Senate File 165
SENATE FILE
BY McKIBBEN
Passed Senate, Date Passed House, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to the state individual income tax by imposing a
2 single rate tax and including an effective and applicability
3 date provision.
4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
5 TLSB 1075XS 80
6 mg/sh/8
PAG LIN
1 1 DIVISION I
1 2 SINGLE TAX RATE
1 3 Section 1. Section 422.4, subsections 1 and 2, Code 2003,
1 4 are amended by striking the subsections.
1 5 Sec. 2. Section 422.4, subsection 16, Code 2003, is
1 6 amended to read as follows:
1 7 16. The words "taxable "Taxable income" mean means the net
1 8 income as defined in section 422.7 minus the deductions
1 9 allowed by section 422.9, in the case of individuals; in. In
1 10 the case of estates or trusts, the words "taxable income" mean
1 11 means the taxable income, (without a deduction for personal
1 12 exemption), as computed for federal income tax purposes under
1 13 the Internal Revenue Code, but with the adjustments specified
1 14 in section 422.7 plus the Iowa income tax deducted in
1 15 computing the federal taxable income and minus federal income
1 16 taxes as provided in section 422.9.
1 17 Sec. 3. Section 422.5, subsection 1, Code 2003, is amended
1 18 by striking the subsection and inserting in lieu thereof the
1 19 following:
1 20 1. a. A tax is imposed upon every resident and
1 21 nonresident of the state which tax shall be levied, collected,
1 22 and paid annually upon and with respect to the entire taxable
1 23 income at the rate of three and one=half percent.
1 24 b. (1) The tax imposed upon the taxable income of a
1 25 nonresident shall be computed by reducing the amount
1 26 determined pursuant to paragraph "a" by the amounts of
1 27 nonrefundable credits under this division and by multiplying
1 28 this resulting amount by a fraction of which the nonresident's
1 29 net income allocated to Iowa, as determined in section 422.8,
1 30 subsection 2, paragraph "a", is the numerator and the
1 31 nonresident's total net income computed under section 422.7 is
1 32 the denominator. This provision also applies to individuals
1 33 who are residents of Iowa for less than the entire tax year.
1 34 (2) The tax imposed upon the taxable income of a resident
1 35 shareholder in an S corporation which has in effect for the
2 1 tax year an election under subchapter S of the Internal
2 2 Revenue Code and carries on business within and without the
2 3 state may be computed by reducing the amount determined
2 4 pursuant to paragraph "a" by the amounts of nonrefundable
2 5 credits under this division and by multiplying this resulting
2 6 amount by a fraction of which the resident's net income
2 7 allocated to Iowa, as determined in section 422.8, subsection
2 8 2, paragraph "b", is the numerator and the resident's total
2 9 net income computed under section 422.7 is the denominator.
2 10 If a resident shareholder has elected to take advantage of
2 11 this subparagraph, and for the next tax year elects not to
2 12 take advantage of this subparagraph, the resident shareholder
2 13 shall not reelect to take advantage of this subparagraph for
2 14 the three tax years immediately following the first tax year
2 15 for which the shareholder elected not to take advantage of
2 16 this subparagraph, unless the director consents to the
2 17 reelection. This subparagraph also applies to individuals who
2 18 are residents of Iowa for less than the entire tax year.
2 19 c. (1) A bill containing among its provisions an increase
2 20 in the tax rate under this section or the imposition upon
2 21 individuals or estates or trusts of an income surtax or
2 22 alternative minimum tax shall require the affirmative votes of
2 23 at least three=fourths of the members elected to each house of
2 24 the general assembly for passage.
2 25 (2) A lawsuit challenging the proper enactment of a bill
2 26 pursuant to subparagraph (1) shall be filed no later than one
2 27 year following the enactment. Failure to file such a lawsuit
2 28 within the one=year time limit shall negate the three=fourths
2 29 majority requirement as it applies to the bill.
2 30 (3) Each bill to which subparagraph (1) applies shall
2 31 include a separate provision describing the requirements for
2 32 enactment prescribed by subparagraphs (1) and (2).
