HF 2489 (LSB 5613HV (5) 87)

HOUSE FILE 2489

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO HSB 671)

A BILL FOR

An Act relating to state and local revenue and finance by modifying the income taxes, the sales and use taxes and local option sales tax, the hotel and motel excise tax, the automobile rental excise tax, the Iowa educational savings plan trust, and the disabilities expenses savings plan trust, making penalties applicable, and including immediate effective date and retroactive and other applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
INCOME TAX CHANGES BEGINNING IN TAX YEAR 2018

    Section 1.  Section 422.7, Code 2018, is amended by adding the following new subsections:
   NEW SUBSECTION.  51.  a.  Notwithstanding any other provision of law to the contrary, the increased expensing allowance under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, applies in computing net income for state tax purposes for tax years beginning on or after January 1, 2018, subject to the limitations in this subsection.
   b.  If the taxpayer has taken the increased expensing allowance under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, for purposes of computing federal adjusted gross income for tax years beginning on or after January 1, 2018, then the taxpayer shall make the following adjustments to federal adjusted gross income when computing net income for state tax purposes for the same tax year:
   (1)  Add the total amount of expense deduction taken on section 179 property allowable for federal tax purposes under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101.
   (2)  (a)  For tax years beginning on or after January 1, 2018, but before January 1, 2020, subtract the amount of expense deduction on section 179 property allowable for federal tax purposes under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, not to exceed one hundred thousand dollars. The subtraction in this subparagraph division shall be reduced, but not below zero, by the amount by which the total cost of section 179 property placed in service by the taxpayer during the tax year exceeds four hundred thousand dollars.
   (b)  For tax years beginning on or after January 1, 2020, subtract the amount of expense deduction on section 179 property allowable for federal tax purposes under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, not to exceed two hundred fifty thousand dollars. The subtraction in this subparagraph division shall be reduced, but not below zero, by the amount by which the total cost of section 179 property placed in service by the taxpayer during the tax year exceeds one million dollars.
   (3)  Any other adjustments to gains or losses necessary to reflect adjustments made in subparagraphs (1) and (2).
   c.  The director shall adopt rules pursuant to chapter 17A to administer this subsection.
   NEW SUBSECTION.  52.  a.  For tax years beginning on or after January 1, 2018, a taxpayer may elect to take advantage of this subsection in lieu of subsection 51, but only if the taxpayer’s total expensing allowance deduction for federal tax purposes under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, that is allocated to the taxpayer from one or more partnerships, S corporations, or limited liability companies electing to have the income taxed directly to the individual exceeds one hundred thousand dollars for a tax year beginning on or after January 1, 2018, but before January 1, 2020, or exceeds two hundred fifty thousand dollars for a tax year beginning on or after January 1, 2020, and would, except as provided in this subsection, be limited for purposes of computing net income for state tax purposes pursuant to subsection 51.
   b.  A taxpayer who elects to take advantage of this subsection shall make the following adjustments to federal adjusted gross income when computing net income for state tax purposes:
   (1)  Add the total amount of section 179 expense deduction allocated to the taxpayer from all partnerships, S corporations, or limited liability companies electing to have the income taxed directly to the individual, to the extent the allocated amount was allowed as a deduction to the taxpayer for federal tax purposes for the tax year under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101.
   (2)  From the amount added in subparagraph (1), do the following:
   (a)  For tax years beginning on or after January 1, 2018, but before January 1, 2020, subtract the first one hundred thousand dollars of expensing allowance deduction on section 179 property.
   (b)  For tax years beginning on or after January 1, 2020, subtract the first two hundred fifty thousand dollars of expensing allowance deduction on section 179 property.
   (3)  The remaining amount, equal to the difference between the amount added in subparagraph (1), and the amount subtracted in subparagraph (2), may be deducted by the taxpayer but such deduction shall be amortized equally over five tax years beginning in the following tax year.
   (4)  Any other adjustments to gains or losses necessary to reflect adjustments made in subparagraphs (1) through (3).
   c.  A taxpayer who elects to take advantage of this subsection shall not take the increased expensing allowance under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101, for any section 179 property placed in service by the taxpayer in computing adjusted gross income for state tax purposes. If the taxpayer has taken any such deduction for purposes of computing federal adjusted gross income, the taxpayer shall make the following adjustments to federal adjusted gross income when computing net income for state tax purposes:
   (1)  Add the total amount of expense deduction for federal tax purposes taken on section 179 property placed in service by the taxpayer under section 179 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, §13101.
   (2)  Subtract the amount of depreciation allowable on such property under the modified accelerated cost recovery system described in section 168 of the Internal Revenue Code, without regard to section 168(k) of the Internal Revenue Code. The taxpayer shall continue to take depreciation on the applicable property in future tax years to the extent allowed under the modified accelerated cost recovery system described in section 168 of the Internal Revenue Code, without regard to section 168(k) of the Internal Revenue Code.
   (3)  Any other adjustments to gains or losses necessary to reflect the adjustments made in subparagraphs (1) and (2).
   d.  The election made under this subsection is for one tax year and the taxpayer may elect or not elect to take advantage of this subsection in any subsequent tax year. However, not electing to take advantage of this subsection in a subsequent tax year shall not affect the taxpayer’s ability to claim the tax deduction under paragraph “b”, subparagraph (3), that originated from a previous tax year.
   e.  The director shall adopt rules pursuant to chapter 17A to administer this subsection.
    Sec. 2.  Section 422.9, subsection 2, paragraph h, Code 2018, is amended to read as follows:
   h.  For purposes of calculating the deductions in this subsection that are authorized under the Internal Revenue Code, and to the extent that any of such deductions is determined by an individual’s federal adjusted gross income, the individual’s federal adjusted gross income is computed in accordance with section 422.7, subsections 39, 39A, 39B, 51, 52, and 53.
    Sec. 3.  TAX-FREE IRA DISTRIBUTIONS TO CERTAIN PUBLIC CHARITIES FOR INDIVIDUALS SEVENTY AND ONE-HALF YEARS OF AGE OR OLDER.  Notwithstanding any other provision of law to the contrary, for tax years beginning during the 2018 calendar year, the exclusion from federal adjusted gross income for certain qualified charitable distributions from an individual retirement plan provided in section 408(d)(8) of the Internal Revenue Code, as amended by Pub. L. No. 114-113, division Q, §112, applies in computing net income for state tax purposes.
    Sec. 4.  STATE SALES AND USE TAX DEDUCTION.  

Notwithstanding any other provision of law to the contrary, for tax years beginning during the 2018 calendar year, a taxpayer who elects to itemize deductions for state tax purposes under section 422.9, subsection 2, is allowed to take the deduction for state sales and use tax in lieu of the deduction for state and local income taxes under section 164(b)(5) of the Internal Revenue Code, as amended by Pub. L. No. 114-113, division Q, §106, in computing taxable income for state tax purposes, but only if the taxpayer elected to deduct state sales and use taxes in lieu of state and local income taxes for federal tax purposes for the same tax year.
    Sec. 5.  EARNED INCOME TAX CREDIT FOR 2018.  

Notwithstanding the definition of “Internal Revenue Code” in section 422.3, for tax years beginning during the 2018 calendar year, any reference to the term “Internal Revenue Code” in section 422.12B shall mean the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended and in effect on January 1, 2016, but shall not be construed to include any amendment to the Internal Revenue Code enacted after January 1, 2016, including any amendment with retroactive applicability or effectiveness.
    Sec. 6.  ACCOUNTING METHOD AND OTHER MISCELLANEOUS COUPLING PROVISIONS FOR TAX YEAR 2018.  Notwithstanding any other provision of law to the contrary, amendments to the Internal Revenue Code enacted in Pub. L. No. 115-97, §13102, §13221, §13504, §13541, §13543, §13611, and §13613, apply in calculating federal adjusted gross income or federal taxable income, as applicable, for state tax purposes for purposes of chapter 422 for tax years beginning during the 2018 calendar year to the extent those amendments affect the calculation of federal adjusted gross income or federal taxable income, as applicable, for federal tax purposes for tax years beginning during the 2018 calendar year.
    Sec. 7.  TEACHER EXPENSE DEDUCTION.  Notwithstanding any other provision of law to the contrary, for tax years beginning during the 2018 calendar year, a taxpayer is allowed to take the deduction for certain expenses of elementary and secondary school teachers allowed under section 62(a)(2)(D) of the Internal Revenue Code, as amended by Pub. L. No. 114-113, division Q, §104, in computing net income for state tax purposes.
    Sec. 8.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 9.  RETROACTIVE APPLICABILITY.
   1.  Except as provided in subsection 2, this division of this Act applies retroactively to January 1, 2018, for tax years beginning on or after that date, but before January 1, 2019.
   2.  The sections of this division of this Act enacting section 422.7, subsections 51 and 52, and amending section 422.9, subsection 2, paragraph “h”, apply retroactively to January 1, 2018, for tax years beginning on or after that date.
DIVISION II
INDIVIDUAL INCOME TAX CHANGES BEGINNING IN TAX YEAR 2019

    Sec. 10.  Section 422.4, subsection 2, paragraph b, Code 2018, is amended to read as follows:
   b.  “Cumulative standard deduction factor” means the product of the annual standard deduction factor for the 1989 2020 calendar year and all annual standard deduction factors for subsequent calendar years as determined pursuant to this subsection. The cumulative standard deduction factor applies to all tax years beginning on or after January 1 of the calendar year for which the latest annual standard deduction factor has been determined.
    Sec. 11.  Section 422.4, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  9A.  “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended and in effect on January 1, 2018. This definition shall not be construed to include any amendment to the Internal Revenue Code enacted after the date specified in the preceding sentence, including any amendment with retroactive applicability or effectiveness.
    Sec. 12.  Section 422.4, subsection 16, Code 2018, is amended to read as follows:
   16.  The words “taxable income” mean the net income as defined in section 422.7 minus the deductions allowed by section 422.9, in the case of individuals; in the case of estates or trusts, the words “taxable income” mean the taxable income (without a deduction for personal exemption) as computed for federal income tax purposes under the Internal Revenue Code, but with the following adjustments specified in section 422.7 plus the Iowa income tax deducted in computing the federal taxable income and minus federal income taxes as provided in section 422.9.:
   a.  Add back the personal exemption deduction taken in computing federal taxable income.
   b.  Make the adjustments specified in section 422.7.
   c.  Add back Iowa income tax deducted in computing federal taxable income.
   d.  Subtract federal income taxes as provided in section 422.9.
   e.  Add back seventy-five percent of the qualified business income deduction under section 199A of the Internal Revenue Code, as amended by Pub. L. No. 115-141, division T, §101, taken in calculating federal taxable income.
    Sec. 13.  Section 422.5, subsection 1, Code 2018, is amended to read as follows:
   1.  a.  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: provided in section 422.5A.
   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 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.  b.  (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” paragraph “a” 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” paragraph “a” 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. 14.  Section 422.5, subsection 2, paragraph a, Code 2018, 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”, 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, times the state alternative minimum taxable income of the taxpayer as computed under this subsection.
    Sec. 15.  NEW SECTION.  422.5A  Tax rates.
   The tax imposed in section 422.5 shall be calculated at the following rates for tax years beginning in the following calendar years:
                      2019                        2020 and 
                        subsequent
                        calendar years
   1.  On all taxable income from
0 through $1,000:                   0.34%                        0.32%
   2.  On all taxable income
exceeding $1,000 but not exceeding
$2,000:                   0.68%                        0.65%
   3.  On all taxable income
exceeding $2,000 but not exceeding
$4,000:                   2.31%                        2.20%
   4.  On all taxable income
exceeding $4,000 but not exceeding
$9,000:                   4.28%                        4.10%
   5.  On all taxable income
exceeding $9,000 but not exceeding
$15,000:                   5.94%                        5.60%
   6.  On all taxable income
exceeding $15,000 but not exceeding
$20,000:                   6.29%                        6.10%
   7.  On all taxable income
exceeding $20,000 but not exceeding
$30,000:                   6.60%                        6.58%
   8.  On all taxable income
exceeding $30,000 but not exceeding
$45,000:                   7.84%                        7.82%
   9.  On all taxable income

exceeding $45,000:                   8.89%                        8.89%
    Sec. 16.  Section 422.5, subsection 6, Code 2018, 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” section 422.5A 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. 17.  Section 422.7, subsection 39A, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The additional first-year depreciation allowance authorized in section 168(k) of the Internal Revenue Code, as enacted by Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 112-240, §331, and Pub. L. No. 113-295, §125, Pub. L. No. 114-113, division Q, §143, and Pub. L. No. 115-97, §13201, does not apply in computing net income for state tax purposes. If the taxpayer has taken the additional first-year depreciation allowance for purposes of computing federal adjusted gross income, then the taxpayer shall make the following adjustments to federal adjusted gross income when computing net income for state tax purposes:
    Sec. 18.  Section 422.7, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  59.  a.  The rules for nonrecognition of gain or loss from exchanges of real property held for productive use or investment and not held primarily for sale, as provided in section 1031 of the Internal Revenue Code, apply for state income tax purposes with regard to exchanges of real property.
   b.  (1)  The rules for nonrecognition of gain or loss from exchanges of property other than real property held for productive use or investment as provided in section 1031 of the Internal Revenue Code, as amended up to and including December 21, 2017, apply for state income tax purposes, notwithstanding any other provision of law to the contrary. If the taxpayer’s federal adjusted gross income includes gain or loss from property, other than real property described in paragraph “a”, and the taxpayer elects to have this paragraph apply, the following adjustments shall be made:
   (a)  (i)  Subtract the total amount of gain related to the sale or exchange of the property as properly reported for federal tax purposes under the Internal Revenue Code.
   (ii)  Add back any gain related to the sale or exchange of the property to the extent such gain does not qualify for deferral under section 1031 of the Internal Revenue Code, as amended up to and including December 21, 2017, which gain shall be calculated using the taxpayer’s adjusted basis in the property for state tax purposes.
   (b)  (i)  Add the total amount of loss related to the sale or exchange of the property as properly reported for federal tax purposes under the Internal Revenue Code.
   (ii)  Subtract any loss related to the sale or exchange of the property to the extent such loss does not qualify for deferral under section 1031 of the Internal Revenue Code, as amended up to and including December 21, 2017, which loss shall be calculated using the taxpayer’s adjusted basis in the property for state tax purposes.
   (c)  Any other adjustments to gains, losses, deductions, or tax basis for the property given up or received in the sale or exchange pursuant to rules adopted by the director.
   (2)  The director shall adopt rules pursuant to chapter 17A to administer this paragraph.
    Sec. 19.  Section 422.8, subsection 2, paragraph a, Code 2018, 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” “b”, 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. Net income described in section 29C.24, subsection 3, paragraph “a”, subparagraph (3), and paragraph “b”, subparagraph (2), shall not be allocated and apportioned to the state, as provided in section 29C.24.
    Sec. 20.  Section 422.9, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   In computing taxable income of individuals, there shall be deducted from net income the larger of the following amounts: computed under subsection 1 or 2, plus the amount computed under subsection 2A.
    Sec. 21.  Section 422.9, subsection 1, Code 2018, is amended to read as follows:
   1.  An optional standard deduction, after deduction of federal income tax, equal to one three thousand two hundred thirty dollars for a married person who files separately or a single person or equal to three seven thousand thirty five hundred dollars for a husband and wife who file a joint return, a surviving spouse, or a head of household. The optional standard deduction shall not exceed the amount remaining after deduction of the federal income tax. The amount of federal income tax deducted shall be computed as provided in subsection 2, paragraph “b”.
    Sec. 22.  Section 422.9, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  2A.  a.  Twenty-five percent of the amount deductible by the taxpayer for federal income tax purposes under section 199A of the Internal Revenue Code, as amended by Pub. L. No. 115-141, division T, §101.
   b.  Notwithstanding paragraph “a”, and section 422.4, subsection 16, paragraph “e”, for an entity electing or required to file a composite return under section 422.13, subsection 5, the deduction allowed under this subsection for purposes of the composite return shall be an amount equal to twenty-five percent of the deduction that would be allowable for federal income tax purposes under section 199A of the Internal Revenue Code, as amended by Pub. L. No. 115-141, division T, §101 by an individual taxpayer reporting the same items of income and loss that are included in the composite return.
    Sec. 23.  Section 422.9, subsection 2, paragraph i, Code 2018, is amended to read as follows:
   i.  The deduction for state sales and use taxes is allowable only if the taxpayer elected to deduct the state sales and use taxes in lieu of state income taxes under section 164 of the Internal Revenue Code. A deduction for state sales and use taxes is not allowed if the taxpayer has taken the deduction for state income taxes or claimed the standard deduction under section 63 of the Internal Revenue Code. This paragraph applies to taxable years beginning after December 31, 2003, and before January 1, 2008, and to taxable years beginning after December 31, 2009, and before January 1, 2015 December 31, 2018.
    Sec. 24.  Section 422.9, subsection 2, Code 2018, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  l.  The limitation on the deduction of certain taxes in section 164(b)(6) of the Internal Revenue Code does not apply in computing taxable income for state tax purposes. A taxpayer is allowed to deduct taxes in computing taxable income as otherwise provided in this subsection without regard to section 164(b)(6), as enacted by Pub. L. No. 115-97, §11042.
    Sec. 25.  Section 422.9, subsection 3, paragraph d, Code 2018, is amended to read as follows:
   d.  Notwithstanding paragraph “a”, for a taxpayer who is engaged in the trade or business of farming as defined in section 263A(e)(4) of the Internal Revenue Code and has a loss from farming as defined in section 172(b)(1)(F) 172(b)(1)(B) of the Internal Revenue Code including modifications prescribed by rule by the director, the Iowa loss from the trade or business of farming is a net operating loss which may be carried back five taxable years prior to the taxable year of the loss.
    Sec. 26.  Section 422.9, subsection 5, Code 2018, is amended to read as follows:
   5.  A taxpayer affected by section 422.8 shall, if the optional standard deduction is not used, be permitted to deduct only such portion of the total referred to in subsection subsections 2 above and 2A as is fairly and equitably allocable to Iowa under the rules prescribed by the director.
    Sec. 27.  Section 422.9, subsections 6 and 7, Code 2018, are amended by striking the subsections.
    Sec. 28.  Section 422.11B, Code 2018, 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” 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” 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” for the tax year.
    Sec. 29.  Section 422.21, subsection 5, Code 2018, is amended to read as follows:
   5.  a.  The director shall determine for the 1989 and each subsequent calendar year the annual and cumulative inflation factors for each calendar year to be applied to tax years beginning on or after January 1 of that calendar year. The director shall compute the new dollar amounts as specified to be adjusted in section 422.5 by the latest cumulative inflation factor and round off the result to the nearest one dollar. The annual and cumulative inflation factors determined by the director are not rules as defined in section 17A.2, subsection 11.
   b.  The director shall determine for the 1990 2020 calendar year and each subsequent calendar year the annual and cumulative standard deduction factors to be applied to tax years beginning on or after January 1 of that calendar year. The director shall compute the new dollar amounts of the standard deductions specified in section 422.9, subsection 1, by the latest cumulative standard deduction factor and round off the result to the nearest ten dollars. The annual and cumulative standard deduction factors determined by the director are not rules as defined in section 17A.2, subsection 11.
    Sec. 30.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2019.
    Sec. 31.  APPLICABILITY.  This division of this Act applies to tax years beginning on or after January 1, 2019.
DIVISION III
CHANGES TO IOWA EDUCATIONAL SAVINGS PLAN TRUST AND IOWA ABLE SAVINGS PLAN TRUST

