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U.S. Supreme Court Denies Certiorari in Iowa Tax Case

By Gregg A. Rubenstein

On Oct. 3, 2011, the U.S. Supreme Court denied a petition for certiorari in KFC Corp. v. Iowa Department of Revenue. As a result, the Court has given its silent blessing to extending the “economic nexus” theory to justify states' imposition of tax obligations on out-of-state franchisors with no physical presence there. This will almost certainly result in other states extending their own concepts of economic nexus to reach revenues paid by in-state franchisees to out-of-state franchisors. While the ultimate economic implications for franchisors will depend on their particular corporate structures and where their franchisees are located, this could mark an important change in the economic relationship between franchisors and franchisees throughout the United States.

The Dormant Commerce Clause and Physical Presence Requirement

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