2 33 Sec. 4. Section 422.5, subsections 5 and 7, Code 2003, are
2 34 amended by striking the subsections.
2 35 Sec. 5. Section 422.7, Code 2003, is amended by striking
3 1 the section and inserting in lieu thereof the following:
3 2 422.7 "NET INCOME" == HOW COMPUTED.
3 3 The term "net income" means the adjusted gross income
3 4 before the net operating loss deduction as properly computed
3 5 for federal income tax purposes under the Internal Revenue
3 6 Code, with the following adjustments:
3 7 1. The adjusted gross income is adjusted by adding the sum
3 8 of the following:
3 9 a. Add the amount of federal income tax refunds received
3 10 in a tax year to the extent that the federal income tax was
3 11 deducted on an Iowa individual income tax return for a tax
3 12 year beginning prior to January 1, 2004.
3 13 b. Add interest and dividends from foreign securities and
3 14 from securities of state and other political subdivisions
3 15 exempt from federal income tax under the Internal Revenue
3 16 Code.
3 17 c. Add interest and dividends from regulated investment
3 18 companies exempt from federal income tax under the Internal
3 19 Revenue Code.
3 20 d. Add, to the extent not already included, income from
3 21 the sale of obligations of the state and its political
3 22 subdivisions. Income from the sale of these obligations is
3 23 exempt from the taxes imposed by this division only if the law
3 24 authorizing these obligations specifically exempts the income
3 25 from the sale from the state individual income tax.
3 26 e. Add the amount resulting from the cancellation of a
3 27 participation agreement refunded to the taxpayer as a
3 28 participant in the Iowa educational savings plan trust under
3 29 chapter 12D to the extent previously deducted as a
3 30 contribution to the trust.
3 31 2. The adjusted gross income is adjusted by subtracting
3 32 the sum of the following:
3 33 a. Subtract the amount of federal income taxes paid or
3 34 accrued, as the case may be, to the extent the federal tax
3 35 payment is for a tax year beginning prior to January 1, 2004.
4 1 b. Subtract interest and dividends from federal
4 2 securities.
4 3 c. Subtract the loss on the sale or exchange of a share of
4 4 a regulated investment company held for six months or less to
4 5 the extent the loss was disallowed under section 852(b)(4)(B)
4 6 of the Internal Revenue Code.
4 7 d. (1) Subtract, to the extent included, the amount of
4 8 additional social security benefits taxable under the Internal
4 9 Revenue Code for tax years beginning before January 1, 2008.
4 10 The amount of social security benefits taxable as provided in
4 11 section 86 of the Internal Revenue Code, as amended up to and
4 12 including January 1, 1993, continues to apply for state income
4 13 tax purposes for tax years beginning before January 1, 2008.
4 14 (2) Subtract, to the extent included after the subtraction
4 15 in subparagraph (1), the following:
4 16 (a) For tax years beginning in the 2004 calendar year,
4 17 one=fifth of taxable social security benefits received.
4 18 (b) For tax years beginning in the 2005 calendar year,
4 19 two=fifths of taxable social security benefits received.
4 20 (c) For tax years beginning in the 2006 calendar year,
4 21 three=fifths of taxable social security benefits received.
4 22 (d) For tax years beginning in the 2007 calendar year,
4 23 four=fifths of taxable social security benefits received.
4 24 (3) Married taxpayers, who file a joint federal income tax
4 25 return and who elect to file separate returns or who elect
4 26 separate filing on a combined return for state income tax
4 27 purposes, shall allocate between the spouses the amount of
4 28 benefits subtracted under subparagraphs (1) and (2) from net
4 29 income in the ratio of the social security benefits received
4 30 by each spouse to the total of these benefits received by both
4 31 spouses.
4 32 (4) Subtract, to the extent included, the amount of social
4 33 security benefits taxable under section 86 of the Internal
4 34 Revenue Code for tax years beginning on or after January 1,
4 35 2008.
