Reform Guidance - GILTI & FDII

For tax years beginning on or after January 1, 2019, Iowa conforms with the federal Internal Revenue Code (IRC) in effect on March 24, 2018. This means that the starting point for calculating Iowa income taxes includes most of the changes made to the IRC as of November 20, 2019 (with certain exceptions). Iowa did not conform with many of these changes for tax year 2018. See the 2018 Iowa Nonconformity Adjustments Worksheet for information about how to make the necessary adjustments for GILTI, FDII, and other Tax Cuts and Jobs Act (TCJA) items for tax year 2018.

The Department may update this guidance in the future in response to any comments or questions that we receive. Please check this page regularly for any updates. If you have questions or comments on this guidance, please submit them through our Request for Tax Guidance form.

  • For federal purposes, all U.S. shareholders must include as U.S. income the shareholder’s Global Intangible Low Tax Income (GILTI) under § 951A of the IRC. GILTI is included in U.S. income based on the shareholder’s ownership interest in any Controlled Foreign Corporation (CFC) in which the U.S. shareholder owns shares. A CFC is any foreign corporation 50% or more of which is owned by U.S. shareholders. GILTI is the excess of the shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return for the year. Corporations which are taxed as such (C-Corporations) are generally eligible for a deduction equal to 50% of GILTI (GILTI Deduction) under § 250(a)(1)(B) of the IRC. Beginning in tax year 2019 both GILTI and the GILTI Deduction (if applicable) are included in calculating the taxpayer’s Iowa income. GILTI is not a dividend or subpart F income; therefore, the provisions of Iowa Code section 422.35(21) are not applicable to this income.

    A. Reporting Income

    Taxpayers who have GILTI at the federal level must also include this income in their Iowa net income. For corporations eligible for the GILTI Deduction, the amount of GILTI included in Iowa net income is the net amount of GILTI after applying the GILTI Deduction at the federal level. Generally, taxpayers will not need to make additional Iowa adjustments to the federal GILTI and GILTI Deduction amounts included in their Iowa taxable income, except for certain taxpayers who file federal consolidated returns, as described below.

    For IA 1065, IA 1120, IA 1120F, and IA 1120S filers net GILTI must be included in the amount entered on line 1. This line should reflect the net amount of GILTI income less the GILTI Deduction, if applicable. Please note that not all taxpayers are eligible for the GILTI Deduction. The GILTI Deduction is only allowed for Iowa purposes to the extent the taxpayer was allowed that deduction for federal purposes.

    For IA 1040 filers, GILTI is included in the amount shown on IA 1040, line 14, code m. Individuals are generally not eligible for the GILTI Deduction for federal or Iowa purposes.

    For IA 1041 filers, GILTI is included in the amount shown on IA 1041, line 8. Fiduciary income tax filers are generally not eligible for the GILTI Deduction for federal or Iowa purposes.

    B. Apportionment

    All corporations doing business in Iowa or deriving income from sources within Iowa are subject to Iowa corporate income tax. Generally, where income is derived from a business other than the manufacture or sale of tangible personal property, the Department is charged with providing a method for apportioning that income within and without Iowa by administrative rule. The apportionment methods for corporations also apply to partnerships and S-corporations.

    The Department intends to promulgate rules categorizing GILTI as a new category of investment income. This guidance reflects the substance of the rules regarding the apportionment of GILTI that the Department intends to propose. The Department also intends to promulgate rules providing a similar method of apportioning GILTI within and without Iowa for financial institutions subject to the franchise tax.

    All proposed administrative rules are subject to public comment and to review by the Iowa Legislature’s Administrative Rules Review Committee (ARRC) before they become final. In the event that the final adopted rules differ from this guidance in any way, taxpayers must follow the rules, and not this guidance. If there is any material change in the final version of the rules, this guidance will be updated accordingly.

    Apportioned Amount

    Under the rules, taxpayers will use their net GILTI to calculate their Iowa apportionment factor. Net GILTI means the amount of Global Intangible Low Tax Income as defined in IRC section 951A, less the deduction allowed under IRC section 250(a)(1)(B), if any. Only GILTI amounts that are included in the taxpayer’s Iowa net income may be included in the Iowa apportionment factor.

