SF 470 (LSB 1983XS (2) 86)

SENATE FILE 470

BY  CHELGREN

A BILL FOR

An Act modifying the tax brackets and tax rates imposed under the individual income tax and corporate income tax and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.5, subsection 1, Code 2015, is amended to read as follows:
   1.  A tax is imposed upon every resident and nonresident of the state which tax shall be levied, collected, and paid annually upon and with respect to the entire taxable income as defined in this division at rates as follows:
   a.  On all taxable income from zero through one thousand dollars, thirty-six hundredths of one percent.
   b.  On all taxable income exceeding one thousand dollars but not exceeding two thousand dollars, seventy-two hundredths of one percent.
   c.  On all taxable income exceeding two thousand dollars but not exceeding four thousand dollars, two and forty-three hundredths percent.
   d.  On all taxable income exceeding four thousand dollars but not exceeding nine thousand dollars, four and one-half percent.
   e.  On all taxable income exceeding nine thousand dollars but not exceeding fifteen thousand dollars, six and twelve hundredths five percent.
   f.  On all taxable income exceeding fifteen thousand dollars but not exceeding twenty thousand dollars, six and forty-eight hundredths percent.
   g.  On all taxable income exceeding twenty thousand dollars but not exceeding thirty thousand dollars, six and eight-tenths percent.
   h.  On all taxable income exceeding thirty thousand dollars but not exceeding forty-five thousand dollars, seven and ninety-two hundredths percent.
   i.  On all taxable income exceeding forty-five thousand dollars, eight and ninety-eight hundredths percent.
   j.  f.  (1)  The tax imposed upon the taxable income of a nonresident shall be computed by reducing the amount determined pursuant to paragraphs “a” through “i” “e” by the amounts of nonrefundable credits under this division and by multiplying this resulting amount by a fraction of which the nonresident’s net income allocated to Iowa, as determined in section 422.8, subsection 2, paragraph “a”, is the numerator and the nonresident’s total net income computed under section 422.7 is the denominator. This provision also applies to individuals who are residents of Iowa for less than the entire tax year.
   (2)  (a)  The tax imposed upon the taxable income of a resident shareholder in an S corporation or of an estate or trust with a situs in Iowa that is a shareholder in an S corporation, which S corporation has in effect for the tax year an election under subchapter S of the Internal Revenue Code and carries on business within and without the state, may be computed by reducing the amount determined pursuant to paragraphs “a” through “i” “e” by the amounts of nonrefundable credits under this division and by multiplying this resulting amount by a fraction of which the resident’s or estate’s or trust’s net income allocated to Iowa, as determined in section 422.8, subsection 2, paragraph “b”, is the numerator and the resident’s or estate’s or trust’s total net income computed under section 422.7 is the denominator. If a resident shareholder, or an estate or trust with a situs in Iowa that is a shareholder, has elected to take advantage of this subparagraph (2), and for the next tax year elects not to take advantage of this subparagraph, the resident or estate or trust shareholder shall not reelect to take advantage of this subparagraph for the three tax years immediately following the first tax year for which the shareholder elected not to take advantage of this subparagraph, unless the director consents to the reelection. This subparagraph also applies to individuals who are residents of Iowa for less than the entire tax year.
   (b)  This subparagraph (2) shall not affect the amount of the taxpayer’s checkoffs under this division, the credits from tax provided under this division, and the allocation of these credits between spouses if the taxpayers filed separate returns or separately on combined returns.
    Sec. 2.  Section 422.5, subsection 2, paragraph a, Code 2015, is amended to read as follows:
   a.  There is imposed upon every resident and nonresident of this state, including estates and trusts, the greater of the tax determined in subsection 1, paragraphs “a” through “j” “f”, or the state alternative minimum tax equal to seventy-five percent of the maximum state individual income tax rate for the tax year, rounded to the nearest one-tenth of one percent, of the state alternative minimum taxable income of the taxpayer as computed under this subsection.
    Sec. 3.  Section 422.5, subsection 6, Code 2015, is amended to read as follows:
   6.  Upon determination of the latest cumulative inflation factor, the director shall multiply each dollar amount set forth in subsection 1, paragraphs “a” through “i” “e” by this cumulative inflation factor, shall round off the resulting product to the nearest one dollar, and shall incorporate the result into the income tax forms and instructions for each tax year.
    Sec. 4.  Section 422.8, subsection 2, paragraph a, Code 2015, is amended to read as follows:
   a.  Nonresident’s net income allocated to Iowa is the net income, or portion of net income, which is derived from a business, trade, profession, or occupation carried on within this state or income from any property, trust, estate, or other source within Iowa. However, income derived from a business, trade, profession, or occupation carried on within this state and income from any property, trust, estate, or other source within Iowa shall not include distributions from pensions, including defined benefit or defined contribution plans, annuities, individual retirement accounts, and deferred compensation plans or any earnings attributable thereto so long as the distribution is directly related to an individual’s documented retirement and received while the individual is a nonresident of this state. If a business, trade, profession, or occupation is carried on partly within and partly without the state, only the portion of the net income which is fairly and equitably attributable to that part of the business, trade, profession, or occupation carried on within the state is allocated to Iowa for purposes of section 422.5, subsection 1, paragraph “j” “f”, and section 422.13 and income from any property, trust, estate, or other source partly within and partly without the state is allocated to Iowa in the same manner, except that annuities, interest on bank deposits and interest-bearing obligations, and dividends are allocated to Iowa only to the extent to which they are derived from a business, trade, profession, or occupation carried on within the state.
    Sec. 5.  Section 422.11B, Code 2015, is amended to read as follows:
   422.11B  Minimum tax credit.
   1.  a.  There is allowed as a credit against the tax determined in section 422.5, subsection 1, paragraphs “a” through “j” “f” for a tax year an amount equal to the minimum tax credit for that tax year.
   b.  The minimum tax credit for a tax year is the excess, if any, of the net minimum tax imposed for all prior tax years beginning on or after January 1, 1987, over the amount allowable as a credit under this section for those prior tax years.
   2.  a.  The allowable credit under subsection 1 for a tax year shall not exceed the excess, if any, of the tax determined in section 422.5, subsection 1, paragraphs “a” through “j” “f” over the state alternative minimum tax as determined in section 422.5, subsection 2.
   b.  The net minimum tax for a tax year is the excess, if any, of the tax determined in section 422.5, subsection 2, for the tax year over the tax determined in section 422.5, subsection 1, paragraphs “a” through “j” “f” for the tax year.
    Sec. 6.  Section 422.33, subsection 1, Code 2015, is amended by striking the subsection and inserting in lieu thereof the following:
   1.  a.  A tax is imposed annually upon each corporation doing business in this state, or deriving income from sources within this state, at the rate of five percent of the taxable income received by the corporation during the income year.
   b.  For purposes of this section, “taxable income” means the net income as calculated in section 422.35 and determined to be reasonably attributable to Iowa pursuant to subsections 2 and 3.
    Sec. 7.  Section 422.33, subsection 1A, Code 2015, is amended to read as follows:
   1A.  There is imposed upon each corporation exempt from the general business tax on corporations by section 422.34, subsection 2, a tax at the rates rate specified in subsection 1 upon the state’s apportioned share computed in accordance with subsections 2 and 3 of the unrelated business income computed in accordance with the Internal Revenue Code and with the adjustments set forth in section 422.35.
    Sec. 8.  Section 422.33, subsection 4, paragraph a, Code 2015, is amended to read as follows:
   a.  In addition to all taxes imposed under this division, there is imposed upon each corporation doing business within the state the greater of the tax determined in subsection 1, paragraphs “a” through “d” or the state alternative minimum tax equal to sixty percent of the maximum state corporate income tax rate, rounded to the nearest one-tenth of one percent, of the state alternative minimum taxable income of the taxpayer computed under this subsection.
    Sec. 9.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2015, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to the tax brackets and tax rates imposed on individuals and corporations under the individual and corporate income taxes.
   INDIVIDUAL INCOME TAX. Currently, the individual income tax is imposed in a progressive manner using nine income brackets with increasing rates ranging from a low of 0.36 percent on the first $1,539 of taxable income to a high of 8.98 percent on all taxable income in excess of $69,255. The taxable income amounts in each bracket are indexed for inflation each year by the department of revenue. The bill eliminates the top four tax brackets and tax rates and lowers the rate in the fifth tax bracket from 6.12 percent to 5 percent. As a result, the new tax rates and tax brackets (2015 amounts) are as follows:
   1. From $0 to $1,539, 0.36 percent.
   2. From $1,540 to $3,078, 0.72 percent.
   3. From $3,079 to $6,156, 2.43 percent.
   4. From $6,157 to $13,851, 4.5 percent.
   5. From $13,852 and over, 5 percent.
   CORPORATE INCOME TAX. Currently, the corporate income tax is imposed in a progressive manner using four income brackets with increasing rates ranging from a low of 6 percent on the first $25,000 of taxable income to a high of 12 percent on taxable income of $250,000 or more. The bill eliminates this tiered bracket and rate structure and imposes the tax at a rate of 5 percent on the corporation’s taxable income.
   The bill applies retroactively to tax years beginning on or after January 1, 2015.