5 1 e. (1) Subtract, to the extent included, for tax years
5 2 beginning before January 1, 2008, for a person who is
5 3 disabled, or is fifty=five years of age or older, or is the
5 4 surviving spouse of an individual or a survivor having an
5 5 insurable interest in an individual who would have qualified
5 6 for the exemption under this paragraph for the tax year, the
5 7 total amount of a governmental or other pension or retirement
5 8 pay, including, but not limited to, defined benefit or defined
5 9 contribution plans, annuities, individual retirement accounts,
5 10 plans maintained or contributed to by an employer, or
5 11 maintained or contributed to by a self=employed person as an
5 12 employer, and deferred compensation plans or any earnings
5 13 attributable to the deferred compensation plans, up to a
5 14 maximum of six thousand dollars for a person, other than a
5 15 husband or wife, who files a separate state income tax return
5 16 and up to a maximum of twelve thousand dollars for a husband
5 17 and wife who file a joint state income tax return.
5 18 (2) Subtract, to the extent included after the subtraction
5 19 in subparagraph (1), the following:
5 20 (a) For tax years beginning in the 2004 calendar year,
5 21 one=fifth of the amount of governmental or other pension or
5 22 retirement pay included.
5 23 (b) For tax years beginning in the 2005 calendar year,
5 24 two=fifths of the amount of governmental or other pension or
5 25 retirement pay included.
5 26 (c) For tax years beginning in the 2006 calendar year,
5 27 three=fifths of the amount of governmental or other pension or
5 28 retirement pay included.
5 29 (d) For tax years beginning in the 2007 calendar year,
5 30 four=fifths of the amount of governmental or other pension or
5 31 retirement pay included.
5 32 (3) However, a surviving spouse who is not disabled or
5 33 fifty=five years of age or older can only exclude the amount
5 34 of pension or retirement pay received as a result of the death
5 35 of the other spouse. A husband and wife filing separate state
6 1 income tax returns or separately on a combined state return
6 2 are allowed a combined maximum exclusion under this paragraph
6 3 "e" of up to the amount allowed for a husband and wife who
6 4 file a joint state income tax return. The exclusion shall be
6 5 allocated to the husband or wife in the proportion that each
6 6 spouse's respective pension and retirement pay received bears
6 7 to total combined pension and retirement pay received.
6 8 (4) Subtract, to the extent included, the total amount of
6 9 governmental or other pension or retirement pay for tax years
6 10 beginning on or after January 1, 2008.
6 11 f. Notwithstanding the method for computing income from an
6 12 installment sale under section 453 of the Internal Revenue
6 13 Code, as defined in section 422.3, the method to be used in
6 14 computing income from an installment sale shall be the method
6 15 under section 453 of the Internal Revenue Code, as amended up
6 16 to and including January 1, 2000. A taxpayer affected by this
6 17 paragraph shall make adjustments in the adjusted gross income
6 18 pursuant to rules adopted by the director.
6 19 The adjustment to net income provided in this paragraph is
6 20 repealed for tax years beginning on or after January 1, 2002.
6 21 However, to the extent that a taxpayer using the accrual
6 22 method of accounting reported the entire capital gain from the
6 23 sale or exchange of property on the Iowa return for the tax
6 24 year beginning in the 2001 calendar year and the capital gain
6 25 was reported on the installment method on the federal income
6 26 tax return, any additional installment from the capital gain
6 27 reported for federal income tax purposes is not to be included
6 28 in net income in tax years beginning on or after January 1,
6 29 2002.
6 30 g. Subtract, if the taxpayer is the owner of an individual
6 31 development account certified under chapter 541A at any time
6 32 during the tax year, all of the following:
6 33 (1) Contributions made to the account by persons and
6 34 entities, other than the taxpayer, as authorized in chapter
6 35 541A.
7 1 (2) The amount of any savings refund authorized under
7 2 section 541A.3, subsection 1.
7 3 (3) Earnings from the account.
7 4 h. (1) Subtract the maximum contribution rate that may be
7 5 deducted for income tax purposes as a participant in the Iowa
7 6 educational savings plan trust pursuant to section 12D.3,
7 7 subsection 1, paragraph "a".
