What is a Certificate of Existence and Do I Need One?

You may be asked for a Certificate of Existence by a lender or if you do business in another state. What exactly is a Certificate of Existence? A Certificate of Existence is simply a document that indicates that your business is properly registered with the state and have followed all state requirements. It serves as evidence that the entity exists and is authorized to transact business in the state.

 

Why would a business need to provide a Certificate of Existence?

Carl Dietz, Business Services Attorney, with the Iowa Secretary of State’s office explains, “The primary reason an entity may want to have a Certificate of Existence issued is to include it with an application for authority to operate in another state.  For example, if a corporation incorporated under the laws of Iowa that operates a restaurant chain wants to open its first restaurant location in Nebraska, it will need to apply for authority from the state of Nebraska to do business in that state.  Part of Nebraska’s application requirements will almost certainly be a Certificate of Existence issued by the Secretary of State of Iowa.”

You may also be asked to provide it by a bank when applying for a loan or line of credit in the name of the business.

 

Which businesses can obtain a Certificate of Existence from the Secretary of State?

Requirements in order to be in “good standing” vary by state but typically they include:

–            Registering with a state agency to conduct business

–            Being up-to-date on all your taxes and fees

–            Filing annual or biennial reports

All states require registration of corporations and limited liability companies (LLCs).

 

How do I obtain a Certificate of Existence?

You can apply for the certificate by simply contacting the Iowa Secretary of State’s Business Services Division in person, by mail, or online through their website, www.sos.iowa.gov. The cost is five dollars. Be careful not to fall for scams and pay more than needed for this certificate. If you are in doubt, contact the Secretary of State’s Business Services Division for clarification.

 

Have further questions about this or other business concerns? Schedule an appointment for confidential, no-cost business advising at one of our 15 regional centers across the state of Iowa. You can request an appointment online at iowasbdc.org.

America’s SBDC Iowa is an outreach program of Iowa State University’s Ivy College of Business and the Office of Economic Development and Industry Relations. Funded in part through a cooperative agreement with the U.S. Small Business Administration, America’s SBDC Iowa has 15 regional assistance centers located strategically across the state. Since program inception in 1981, the SBDC has helped Iowa businesses and entrepreneurs through no fee, confidential, customized, professional business counseling and practical, affordable training workshops.

For more information on America’s SBDC Iowa programs or services, visit www.iowasbdc.org, https://www.facebook.com/AmericasSBDCIowa, or @IowaSBDC on Instagram and Twitter.

Iowa Tax Issues when Hiring Employees

When it has come time for your business to hire its first employee, there are Iowa tax issues to keep in mind.  Every employer who maintains an office or transacts business in Iowa and who is required to withhold federal income tax on any compensation paid to employees for services performed in Iowa is required to withhold Iowa individual income tax from that compensation.

Prior to Starting the Hiring Process:

If you have not received your FEIN prior to applying for the Iowa withholding tax permit, enter “Applied For” in the FEIN field.

Once You Have Hired the Employee:

 

Failure to Withhold

A withholding agent who fails to withhold and pay to the Iowa Department of Revenue any money required to be withheld and paid is personally, individually and corporately liable to the State of Iowa.  If this occurs, the amount of withholding may be assessed against the withholding agent in the same manner as is used to assess personal or corporate income tax.

 

Iowa Income Tax Benefits Available When Hiring Certain Individuals

Iowa offers employers who meet specific criteria an additional deduction on their Iowa income tax returns for hiring ex-offenders or persons with disabilities.

What are the benefits?

  • Iowa income tax deduction for 65% of the wages paid in the first 12 months of employment
  • Maximum deduction of $20,000 per employee
  • This benefit is in addition to the Targeted Jobs Tax Credit.

 

Ex-Offenders:

Who is an ex-offender?

  • Has been convicted of a felony in Iowa or any other state or the District of Columbia or
  • Is on parole or
  • Is on probation for an offense other than a simple misdemeanor or
  • Is in a work release program or
  • Is still incarcerated or
  • Qualifies under the interstate probation and parole compact or
  • Is certified as an economically disadvantaged ex-offender for the Targeted Jobs Tax Credit

Who is a qualifying ex-offender?

  • Can be any age; no restrictions
  • Must be a new hire; a current employee who becomes an ex-offender does not qualify
  • May hold more than one job; each employer may take the deduction
  • Can be a full or part time employee
  • Must pass the business’ probationary period, which is six months if an employer does not have a written policy
  • Cannot be hired to replace another employee who was terminated within the previous 12 months, unless the termination was for misconduct in connection with employment. If the employee left voluntarily, the ex-offender qualifies.

How do I claim the income tax deduction?

The employer claims the deduction on the Iowa 1040 individual income tax return under “other adjustments” or on the Iowa corporation income tax return under “other reductions”.  The following information must be provided with the return:

  1. Employee’s name
  2. Employee’s social security number
  3. Employee’s hire date
  4. Employee’s total wages

If I don’t claim the maximum amount during the year, can I claim the balance next year?

