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Coming to their senses: Iowa rules that non-resident partners not taxable on income of Iowa investment partners

December 14, 2009

Iowa has issued a policy letter that confirms that the Iowa has finally backed off from their (absurd) position that investment income of Iowa-based investment partnerships is "business income" taxable in Iowa:

In your scenario, the activities of A, LP are not being conducted by the nonresident in Iowa. Therefore, the nonresident is not considered to be conducting a trade or business within Iowa, and the interest, dividend and capital gain income would not be considered Iowa source income. Since the nonresident partners of A, LP do not have any other activity in Iowa, there is no requirement for the nonresident partners to file an Iowa individual income tax return.

Iowa is still issuing such partnerships lengthy questionaires to detect a whiff of "business income"; partnerships should answer those with care.

Tags: Iowa Department of Revenue.Iowa tax policy.