7 8 (2) Subtract, to the extent included, income from interest
7 9 and earnings received from the Iowa educational savings plan
7 10 trust created in chapter 12D.
7 11 (3) Subtract, to the extent not deducted for federal
7 12 income tax purposes, the amount of any gift, grant, or
7 13 donation made to the Iowa educational savings plan trust for
7 14 deposit in the endowment fund of that trust.
7 15 Sec. 6. Section 422.8, subsection 2, paragraph a, Code
7 16 2003, is amended to read as follows:
7 17 a. Nonresident's net income allocated to Iowa is the net
7 18 income, or portion of net income, which is derived from a
7 19 business, trade, profession, or occupation carried on within
7 20 this state or income from any property, trust, estate, or
7 21 other source within Iowa. However, income derived from a
7 22 business, trade, profession, or occupation carried on within
7 23 this state and income from any property, trust, estate, or
7 24 other source within Iowa shall not include distributions from
7 25 pensions, including defined benefit or defined contribution
7 26 plans, annuities, individual retirement accounts, and deferred
7 27 compensation plans or any earnings attributable thereto so
7 28 long as the distribution is directly related to an
7 29 individual's documented retirement and received while the
7 30 individual is a nonresident of this state. If a business,
7 31 trade, profession, or occupation is carried on partly within
7 32 and partly without the state, only the portion of the net
7 33 income which is fairly and equitably attributable to that part
7 34 of the business, trade, profession, or occupation carried on
7 35 within the state is allocated to Iowa for purposes of section
8 1 422.5, subsection 1, paragraph "j" "b", and section 422.13 and
8 2 income from any property, trust, estate, or other source
8 3 partly within and partly without the state is allocated to
8 4 Iowa in the same manner, except that annuities, interest on
8 5 bank deposits and interest=bearing obligations, and dividends
8 6 are allocated to Iowa only to the extent to which they are
8 7 derived from a business, trade, profession, or occupation
8 8 carried on within the state.
8 9 Sec. 7. Section 422.8, subsection 4, Code 2003, is amended
8 10 by striking the subsection.
8 11 Sec. 8. Section 422.9, unnumbered paragraph 1 and
8 12 subsections 1 and 2, Code 2003, are amended by striking the
8 13 unnumbered paragraph and the subsections and inserting in lieu
8 14 thereof the following:
8 15 In computing taxable income of individuals, there shall be
8 16 deducted from net income the following:
8 17 1. A standard deduction equal to the following:
8 18 a. For a single individual, or a married person filing
8 19 separately, two thousand dollars.
8 20 b. For a head of household, or a husband and wife filing a
8 21 joint return, four thousand dollars.
8 22 c. For each dependent, an additional two thousand dollars.
8 23 As used in this section, the term "dependent" has the same
8 24 meaning as provided by the Internal Revenue Code.
8 25 2. In addition to the amount in subsection 1, the
8 26 following:
8 27 a. For a single individual, husband, wife, or head of
8 28 household, an additional exemption of one thousand dollars for
8 29 each such individual who has attained the age of sixty=five
8 30 years before the close of the tax year or on the first day
8 31 following the end of the tax year.
8 32 b. For a single individual, husband, wife, or head of
8 33 household, an additional exemption of one thousand dollars for
8 34 each such individual who is blind at the close of the tax
8 35 year. For the purposes of this paragraph, an individual is
9 1 blind only if the individual's central visual acuity does not
9 2 exceed twenty=two hundredths in the better eye with correcting
9 3 lenses, or if the individual's visual acuity is greater than
9 4 twenty=two hundredths but is accompanied by a limitation in
9 5 the fields of vision such that the widest diameter of the
9 6 visual field subtends an angle no greater than twenty degrees.
9 7 Sec. 9. Section 422.9, subsections 4 through 7, Code 2003,
9 8 are amended by striking the subsections.
9 9 Sec. 10. Section 422.12, subsection 1, Code 2003, is
9 10 amended by striking the subsection and inserting in lieu
9 11 thereof the following:
9 12 1. A personal exemption credit in the following amounts:
9 13 a. If the net income of an estate or trust, a single
9 14 individual, or a married person filing a separate return is no
9 15 more than twenty=five thousand dollars, forty dollars.
