In a recently issued declaratory order, the Director of the Iowa Department of Revenue addressed an important question for many service providers- how to determine where the benefit of a service is received. The taxpayer at issue was a “transportation brokerage specialist” that connected clients needing to transport goods with transportation service providers (e.g., trucking companies). The taxpayer did not transport the goods itself and did not hold title to the goods at any time. The Director first clarified that because the company did not actually transport goods it did not qualify as a transportation service company that would apportion its income using the specific rules applicable to such companies (miles in the state over miles everywhere). As such, the default rule for service providers applied. Under this rule, the Iowa receipts factor numerator includes receipts associated with transactions where the recipient of the service received the benefit in Iowa. The taxpayer asserted that is was unclear from the rule where its customers received the benefit of its transportation logistics services. As such, the taxpayer asserted that a reasonable approach would be to consider the location of the client seeking shipment of goods, or the pick- up location. The Director, while agreeing that there was no example directly on point, determined that two examples addressing sourcing of direct mail services seemed most analogous to the facts at issue. In both of these examples, the benefit of the service was considered received at the location where the materials were mailed. Applying this rationale to the taxpayer’s facts, the Director concluded that the delivery location specified by the taxpayer’s client would be the location where the benefit of the taxpayer’s transportation brokerage services were received. As such, if the delivery address was located in Iowa, receipts from that sale should be included in the Iowa sales factor numerator. With respect to the taxpayer’s position that its client’s location or the pickup location of the goods was the best measure of where the benefits were received, the Director noted that pickup location, while important, was not a good proxy because the service was not complete when goods were picked up. Furthermore, based on a review of the taxpayer’s invoices, it was not clear how the taxpayer would determine their client’s location for any given transaction. Please contact Courtney Sipe at 816-802-5623 with questions on Matter of BLX, Inc.
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