    Sec. 32.  Section 12D.1, Code 2018, is amended to read as follows:
   12D.1  Purpose and definitions.
   1.  The general assembly finds that the general welfare and well-being of the state are directly related to educational levels and skills of the citizens of the state, and that a vital and valid public purpose is served by the creation and implementation of programs which encourage and make possible the attainment of higher formal education by the greatest number of citizens of the state. The state has limited resources to provide additional programs for higher education funding and the continued operation and maintenance of the state’s public institutions of higher education and the general welfare of the citizens of the state will be enhanced by establishing a program which allows citizens of the state to invest money in a public trust for future application to the payment of higher education costs qualified education expenses. The creation of the means of encouragement for citizens to invest in such a program represents the carrying out of a vital and valid public purpose. In order to make available to the citizens of the state an opportunity to fund future higher formal education needs, it is necessary that a public trust be established in which moneys may be invested for future educational use.
   2.  As used in this chapter, unless the context otherwise requires:
   a.  “Account balance limit” means the maximum allowable aggregate balance of accounts established for the same beneficiary. Account earnings, if any, are included in the account balance limit.
   b.  “Administrative fund” means the administrative fund established under section 12D.4.
   c.  “Beneficiary” means the individual designated by a participation agreement to benefit from advance payments of higher education costs qualified education expenses on behalf of the beneficiary.
   d.  “Benefits” means the payment of higher education costs qualified education expenses on behalf of a beneficiary by the trust during the beneficiary’s attendance at an institution of higher education a qualified educational institution.
   e.  “Higher education costs” means the same as “qualified higher education expenses” as defined insection 529(e)(3) of the Internal Revenue Code.
   f.  e.  “Institution of higher education” means an institution described in section 481 of the federal Higher Education Act of 1965, 20 U.S.C. §1088, which is eligible to participate in the United States department of education’s student aid programs.
   g.  f.  “Internal Revenue Code” means the same as defined insection 12I.1.
   h.  g.  “Iowa educational savings plan trust” or “trust” means the trust created under section 12D.2.
   i.  h.  “Participant” means an individual, individual’s legal representative, trust, estate, or an organization described in section 501(c)(3) of the Internal Revenue Code and exempt from taxation under section 501(a) of the Internal Revenue Code, that has entered into a participation agreement under this chapter for the advance payment of higher education costs qualified education expenses on behalf of a beneficiary.
   j.  i.  “Participation agreement” means an agreement between a participant and the trust entered into under this chapter.
   k.  j.  “Program fund” means the program fund established under section 12D.4.
   k.  “Qualified education expenses” means the same as “qualified higher education expenses” as defined in section 529(e)(3) of the Internal Revenue Code, as amended by Pub. L. No. 115-97, and shall include elementary and secondary school expenses for tuition described in section 529(c)(7) of the Internal Revenue Code, subject to the limitations imposed by section 529(e)(3)(A) of the Internal Revenue Code.
   l.  “Qualified educational institution” means an institution of higher education, or any elementary or secondary public, private, or religious school described in section 529(c)(7) of the Internal Revenue Code.
   l.  m.  “Tuition and fees” “Tuition” means the quarter, or semester, or annual charges imposed to attend an institution of higher education a qualified educational institution and required as a condition of enrollment or attendance.
    Sec. 33.  Section 12D.2, subsections 2, 5, 9, and 14, Code 2018, are amended to read as follows:
   2.  Enter into agreements with any institution of higher education qualified educational institution, the state, or any federal or other state agency, or other entity as required to implement this chapter.
   5.  Carry out studies and projections so the treasurer of state may advise participants regarding present and estimated future higher education costs qualified education expenses and levels of financial participation in the trust required in order to enable participants to achieve their educational funding objectives.
   9.  Make payments to institutions of higher education qualified educational institutions, participants, or beneficiaries, pursuant to participation agreements on behalf of beneficiaries.
   14.  Establish, impose, and collect administrative fees and charges in connection with transactions of the trust, and provide for reasonable service charges, including penalties for cancellations and late payments with respect to participation agreements.
    Sec. 34.  Section 12D.3, subsections 1 and 2, Code 2018, are amended to read as follows:
   1.  a.  Each participation agreement may require a participant to agree to invest a specific amount of money in the trust for a specific period of time for the benefit of a specific beneficiary. A participant shall not be required to make an annual contribution on behalf of a beneficiary. The maximum contribution that may be deducted for Iowa income tax purposes shall not exceed two thousand dollars per beneficiary per year adjusted annually to reflect increases in the consumer price index. The treasurer of state shall set an account balance limit to maintain compliance with section 529 of the Internal Revenue Code. A contribution shall not be permitted to the extent it causes the aggregate balance of all accounts established for the same beneficiary under the trust to exceed the applicable account balance limit.
   b.  Participation agreements may be amended to provide for adjusted levels of payments based upon changed circumstances or changes in educational plans.
   2.  The execution of a participation agreement by the trust shall not guarantee in any way that higher education costs qualified education expenses will be equal to projections and estimates provided by the trust or that the beneficiary named in any participation agreement will attain any of the following:
   a.  Be admitted to an institution of higher education a qualified educational institution.
   b.  If admitted, be determined a resident for tuition purposes by the institution of higher education qualified educational institution.
   c.  Be allowed to continue attendance at the institution of higher education qualified educational institution following admission.
   d.  Graduate from the institution of higher education qualified educational institution.
    Sec. 35.  Section 12D.3, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  5.  A participant may designate a successor in accordance with rules adopted by the treasurer of state. The designated successor shall succeed to the ownership of the account in the event of the death of the participant. In the event a participant dies and has not designated a successor to the account, the following criteria shall apply:
   a.  The beneficiary of the account, if eighteen years of age or older, shall become the owner of the account as well as remain the beneficiary upon filing the appropriate forms in accordance with rules adopted by the treasurer of state.
   b.  If the beneficiary of the account is under the age of eighteen, account ownership shall be transferred to the first surviving parent or other legal guardian of the beneficiary to file the appropriate forms in accordance with rules adopted by the treasurer of state.
    Sec. 36.  Section 12D.4, Code 2018, is amended to read as follows:
   12D.4  Program and administrative funds —— investment and payments.
   1.  a.  The treasurer of state shall segregate moneys received by the trust into two funds:  the program fund and the administrative fund.
   b.  All moneys paid by participants in connection with participation agreements shall be deposited as received into separate accounts within the program fund.
   c.  Contributions to the trust made by participants may only be made in the form of cash.
   d.  A participant or beneficiary shall not provide investment direction regarding program contributions or earnings held by the trust may, directly or indirectly, direct the investment of any contributions to the trust or any earnings thereon no more than two times in a calendar year.
   e.  The amount of cash distributions from the trust and all other qualified state tuition programs under section 529 of the Internal Revenue Code to a beneficiary during any taxable year shall, in the aggregate, include no more than ten thousand dollars in expenses for tuition in connection with enrollment at an elementary or secondary public, private, or religious school incurred during the taxable year.
   2.  Moneys accrued by participants in the program fund of the trust may be used for payments to any institution of higher education qualified educational institution. Payments can be made to the qualified educational institution, the participant, or the beneficiary.
    Sec. 37.  Section 12D.6, subsection 1, paragraph a, Code 2018, is amended to read as follows:
   a.  A participant retains ownership of all payments made under a participation agreement up to the date of utilization for payment of higher education costs qualified education expenses for the beneficiary.
    Sec. 38.  Section 12D.6, subsections 2, 3, and 5, Code 2018, are amended to read as follows:
   2.  In the event the program is terminated prior to payment of higher education costs qualified education expenses for the beneficiary, the participant is entitled to a refund of the participant’s account balance.
   3.  The institution of higher education qualified educational institution shall obtain ownership of the payments made for the higher education costs qualified education expenses paid to the institution at the time each payment is made to the institution.
   5.  A participant may transfer ownership rights to another eligible individual, including a gift of the ownership rights to a minor beneficiary participant, or may transfer funds to another plan under the trust or to an ABLE account as permitted under section 529(c)(3)(C) of the Internal Revenue Code. The transfer shall be made and the property distributed in accordance with rules adopted by the treasurer of state or with the terms of the participation agreement.
    Sec. 39.  Section 12D.7, Code 2018, is amended to read as follows:
   12D.7  Effect of payments on determination of need and eligibility for student financial aid.
   A student loan program, student grant program, or other program administered by any agency of the state, except as may be otherwise provided by federal law or the provisions of any specific grant applicable to that law, shall not take into account and shall not consider amounts available for the payment of higher education costs qualified education expenses pursuant to the Iowa educational savings plan trust in determining need and eligibility for student aid.
    Sec. 40.  Section 12D.9, subsection 1, paragraph a, Code 2018, is amended to read as follows:
   a.  Pursuant to section 12D.3, subsection 1, paragraph “a”, a participant may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account.
    Sec. 41.  Section 422.7, subsection 32, paragraph c, Code 2018, is amended by striking the paragraph and inserting in lieu thereof the following:
   c.  (1)  Add, to the extent previously deducted as a contribution to the trust, the amount resulting from a withdrawal or transfer made by the taxpayer from the Iowa educational savings plan trust for purposes other than any of the following:
   (a)  The payment of qualified higher education expenses.
   (b)  The payment of tuition to an elementary or secondary school if the tuition amounts are qualified education expenses.
   (c)  A change in beneficiaries under, or transfer to another account within, the Iowa educational savings plan trust, or a transfer to the Iowa ABLE savings plan trust, provided such change or transfer is permitted under section 12D.6, subsection 5.
   (2)  For purposes of this paragraph:
   (a)  “Elementary or secondary school” means an elementary or secondary school in this state which is accredited under section 256.11, and adheres to the provisions of the federal Civil Rights Act of 1964 and chapter 216.
   (b)  “Qualified education expenses” and “tuition” all mean the same as defined in section 12D.1, subsection 2.
   (c)  (i)  “Qualified higher education expenses” means the same as defined in section 529(e)(3) of the Internal Revenue Code.
   (ii)  For purposes of this subparagraph division (c), “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended and in effect on January 1, 2018. This definition shall not be construed to include any amendment to the Internal Revenue Code enacted after the date specified in the preceding sentence, including any amendment with retroactive applicability or effectiveness.
    Sec. 42.  Section 422.7, subsection 34, Code 2018, is amended to read as follows:
   34.  a.  (1)  Subtract the amount contributed during the tax year on behalf of a designated beneficiary that is a resident of this state to the Iowa ABLE savings plan trust or to the qualified ABLE program with which the state has contracted pursuant to section 12I.10, not to exceed the maximum contribution level established in section 12I.3, subsection 1, paragraph “d”, or section 12I.10, subsection 2, paragraph “a”, as applicable.
   (2)  This paragraph “a” shall not apply to any amount of contribution that represents a transfer from the Iowa educational savings plan trust created in chapter 12D that meets the requirements of subsection 32, paragraph “c”, subparagraph (1), subparagraph division (c), and that was previously deducted as a contribution to the Iowa educational savings plan trust.
   b.  Add the amount resulting from the cancellation of a participation agreement refunded to the taxpayer as an account owner in the Iowa ABLE savings plan trust or the qualified ABLE program with which the state has contracted pursuant to section 12I.10 to the extent previously deducted pursuant to this subsection by the taxpayer or any other person as a contribution to the trust or qualified ABLE program, or to the extent the amount was previously deducted by the taxpayer or any other person pursuant to subsection 32, paragraph “a”, and qualified as a transfer under paragraph “a”, subparagraph (2), of this subsection.
   c.  Add the amount resulting from a withdrawal made by a taxpayer from the Iowa ABLE savings plan trust or the qualified ABLE program with which the state has contracted pursuant to section 12I.10 for purposes other than the payment of qualified disability expenses to the extent previously deducted pursuant to this subsection by the taxpayer or any other person as a contribution to the trust or qualified ABLE program, or to the extent the amount was previously deducted by the taxpayer or any other person pursuant to subsection 32, paragraph “a”, and qualified as a transfer under paragraph “a”, subparagraph (2), of this subsection.
    Sec. 43.  Section 627.6, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  17.  The debtor’s interest, whether as participant or beneficiary, in contributions and assets, including the accumulated earnings and market increases in value, held in an account in the Iowa educational savings plan trust organized under chapter 12D.
    Sec. 44.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 45.  RETROACTIVE APPLICABILITY.
   1.  Except as provided in subsection 2, this division of this Act applies retroactively to January 1, 2018, for withdrawals from the Iowa educational savings plan trust made on or after that date.
   2.  The sections of this division of this Act amending section 422.7 apply retroactively to January 1, 2018, for tax years beginning on or after that date, and for withdrawals from the Iowa educational savings plan trust made on or after that date.
DIVISION IV
SALES AND USE TAXES