9 16 b. If the net income of a head of household or a husband
9 17 and wife filling a joint return is no more than fifty thousand
9 18 dollars, eighty dollars.
9 19 c. For each dependent of a taxpayer described in paragraph
9 20 "a" or "b", an additional forty dollars. As used in this
9 21 section, "dependent" means the same as provided in the
9 22 Internal Revenue Code.
9 23 Sec. 11. Section 422.13, subsection 1, paragraph c, and
9 24 subsection 1A, Code 2003, are amended to read as follows:
9 25 c. However, if that part of the net income of a
9 26 nonresident which is allocated to Iowa pursuant to section
9 27 422.8, subsection 2, is less than one thousand dollars the
9 28 nonresident is not required to make and sign a return except
9 29 when the nonresident is subject to the state alternative
9 30 minimum tax imposed pursuant to section 422.5, subsection 1,
9 31 paragraph "k".
9 32 1A. Notwithstanding any other provision in this section, a
9 33 resident of this state is not required to make and file a
9 34 return if the person's net income is equal to or less than the
9 35 appropriate dollar amount listed in section 422.5, subsection
10 1 2, upon which tax is not imposed fifteen thousand dollars in
10 2 the case of married persons filing jointly, unmarried heads of
10 3 households, and surviving spouses, or is equal to or less than
10 4 eleven thousand dollars in the case of all other persons. A
10 5 nonresident of this state is not required to make and file a
10 6 return if the person's total net income in section 422.5,
10 7 subsection 1, paragraph "j", is equal to or less than the
10 8 appropriate dollar amount provided in section 422.5,
10 9 subsection 2, upon which tax is not imposed fifteen thousand
10 10 dollars in the case of married persons filing jointly,
10 11 unmarried heads of households, and surviving spouses, or is
10 12 equal to or less than eleven thousand dollars in the case of
10 13 all other persons. For purposes of this subsection, the
10 14 amount of a lump sum distribution subject to separate federal
10 15 tax shall be included in net income for purposes of
10 16 determining if a resident is required to file a return and the
10 17 portion of the lump sum distribution that is allocable to Iowa
10 18 is included in total net income for purposes of determining if
10 19 a nonresident is required to make and file a return.
10 20 Sec. 12. Section 422.21, unnumbered paragraph 5, Code
10 21 2003, is amended by striking the unnumbered paragraph.
10 22 Sec. 13. Section 422.11B, Code 2003, is repealed.
10 23 DIVISION II
10 24 COORDINATING AMENDMENTS
10 25 Sec. 14. Section 12D.9, subsection 2, Code 2003, is
10 26 amended to read as follows:
10 27 2. State income tax treatment of the Iowa educational
10 28 savings plan trust shall be as provided in section 422.7,
10 29 subsections 32, 33, and 34 subsection 1, paragraph "e", and
10 30 subsection 2, paragraph "h", and section 422.35, subsection
10 31 14.
10 32 Sec. 15. Section 217.39, Code 2003, is amended to read as
10 33 follows:
10 34 217.39 PERSECUTED VICTIMS OF WORLD WAR II == REPARATIONS
10 35 == HEIRS.
11 1 Notwithstanding any other law of this state, payments paid
11 2 to and income from lost property of a victim of persecution
11 3 for racial, ethnic, or religious reasons by Nazi Germany or
11 4 any other Axis regime or as an heir of such victim which is
11 5 exempt from state income tax as provided in section 422.7,
11 6 subsection 35, shall not be considered as income or an asset
11 7 for determining the eligibility for state or local government
11 8 benefit or entitlement programs. The proceeds are not subject
11 9 to recoupment for the receipt of governmental benefits or
11 10 entitlements, and liens, except liens for child support, are
11 11 not enforceable against these sums for any reason.
