Section 701.48.7. Determination of composite Iowa tax.

         48.7(1) The tax will be computed in accordance with Iowa Code section 422.5, including the alternative minimum tax as though a resident.

         48.7(2) Deduct from the computed tax one personal exemption credit of $20 ($40 for tax years beginning on or after January 1, 1998) for each nonresident partner, shareholder, employee, or beneficiary included in the composite return.

Example:  For tax year 1991, X corporation is an S corporation, all of whose shareholders but one are nonresidents who have elected to join in the filing of a composite return. The three electing shareholders’ share of income or loss is 87 percent of the corporation’s total income. The S corporation’s net income is $800,000, and income items totaling $6,000 and expenses of $500,000 flow directly to the shareholders. The corporation has 25 percent of its sales with an Iowa destination. The corporation has tax preferences and adjustments of $475,000. The composite tax liability would be computed as follows:

	Net income attributable to electing shareholders $800,000 × 87%		$696,000
	Add: electing shareholders’ share of income items which flow separately to shareholders $6,000 × 87%		5,220
	Less: electing shareholders’ share of expenses which flow separately to shareholders $500,000 × 87%		<435,000>
	Income attributable to electing shareholders		$266,220
	Times the Iowa business activity ratio		25%
	Net income attributable to Iowa		$ 66,555
	Less: one standard deduction per shareholder 3 × $1,280		< 3,840>
	Federal tax deduction $66,555 × 5%		< 3,328>
	Iowa taxable income		$ 59,387
	Computed tax		$ 4,515
	Less: one personal exemption credit per shareholder 3 × $20		< 60>
	Iowa tax		$ 4,455

The alternative minimum tax would be computed as follows:

	Iowa taxable income		$ 59,387
	Add: tax preferences and adjustments attributable to electing shareholders times Iowa activity ratio $475,000 × 87% × 25%		103,313
			$162,700
	Less: exemption		35,000
	Minimum taxable income		$127,700
	times minimum tax rate 7.5%		× .075
	Computed minimum tax		$ 9,578
	Less regular tax		< 4,455>
	Minimum tax liability		$ 5,123

This rule is intended to implement Iowa Code section 422.13.

[ARC 1303C, IAB 2/5/14, effective 3/12/14]