CLIENTS IN THE NEWS:  1-800 WATER DAMAGE, CLOSET FACTORY, FIESTA INSURANCE FRANCHISE CORPORATION, TGA PREMIER JUNIOR GOLF AND FRESH HEALTHY VENDING 

Entrepreneur Magazine recently published its 32^nd Annual Franchise 500.

We are pleased to announce that 4 of our clients, 1-800 Water Damage,  Closet Factory,  Fiesta Insurance Franchise Corporation and TGA Premier Junior Golf, were listed in the top 500. In addition, Fiesta Insurance Franchise Corporation and TGA Premier Junior Golf were both listed in the top 10 franchise opportunities for the budget-minded and TGA Premier Junior Golf was listed as the #4 best children's fitness franchise.  To see the full listings, click here.

Additionally, Fresh Healthy Vending, a San Diego based franchisor of vending machines that specializes in offering healthy snacks, was featured by Bloomberg Businessweek on January 13, 2011. Fresh Healthy Vending reports that it has vending machines in more than 2,000 locations, about three-quarters of them schools. To see the full article, click here.

FRANCHISOR 101:     FRANCHISORS WITH FRANCHISEES IN IOWA ARE SUBJECT TO IOWA INCOME TAX

On December 30, 2010, the Iowa Supreme Court upheld the state's ability to tax out-of-state franchisors based solely on the use of their intangibles by franchisees located in the state.

In KFC Corporation vs. Iowa Department of Revenue, KFC argued that a taxpayer must have a physical presence in a state before the state could require the taxpayer to pay corporate income tax. Iowa argued that the state could impose its corporate income tax on KFC regardless of KFC's lack of physical presence in the state.

The court held that the intangibles that KFC licensed to its Iowa franchisees "would be regarded as having a sufficient connection to Iowa to amount to the functional equivalent of 'physical presence.'"  Additionally, the court held that "by licensing franchises within Iowa, KFC has received the benefit of an orderly society within the state and, as a result, is subject to the payment of income taxes."

Franchisors should expect Iowa's actions to be repeated in other states as they struggle with their budget deficits. Further, franchisors should look to limit their future exposure by making strategic changes in their franchise agreements.