11 12 Sec. 16. Section 257.21, unnumbered paragraph 2, Code
11 13 2003, is amended to read as follows:
11 14 The instructional support income surtax shall be imposed on
11 15 the state individual income tax for the calendar year during
11 16 which the school's budget year begins, or for a taxpayer's
11 17 fiscal year ending during the second half of that calendar
11 18 year and after the date the board adopts a resolution to
11 19 participate in the program or the first half of the succeeding
11 20 calendar year, and shall be imposed on all individuals
11 21 residing in the school district on the last day of the
11 22 applicable tax year. As used in this section, "state
11 23 individual income tax" means the taxes computed under section
11 24 422.5, less the credits allowed in sections 422.11A, 422.11B,
11 25 422.12, and 422.12B.
11 26 Sec. 17. Section 422.6, unnumbered paragraph 1, Code 2003,
11 27 is amended to read as follows:
11 28 The tax imposed by section 422.5 less the credits allowed
11 29 under sections 15.333, 15.335, 422.10, 422.11, and 422.11A,
11 30 and 422.11B, and the personal exemption credit allowed under
11 31 section 422.12 apply to and are a charge against estates and
11 32 trusts with respect to their taxable income, and the rates are
11 33 the same as those applicable to individuals. The fiduciary
11 34 shall make the return of income for the estate or trust for
11 35 which the fiduciary acts, whether the income is taxable to the
12 1 estate or trust or to the beneficiaries. However, for tax
12 2 years ending after August 5, 1997, if the trust is a qualified
12 3 preneed funeral trust as set forth in section 685 of the
12 4 Internal Revenue Code and the trustee has elected the special
12 5 tax treatment under section 685 of the Internal Revenue Code,
12 6 neither the trust nor the beneficiary is subject to Iowa
12 7 income tax on income accruing to the trust.
12 8 Sec. 18. Section 422.12C, subsection 1, unnumbered
12 9 paragraph 1, Code 2003, is amended to read as follows:
12 10 The taxes imposed under this division, less the credits
12 11 allowed under sections 422.11A, 422.11B, 422.12, and 422.12B
12 12 shall be reduced by a child and dependent care credit equal to
12 13 the following percentages of the federal child and dependent
12 14 care credit provided in section 21 of the Internal Revenue
12 15 Code:
12 16 Sec. 19. Section 422.120, subsection 1, paragraph b,
12 17 subparagraph (3), Code 2003, is amended to read as follows:
12 18 (3) The annual index factor for the 1997 calendar year is
12 19 one hundred percent. For each subsequent the 1998 through
12 20 2002 calendar year years, the annual index factor equals the
12 21 annual inflation factor for that calendar year as computed in
12 22 section 422.4 for purposes of the individual income tax. For
12 23 the 2003 calendar year and each subsequent calendar year the
12 24 annual index factor shall be determined by the department by
12 25 October 15 of the calendar year preceding the calendar year
12 26 for which the factor is determined, which reflects the
12 27 purchasing power of the dollar as a result of inflation during
12 28 the fiscal year ending in the calendar year preceding the
12 29 calendar year for which the factor is determined. In
12 30 determining the annual index factor, the department shall use
12 31 the annual percent change, but not less than zero percent, in
12 32 the gross domestic product price deflator computed for the
12 33 second quarter of the calendar year by the bureau of economic
12 34 analysis of the United States department of commerce and shall
12 35 add all of that percent change to one hundred percent. The
13 1 annual index factor and the cumulative index factor shall each
13 2 be expressed as a percentage rounded to the nearest one=tenth
13 3 of one percent. The annual index factor shall not be less
13 4 than one hundred percent.
13 5 Sec. 20. Section 422D.2, Code 2003, is amended to read as
13 6 follows:
13 7 422D.2 LOCAL INCOME SURTAX.
13 8 A county may impose by ordinance a local income surtax as
13 9 provided in section 422D.1 at the rate set by the board of
13 10 supervisors, of up to one percent, on the state individual
13 11 income tax of each individual residing in the county at the
13 12 end of the individual's applicable tax year. However, the
13 13 cumulative total of the percents of income surtax imposed on
13 14 any taxpayer in the county shall not exceed twenty percent.