    Including GILTI in the Apportionment Factor

    Net GILTI must be included in the apportionment factor if the income arises out of the taxpayer’s ownership interest in CFCs that are an integral part of some business activity occurring regularly in or outside of Iowa.

    All other net GILTI that is investment business income not described above may be included in the apportionment factor at the taxpayer’s election, with certain limitations. The election to include or exclude investment income applies to all investment business income. Taxpayers are not permitted to include some investment business income and exclude other investment business income under the election. If a taxpayer made an election to either include or exclude other investment business income in a prior year, that election will continue to apply to GILTI and all other investment income going forward.

    If the taxpayer wishes to change an election from a prior year, they must request the Department’s permission to do so. Please submit such requests no later than 90 days prior to the due date of the return. If the taxpayer has never made this election for a prior year, but has GILTI that qualifies for the election, they must submit a written election to either include or exclude other business investment income with their 2019 return. See Iowa Admin. Code r. 701—54.2 for more information about the election to include or exclude investment income.

    Denominator

    If the taxpayer elects or is required to include GILTI in the Iowa apportionment factor, the net GILTI included in the taxpayer’s Iowa net income must be included in the denominator of the apportionment factor.

    Numerator

    • The net GILTI must be included in the numerator of the Iowa apportionment factor to the extent the income arises from the taxpayer’s ownership of a CFC that is integral to some business activity of the taxpayer occurring regularly in or outside of Iowa.
    • If no portion of the net GILTI arises from the taxpayer’s ownership of a CFC that is integral to some business activity occurring regularly in Iowa, but the taxpayer has elected to include investment business income in the apportionment factor, the net GILTI is included in the numerator if the taxpayer’s commercial domicile is in the state.

    Alternative Apportionment

    Any taxpayer who believes that this method of apportionment will subject the taxpayer to taxation on a greater portion of the taxpayer's net income than is reasonably attributable to business or sources within Iowa may request an alternative method of apportionment. The burden is on the taxpayer requesting alternative apportionment to show that the standard apportionment method attributes income to Iowa out of all reasonable proportion to the business transacted in the state. See Iowa Admin. Code r. 701—54.9 for more information about requests for alternative apportionment.

  • For tax years beginning on or after January 1, 2019, Iowa fully conforms with the federal deduction for Foreign Derived Intangible Income (FDII) under IRC section 250(a)(1)(A). Generally, taxpayers will not need to make additional Iowa adjustments to the federal deduction amount included in their Iowa taxable income, except for certain taxpayers who file federal consolidated returns, as described below.

  • Corporate income taxpayers that are included on a consolidated federal return may be required to file separate Iowa returns or file an Iowa consolidated return that includes only those members of the federal consolidated group that are subject to Iowa corporate income taxes.

    In either of those scenarios the separate entity or Iowa consolidated group will need to calculate its own net GILTI and its FDII deduction to determine the correct amount of Iowa income. To do this, the entity or Iowa consolidated group must calculate net GILTI and the FDII deduction in the same manner they would have for federal purposes, but using only the income of the separate entity or Iowa consolidated group.

    Only the net GILTI actually included in the separate entity or Iowa consolidated group’s Iowa income may be used in determining the taxpayer’s Iowa apportionment factor.

  • Beginning in tax year 2019 Global Intangible Low-Tax Income (GILTI) is included in taxpayers' Iowa net income. Taxpayers are also allowed the same deductions for Foreign Derived Intangible Income (FDII) and for a portion of GILTI for Iowa purposes that they are allowed for federal purposes. Corporate taxpayers which file consolidated federal returns may have to make certain adjustments to the amounts of GILTI and FDII included for Iowa purposes. Businesses must apportion their net GILTI to Iowa to the extent the income arises out of the taxpayer’s ownership interests in Controlled Foreign Corporations (CFCs) that are an integral part of some business activity occurring regularly in or outside of Iowa. Other taxpayers may be eligible for an election to include or exclude GILTI from their Iowa apportionment factor under certain circumstances. The Department intends to file administrative rules to implement the apportionment method described in this guidance in the near future.