    Sec. 46.  Section 15J.4, subsection 3, paragraph f, Code 2018, is amended to read as follows:
   f.  The total aggregate amount of state sales tax revenues and state hotel and motel tax revenues that may be approved by the board for remittance to all municipalities and that may be transferred to the state reinvestment district fund under section 423.2, subsection 11, 423.2A or section 423A.6, and remitted to all municipalities having a reinvestment district under this chapter shall not exceed one hundred million dollars.
    Sec. 47.  Section 15J.5, subsection 1, paragraph a, Code 2018, is amended to read as follows:
   a.  The department shall calculate quarterly the amount of new state sales tax revenues for each district established in the state to be deposited in the state reinvestment district fund created in section 15J.6, pursuant to section 423.2, subsection 11, paragraph “b” 423.2A, subsection 2, subject to remittance limitations established by the board pursuant to section 15J.4, subsection 3.
    Sec. 48.  Section 15J.6, subsection 1, Code 2018, is amended to read as follows:
   1.  A state reinvestment district fund is established in the state treasury under the control of the department consisting of the new state sales tax revenues collected within each district and deposited in the fund pursuant to section 423.2, subsection 11, paragraph “b” 423.2A, subsection 2, and the new state hotel and motel tax revenues collected within each district and deposited in the fund pursuant to section 423A.6. Moneys deposited in the fund are appropriated to the department for the purposes of this section. Moneys in the fund shall only be used for the purposes of this section.
    Sec. 49.  Section 418.11, subsection 1, Code 2018, is amended to read as follows:
   1.  The department of revenue shall calculate quarterly the amount of increased sales tax revenues for each governmental entity approved to use sales tax increment revenues and the amount of such revenues to be transferred to the sales tax increment fund pursuant to section 423.2, subsection 11, paragraph “b” 423.2A, subsection 2.
    Sec. 50.  Section 418.12, subsection 1, Code 2018, is amended to read as follows:
   1.  A sales tax increment fund is established as a separate and distinct fund in the state treasury under the control of the department of revenue consisting of the amount of the increased state sales and services tax revenues collected by the department of revenue within each applicable area specified in section 418.11, subsection 3, and deposited in the fund pursuant to section 423.2, subsection 11, paragraph “b” 423.2A, subsection 2. Moneys deposited in the fund are appropriated to the department of revenue for the purposes of this section. Moneys in the fund shall only be used for the purposes of this section.
    Sec. 51.  Section 421.26, Code 2018, is amended to read as follows:
   421.26  Personal liability for tax due.
   If a licensee or other person under section 452A.65, a retailer or purchaser under chapter 423A, 423B, or 423E, or section sections 423.14, 423.14A, 423.29, 423.31, 423.32, or 423.33, or a retailer or purchaser under section 423.32, or a user under section 423.34, or a permit holder or licensee under section 453A.13, 453A.16, or 453A.44 fails to pay a tax under those sections when due, an officer of a corporation or association, notwithstanding section 489.304, a member or manager of a limited liability company, or a partner of a partnership, having control or supervision of or the authority for remitting the tax payments and having a substantial legal or equitable interest in the ownership of the corporation, association, limited liability company, or partnership, who has intentionally failed to pay the tax is personally liable for the payment of the tax, interest, and penalty due and unpaid. However, this section shall not apply to taxes on accounts receivable. The dissolution of a corporation, association, limited liability company, or partnership shall not discharge a person’s liability for failure to remit the tax due.
    Sec. 52.  Section 423.1, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  22A.  “Information services” means every activity, process, or function by which a seller accumulates, prepares, organizes, conveys, analyzes, or delivers data, facts, knowledge, procedures, information, and other similar services to a purchaser through any tangible, intangible, or electronic medium. Information accumulated, prepared, or organized for a purchaser is an information service even though it may incorporate preexisting components of data or other information. “Information services” includes but is not limited to database files, research information, genealogical information, and other similar services.
    Sec. 53.  Section 423.1, subsection 24, paragraph a, Code 2018, is amended to read as follows:
   a.  “Lease or rental” means any transfer of possession or control of, or access to, tangible personal property or specified digital products for a fixed or indeterminate term for consideration. A “lease or rental” may include future options to purchase or extend.
    Sec. 54.  Section 423.1, subsection 37, Code 2018, is amended to read as follows:
   37.  “Place of business” means any warehouse, store, place, office, building, or structure where goods, wares, or merchandise tangible personal property, specified digital products, or services are offered for sale at retail or where any taxable amusement is conducted, or each office where gas, water, heat, communication, or electric services are offered for sale at retail. When a retailer or amusement operator sells merchandise by means of vending machines or operates music or amusement devices by coin-operated machines at more than one location within the state, the office, building, or place where the books, papers, and records of the taxpayer are kept shall be deemed to be the taxpayer’s place of business.
    Sec. 55.  Section 423.1, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  36A.  “Personal property” includes but is not limited to tangible personal property and specified digital products.
    Sec. 56.  Section 423.1, subsection 43, paragraph a, subparagraph (3), Code 2018, is amended to read as follows:
   (3)  Taking possession or making first use of digital goods specified digital products, whichever comes first.
    Sec. 57.  Section 423.1, subsection 47, Code 2018, is amended to read as follows:
   47.  “Retailer” means and includes every person engaged in the business of selling tangible personal property, specified digital products, or taxable services at retail, or the furnishing of gas, electricity, water, or communication service, and tickets or admissions to places of amusement and athletic events or operating amusement devices or other forms of commercial amusement from which revenues are derived. However, when in the opinion of the director it is necessary for the efficient administration of this chapter to regard any salespersons, representatives, truckers, peddlers, or canvassers as agents of the dealers, distributors, supervisors, employers, or persons under whom they operate or from whom they obtain tangible personal property, services, or specified digital products sold by them irrespective of whether or not they are making sales on their own behalf or on behalf of such dealers, distributors, supervisors, employers, or persons, the director may so regard them, and may regard such dealers, distributors, supervisors, employers, or persons as retailers for the purposes of this chapter. “Retailer” includes a seller obligated to collect sales or use tax, including any person obligated to collect sales and use tax pursuant to section 423.14A.
    Sec. 58.  Section 423.1, subsection 48, paragraph a, Code 2018, is amended to read as follows:
   a.  “Retailer maintaining a place of business in this state” or any like term includes any of the following:
   (1)  A retailer having or maintaining within this state, directly or by a subsidiary, an office, distribution house, sales house, warehouse, or other place of business, or any representative operating within this state under the authority of the retailer or its subsidiary, irrespective of whether that place of business or representative is located here permanently or temporarily, or whether the retailer or subsidiary is admitted to do business within this state pursuant to chapter 490.
   (2)  A person obligated to collect sales and use tax pursuant to section 423.14A.
    Sec. 59.  Section 423.1, subsection 48, paragraph b, subparagraph (1), unnumbered paragraph 1, Code 2018, is amended to read as follows:
   A retailer shall be presumed to be maintaining a place of business in this state, as defined in for purposes of paragraph “a”, subparagraph (1), if any person that has substantial nexus in this state, other than a person acting in its capacity as a common carrier, does any of the following:
    Sec. 60.  Section 423.1, subsection 48, paragraph b, subparagraph (1), subparagraph division (b), Code 2018, is amended to read as follows:
   (b)  Maintains an office, distribution facility, warehouse, storage place, or similar place of business in this state to facilitate the delivery of personal property or services sold by the retailer to the retailer’s customers.
    Sec. 61.  Section 423.1, subsection 50, Code 2018, is amended to read as follows:
   50.  “Sales” or “sale” means any transfer, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, for consideration, including but not limited to any such transfer, exchange, or barter on a subscription basis.
    Sec. 62.  Section 423.1, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  55A.  “Sold at retail in the state” and other references to sales “in the state” or “in this state” includes but is not limited to sales sourced to this state under this chapter.
    Sec. 63.  Section 423.1, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  55B.  a.  “Specified digital products” means electronically transferred digital audio-visual works, digital audio works, digital books, or other digital products.
   b.  For purposes of this subsection:
   (1)  “Digital audio-visual works” means a series of related images which, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.
   (2)  “Digital audio works” means works that result from the fixation of a series of musical, spoken, or other sounds, including but not limited to ringtones. For purposes of this subparagraph, “ringtones” means digitized sound files that are downloaded onto a device and that may be used to alert the customer with respect to a communication.
   (3)  “Digital books” means works that are generally recognized in the ordinary and usual sense as books.
   (4)  “Electronically transferred” means obtained or accessed by the purchaser by means other than tangible storage media, including but not limited to a specified digital product purchased through a computer software application, commonly referred to as an in-app purchase, or through another specified digital product, or through any other means.
   (5)  “Other digital products” means greeting cards, images, video or electronic games or entertainment, news or information products, and computer software applications.
    Sec. 64.  Section 423.1, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  57A.  “Subscription” means any arrangement in which a person has the right or ability to access, receive, use, obtain, purchase, or otherwise acquire tangible personal property, specified digital products, or services on a permanent or less than permanent basis, regardless of whether the person actually accesses, receives, uses, obtains, purchases, or otherwise acquires such tangible personal property, specified digital product, or service.
    Sec. 65.  Section 423.1, subsections 62, 63, and 64, Code 2018, are amended to read as follows:
   62.  “Use” means and includes the exercise by any person of any right or power over or access to tangible personal property or a specified digital product incident to the ownership of that property, or any right or power over or access to the product or result of a service. A retailer’s or building contractor’s sale of manufactured housing for use in this state, whether in the form of tangible personal property or of realty, is a use of that property for the purposes of this chapter.
   63.  “Use tax” means the tax levied under subchapter III of this chapter for which the retailer collects and remits tax to the department.
   64.  “User” means the immediate recipient of the personal property or services who is entitled to exercise a right of or power over or access to the personal property, or the product or result of such services.
    Sec. 66.  Section 423.2, subsection 1, paragraph a, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  Sales of engraving, photography, retouching, printing, and binding services.
    Sec. 67.  Section 423.2, subsection 6, Code 2018, is amended to read as follows:
   6.  a.  The sales price of any of the following enumerated services is subject to the tax imposed by subsection 5:
   a.  alteration Alteration and garment repair; armored.
   b.  Armored car; vehicle.
   c.  Vehicle repair; battery.
   d.  Battery, tire, and allied; investment.
   e.  Investment counseling; service.
   f.  Service charges of all financial institutions; barber. For the purposes of this paragraph, “financial institutions” means all national banks, federally chartered savings and loan associations, federally chartered savings banks, federally chartered credit unions, banks organized under chapter 524, credit unions organized under chapter 533, and all banks, savings banks, credit unions, and savings and loan associations chartered or otherwise created under the laws of any state and doing business in Iowa.
   g.  Barber and beauty; boat.
   h.  Boat repair; vehicle.
   i.  Vehicle wash and wax; campgrounds; carpentry; roof.
   j.  Campgrounds.
   k.  Carpentry.
   l.  Roof, shingle, and glass repair; dance.
   m.  Dance schools and dance studios; dating.
   n.  Dating services; dry.
   o.  Dry cleaning, pressing, dyeing, and laundering excluding the use of self-pay washers and dryers; electrical.
   p.  Electrical and electronic repair and installation; excavating.
   q.  Excavating and grading; farm.
   r.  Farm implement repair of all kinds; flying.
   s.  Flying service; furniture.
   t.  Furniture, rug, carpet, and upholstery repair and cleaning; fur.
   u.  Fur storage and repair; golf.
   v.  Golf and country clubs and all commercial recreation; gun.
   w.  Gun and camera repair; house.
   x.  House and building moving; household.
   y.  Household appliance, television, and radio repair; janitorial.
   z.  Janitorial and building maintenance or cleaning; jewelry.
   aa.  Jewelry and watch repair; lawn.
   ab.  Lawn care, landscaping, and tree trimming and removal;.
   ac.  Personal transportation service, including but not limited to taxis, driver service, ride sharing service, rides for hire, and limousine service, including driver; machine.
   ad.  Machine operator; machine.
   ae.  Machine repair of all kinds; motor.
   af.  Motor repair; motorcycle.
   ag.  Motorcycle, scooter, and bicycle repair; oilers.
   ah.  Oilers and lubricators; office.
   ai.  Office and business machine repair; painting.
   aj.  Painting, papering, and interior decorating; parking.
   ak.  Parking facilities; pay.
   al.  Pay television; pet, including but not limited to streaming video, video on-demand, and pay-per-view.
   am.  Pet grooming; pipe.
   an.  Pipe fitting and plumbing; wood.
   ao.  Wood preparation; executive.
   ap.  Executive search agencies; private.
   aq.  Private employment agencies, excluding services for placing a person in employment where the principal place of employment of that person is to be located outside of the state; reflexology; security.
   ar.  Reflexology.
   as.  Security and detective services, excluding private security and detective services furnished by a peace officer with the knowledge and consent of the chief executive officer of the peace officer’s law enforcement agency; sewage.
   at.  Sewage services for nonresidential commercial operations; sewing.
   au.  Sewing and stitching; shoe.
   av.  Shoe repair and shoeshine; sign.
   aw.  Sign construction and installation; storage.
   ax.  Storage of household goods, mini-storage, and warehousing of raw agricultural products; swimming.
   ay.  Swimming pool cleaning and maintenance; tanning.
   az.  Tanning beds or salons; taxidermy.
   ba.  Taxidermy services; telephone.
   bb.  Telephone answering service; test.
   bc.  Test laboratories, including mobile testing laboratories and field testing by testing laboratories, and excluding tests on humans or animals and excluding environmental testing services; termite.
   bd.  Termite, bug, roach, and pest eradicators; tin.
   be.  Tin and sheet metal repair; transportation.
   bf.  Transportation service consisting of the rental of recreational vehicles or recreational boats, or the rental of vehicles subject to registration which are registered for a gross weight of thirteen tons or less for a period of sixty days or less, or the rental of aircraft for a period of sixty days or less;.
   bg.  Turkish baths, massage, and reducing salons, excluding services provided by massage therapists licensed under chapter 152C; water.
   bh.  Water conditioning and softening; weighing; welding; well.
   bi.  Weighing.
   bj.  Welding.
   bk.  Well drilling; wrapping.
   bl.  Wrapping, packing, and packaging of merchandise other than processed meat, fish, fowl, and vegetables; wrecking.
   bm.  Wrecking service; wrecker.
   bn.  Wrecker and towing.
   b.  For the purposes of this subsection, “financial institutions” means all national banks, federally chartered savings and loan associations, federally chartered savings banks, federally chartered credit unions, banks organized under chapter 524, credit unions organized under chapter 533, and all banks, savings banks, credit unions, and savings and loan associations chartered or otherwise created under the laws of any state and doing business in Iowa.
   bo.  Photography.
   bp.  Retouching.
   bq.  Storage of tangible or electronic files, documents, or other records.
   br.  Information services.
   bs.  Services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products.
   bt.  Video game services and tournaments.
   bu.  Software as a service.
    Sec. 68.  Section 423.2, subsection 8, Code 2018, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  d.  A transaction that otherwise meets the definition of “bundled transaction” as defined in this subsection is not a bundled transaction if it is any of the following:
   (1)  The retail sale of tangible personal property and a service where the tangible personal property is essential to the use of the service, and is provided exclusively in connection with the service, and the true object of the transaction is the service.
   (2)  The retail sale of services where one service is provided that is essential to the use or receipt of a second service and the first service is provided exclusively in connection with the second service and the true object of the transaction is the second service.
   (3)  (a)  A transaction that includes taxable products and nontaxable products and the purchase price or sales price of the taxable products is de minimis.
   (b)  For purposes of this subparagraph, “de minimis” means the seller’s purchase or sales price of the taxable products is ten percent or less of the total purchase price or sales price of the bundled products. Sellers shall use either the purchase price or the sale price of the products to determine if the taxable products are de minimis. Sellers may not use a combination of the purchase price and sales price of the products to determine if the taxable products are de minimis.
   (4)  The retail sale of exempt tangible personal property and taxable tangible personal property where all of the following apply:
   (a)  The transaction includes food and food ingredients, drugs, durable medical equipment, mobility enhancing equipment, prosthetic devices, or medical supplies.
   (b)  The seller’s purchase price or sales price of the taxable tangible personal property is fifty percent or less of the total purchase price or sales price of the bundled tangible personal property. Sellers may not use a combination of the purchase price and sales price of the tangible personal property when making the fifty percent determination for a transaction.