13 15 The reason for imposing the surtax and the amount needed shall
13 16 be set out in the ordinance. The surtax rate shall be set to
13 17 raise only the amount needed. For purposes of this section,
13 18 "state individual income tax" means the tax computed under
13 19 section 422.5, less the credits allowed in sections 422.11A,
13 20 422.11B, 422.12, and 422.12B.
13 21 Sec. 21. Section 425.23, subsection 4, paragraph b, Code
13 22 2003, is amended to read as follows:
13 23 b. The annual adjustment factor for the 1998 base year is
13 24 one hundred percent. For each subsequent the 1999 through
13 25 2002 base year years, the annual adjustment factor equals the
13 26 annual inflation factor for the calendar year, in which the
13 27 base year begins, as computed in section 422.4 for purposes of
13 28 the individual income tax. For the 2003 base year and each
13 29 subsequent base year, the annual adjustment factor equals the
13 30 annual index factor, in which the base year begins, as
13 31 computed in section 422.120, subsection 1, for purposes of the
13 32 livestock production tax credit.
13 33 Sec. 22. Section 450.4, subsection 8, Code 2003, is
13 34 amended to read as follows:
13 35 8. On the value of that portion of any lump sum or
14 1 installment payments which are received by a beneficiary under
14 2 an annuity which was purchased under an employee's pension or
14 3 retirement plan which was excluded from net income as set
14 4 forth in under section 422.7, subsection 31.
14 5 Sec. 23. Section 541A.2, subsection 7, unnumbered
14 6 paragraph 1, Code 2003, is amended to read as follows:
14 7 An individual development account closed in accordance with
14 8 this subsection is not subject to the limitations and benefits
14 9 provided by this chapter but is subject to state tax in
14 10 accordance with the provisions of section 422.7, subsection 28
14 11 2, paragraph "g", and section 450.4, subsection 6. An
14 12 individual development account may be closed for any of the
14 13 following reasons:
14 14 Sec. 24. Section 541A.3, subsection 2, Code 2003, is
14 15 amended to read as follows:
14 16 2. Income earned by an individual development account is
14 17 not subject to state tax, in accordance with the provisions of
14 18 section 422.7, subsection 28 2, paragraph "g".
14 19 DIVISION III
14 20 EFFECTIVE AND APPLICABILITY DATE PROVISION
14 21 Sec. 25. This Act takes effect January 1, 2004, for tax
14 22 years beginning on or after that date.
14 23 EXPLANATION
14 24 This bill rewrites the state individual income tax by
14 25 setting a flat rate of 3.5 percent of the taxable income.
14 26 Most adjustments to federal adjusted gross income are
14 27 eliminated. However, deductions for the amount of all social
14 28 security and pensions received are phased in over a five=year
14 29 period. In arriving at the taxable income, all of the
14 30 itemized deductions allowed for federal tax purposes are
14 31 eliminated. A standard deduction is provided which is equal
14 32 to $2,000 for each personal exemption the taxpayer is allowed
14 33 under the federal tax code. An additional $1,000 deduction is
14 34 allowed if the individual or the individual's spouse is 65 or
14 35 older or blind. The present personal credit is made
15 1 contingent on the amount of net income. This amounts to a
15 2 maximum income of $25,000 for single filers and $50,000 for
15 3 joint filers and heads of households. The deduction for
15 4 federal income taxes paid is eliminated. The alternative
15 5 minimum tax is eliminated. The bill also retains the present
15 6 credits that are allowed except for the minimum tax credit.
15 7 The bill requires a three=fourths vote of members elected to
15 8 each house to pass legislation that would increase the income
15 9 tax rate or would impose an alternative minimum tax or
15 10 individual income surtax. A person is not required to file a
15 11 return if the person's net income is no more than $15,000 for
15 12 joint filers, heads of households, and surviving spouses, or
15 13 no more than $11,000 for single filers.
15 14 The bill takes effect January 1, 2004, for tax years
15 15 beginning on or after that date.
15 16 LSB 1075XS 80
15 17 mg/sh/8.1