If 65% of the employee’s wages does not meet the $20,000 maximum in a single tax year, the balance may be claimed the following year as long as the employee worked fewer than 12 months the first year.

What if I have had an employee who is an ex-offender and was not aware of this benefit?

The employer may amend income tax returns to include the deduction as long as the amended returns are filed within 3 years from the due date of the return.

 

Persons with Disabilities

Who is a person with disability?

  • Has a physical or mental impairment* which substantially limits one of more major life activities or
  • Has a history of impairment* or
  • Is regarded as having an impairment* or
  • Qualifies for the targeted jobs tax credit as a person with a disability undergoing vocational rehabilitation or
  • Has been certified by the State Division of Vocational Rehabilitation as having a disability

*impairment includes, but is not limited to, physiological disorders and conditions, cosmetic disfigurement, anatomical loss, and any mental or psychological disorder.

Who is a qualifying person with disability?

  • Can be any age; no restrictions
  • Must be a new hire; a current employee who becomes disabled does not qualify
  • May hold more than one job; each employer may take the deduction
  • Can be a full or part time employee
  • Must pass the business’ probationary period, which is six months if an employer does not have a written policy
  • Cannot be hired to replace another employee who was terminated within the previous 12 months, unless the termination was for misconduct in connection with employment. If the employee left voluntarily, the person with a disability qualifies.

Is there a limitation on the size of my business in order to qualify?

Yes.  Only employers who meet the “small business” definition can claim the deduction for employing persons with disabilities.  To be considered a small business, the employer must have both of the following:

  1. 20 or fewer full-time equivalent employees. Full-time means any of the following:
    • A position requiring an average work week of 40 hours
    • One in which compensation is paid on a salaried full-time basis without regard to hours worked
    • An aggregation of any number of part-time positions which equal one full-time position. See table below.

 

Full-time equivalent table

Hours:  more than 0, but less than 15: ¼ time
Hours: 15 or more, but less than 25:  ½ time
Hours 25 or more, but less than 35: ¾ time
Hours:  35 or more: Full time

  1. Annual gross revenue of not more than $3 million. Annual gross revenue means total sales, before deducting returns and allowances but after deducting corrections and trade discounts, sales taxes, and excise taxes based on sales.

What is considered a qualifying business?

  • Corporation
  • Sole proprietorship
  • Partnership
  • Joint venture
  • Association
  • Cooperative
  • Farm operations
    • Cultivation of land for production of agricultural crops
    • Raising poultry
    • Production of eggs, milk, fruit, other horticultural crops
    • Grazing or production of livestock
  • Franchise owned by a local employer if the other criteria are met

What are considered non-qualifying businesses?

  • Production of timber, forest products, nursery products, or sod
  • Processor or distributor of farm products or supplies that provides spraying, harvesting, or other farm services
  • Corporate-owned business managed by a local employer
  • The practice of profession requiring specialized knowledge and preparation such as:
    • Accounting
    • Architecture
    • Audiology
    • Chiropractic
    • Dental hygiene
    • Dentistry
    • Engineering
    • Law
    • Medicine
    • Mortuary science
    • Nursing
    • Occupational therapy
    • Optometry
    • Osteopathic medicine
    • Osteopathy
    • Pharmacy
    • Physical therapy
    • Podiatry
    • Psychology and psychiatry
    • Speech pathology
    • Surgery
    • Surveying

How do I claim the income tax deduction?

The employer claims the deduction on the Iowa 1040 individual income tax return under “other adjustments” or on the Iowa corporation income tax return under “other reductions”.  The following information must be provided with the return:

  1. Employee’s name
  2. Employee’s social security number
  3. Employee’s hire date
  4. Employee’s total wages

If I don’t claim the maximum amount during the year, can I claim the balance next year?

If 65% of the employee’s wages does not meet the $20,000 maximum in a single tax year, the balance may be claimed the following year as long as the employee worked fewer than 12 months the first year.

What if I have had an employee who is a person with a disability and I was not aware of this benefit?

The employer may amend income tax returns to include the deduction as long as the amended returns are filed within 3 years from the due date of the return.

 

About America’s SBDC Iowa and the Author
Lisa Casper, Business Tax Counselor for America’s SBDC Iowa, assists small businesses with questions relating to the
Iowa tax code. She provides advice on sales and use tax filings, Iowa tax law that affects small businesses, and general
services provided by the Iowa Department of Revenue. She also provides business consulting to help small businesses grow and succeed.

America’s SBDC Iowa is an outreach program of Iowa State University’s Ivy College of Business and the Office of
Economic Development and Industry Relations. Funded in part through a cooperative agreement with the U.S. Small
Business Administration, America’s SBDC Iowa has 15 regional assistance centers located strategically across the
state. Since program inception in 1981, the SBDC has helped Iowa businesses and entrepreneurs through no fee,
confidential, customized, professional business counseling and practical, affordable training workshops.
For more information on America’s SBDC Iowa programs or services, visit www.iowasbdc.org,
https://www.facebook.com/AmericasSBDCIowa, or @IowaSBDC on Instagram and Twitter.