    Sec. 69.  Section 423.2, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  9A.  a.  A tax of six percent is imposed on the sales price of specified digital products sold at retail in the state. The tax applies whether the purchaser obtains permanent use or less than permanent use of the specified digital product, whether the sale is conditioned or not conditioned upon continued payment from the purchaser, and whether the sale is on a subscription basis or is not on a subscription basis.
   b.  The sale of a digital code that may be used to obtain or access a specified digital product shall be taxed in the same manner as the specified digital product. For purposes of this paragraph, “digital code” means a method that permits a purchaser to obtain or access at a later date a specified digital product.
    Sec. 70.  Section 423.2, subsections 10, 11, and 12, Code 2018, are amended by striking the subsections.
    Sec. 71.  NEW SECTION.  423.2A  Deposit and transfer of revenues.
   1.  a.  All revenues arising under the operation of the provisions of this subchapter II shall be deposited into the general fund of the state.
   b.  Subsequent to the deposit into the general fund of the state, the director shall credit an amount equal to the product of the sales tax rate imposed in section 423.2 times the sales price of the tangible personal property or services furnished to purchasers at a baseball and softball complex that has received an award under section 15F.207 and that meets the qualifications of section 423.4, subsection 10, into the baseball and softball complex sales tax rebate fund created under section 423.4, subsection 10, paragraph “e”. The director shall credit the moneys beginning the first day of the quarter following July 1, 2016. This paragraph is repealed thirty days following the date on which five million dollars in total rebates have been provided under section 423.4, subsection 10.
   2.  Subsequent to the deposit into the general fund of the state pursuant to subsection 1, the department shall do the following in the order prescribed:
   a.  Transfer the revenues collected under chapter 423B.
   b.  Transfer from the remaining revenues the amounts required under Article VII, section 10, of the Constitution of the State of Iowa to the natural resources and outdoor recreation trust fund created in section 461.31, if applicable.
   c.  Transfer one-sixth of the remaining revenues to the secure an advanced vision for education fund created in section 423F.2. This paragraph “c” is repealed December 31, 2029.
   d.  Transfer to the baseball and softball complex sales tax rebate fund that portion of the sales tax receipts described in subsection 1, paragraph “b”, remaining after the transfers required under paragraphs “a”, “b”, and “c” of this subsection 2. This paragraph is repealed thirty days following the date on which five million dollars in total rebates have been provided under section 423.4, subsection 10.
   e.  Beginning the first day of the calendar quarter beginning on the reinvestment district’s commencement date, subject to remittance limitations established by the economic development authority board pursuant to section 15J.4, subsection 3, transfer to a district account created in the state reinvestment district fund for each reinvestment district established under chapter 15J, the amount of new state sales tax revenue, determined in section 15J.5, subsection 1, paragraph “b”, in the district, that remains after the prior transfers required under this subsection 2. Such transfers shall cease pursuant to section 15J.8.
   f.  Subject to the limitation on the calculation and deposit of sales tax increment revenues in section 418.12, beginning the first day of the quarter following adoption of the resolution pursuant to section 418.4, subsection 3, paragraph “d”, transfer to the account created in the sales tax increment fund for each governmental entity approved to use sales tax increment revenues under chapter 418, that portion of the increase in sales tax revenue, determined in section 418.11, subsection 2, paragraph “d”, in the applicable area of the governmental entity, that remains after the other transfers required under this subsection 2.
   g.  Beginning the first day of the quarter following July 1, 2014, transfer to the raceway facility tax rebate fund created in section 423.4, subsection 11, paragraph “e”, that portion of the sales tax receipts collected and remitted upon sales of tangible personal property or services furnished by retailers at a raceway facility meeting the qualifications of section 423.4, subsection 11, that remains after the transfers required in paragraphs “a” through “f” of this subsection 2. This subparagraph is repealed June 30, 2025, or thirty days following the date on which an amount of total rebates specified in section 423.4, subsection 11, paragraph “c”, subparagraph (4), subparagraph division (a) or (b), whichever is applicable, has been provided or thirty days following the date on which rebates cease as provided in section 423.4, subsection 11, paragraph “c”, subparagraph (5), whichever is earliest.
   3.  Of the amount of sales tax revenue actually transferred per quarter pursuant to subsection 2, paragraphs “e” and “f”, the department shall retain an amount equal to the actual cost of administering the transfers under subsection 2, paragraphs “e” and “f”, or twenty-five thousand dollars, whichever is less. The amount retained by the department pursuant to this subsection shall be divided pro rata each quarter between the amounts that would have been transferred pursuant to subsection 2, paragraphs “e” and “f”, without the deduction made by operation of this subsection. Revenues retained by the department pursuant to this subsection shall be considered repayment receipts as defined in section 8.2.
    Sec. 72.  Section 423.3, subsections 1 and 17, Code 2018, are amended to read as follows:
   1.  The sales price from sales of tangible personal property, specified digital products, and services furnished which this state is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this state.
   17.  The sales price of all goods, wares, or merchandise, tangible personal property, specified digital products, or services, used for educational purposes sold to any private nonprofit educational institution in this state. For the purpose of this subsection, “educational institution” means an institution which primarily functions as a school, college, or university with students, faculty, and an established curriculum. The faculty of an educational institution must be associated with the institution and the curriculum must include basic courses which are offered every year. “Educational institution” includes an institution primarily functioning as a library.
    Sec. 73.  Section 423.3, subsection 18, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The sales price of tangible personal property or specified digital products sold, or of services furnished, to the following nonprofit corporations:
    Sec. 74.  Section 423.3, subsections 20, 21, 22, 23, 26, 27, 28, and 31, Code 2018, are amended to read as follows:
   20.  The sales price of tangible personal property or specified digital products sold, or of services furnished, to nonprofit legal aid organizations.
   21.  The sales price of goods, wares, or merchandise, tangible personal property, of specified digital products, or of services, used for educational, scientific, historic preservation, or aesthetic purpose sold to a nonprofit private museum.
   22.  The sales price from sales of goods, wares, or merchandise, tangible personal property, of specified digital products, or from services furnished, to a nonprofit private art center to be used in the operation of the art center.
   23.  The sales price of tangible personal property or specified digital products sold, or of services furnished, by a fair organized under chapter 174.
   26.  The sales price of tangible personal property or specified digital products sold, or of services furnished, to a statewide nonprofit organ procurement organization, as defined in section 142C.2.
   27.  The sales price of tangible personal property or specified digital products sold, or of services furnished, to a nonprofit hospital licensed pursuant to chapter 135B to be used in the operation of the hospital.
   28.  The sales price of tangible personal property or specified digital products sold, or of services furnished, to a freestanding nonprofit hospice facility which operates a hospice program as defined in 
42 C.F.R. ch. IV, §418.3
, which property or services are to be used in the hospice program.
   31.  a.  The sales price of goods, wares, or merchandise tangible personal property or specified digital products sold to and of services furnished, and used for public purposes sold to a tax-certifying or tax-levying body of the state or a governmental subdivision of the state, including regional transit systems, as defined in section 324A.1, the state board of regents, department of human services, state department of transportation, any municipally owned solid waste facility which sells all or part of its processed waste as fuel to a municipally owned public utility, and all divisions, boards, commissions, agencies, or instrumentalities of state, federal, county, or municipal government which have no earnings going to the benefit of an equity investor or stockholder, except any of the following:
   (1)  a.  The sales price of goods, wares, or merchandise tangible personal property or specified digital products sold to, or of services furnished, and used by or in connection with the operation of any municipally owned public utility engaged in selling gas, electricity, heat, pay television service, or communication service to the general public.
   (2)  b.  The sales price of furnishing of sewage services to a county or municipality on behalf of nonresidential commercial operations.
   (3)  c.  The furnishing of solid waste collection and disposal service to a county or municipality on behalf of nonresidential commercial operations located within the county or municipality.
   b.  The exemption provided by this subsection shall also apply to all such sales of goods, wares, or merchandise or of services furnished and subject to use tax.
    Sec. 75.  Section 423.3, subsection 32, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The sales price of tangible personal property or specified digital products sold, or of services furnished, by a county or city. This exemption does not apply to any of the following:
    Sec. 76.  Section 423.3, subsection 36, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The sales price from sales of tangible personal property or specified digital products or of the sale or furnishing of electrical energy, natural or artificial gas, or communication service to another state or political subdivision of another state if the other state provides a similar reciprocal exemption for this state and political subdivision of this state.
    Sec. 77.  Section 423.3, subsection 39, paragraph a, subparagraphs (1) and (2), Code 2018, are amended to read as follows:
   (1)  Sales of tangible personal property or specified digital products, or the furnishing of services, of a nonrecurring nature, by the owner, if the seller, at the time of the sale, is not engaged for profit in the business of selling tangible personal property, specified digital products, or services taxed under section 423.2.
   (2)  The sale of all or substantially all of the tangible personal property, or specified digital products, or services held or used by a seller in the course of the seller’s trade or business for which the seller is required to hold a sales tax permit when the seller sells or otherwise transfers the trade or business to another person who shall engage in a similar trade or business.
    Sec. 78.  Section 423.3, subsection 63, Code 2018, is amended to read as follows:
   63.  The sales price from the sale of tangible personal property, specified digital products, or services which will be given as prizes to players in games of skill, games of chance, raffles, and bingo games as defined in chapter 99B.
    Sec. 79.  Section 423.3, subsections 65, 66, and 67, Code 2018, are amended by striking the subsections.
    Sec. 80.  Section 423.3, subsection 78, paragraph a, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The sales price from sales or rental the sale of tangible personal property, specified digital products, or services rendered by any entity where the profits from the sales or rental sale of the tangible personal property, specified digital products, or services rendered, are used by or donated to a nonprofit entity that is exempt from federal income taxation pursuant to section 501(c)(3) of the Internal Revenue Code, a government entity, or a nonprofit private educational institution, and where the entire proceeds from the sales, rental, sale or services are expended for any of the following purposes:
    Sec. 81.  Section 423.3, subsection 79, Code 2018, is amended to read as follows:
   79.  The sales price from the sale or rental of tangible personal property or specified digital products, or from services furnished, to a recognized community action agency as provided in section 216A.93 to be used for the purposes of the agency.
    Sec. 82.  Section 423.3, Code 2018, is amended by adding the following new subsections:
   NEW SUBSECTION.  103.  a.  The sales price of specified digital products sold, and of enumerated services described in section 423.2, subsection 6, paragraphs “bq”, “br”, “bs”, and “bu” furnished, to a commercial enterprise for use exclusively by the commercial enterprise. The use of a specified digital product or service fails to qualify as a use exclusively by the commercial enterprise if its use for noncommercial purposes is more than de minimis.
   b.  For purposes of this subsection:
   (1)  “Commercial enterprise” means the same as defined in section 423.3, subsection 47, paragraph “d”, subparagraph (1).
   (2)  “De minimis” and “noncommercial purposes” shall be defined by the director by rule.
   NEW SUBSECTION.  104.  The sales price of specified digital products sold to a non-end user. For purposes of this subsection, “non-end user” means a person who receives by contract a specified digital product for further commercial broadcast, rebroadcast, transmission, retransmission, licensing, relicensing, distribution, redistribution, or exhibition of the product, in whole or in part, to another person.
    Sec. 83.  Section 423.4, subsection 3, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   A relief agency may apply to the director for refund of the amount of sales or use tax imposed and paid upon sales to it of any goods, wares, merchandise, tangible personal property or specified digital products, or services furnished, used for free distribution to the poor and needy.
    Sec. 84.  Section 423.4, subsection 3, paragraph a, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  On forms furnished by the department, and filed within the time as the director shall provide by rule, the relief agency shall report to the department the total amount or amounts, valued in money, expended directly or indirectly for goods, wares, merchandise, tangible personal property or specified digital products, or services furnished, used for free distribution to the poor and needy.
    Sec. 85.  Section 423.4, subsection 10, paragraph e, Code 2018, is amended to read as follows:
   e.  There is established within the state treasury under the control of the department a baseball and softball complex sales tax rebate fund consisting of the amount of state sales tax revenues transferred pursuant to section 423.2, subsection 11, paragraph “b”, subparagraph (4) 423.2A, subsection 2, paragraph “d”. An account is created within the fund for each baseball and softball complex receiving an award under section 15F.207 and meeting the qualifications of this subsection. Moneys in the fund shall only be used to provide rebates of state sales tax pursuant to this subsection, and only the state sales tax revenues in the baseball and softball complex rebate fund are subject to rebate under this subsection. The amount of rebates paid from each baseball and softball complex’s account within the fund shall not exceed the amount of the award under section 15F.207, and not more than five million dollars in total rebates shall be paid from the fund. Any moneys in the fund which represent state sales tax revenue for which the time period in paragraph “c” for receiving a rebate has expired, or which otherwise represent state sales tax revenue that has become ineligible for rebate pursuant to this subsection, shall immediately revert to the general fund of this state.
    Sec. 86.  Section 423.4, subsection 11, paragraph b, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  Sales tax imposed and collected by retailers upon sales of tangible personal property or services furnished to purchasers at the raceway facility. Notwithstanding the state sales tax imposed in section 423.2, a sales tax rebate issued pursuant to this subparagraph shall not exceed the amounts transferred to the raceway facility tax rebate fund pursuant to section 423.2, subsection 11, paragraph “b”, subparagraph (7) 423.2A, subsection 2, paragraph “g”.
    Sec. 87.  Section 423.4, subsection 11, paragraph b, subparagraph (2), subparagraph division (c), Code 2018, is amended to read as follows:
   (c)  Notwithstanding the state sales tax imposed in section 423.2, a sales tax rebate issued pursuant to this subparagraph shall not exceed the amounts remaining after the transfers required under section 423.2, subsection 11, paragraph “b”, subparagraphs (1) through (6) 423.2A, subsection 2, paragraphs “a” through “f”, have been made from the total amount of sales tax for which the rebate is requested.
    Sec. 88.  Section 423.4, subsection 11, paragraph e, Code 2018, is amended to read as follows:
   e.  There is established within the state treasury under the control of the department a raceway facility tax rebate fund consisting of the amount of state sales tax revenues transferred pursuant to section 423.2, subsection 11, paragraph “b”, subparagraph (7) 423.2A, subsection 2, paragraph “g”. An account is created within the fund for each raceway facility meeting the qualifications of this subsection. Moneys in the fund shall only be used to provide rebates of state sales tax pursuant to paragraph “b”, subparagraph (1). The total amount of rebates paid from the fund shall not exceed the amount specified in paragraph “c”, subparagraph (4), subparagraph division (a) or (b), whichever is applicable. Any moneys in the fund which represent state sales tax revenue for which the time period in paragraph “c” for receiving a rebate has expired, or which otherwise represent state sales tax revenue that has become ineligible for rebate pursuant to this subsection shall immediately revert to the general fund of the state.
    Sec. 89.  Section 423.5, subsection 1, paragraph a, Code 2018, is amended to read as follows:
   a.  The use in this state of tangible personal property as defined in section 423.1, including aircraft subject to registration under section 328.20, purchased for use in this state. For the purposes of this subchapter, the furnishing or use of the following services is also treated as the use of tangible personal property:  optional service or warranty contracts, except residential service contracts regulated under chapter 523C, vulcanizing, recapping, or retreading services, engraving, photography, retouching, printing, or binding services, and communication service when furnished or delivered to consumers or users within this state.
    Sec. 90.  Section 423.5, subsection 1, paragraph d, Code 2018, is amended to read as follows:
   d.  Purchases of tangible personal property or specified digital products made from the government of the United States or any of its agencies by ultimate consumers shall be subject to the tax imposed by this section. Services purchased from the same source or sources shall be subject to the service tax imposed by this subchapter and apply to the user of the services.
    Sec. 91.  Section 423.5, subsection 1, Code 2018, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  f.  (1)  The use in this state of specified digital products. The tax applies whether the purchaser obtains permanent use or less than permanent use of the specified digital product, whether the use is conditioned or not conditioned upon continued payment from the purchaser, and whether the use is on a subscription basis or is not on a subscription basis.
