ownership interests, and (2) quarterly payments from subsidiaries under a tax allocation agreement to reimburse Myria for the group’s consolidated tax payments (Myria paid the IRS).
- Iowa Department of Revenue concluded Myria lacked taxable nexus/derived income in Iowa under Iowa Code § 422.33(1) and excluded Myria from the Iowa consolidated return, issuing an assessment that increased the Group’s tax liability; the district court affirmed.
- Department applied Iowa Code § 422.34A(5) safe-harbor exemption for foreign parents whose activities are limited to "owning and controlling a subsidiary corporation" and who lack a physical presence; it treated the LLCs as "corporations" because they elected corporate taxation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Myria had a taxable nexus/"derived taxable income" in Iowa under § 422.33(1) | Myria derived taxable income via (a) distributions traceable to Iowa business and (b) payments received under the tax allocation agreement | Myria's activities fall within § 422.34A(5) safe harbor for "owning and controlling" a subsidiary and thus it lacked taxable nexus; allocation payments are pass-through, not income | Court held Myria lacked taxable nexus; activities were ownership/control under § 422.34A(5), so Myria could not join Iowa consolidated return |
| Whether distributions and tax-allocation receipts constituted taxable income sufficient to defeat the safe harbor | Distributions and allocated-tax payments are income from Iowa sources and create nexus/taxability | Distributions are incident to ownership; tax-allocation payments are reimbursement/pass-through, not income | Court declined to reach whether those items would be taxable once safe harbor applies; concluded safe harbor applies and Myria lacked nexus |
Key Cases Cited
- KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308 (Iowa 2010) (out-of-state licensor with royalties to in-state franchisees had taxable nexus under § 422.33)
- Branstad v. State ex rel. Nat. Res. Comm’n, 871 N.W.2d 291 (Iowa 2015) (statutory interpretation begins with statute text to ascertain legislative intent)
- Renda v. Iowa Civil Rights Comm’n, 784 N.W.2d 8 (Iowa 2010) (standards for judicial deference to agency legal interpretations)
- Bank of Am., N.A. v. Schulte, 843 N.W.2d 876 (Iowa 2014) (assign common meaning to undefined statutory terms in context)