We have had a few requests to provide more information on the taxation of royalties received by franchisors. Ultimately, the KFC case (see KFC Corp. v. Iowa Department of Revenue, 792 N.W.2d 308 (Iowa 2010) held that having a trademark in a state is the equivalent of physical presence, thus satisfying the physical nexus required under the Supreme Court ruling in
Quill Corp. v. North Dakota, 504 U.S. 298 (1992). This is a topic that should be carefully watched and discussed with your legal counsel.
A great article summarizing these topics from the American Bar Association: http://www.americanbar.org/newsletter/publications/franchise_lawyer/5_state_taxation.html
Link to the IFA's summary of this issue: http://www.franchise.org/Franchise-Industry-News-Detail.aspx?id=51948
Link to the Iowa Supreme Court's ruling: http://www.iowacourtsonline.org/Supreme_Court/Recent_Opinions/20101230/09-1032.pdf?search=KFC+COrporation