   (2)  The use of a digital code that may be used to obtain or access a specified digital product shall be taxed in the same manner as the specified digital product. For purposes of this subparagraph, “digital code” means the same as defined in section 423.2, subsection 9A.
    Sec. 92.  Section 423.5, subsection 3, Code 2018, is amended to read as follows:
   3.  For the purpose of the proper administration of the use tax and to prevent its evasion, evidence that tangible personal property was or specified digital products were sold by any person for delivery in this state shall be prima facie evidence that such tangible personal property was or specified digital products were sold for use in this state.
    Sec. 93.  Section 423.5, subsection 4, Code 2018, is amended by striking the subsection.
    Sec. 94.  Section 423.6, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   The use in this state of the following tangible personal property, specified digital products, and services is exempted from the tax imposed by this subchapter:
    Sec. 95.  Section 423.6, subsections 1, 2, 4, and 6, Code 2018, are amended to read as follows:
   1.  Tangible personal property, specified digital products, and enumerated services, the sales price from the sale of which are required to be included in the measure of the sales tax, if that tax has been paid to the department or the retailer. This exemption does not include vehicles subject to registration or subject only to the issuance of a certificate of title.
   2.  The sale of tangible personal property, specified digital products, or the furnishing of services in the regular course of business.
   4.  All articles of tangible personal property and all specified digital products brought into the state of Iowa by a nonresident individual for the individual’s use or enjoyment while within the state.
   6.  Tangible personal property, specified digital products, or services the sales price of which is exempt from the sales tax under section 423.3, except section 423.3, subsections 39 and 73, as it relates to the sale, but not the lease or rental, of vehicles subject only to the issuance of a certificate of title and as it relates to aircraft subject to registration under section 328.20.
    Sec. 96.  Section 423.14, subsection 2, paragraphs b and c, Code 2018, are amended to read as follows:
   b.  The tax upon the use of all tangible personal property and specified digital products other than that enumerated in paragraph “a”, which is sold by a seller who is a retailer maintaining a place of business in this state, or by such other retailer or agent as the director shall authorize pursuant to section 423.30 or its agent that is not otherwise required to collect sales tax under the provisions of this chapter, shall be collected by the retailer or agent and remitted to the department, pursuant to the provisions of paragraph “e”, and sections 423.24, 423.29, 423.30, 423.32, and 423.33.
   c.  The tax upon the use of all tangible personal property and specified digital products not paid pursuant to paragraphs “a” and “b” shall be paid to the department directly by any person using the property within this state, pursuant to the provisions of section 423.34.
    Sec. 97.  NEW SECTION.  423.14A  Persons required to collect sales and use tax —— supplemental conditions, requirements, and responsibilities.
   1.  For purposes of this section, “Iowa sales” means sales of tangible personal property, services, or specified digital products sourced to this state pursuant to section 423.15, 423.16, 423.17, 423.19, or 423.20, or that are otherwise sold in this state or for delivery into this state.
   2.  In addition to and not in lieu of any application of this chapter to sellers who are retailers and sellers who are retailers maintaining a place of business in this state, any person described in subsection 3, or the person’s agents, shall be considered a retailer in this state and a retailer maintaining a place of business in this state for purposes of this chapter on or after January 1, 2019, and shall be subject to all requirements of this chapter imposed on retailers and retailers maintaining a place of business in this state, including but not limited to the requirement to collect and remit sales and use taxes pursuant to sections 423.14 and 423.29, and local option taxes under chapter 423B.
   3.  a.  A retailer that has gross revenue from Iowa sales equal to or exceeding one hundred thousand dollars for the immediately preceding calendar year or the current calendar year.
   b.  A retailer that makes Iowa sales in two hundred or more separate transactions for the immediately preceding calendar year or the current calendar year.
   c.  (1)  A retailer that owns, licenses, or uses software or data files that are installed or stored on property used in this state. For purposes of this subparagraph, “software or data files” include but are not limited to software that is affirmatively downloaded by a user, software that is downloaded as a result of the use of a website, preloaded software, and cookies.
   (2)  A retailer that uses in-state software to make Iowa sales. For purposes of this subparagraph, “in-state software” means computer software that is stored on property located in this state or that is distributed within this state for the purpose of facilitating a sale by the retailer.
   (3)  A retailer that provides, or enters into an agreement with another person to provide, a content distribution network in this state to facilitate, accelerate, or enhance the delivery of the retailer’s internet site to purchasers. For purposes of this subparagraph, “content distribution network” means a system of distributed servers that deliver internet sites and other internet content to a user based on the geographic location of the user, the origin of the internet site or internet content, and a content delivery server.
   (4)  This paragraph “c” shall not apply to a retailer that has gross revenue from Iowa sales of less than one hundred thousand dollars for the immediately preceding calendar year or the current calendar year.
   d.  (1)  A retailer that makes Iowa sales through a marketplace provider. This subparagraph shall not apply to a retailer that has gross revenue from Iowa sales of less than ten thousand dollars for the immediately preceding calendar year or the current calendar year.
   (2)  A marketplace provider that makes or facilitates Iowa sales for one or more retailers equal to or exceeding one hundred thousand dollars, or in two hundred or more separate transactions, for the immediately preceding calendar year or the current calendar year.
   (3)  Retailers and marketplace providers subject to this paragraph may enter into agreements regarding the fulfillment of the requirements of this chapter.
   (4)  A marketplace provider shall collect sales and use tax on the entire sales price or purchase price paid by a purchaser on each Iowa sale made or facilitated by the marketplace provider that is subject to sales and use tax, regardless of the amount of the sales price or purchase price that will ultimately accrue to or benefit the marketplace provider, another retailer, or any other person. This sales and use tax collection responsibility of a marketplace provider applies but shall not be limited to sales facilitated through a computer software application, commonly referred to as in-app purchases, or through a specified digital product.
   (5)  If a retail sale subject to the sales and use tax involves both a marketplace provider and another retailer that is required to collect and remit sales and use tax, the marketplace provider and any other retailer involved in the transaction shall be jointly and severally liable for collecting and remitting sales and use tax under this chapter.
   (6)  (a)  For purposes of this paragraph, “marketplace provider” means a person who facilitates a retail sale by satisfying subparagraph divisions (i) and (ii) as follows:
   (i)  The person directly or indirectly does any of the following:
   (A)  Lists, makes available, or advertises tangible personal property, services, or specified digital products for sale by a retailer in any forum.
   (B)  Transmits or otherwise communicates an offer or acceptance of a retail sale of tangible personal property, services, or specified digital products between a retailer and a purchaser.
   (C)  Owns, rents, licenses, makes available, or operates any electronic or physical infrastructure or any property, process, method, copyright, trademark, or patent that connects retailers to purchasers for the purpose of making retail sales of tangible personal property, services, or specified digital products.
   (D)  Provides a platform or other marketplace for making retail sales of tangible personal property, services, or specified digital products, or otherwise facilitates retail sales of tangible personal property, services, or specified digital products, regardless of ownership or control of the tangible personal property, services, or specified digital products that are the subject of the retail sale.
   (E)  Provides software development or research and development activities related to any activity described in this subparagraph subdivision (i), if such software development or research and development activities are directly related to the physical or electronic marketplace provided by a marketplace provider.
   (F)  Provides or offers fulfillment or storage services for a retailer.
   (G)  Sets prices for a retailer’s sale of tangible personal property, services, or specified digital products.
   (H)  Provides or offers customer service to a retailer or a retailer’s customers, or accepts or assists with returns or exchanges of tangible personal property, services, or specified digital products sold by a retailer.
   (ii)  The person directly or indirectly does any of the following:
   (A)  Collects the sales price or purchase price of a retail sale of tangible personal property, services, or specified digital products.
   (B)  Provides payment processing services for a retail sale of tangible personal property, services, or specified digital products.
   (C)  Charges, collects, or otherwise receives selling fees, listing fees, referral fees, closing fees, fees for inserting or making available tangible personal property, services, or specified digital products on a marketplace, or other consideration from the facilitation of a retail sale of tangible personal property, services, or specified digital products, regardless of ownership or control of the tangible personal property, services, or specified digital products that are the subject of the retail sale.
   (D)  Through terms and conditions, agreements, or arrangements with a third party, collects payment in connection with a retail sale of tangible personal property, services, or specified digital products from a purchaser and transmits that payment to the retailer, regardless of whether the person collecting and transmitting such payment receives compensation or other consideration in exchange for the service.
   (E)  Provides a virtual currency that purchasers are allowed or required to use to purchase tangible personal property, services, or specified digital products.
   (b)  For purposes of this paragraph, “marketplace provider” includes but is not limited to a digital distribution service, digital distribution platform, online portal, or an application store.
   e.  (1)  A retailer that makes Iowa sales through the use of a solicitor. For purposes of this paragraph, “solicitor” means a person that directly or indirectly solicits business for a retailer.
   (2)  (a)  A retailer is deemed to have a solicitor in this state if the retailer enters into an agreement with a resident under which the resident, for a commission, fee, or other similar consideration, directly or indirectly refers potential customers, whether by link on an internet site, or otherwise, to the retailer. This determination may be rebutted by a showing of proof that the resident with whom the retailer has an agreement did not engage in any solicitation in this state on behalf of the retailer that would satisfy the nexus requirement of the United States Constitution during the calendar year in question.
   (b)  This subparagraph (2) shall not apply to a retailer that has Iowa gross revenue from Iowa sales of ten thousand dollars or less for the immediately preceding calendar year or the current calendar year.
   (c)  For purposes of this subparagraph (2):
   (i)  “Iowa gross revenue” means gross revenue from Iowa sales to purchasers who were referred to the retailer by all solicitors who are residents.
   (ii)  “Resident” includes an individual who is a resident of this state, as defined in section 422.4, and any business that owns any tangible or intangible property with a situs in this state, or that has one or more employees performing or providing services for the business in this state.
   (d)  This paragraph “e” does not apply to chapter 422 and does not expand or contract the state’s jurisdiction to tax a trade or business under chapter 422.
   f.  A retailer that owns, controls, rents, licenses, makes available, or uses any tangible or intangible property in this state or with a situs in this state, to make or otherwise facilitate a retail sale.
   g.  (1)  Any person that enters into a contract or agreement with a governmental entity, including but not limited to contracts for the provision of financial assistance or incentives such as a tax credit, forgivable loan, grant, tax rebate, or any other thing of value. For purposes of this subparagraph, “governmental entity” means any unit of government in the executive, legislative, or judicial branch, or any political subdivision of the state, including but not limited to a city, county, township, or school district.
   (2)  Every bid submitted and each contract or agreement executed by a state agency shall contain a certification by the bidder or contractor stating that the bidder or contractor is registered with the department pursuant to this chapter and will collect and remit Iowa sales and use tax due under this chapter. In the certification, the bidder or contractor shall also acknowledge that the state agency may declare the contractor or bid void if the certification is false or becomes false. Fraudulent certification, by act or omission, may result in the state agency or its representative filing for damages for breach of contract.
   h.  Any affiliate of any retailer that is required to collect and remit sales and use tax under this chapter, provided the affiliate makes retail sales.
    Sec. 98.  Section 423.15, unnumbered paragraph 1, Code 2018, is amended to read as follows:
   All sales of products tangible personal property, services, or specified digital products, except those sales enumerated in section 423.16, shall be sourced according to this section by sellers obligated to collect Iowa sales and use tax. The sourcing rules described in this section apply to sales of tangible personal property, specified digital goods products, and all services other than telecommunications services. This section only applies to determine a seller’s obligation to pay or collect and remit a Iowa sales or use tax with respect to the seller’s sale of a product. This section does not affect the obligation of a purchaser or lessee to remit tax on the use of the product to the taxing jurisdictions in which the use occurs. A seller’s obligation to collect Iowa sales tax or Iowa use tax only occurs if the sale is sourced to this state. Whether Iowa sales tax applies to a sale sourced to Iowa shall be determined based on the location at which the sale is consummated by delivery or, in the case of a service, where the first use of the service occurs made by a seller subject to section 423.1, subsection 48, or section 423.14A.
    Sec. 99.  Section 423.15, subsection 1, paragraph e, Code 2018, is amended to read as follows:
   e.  When paragraphs “a”, “b”, “c”, and “d” do not apply, including the circumstance where the seller is without sufficient information to apply the previous rules, then the location will be determined by the address from which tangible personal property was shipped, from which the specified digital good product or the computer software delivered electronically was first available for transmission by the seller, or from which the service was provided disregarding for these purposes any location that merely provided the digital transfer of the product sold.
    Sec. 100.  Section 423.22, Code 2018, is amended to read as follows:
   423.22  Taxation in another state.
   If any person who causes tangible personal property or specified digital products to be brought into this state or who uses in this state services enumerated in section 423.2 has already paid a tax in another state in respect to the sale or use of the property or the performance of the service, or an occupation tax in respect to the property or service, in an amount less than the tax imposed by subchapter II or III, the provisions of those subchapters shall apply, but at a rate measured by the difference only between the rate fixed by subchapter II or III and the rate by which the previous tax on the sale or use, or the occupation tax, was computed. If the tax imposed and paid in the other state is equal to or more than the tax imposed by those subchapters, then a tax is not due in this state on the personal property or service.
    Sec. 101.  Section 423.29, subsection 1, Code 2018, is amended to read as follows:
   1.  Every seller who is a retailer and who is making taxable sales of tangible personal property or specified digital products in Iowa shall, at the time of selling the property making the sale, collect the sales tax. Every seller who is a retailer maintaining a place of business in this state that is not otherwise required to collect sales tax under the provisions of this chapter and who is selling tangible personal property or specified digital products for use in Iowa shall, at the time of making the sale, whether within or without the state, collect the use tax. Sellers required to collect sales or use tax shall give to any purchaser a receipt for the tax collected in the manner and form prescribed by the director.
    Sec. 102.  Section 423.30, subsection 1, Code 2018, is amended to read as follows:
   1.  The director may, upon application, authorize the collection of the use tax by any seller who is a retailer not maintaining a place of business within this state and not registered under the agreement, who, to the satisfaction of the director, furnishes adequate security to ensure collection and payment of the tax. Such sellers shall be issued, without charge, permits to collect tax subject to any regulations which the director shall prescribe. When so authorized, it shall be the duty of foreign sellers to collect the tax upon all tangible personal property and specified digital products sold, to the retailer’s knowledge, for use within this state, in the same manner and subject to the same requirements as a retailer maintaining a place of business within this state. The authority and permit may be canceled when, at any time, the director considers the security inadequate, or that tax can more effectively be collected from the person using property in this state.
    Sec. 103.  Section 423.31, subsection 1, Code 2018, is amended to read as follows:
   1.  Each person subject to this section and section 423.36 and in accordance with the provisions of this section and section 423.36 shall, on or before the last day of the month following the close of each calendar quarter during which such person is or has become or ceased being subject to the provisions of this section and section 423.36, make, sign, and file a return for the calendar quarter in the form as may be required. Returns shall show information relating to sales prices including goods, wares, tangible personal property, specified digital products, and services converted to the use of such person, the amounts of sales prices excluded and exempt from the tax, the amounts of sales prices subject to tax, a calculation of tax due, and any other information for the period covered by the return as may be required. Returns shall be signed by the retailer or the retailer’s authorized agent and must be certified by the retailer to be correct in accordance with forms and rules prescribed by the director.
    Sec. 104.  Section 423.31, subsection 5, paragraph a, Code 2018, is amended to read as follows:
   a.  Upon making application and receiving approval from the director, a parent corporation person and its affiliated corporations affiliates that make retail sales of tangible personal property, specified digital products, or taxable enumerated services may make deposits and file a consolidated sales tax return for the affiliated group, pursuant to rules adopted by the director. A parent corporation person and each affiliate corporation that files a consolidated return are jointly and severally liable for all tax, penalty, and interest found due for the tax period for which a consolidated return is filed or required to be filed.
    Sec. 105.  Section 423.32, subsection 1, paragraph b, Code 2018, is amended to read as follows:
   b.  The deposit form is due on or before the twentieth day of the month following the month of collection, except a deposit is not required for the third month of the calendar quarter, and the total quarterly amount, less the amounts deposited for the first two months of the quarter, is due with the quarterly report on the last day of the month following the month of collection. At that time, the retailer shall file with the department a return for the preceding quarterly period in the form prescribed by the director showing the purchase price of the tangible personal property, specified digital products, and services sold by the retailer during the preceding quarterly period, the use of which is subject to the use tax imposed by this chapter, and other information the director deems necessary for the proper administration of the use tax.
    Sec. 106.  Section 423.33, subsection 3, Code 2018, is amended to read as follows:
   3.  Event sponsor’s liability for sales tax.  A person sponsoring a flea market or a craft, antique, coin, or stamp show or similar event shall obtain from every retailer selling tangible personal property, specified digital products, or taxable services at the event proof that the retailer possesses a valid sales tax permit or secure from the retailer a statement, taken in good faith, that tangible personal property, specified digital products, or services offered for sale are not subject to sales tax. Failure to do so renders a sponsor of the event liable for payment of any sales tax, interest, and penalty due and owing from any retailer selling property or services at the event. Sections 423.31, 423.32, 423.37, 423.38, 423.39, 423.40, 423.41, and 423.42 apply to the sponsors. For purposes of this subsection, a “person sponsoring a flea market or a craft, antique, coin, or stamp show or similar event” does not include an organization which sponsors an event determined to qualify as an event involving casual sales pursuant to section 423.3, subsection 39, or the state fair or a fair as defined in section 174.1.
    Sec. 107.  Section 423.33, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  4.  Liability of affiliates.
   a.  Notwithstanding any other provision of law to the contrary, if any retailer required to collect and remit sales and use tax pursuant to sections 423.14, 423.14A, and 423.29, or any other provision of this chapter, fails to do so, all affiliates that directly, indirectly, or constructively control the retailer shall be jointly and severally liable for any tax, penalty, and interest under this chapter, regardless of whether the affiliate is a retailer.
   b.  Pursuant to paragraph “a”, the department may elect to assess the full amount of any tax, penalty, and interest against the retailer, an affiliate of the retailer described in paragraph “a”, or any combination of the retailer and the retailer’s affiliates described in paragraph “a”.
   c.  Notwithstanding any other provision of law to the contrary, the department has the discretion to deem an affiliate of a retailer an agent or alter ego of that retailer.
   d.  Notwithstanding any other provision of law to the contrary, the department has the discretion to disregard or look through any organizational structure of an enterprise in order to assess and collect any tax, penalty, and interest against an affiliate that is acting to benefit an affiliate or an enterprise of which the affiliate is a part.
    Sec. 108.  Section 423.34, Code 2018, is amended to read as follows:
   423.34  Liability of user.
   Any person who uses any tangible personal property, specified digital products, or services enumerated in section 423.2 upon which the use tax has not been paid, either to the county treasurer or to a retailer or direct to the department as required by this subchapter, shall be liable for the payment of tax, and shall on or before the last day of the month next succeeding each quarterly period pay the use tax upon all property or services used by the person during the preceding quarterly period in the manner and accompanied by such returns as the director shall prescribe. All of the provisions of sections 423.32 and 423.33 with reference to the returns and payments shall be applicable to the returns and payments required by this section.
    Sec. 109.  Section 423.36, subsection 1, Code 2018, is amended to read as follows:
   1.  A person shall not engage in or transact business as a retailer making taxable sales of tangible personal property, specified digital products, or furnishing services within this state or as a retailer making taxable sales of tangible personal property, specified digital products, or furnishing services for use within this state, unless a permit has been issued to the retailer under this section, except as provided in subsection 7. Every person desiring to engage in or transact business as a retailer shall file with the department an application for a permit to collect sales or use tax. Every application for a sales or use tax permit shall be made upon a form prescribed by the director and shall set forth any information the director may require. The application shall be signed by an owner of the business if a natural person; in the case of a retailer which is an association or partnership, by a member or partner; and in the case of a retailer which is a corporation, by an executive officer or some person specifically authorized by the corporation to sign the application, to which shall be attached the written evidence of the person’s authority.
    Sec. 110.  Section 423.36, subsection 2, paragraph a, Code 2018, is amended to read as follows:
   a.  Notwithstanding subsection 1, if any person will make taxable sales of tangible personal property, specified digital products, or furnish services to any state agency, that person shall, prior to the sale, apply for and receive a permit to collect sales or use tax pursuant to this section. A state agency shall not purchase tangible personal property, specified digital products, or services from any person unless that person has a valid, unexpired permit issued pursuant to this section and is in compliance with all other requirements in this chapter imposed upon retailers, including but not limited to the requirement to collect and remit sales and use tax and file sales and use tax returns.
    Sec. 111.  Section 423.36, subsection 7, paragraph b, Code 2018, is amended to read as follows:
   b.  Persons engaged in selling tangible personal property, specified digital products, or furnishing services shall not be required to obtain or retain a sales tax permit for a place of business at which taxable sales of tangible personal property, specified digital products, or taxable performance of services will not occur.
    Sec. 112.  Section 423.36, subsection 9, paragraph a, Code 2018, is amended to read as follows:
   a.  Except as provided in paragraph “b”, purchasers, users, and consumers of tangible personal property, specified digital products, or enumerated services taxed pursuant to subchapter II or III of this chapter or chapter 423B may be authorized, pursuant to rules adopted by the director, to remit tax owed directly to the department instead of the tax being collected and paid by the seller. To qualify for a direct pay tax permit, the purchaser, user, or consumer must accrue a tax liability of more than four thousand dollars in tax under subchapters II and III in a semimonthly period and make deposits and file returns pursuant to section 423.31. This authority shall not be granted or exercised except upon application to the director and then only after issuance by the director of a direct pay tax permit.
    Sec. 113.  Section 423.40, subsection 2, Code 2018, is amended to read as follows:
   2.  a.  Any person who knowingly sells tangible personal property, specified digital products, tickets or admissions to places of amusement and athletic events, or gas, water, electricity, or communication service at retail, or engages in the furnishing of services enumerated in section 423.2, in this state without procuring a permit to collect tax, as provided in section 423.36, or who violates section 423.24 and the officers of any corporation who so act are guilty of a serious misdemeanor.
   b.  A person who knowingly sells tangible personal property, specified digital products, tickets or admissions to places of amusement and athletic events, or gas, water, electricity, or communication service at retail, or engages in the furnishing of services enumerated in section 423.2, in this state after the person’s sales tax permit has been revoked and before it has been restored as provided in section 423.36, subsection 6, and the officers of any corporation who so act are guilty of an aggravated misdemeanor.
    Sec. 114.  Section 423.41, Code 2018, is amended to read as follows:
   423.41  Books —— examination.
   Every retailer required or authorized to collect taxes imposed by this chapter and every person using in this state tangible personal property, specified digital products, services, or the product of services shall keep records, receipts, invoices, and other pertinent papers as the director shall require, in the form that the director shall require, for as long as the director has the authority to examine and determine tax due. The director or any duly authorized agent of the department may examine the books, papers, records, and equipment of any person either selling tangible personal property, specified digital products, or services or liable for the tax imposed by this chapter, and investigate the character of the business of any person in order to verify the accuracy of any return made, or if a return was not made by the person, ascertain and determine the amount due under this chapter. These books, papers, and records shall be made available within this state for examination upon reasonable notice when the director deems it advisable and so orders. If the taxpayer maintains any records in an electronic format, the taxpayer shall comply with reasonable requests by the director or the director’s authorized agents to provide those electronic records in a standard record format. The preceding requirements shall likewise apply to users and persons furnishing services enumerated in section 423.2.
    Sec. 115.  Section 423.45, subsection 4, paragraphs a, b, and e, Code 2018, are amended to read as follows:
   a.  The department shall issue or the seller may separately provide exemption certificates in the form prescribed by the director, including certificates not made of paper, which conform to the requirements of paragraph “c”, to assist retailers in properly accounting for nontaxable sales of tangible personal property, specified digital products, or services to purchasers for a nontaxable purpose. The department shall also allow the use of exemption certificates for those circumstances in which a sale is taxable but the seller is not obligated to collect tax from the buyer.
   b.  The sales tax liability for all sales of tangible personal property and specified digital products and all sales of services is upon the seller and the purchaser unless the seller takes from the purchaser a valid exemption certificate stating under penalty of perjury that the purchase is for a nontaxable purpose and is not a retail sale as defined in section 423.1, or the seller is not obligated to collect tax due, or unless the seller takes a fuel exemption certificate pursuant to subsection 5. If the tangible personal property, specified digital products, or services are purchased tax free pursuant to a valid exemption certificate and the tangible personal property, specified digital products, or services are used or disposed of by the purchaser in a nonexempt manner, the purchaser is solely liable for the taxes and shall remit the taxes directly to the department and sections 423.31, 423.32, 423.37, 423.38, 423.39, 423.40, 423.41, and 423.42 shall apply to the purchaser.
   e.  If the circumstances change and as a result the tangible personal property, specified digital products, or services are used or disposed of by the purchaser in a nonexempt manner or the purchaser becomes obligated to pay the tax, the purchaser is liable solely for the taxes and shall remit the taxes directly to the department in accordance with this subsection.
    Sec. 116.  Section 423.57, Code 2018, is amended to read as follows:
   423.57  Statutes applicable.
   The director shall administer this subchapter as it relates to the taxes imposed in this chapter in the same manner and subject to all the provisions of, and all of the powers, duties, authority, and restrictions contained in sections 423.14, 423.14A, 423.15, 423.16, 423.17, 423.19, 423.20, 423.21, 423.22, 423.23, 423.24, 423.25, 423.29, 423.31, 423.32, 423.33, 423.34, 423.34A, 423.35, 423.37, 423.38, 423.39, 423.40, 423.41, and 423.42, section 423.43, subsection 1, and sections 423.45, 423.46, and 423.47.
    Sec. 117.  Section 423.58, Code 2018, is amended to read as follows:
   423.58  Collection, permit, and tax return exemption for certain out-of-state businesses.
   Notwithstanding sections 423.14, 423.14A, 423.29, 423.31, 423.32, and 423.36, a person meeting the requirements of section 29C.24 is not required to obtain a sales or use tax permit, collect and remit sales and use tax, or make and file applicable sales or use tax returns, as provided in section 29C.24, subsection 3, paragraph “a”, subparagraph (2).
    Sec. 118.  Section 423B.5, subsection 1, Code 2018, is amended to read as follows:
   1.  A local sales and services tax at the rate of not more than one percent may be imposed by a county on the sales price taxed by the state under chapter 423, subchapter II. A local sales and services tax shall be imposed on the same basis as the state sales and services tax or in the case of the use of natural gas, natural gas service, electricity, or electric service on the same basis as the state use tax and shall not be imposed on the sale of any property or on any service not taxed by the state, except the tax shall not be imposed on the sales price from the sale of motor fuel or special fuel as defined in chapter 452A which is consumed for highway use or in watercraft or aircraft if the fuel tax is paid on the transaction and a refund has not or will not be allowed, on the sales price from the sale of equipment by the state department of transportation, or on the sales price from the sale or use of natural gas, natural gas service, electricity, or electric service in a city or county where the sales price from the sale of natural gas or electric energy is subject to a franchise fee or user fee during the period the franchise or user fee is imposed. A local sales and services tax is applicable to transactions within those incorporated and unincorporated areas of the county where it is imposed and, which transactions include but are not limited to sales sourced pursuant to sections 423.15, 423.17, 423.19, or 423.20, to a location within that incorporated or unincorporated area of the county. The tax shall be collected by all persons required to collect state sales taxes. All cities contiguous to each other shall be treated as part of one incorporated area and the tax would be imposed in each of those contiguous cities only if the majority of those voting in the total area covered by the contiguous cities favors its imposition. In the case of a local sales and services tax submitted to the registered voters of two or more contiguous counties as provided in section 423B.1, subsection 4, paragraph “c”, all cities contiguous to each other shall be treated as part of one incorporated area, even if the corporate boundaries of one or more of the cities include areas of more than one county, and the tax shall be imposed in each of those contiguous cities only if a majority of those voting on the tax in the total area covered by the contiguous cities favored its imposition.
    Sec. 119.  Section 423B.6, subsection 2, paragraph b, Code 2018, is amended to read as follows:
   b.  The ordinance of a county board of supervisors imposing a local sales and services tax shall adopt by reference the applicable provisions of the appropriate sections of chapter 423. All powers and requirements of the director to administer the state sales tax law and use tax law are applicable to the administration of a local sales and services tax law and the local excise tax, including but not limited to the provisions of section 422.25, subsection 4, sections 422.30, 422.67, and 422.68, section 422.69, subsection 1, sections 422.70 through 422.75, section 423.14, subsection 1 and subsection 2, paragraphs “b” through “e”, and sections 423.14A, 423.15, 423.23, 423.24, 423.25, 423.31 through 423.35, 423.37 through 423.42, 423.46, and 423.47. Local officials shall confer with the director of revenue for assistance in drafting the ordinance imposing a local sales and services tax. A certified copy of the ordinance shall be filed with the director as soon as possible after passage.
    Sec. 120.  LEGISLATIVE INTENT.  It is the intent of the general assembly that the provisions of this division of this Act amending the definition of “place of business” in section 423.1, subsection 37, and “sales” in section 423.1, subsection 50, enacting definitions of “sold at retail in the state” in section 423.1, subsection 55A, and “subscription” in section 423.1, subsection 57A, and amending the enumerated service of pay television in 423.2, subsection 6, paragraph “al”, are conforming amendments consistent with current state law, and that the amendments do not change the application of current law but instead reflect current law both before and after the enactment of this division of this Act.
    Sec. 121.  RELATIONSHIP TO EXISTING LAW FOR TAXATION OF SPECIFIED DIGITAL PRODUCTS.  The provisions of this division of this Act relating to the imposition of tax on the sale or use of “specified digital products”, as defined in this division of this Act, shall not be construed as affecting the taxability or nontaxability under other provisions of existing law of sales or uses occurring prior to the enactment of this division of this Act of products meeting the definition of “specified digital products”, as defined in this division of this Act.
    Sec. 122.  EFFECTIVE DATE.
   1.  Except as provided in subsection 2, this division of this Act takes effect January 1, 2019.
   2.  The following take effect July 1, 2018:
   a.  The sections of this division of this Act amending section 423.1, subsections 37 and 50.
   b.  The sections of this division of this Act enacting section 423.1, subsections 55A and 57A.
   c.  The section of this division of this Act amending section 423.2, subsection 1, paragraph “a”, subparagraph (1).
   d.  The provision amending the enumerated service of pay television to include but not be limited to streaming video, video on-demand, and pay-per-view, in the section of this division of this Act amending section 423.2, subsection 6.
   e.  The provisions adding photography and retouching to the list of enumerated services subject to the sales tax in the section of this division of this Act amending section 423.2, subsection 6.
   f.  The section of this division of this Act enacting section 423.2, subsection 8, paragraph “d”.
   g.  The section of this division of this Act amending section 423.5, subsection 1, paragraph “a”.
   h.  The section of this division of this Act entitled “legislative intent” which describes the intent of the general assembly with respect to certain amendments in this division of this Act to the definition of “place of business” in section 423.1, subsection 37, “sales” in section 423.1, subsection 50, the enactment of a definition for “subscription” in section 423.1, subsection 57A, and “sold at retail” in section 423.1, subsection 55A, and amendments to the enumerated service of pay television in section 423.2, subsection 6, paragraph “al”.
DIVISION V
HOTEL AND MOTEL EXCISE TAX AND AUTOMOBILE RENTAL EXCISE TAX CHANGES

    Sec. 123.  Section 423A.2, subsection 1, Code 2018, is amended to read as follows:
   1.  For the purposes of this chapter, unless the context otherwise requires:
   a.  “Department” means the department of revenue.
   b.  “Lessor” means any of the following:
   (1)  A person engaged in the business of renting lodging to users.
   (2)  A person who acquires a right to or interest in any lodging with an intent to rent the lodging to another person.
   (3)  A person who actually or constructively rents lodging, regardless of who owns or controls the lodging.
   (4)  A lodging facilitator.
   (5)  A retailer or retailer maintaining a place of business in this state as defined in section 423.1, including those persons who meet the requirements of section 423.14A, which retailer or retailer maintaining a place of business in this state would be responsible for collection and payment of the hotel and motel tax if it were a sales or use tax under chapter 423.
   c.  “Lodging” means rooms, apartments, or sleeping quarters in a hotel, motel, inn, public lodging house, rooming house, cabin, apartment, residential property, or manufactured or mobile home which is tangible personal property, or in a tourist court, or in any place where sleeping accommodations are furnished to transient guests for rent, whether with or without meals. Lodging does not include rooms that are not used for sleeping accommodations.
   d.  “Lodging facilitator” means any person who facilitates the renting of lodging to users by satisfying subparagraphs (1) and (2) as follows:
   (1)  The person directly or indirectly does any of the following:
   (a)  Lists, makes available, or advertises lodging for rent by a lessor in any forum.
   (b)  Transmits or otherwise communicates an offer or acceptance between a lessor or user.
   (c)  Owns, rents, licenses, makes available, or operates any electronic or physical infrastructure or any property, process, method, copyright, trademark, or patent that connects lessors and users to each other.
   (d)  Provides a platform or other marketplace for renting lodging or otherwise facilitates the renting of lodging, regardless of ownership or control of the lodging.
   (e)  Provides software development or research and development activities related to any activity described in this subparagraph (1), if such software development or research and development activities are directly related to the physical or electronic marketplace provided by a lodging facilitator.
   (f)  Provides or offers fulfillment or storage services for a lessor.
   (g)  Sets prices for a lessor’s rental of lodging.
   (h)  Provides or offers customer service to a lessor or a lessor’s customers, or accepts or assists with returns, exchanges, cancellations, or rescheduling of the rental of lodging by a lessor.
   (2)  The person directly or indirectly does any of the following:
   (a)  Collects the sales price for the renting of the lodging.
   (b)  Provides payment processing services for the renting of lodging.
   (c)  Charges, collects, or otherwise receives booking fees, advertising revenues, or other consideration from the renting of lodging or the facilitation of the renting of lodging, regardless of ownership or control of the lodging.
   (d)  Through terms and conditions, agreements, or arrangements with a third party, collects payment in connection with a rental of lodging from a user and transmits that payment to the lessor, regardless of whether the person collecting and transmitting such payment receives compensation or other consideration in exchange for the service.
   (e)  Provides a virtual currency that users are allowed or required to use to rent lodging.
   d.  e.  “Person” means the same as the term is defined in section 423.1.
   e.  f.  “Renting”, “rental”, or “rent” means a transfer of possession or control of lodging for a fixed or indeterminate term for consideration and includes any kind of direct or indirect charge for such lodging or its use.
   f.  g.  “Sales price” means the consideration for renting of lodging and means the same as the term is defined in section 423.1 all direct or indirect consideration, including but not limited to cash, credit, property, and services, paid in connection with any charge of any description associated with the renting of lodging or with communicating, negotiating, reserving, booking, facilitating, or otherwise arranging to rent lodging, including but not limited to booking fees, reservation fees, service fees, cleaning fees, linen fees, towel fees, and nonrefundable deposits.  When determining “sales price”, no deduction shall be taken for any of the following:
   (1)  The lessor’s cost of the property rented.
   (2)  The cost of materials used, labor or service cost, interest, losses, all costs of transportation to the lessor, all taxes imposed on the lessor, or any other expenses of the lessor.
   (3)  Charges by the lessor for any services necessary to complete the rental transaction.
   g.  h.  “User” means a person to whom lodging is rented.
    Sec. 124.  NEW SECTION.  423A.3A  Collection and remittance by lodging facilitators —— joint and several liability.
   If a transaction for the rental of lodging involves both a lodging facilitator and another lessor, all of the following shall apply:
   1.  The lodging facilitator shall collect the state-imposed tax under section 423A.3 and the locally imposed tax under section 423A.4 on the entire sales price paid by the user, regardless of the amount of the sales price that will ultimately accrue to or benefit the lodging facilitator, another lessor, or any other person.
   2.  The lodging facilitator and any other lessor involved in the transaction shall be jointly and severally liable for collecting and remitting the tax under sections 423A.3 and 423A.4.
    Sec. 125.  Section 423A.5, Code 2018, is amended to read as follows:
   423A.5  Exemptions.
   1.  There are exempted from the provisions of this chapter and from the computation of any amount of tax imposed by section 423A.3 this chapter all of the following:
   a.  1.  The sales price from the renting of lodging which is rented by the same person for a period of more than thirty-one consecutive days.
   b.  2.  The sales price from the renting of sleeping rooms in dormitories and in memorial unions at all universities and colleges located in the state of Iowa.
   2.  There is exempted from the provisions of this chapter and from the computation of any amount of tax imposed by section 423A.4 all of the following:
   a.  The sales price from the renting of lodging or rooms exempt under subsection 1.
   b.  3.  The sales price of lodging furnished to the guests of a religious institution if the property is exempt under section 427.1, subsection 8, and the purpose of renting is to provide a place for a religious retreat or function and not a place for transient guests generally.
    Sec. 126.  Section 423A.6, subsection 4, Code 2018, is amended to read as follows:
   4.  Section 422.25, subsection 4, sections 422.30, 422.67, and 422.68, section 422.69, subsection 1, sections 422.70, 422.71, 422.72, 422.74, and 422.75, section 423.14, subsection 1, and sections 423.23, 423.24, 423.25, 423.31, 423.33, 423.35, 423.37 through 423.42, and 423.47, consistent with the provisions of this chapter, apply with respect to the taxes authorized under this chapter, in the same manner and with the same effect as if the state and local hotel and motel taxes were retail sales taxes within the meaning of those statutes. Notwithstanding this subsection, the director shall provide for quarterly filing of returns and for other than quarterly filing of returns both as prescribed in section 423.31. The director may require all persons who are engaged in the business of deriving any sales price subject to tax under this chapter to register with the department. All taxes collected under this chapter by a retailer, lessor, or any individual other person are deemed to be held in trust for the state of Iowa and the local jurisdictions imposing the taxes.
    Sec. 127.  Section 423C.2, subsection 3, Code 2018, is amended to read as follows:
   3.  “Lessor” means a any of the following:
   a.  A person engaged in the business of renting automobiles to users. “Lessor” includes a
   b.  A motor vehicle dealer licensed pursuant to chapter 322 who rents automobiles to users. For this purpose, the objective of making a profit is not necessary to make the renting activity a business.
   c.  A person who acquires a right to or interest in any automobile with an intent to rent the automobile to another person.
   d.  A person who actually or constructively rents automobiles, regardless of who owns or controls the automobiles.
   e.  A rental facilitator.
   f.  A retailer or retailer maintaining a place of business in this state as defined in section 423.1, including those persons who meet the requirements of section 423.14A, which retailer or retailer maintaining a place of business in this state would be responsible for collection and payment of the automobile rental excise tax if it were a sales or use tax under chapter 423.
    Sec. 128.  Section 423C.2, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  06.  “Rental facilitator” means any person who facilitates the renting of an automobile to users by satisfying paragraphs “a” and “b” as follows:
   a.  The person directly or indirectly does any of the following:
   (1)  Lists, makes available, or advertises automobiles for rent by a lessor in any forum.
   (2)  Transmits or otherwise communicates an offer or acceptance between a lessor or user.
   (3)  Owns, rents, licenses, makes available, or operates any electronic or physical infrastructure or any property, process, method, copyright, trademark, or patent that connects lessors and users to each other.
   (4)  Provides a platform or other marketplace for renting automobiles or otherwise facilitates the renting of automobiles, regardless of ownership or control of the automobile.
   (5)  Provides software development or research and development activities related to any activity described in this paragraph “a”, if such software development or research and development activities are directly related to the physical or electronic marketplace provided by a rental facilitator.
   (6)  Provides or offers fulfillment or storage services for a lessor.
   (7)  Sets prices for a lessor’s rental of automobiles.
   (8)  Provides or offers customer service to a lessor or a lessor’s customers, or accepts or assists with returns, exchanges, cancellations, or rescheduling of the rental of automobiles by a lessor.
   b.  The person directly or indirectly does any of the following:
   (1)  Collects the rental price for the renting of an automobile.
   (2)  Provides payment processing services for the renting of an automobile.
   (3)  Charges, collects, or otherwise receives booking fees, advertising revenues, or other consideration from the renting of an automobile or the facilitation of the renting of an automobile, regardless of ownership or control of the automobile.
   (4)  Through terms and conditions, agreements, or arrangements with a third party, collects payment in connection with a rental of automobiles from a user and transmits that payment to the lessor, regardless of whether the person collecting and transmitting such payment receives compensation or other consideration in exchange for the service.
   (5)  Provides a virtual currency that users are allowed or required to use to rent automobiles.
    Sec. 129.  Section 423C.2, subsection 6, Code 2018, is amended by striking the subsection and inserting in lieu thereof the following:
   6.  “Rental price” means all direct or indirect consideration, including but not limited to cash, credit, property, and services, paid in connection with any charge of any description associated with the renting of an automobile or with communicating, negotiating, reserving, booking, facilitating, or otherwise arranging to rent an automobile, including but not limited to booking fees, reservation fees, service fees, and nonrefundable deposits. When determining “rental price”, no deduction shall be taken for any of the following:
   a.  The lessor’s cost of the property rented.
   b.  The cost of materials used, labor or service cost, interest, losses, all costs of transportation to the lessor, all taxes imposed on the lessor, or any other expenses of the lessor.
   c.  Charges by the lessor for any services necessary to complete the rental transaction.
    Sec. 130.  NEW SECTION.  423C.3A  Collection and remittance by rental facilitators —— joint and several liability.
   If a transaction for the rental of an automobile involves both a rental facilitator and another lessor, all of the following shall apply:
   1.  The rental facilitator shall collect the tax under section 423C.3 on the entire rental price paid by the user, regardless of the amount of the rental price that will ultimately accrue to or benefit the rental facilitator, another lessor, or any other person.
   2.  The rental facilitator and any other lessor involved in the transaction shall be jointly and severally liable for collecting and remitting the tax under section 423C.3.
    Sec. 131.  LEGISLATIVE INTENT.  It is the intent of the general assembly that the provision of this division of this Act amending the definition of “lodging” in section 423A.2, subsection 1, paragraph “c”, is a conforming amendment consistent with current state law, and that the amendment does not change the application of current law but instead reflects current law both before and after the enactment of this division of this Act.
    Sec. 132.  EFFECTIVE DATE.
   1.  Except as provided in subsection 2, this division of this Act takes effect January 1, 2019.
   2.  The following take effect July 1, 2018:
   a.  The provision amending the definition of “lodging” in the section of this division of this Act amending section 423A.2, subsection 1, paragraph “c”.
   b.  The section of this division of this Act entitled “legislative intent” which describes the intent of the general assembly with respect to the amendment in this division of this Act to the definition of “lodging” in section 423A.2, subsection 1, paragraph “c”.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill makes numerous changes to income taxes, the sales and use taxes and local option sales tax, the hotel and motel excise tax, the automobile rental excise tax, the Iowa educational savings plan trust, and the Iowa ABLE savings plan trust.
   DIVISION I —— INCOME TAX CHANGES BEGINNING IN TAX YEAR 2018. The federal Protecting Americans From Tax Hikes Act (PATH Act) enacted by Congress in 2015 made permanent certain increased phase-out amounts and increased credit percentages of the federal earned income tax credit (EITC) that were scheduled to expire in 2018, made permanent the deduction for certain expenses incurred by elementary and secondary school teachers that was scheduled to expire in 2015, made permanent certain tax-free distributions to charities from individual retirement accounts (IRAs) that were set to expire in 2015, and made permanent the option to deduct sales and use taxes in lieu of state and local income taxes that was set to expire in 2015. To date, Iowa has not coupled with these federal changes for purposes of the Iowa individual income tax. Division I couples with these federal changes for purposes of the Iowa individual income tax for tax year 2018. Division I also couples for tax year 2018 with certain accounting method and other miscellaneous changes made in the federal Tax Cuts and Jobs Act of 2017 for purposes of the individual and corporate income taxes, and the franchise tax, to the extent those amendments affect the calculation of federal adjusted gross income or federal taxable income for federal tax purposes for tax year 2018. These include amendments contained in the following sections of the federal Tax Cuts and Jobs Act: §13102 (small business accounting method changes), §13221 (accounting method rules for the taxable year of inclusion), §13504 (repeal of technical termination of partnerships), §13541 (electing small business trust), §13543 (treatment of S corporation conversion to C corporation), §13611 (repeal of special rule permitting recharacterization of Roth IRA conversions), and §13613 (extended rollover period for qualified plan loans).
   These provisions apply retroactively to January 1, 2018, for tax years beginning on or after that date, but prior to January 1, 2019.
   IRC §179 DEDUCTION. The IRC §179 deduction provides a tax deduction in lieu of depreciation for certain property placed in service during a tax year. Under current law, for Iowa tax purposes, the maximum IRC §179 deduction per tax year is $25,000. This maximum deduction is incrementally reduced when a taxpayer’s eligible property placed in service during the tax year exceeds $200,000 (investment limitation).
   The federal Tax Cuts and Jobs Act of 2017 made several changes to the IRC §179 deduction, including increasing the statutory maximum deduction to $1 million, and increasing the statutory investment limitation to $2.5 million. The bill couples for Iowa individual income tax purposes with the changes made to the IRC §179 deduction in the federal Tax Cuts and Jobs Act beginning in tax year 2018, but limits the maximum deduction to $100,000, and sets the investment limitation at $400,000. The maximum deduction and limitation amount are increased to $250,000 and $1 million, respectively, for tax years beginning on or after January 1, 2020.
   If the total IRC §179 deduction allocated to a taxpayer from one or more partnerships, S corporations, or limited liability companies exceeds the applicable amount described above in a tax year, the bill allows the taxpayer to deduct the amount in excess of that amount evenly over a five-year tax period beginning in the subsequent tax year. Taxpayers who elect to take advantage of this provision are not allowed to take the IRC §179 deduction for the tax year of the election on any eligible property placed in service by the taxpayer, but are allowed to deduct depreciation on such amounts that would otherwise be allowable under federal law, without regard to the bonus depreciation allowance.
   Under current Iowa law, for previous tax years, individual taxpayers were required to recompute their Iowa itemized deductions under Code section 422.9(2) to account for differences between the federal and Iowa treatment of the IRC §179 deduction. The bill provides that taxpayers must make those same adjustments to federal adjusted gross income beginning in tax year 2018.
   These provisions apply retroactively to January 1, 2018, for tax years beginning on or after that date.
   The division takes effect upon enactment.
   DIVISION II —— INDIVIDUAL INCOME TAX CHANGES BEGINNING IN TAX YEAR 2019. Division II makes numerous changes to the Iowa individual income tax beginning in tax year 2019.
   TAX RATE CHANGES. Current law provides nine regular tax brackets containing progressively higher amounts of taxable income that are taxed at progressively higher tax rates, from a low of 0.36 percent, to a high of 8.98 percent. The taxable income amounts in each tax bracket are indexed to inflation and increased each year. For tax years beginning on or after January 1, 2019, the bill reduces the tax rate in each bracket as follows:

  Tax rates for tax year 2019                  Tax rates for tax year

                  2020 and beyond

   1) 0.34%                  0.32%

  2) 0.68%                  0.65% 

  3) 2.31%                  2.20%

  4) 4.28%                  4.10%

  5) 5.94%                  5.60%

   6) 6.29%                  6.10%

  7) 6.60%                  6.58%

   8) 7.84%                  7.82%

   9) 8.89%                  8.89%
   INTERNAL REVENUE CODE (IRC) COUPLING. Under current law with the exception of the solar energy credit and the state research activities credit, Code references to the IRC include the IRC in effect on January 1, 2015, meaning federal income tax revisions made by Congress in 2015 through 2017 are not applicable for Iowa tax purposes, including revisions made in the PATH Act of 2015 and the federal Tax Cuts and Jobs Act of 2017. The bill adopts, or couples with, these revisions for purposes of the individual income tax beginning in tax year 2019, except for certain revisions as described below. The coupling is accomplished generally by updating the definition of IRC as it applies to the individual income tax to mean the IRC as amended and in effect on January 1, 2018. The updated definition does not apply to the state solar energy system credit in Code section 422.11L, or the state individual research activities credit in Code section 422.10, because both of those credits contain their own definition of IRC.
   Code section 422.9 provided individuals a deduction from net income for state sales and use taxes if the individual chose to deduct sales and use tax in lieu of state income taxes or the standard deduction for federal income tax purposes. The deduction was set to expire under both federal and Iowa law beginning in tax year 2016. The federal deduction was made permanent by the PATH Act of 2015, and the bill couples with these federal changes to the deduction, thus making it permanent for tax year 2019 and beyond.
   The federal deduction for other taxes paid was limited to $10,000 per year under most circumstances by the federal Tax Cuts and Jobs Act of 2017, but the bill decouples from this limitation. Taxpayers will be allowed to deduct other taxes paid in computing state itemized deductions to the same extent as is allowed under current state law, without regard to the $10,000 limitation described above.
   BONUS DEPRECIATION DECOUPLING. The bill decouples, for Iowa individual income tax purposes, from the federal additional first-year depreciation allowance in section 168(k) of the IRC (bonus depreciation) which was extended and modified by the federal PATH Act of 2015 and the federal Tax Cuts and Jobs Act of 2017. By decoupling, taxpayers who claim bonus depreciation for federal tax purposes are required to add such depreciation amounts back to Iowa net income, but are then allowed under existing state law to deduct the amount of depreciation that would otherwise be allowable under federal law, without regard to the bonus depreciation allowance.
   STANDARD DEDUCTION INCREASES. When calculating taxable income for purposes of the individual income tax, individuals are allowed to choose between a standard deduction or itemized deductions. The standard deduction under current law for tax year 2018 is $2,030 for a single person or a married person who files separately, and is $5,000 for a married couple filing jointly, a surviving spouse, or a head of household. These amounts are indexed to inflation and increased each year.
   The bill increases the standard deduction amounts beginning in tax year 2019 to $3,000 for a single person or a married person who files separately, and to $7,500 for a married couple filing jointly, a surviving spouse, or a head of household. The bill indexes these standard deduction amounts to inflation so they will be increased in future tax years.
   QUALIFIED BUSINESS INCOME DEDUCTION. The federal Tax Cuts and Jobs Act of 2017 created a deduction in calculating federal taxable income for noncorporate taxpayers of up to 20 percent of certain domestic qualified business income earned by a taxpayer from a partnership, S corporation, limited liability company, other pass-through entity, or a sole proprietorship. This deduction was further amended by the federal Consolidated Appropriations Act of 2018. The deduction is calculated under section 199A of the IRC and includes numerous limitations based on the type of trade or business involved, the income of the trade or business, and the income of the taxpayer claiming the deduction. The federal deduction applies to tax years 2018 through 2025, and is available to a taxpayer regardless of whether the taxpayer claims the standard deduction or itemized deductions for federal tax purposes.
   The bill provides a deduction in computing Iowa taxable income for purposes of the individual income tax equal to 25 percent of the taxpayer’s qualified business income deduction allowed for federal income tax purposes beginning in tax year 2019. With regard to individuals, the Iowa deduction is available regardless of whether the individual claims the standard deduction or itemized deductions for Iowa tax purposes. With regard to an estate or trust, the starting point for calculating Iowa income tax will include the full amount of the federal qualified business income deduction, so the bill requires the estate or trust to add back 75 percent of such amount when calculating Iowa taxable income.
   The bill provides special rules for calculating the qualified business income deduction in the case of an entity filing an Iowa composite income tax return on behalf of all of the entity’s nonresident partners, members, beneficiaries, or shareholders. In such cases, the deduction on the composite return shall be an amount equal to 25 percent of the federal qualified business income deduction that would be allowable to an individual reporting the same items of income and loss that are included on the composite return.
   LIKE-KIND EXCHANGES. IRC §1031 provides for a deferral of gain or loss resulting from exchanges of property that meet certain conditions. The federal Tax Cuts and Jobs Act of 2017 repealed this provision with respect to exchanges of personal property. IRC §1031 still provides for deferrals of gain or loss with respect to qualifying real property.
   The bill decouples, for Iowa individual income tax purposes, with the federal repeal of deferrals under IRC §1031 for qualifying personal property, and permits individuals to defer gain or loss on qualifying personal property to the extent such deferral would have been permitted under IRC §1031 prior to its amendment by the federal Tax Cuts and Jobs Act of 2017.
   EFFECTIVE DATE AND APPLICABILITY. The division takes effect January 1, 2019, and applies to tax years beginning on or after that date.
   DIVISION III —— CHANGES TO IOWA EDUCATIONAL SAVINGS PLAN TRUST AND IOWA ABLE SAVINGS PLAN TRUST. Division III makes several changes to the Iowa educational savings plan trust in Code chapter 12D (Iowa 529 plan), the disabilities expenses savings plan trust in Code chapter 12I (Iowa ABLE plan), and the income tax treatment of contributions to and withdrawals from such plans.
   IRC §529, which governs state tuition programs, previously required that in order for a state tuition program to be considered qualified and therefore eligible for certain federal tax benefits, the program must be established to allow contributions for the purposes of funding certain qualifying expenses of attendance at institutions of higher education. Accordingly, the Iowa 529 plan allows participants to contribute and withdraw funds to and from the Iowa 529 plan for the payment of higher education costs related to attendance at institutions of higher education.
   The federal Tax Cuts and Jobs Act of 2017 amended IRC §529 to provide that during each tax year, up to $10,000 of cash distributions from all qualified tuition programs for a beneficiary for tuition expenses in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, may be considered a distribution for qualified higher education expenses and thus excludable from income for federal income tax purposes. The federal Tax Cuts and Jobs Act of 2017 also provided that under certain conditions, amounts in qualified tuition programs may be transferred to a qualified ABLE account without incurring federal income tax consequences.
   The bill amends the Iowa 529 plan to provide for qualified withdrawals from the plan for elementary or secondary school tuition as is now allowed under federal law pursuant to the federal Tax Cuts and Jobs Act of 2017. The bill modifies the findings and purpose provision of the Iowa 529 plan in Code section 12D.1(1) by striking or amending specific references to higher education and institutions of higher education so that such provisions more generally reference education and educational institutions, and by providing that the Iowa 529 plan’s purpose is to make available an opportunity to invest in a public trust to fund future formal education needs.
   The bill strikes the definition of “higher education costs”, as well as numerous references to that term throughout the Iowa 529 plan, and replaces them with the term “qualified education expenses”, which is defined in the bill to mean the same as qualified higher education expenses as defined in IRC §529, including elementary and secondary school tuition to the extent such tuition amounts are described and allowed under IRC §529.
   The bill also replaces numerous references to “institution of higher education” throughout the Iowa 529 plan with references to a “qualified educational institution”, which is defined in the bill to include an institution of higher education and any elementary or secondary, public, private, or religious school described in IRC §529.
   The federal Tax Cuts and Jobs Act of 2017 also amended IRC §529 to allow certain transfers from a qualified tuition program to an ABLE account without incurring federal income tax consequences. The bill amends the Iowa 529 plan to provide that a participant may transfer amounts in an Iowa 529 plan to an ABLE account, including the Iowa ABLE plan, if the transfer is permitted under IRC §529. The Iowa 529 plan is further amended to allow the transfer of funds to another account in the Iowa 529 plan, if the transfer is permitted under IRC §529.
   Several other modifications are made to the Iowa 529 plan to remove references to the imposition of penalties for cancellation and late payments under the trust, to remove certain references to the ability to amend participation agreements, to describe rules and procedures for determining account successors in the case of death of a participant, and to modify the permissible investment direction that may be provided by participants and beneficiaries under the trust. Finally, the bill adds Iowa 529 plan accounts to the list of exemptions from execution under Code section 627.6.
   Under current law in Code section 422.7(32)(c), previously tax-deducted contributions to an Iowa 529 plan that are withdrawn for purposes other than the payment of qualified education expenses are required to be added back to income in computing Iowa individual income tax. The bill amends this provision to provide that Iowa 529 plan withdrawals of previously tax-deducted contributions must be added back to Iowa income unless the amount is a withdrawal or transfer for one of three eligible purposes. First, for the payment of qualified higher education expenses. Second, for the payment of tuition to an elementary or secondary school if the tuition amounts are qualified education expenses. Third, for a change in beneficiaries under, or transfer to another account within, the Iowa 529 plan, or a transfer to the Iowa ABLE plan, provided such beneficiary change or transfer is permitted under the Iowa 529 plan. The bill defines “qualified education expenses” and “tuition” to mean the same as defined under the Iowa 529 plan. The bill defines “elementary or secondary school” to mean an elementary or secondary school in this state which is accredited under Code section 256.11 (educational standards), and adheres to the provisions of the federal Civil Rights Act of 1964 and Code chapter 216 (civil rights commission). The bill defines “qualified higher education expenses” to mean the same as defined under IRC §529.
   The bill amends the income tax treatment of contributions to and withdrawals from the Iowa ABLE plan to provide that a contribution shall not be deducted from Iowa income tax to the extent it represents a transfer from the Iowa 529 plan that was previously deducted as a contribution to the Iowa 529 plan, and that amounts resulting from a cancellation or withdrawal from the Iowa ABLE plan for purposes other than the payment of qualified disability expenses shall be added back to income in computing Iowa individual income tax to the extent the amount was previously transferred from the Iowa 529 plan and deducted as a contribution to the Iowa 529 plan.
   The division takes effect upon enactment and applies retroactively to January 1, 2018, for withdrawals and transfers from the Iowa educational savings plan trust made on or after that date, and for tax years beginning on or after that date.
   DIVISION IV —— SALES AND USE TAXES. Division IV makes numerous changes to the sales and use taxes, including the local option sales tax.
   SPECIFIED DIGITAL PRODUCTS. The bill imposes the sales and use tax at a rate of six percent on the sale or use of specified digital products in Iowa. The bill defines “specified digital products” as electronically transferred digital audio-visual works, digital audio works, digital books, or other digital products. These and other related terms are defined in the bill in new Code section 423.1(55A). The sales or use tax applies whether the purchaser obtains permanent use or less than permanent use of the specified digital product, whether the sale or use is conditioned or not conditioned upon continued payment from the purchaser, and whether the sale or use is on a subscription basis or is not on a subscription basis. The bill also provides that the sale or use of digital code that may be used to obtain or access a specified digital product at a later date is taxed in the same manner as a specified digital product.
   The bill creates an exemption for the sale or use of specified digital products to a non-end user, as defined in the bill.
   The bill amends numerous existing sales and use tax exemptions to include specified digital products, including the following: sales the state is prohibited from taxing under the United States Constitution or the Iowa Constitution; sales to certain nonprofit corporations, organizations, educational institutions, legal aid organizations, museums, art centers, organ procurement organizations, hospitals, or hospice facilities; sales by a state fair; sales to political subdivisions; sales by counties or cities; casual sales; sales of property which will be distributed as prizes to players of certain amusement games; sales to recognized community action agencies; uses of property for which the sales tax has already been paid; sales in the regular course of business; and property brought into Iowa by a nonresident and used here temporarily. The bill amends a sales tax refund provision relating to relief agencies that purchase property for free distribution to the poor to include purchases of specified digital products.
   The bill makes certain other conforming amendments related to the treatment of specified digital products for purposes of the administration of the sales and use taxes. The bill provides that the imposition of tax on the sale or use of specified digital products shall not be construed as affecting the taxability or nontaxability under other provisions of existing law of sales or uses occurring prior to the enactment of this division of this Act of products meeting the definition of “specified digital products”.
   SUBSCRIPTIONS AND PAY TELEVISION SERVICE. The bill amends the definition of “sale” in Code section 423.1(50) for purposes of the sales tax to provide that a sale includes but is not limited to any transfer, exchange, or barter on a subscription basis. The bill defines “subscription” in new Code section 423.1(57A).
   The bill amends the taxable service of pay television to provide that pay television includes but is not limited to streaming video, video on-demand, and pay-per-view.
   The bill provides that it is the intent of the general assembly that these changes to the definition of “sale” and “subscription”, and changes to the service of pay television, are conforming amendments consistent with current state law, and that the amendments do not change the application of current law but instead reflect current law both before and after the enactment of these changes.
   These changes take effect July 1, 2018.
   OTHER CHANGES TO TAXABLE SERVICES. Under current law, the services of photography and retouching are subject to the sales and use tax, but such services are taxed as if they were sales of tangible personal property. The bill strikes these provisions treating photography and retouching as tangible personal property, and adds photography and retouching to the list of enumerated services subject to the sales and use tax. These changes to photography and retouching take effect July 1, 2018.
   Current law provides that a limousine service is subject to the sales and use tax. The bill modifies this service to provide that a personal transportation service shall be subject to the sales and use tax, and includes taxis, driver services, ride sharing services, rides for hire, and limousine services as examples of the types of services which qualify as a taxable personal transportation service.
   Under current law, the furnishing of information services, as defined in Code section 423.3(66), is exempt from the sales and use tax. The bill strikes this exemption and makes information services a taxable service for purposes of the sales and use tax. The bill defines “information services”.
   The bill additionally adds the following services to the list of enumerated services subject to the sales and use tax: storage of tangible or electronic files, documents, or other records; services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products; video game services and tournaments; and software as a service.
   OTHER SALES AND USE TAX EXEMPTIONS. Current law provides a sales and use tax exemption for access charges related to online computer services in Code section 423.3(65), and for any retail sale delivered electronically in Code section 423.3(67). The bill strikes both of these exemptions.
   The bill creates a sales and use tax exemption in new Code section 423.3(103) for certain sales to a commercial enterprise for use exclusively by the commercial enterprise. The exemption specifies that such a use fails to qualify as a use exclusively by the commercial enterprise if its use for noncommercial purposes is more than de minimis. The bill provides that the terms “de minimis” and “noncommercial purposes” shall be defined by the director of revenue by rule. The bill defines “commercial enterprise” to mean the same as defined under the machinery and equipment sales and use tax exemption in Code section 423.3(47), which includes businesses and manufacturers conducted for profit and centers for data processing services to insurance companies, financial institutions, businesses, and manufacturers, but excludes professions and occupations and nonprofit organizations. 
   The exemption applies to sales of specified digital products, and to the furnishing of the following enumerated taxable services: storage of tangible or electronic files, documents, or other records; information services; services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products; and software as a service.
   The bill adds the sale of services to the items that may qualify for the sales and use tax exemption in Code section 423.3(63) relating to items purchased for the purposes of providing them as prizes to players of certain amusement games.
   SALES AND USE TAX NEXUS AND COLLECTION REQUIREMENTS. The bill modifies the requirement of persons to collect and remit the state sales and use taxes and the local option sales tax. Current law requires retailers to collect sales tax for taxable items sold at retail in the state. The bill defines “sold at retail in the state” and other similar terms to include but not be limited to sales sourced to this state under Code chapter 423 (sales and use tax), and provides that it is the intent of the general assembly that the definition is a conforming amendment consistent with current state law, and that the amendment does not change the application of current law but instead reflects current law both before and after the enactment of the definition. The enactment of the definition of “sold at retail in the state” takes effect July 1, 2018.
   Under current law, Code section 423.15 provides general rules for the sourcing of sales to Iowa. The bill amends a provision in this Code section relating to when sales tax applies to a sale sourced to Iowa, to provide that Iowa sales tax applies to a sale sourced to Iowa made by a seller who is a retailer maintaining a place of business in this state, or who is subject to the new Code section 423.14A (described below). The bill also amends provisions relating to the requirement of retailers maintaining a place of business in this state to collect use tax in Code sections 423.14 and 423.29, to provide that use tax shall be collected by retailers not otherwise required to collect sales tax under Code chapter 423 (sales and use tax).
   Under current law in Code section 423B.5, the local sales and services tax is applicable to transactions within the areas of the county imposing the tax. The bill amends this provision to provide that a transaction occurring within the taxing area includes a sale sourced to a location in that area pursuant to the sourcing rules governing the sales and use tax (Code sections 423.15 through 423.20).
   The bill creates new Code section 423.14A that deems certain persons, or agents of those persons, to be a retailer and a retailer maintaining a place of business in this state on or after January 1, 2019, and subjects those persons to all requirements of Code chapter 423 (sales and use taxes), including but not limited to the requirement to collect and remit Iowa sales and use tax, and the requirement to collect and remit the local option sales tax. The bill provides that the requirements in Code section 423.14A are in addition to, and not in lieu of, any other application of Code chapter 423 to a retailer or a retailer maintaining a place of business in this state. Qualifying persons required to collect and remit Iowa sales and use tax include any person described below. For purposes of any threshold requirement described below that involves the sales of taxable items, the bill defines “Iowa sales” to include any sale sourced to this state under Code chapter 423, or otherwise sold in this state or for delivery into this state, of tangible personal property, specified digital products, or services.
   A qualifying person includes any retailer that has gross revenue from Iowa sales equal to or exceeding $100,000 for the current or previous calendar year.
   A qualifying person includes any retailer that makes Iowa sales in 200 or more separate transactions for the current or previous calendar year.
   A qualifying person includes any retailer that owns, licenses, or uses software or data files (as defined in the bill) that are installed or stored on property used in this state.
   A qualifying person includes any retailer that uses in-state software (as defined in the bill) to make Iowa sales.
   A qualifying person includes any retailer that provides, or enters into an agreement to provide, a content distribution network (as defined in the bill) in this state to facilitate, accelerate, or enhance the delivery of the retailer’s internet site to purchasers. However, this provision does not apply to any retailer that has gross revenue from Iowa sales of less than $100,000 for the current or previous calendar year.
   A qualifying person includes any retailer that makes Iowa sales through a marketplace provider (as defined in the bill). However, this provision does not apply to any retailer that has gross revenue from Iowa sales of less than $10,000 for the current or previous calendar year.
   A qualifying person includes any marketplace provider that makes or facilitates Iowa sales for a retailer equal to or exceeding $100,000, or in 200 or more separate transactions for the current or previous year. The bill requires marketplace providers to collect Iowa sales and use tax on the entire sales price or purchase price paid the purchaser, regardless of the amount that will ultimately accrue to or benefit the marketplace provider or any other person, includes other provisions related to marketplace providers, and subjects certain marketplace providers and retailers described in the bill to joint and several liability for the collection and payment of Iowa sales and use tax.
   A qualifying person includes a retailer that makes Iowa sales through the use of a solicitor (as defined in the bill). The bill creates a presumption that a retailer has a solicitor in this state under certain circumstances. This provision does not apply to retailers that have gross revenue from Iowa sales referred by solicitors of $10,000 or less for the current or previous calendar year.
   A qualifying person includes any person that owns, controls, rents, licenses, makes available, or uses any tangible or intangible property in this state or with a situs in this state to make or facilitate a retail sale.
   A qualifying person includes any person that enters into a contract or agreement with a governmental entity, as defined in the bill, including but not limited to contracts or agreements for the provision of financial assistance or incentives such as a tax credit, forgivable loan, grant, tax rebate, or any other thing of value. This provision includes certain requirements for contractors who submit bids and agreements to state agencies similar to language in current Code section 423.2(10). The bill strikes the similar language under existing law in Code section 423.2(10).
   A qualifying person includes any affiliate or any retailer that is required to collect Iowa sales and use tax, provided the affiliate makes retail sales.
   OTHER MISCELLANEOUS SALES AND USE TAX CHANGES. The bill moves provisions relating to the deposit and transfer of sales tax revenues in Code section 423.11 to a new Code section 423.2A, and makes corresponding changes to other provisions of the Code that reference those deposit and transfer provisions.
   The bill amends the definition of “lease or rental”, “use”, “use tax”, and “user” in Code section 423.1. The bill also amends the definition of “bundled transaction” in Code section 423.2(8) to incorporate certain language also included in the definition of “bundled transaction” for purposes of the streamlined sales tax agreement, of which Iowa is a member state. The changes to the definition of bundled transaction take effect July 1, 2018.
   The bill defines “personal property” for purposes of the sales and use tax to include but not be limited to tangible personal property and specified digital products.
   The bill amends the definition of “place of business” in Code section 423.1 to include places where specified digital products or services are offered for sale, and provides that it is the intent of the general assembly that the change to the definition is a conforming amendment consistent with current state law, and that the amendment does not change the application of current law but instead reflects current law both before and after the enactment of the change. These changes to the definition of “place of business” take effect July 1, 2018.
   The bill provides that when any retailer required under Iowa law to collect and remit sales and use tax fails to do so, the retailer and any affiliate that directly, indirectly, or constructively controls the retailer shall be held jointly and severally liable for the tax and any resulting penalty and interest, regardless of whether the affiliate is a retailer. The bill provides the department the authority to assess the full amount of any tax, penalty, or interest against the retailer and these affiliates, and gives the department discretion to disregard or look through any organizational structure of an enterprise to assess tax, penalty, and interest against an affiliate of a retailer. The term “affiliate” for purposes of these provisions is defined under existing law in Code section 423.1(2).
   Finally, the bill adds several Code sections relating to the requirement to collect sales and use tax to the provisions for which failure to comply may subject a retailer to personal liability under Code section 421.26.
   EFFECTIVE DATE PROVISIONS. Except as otherwise provided above, the division takes effect January 1, 2019.
   DIVISION V —— HOTEL AND MOTEL EXCISE TAX AND AUTOMOBILE RENTAL EXCISE TAX. The bill amends the hotel and motel excise tax in Code chapter 423A and the automobile rental excise tax in Code chapter 423C to expand the types of persons who must collect and remit the excise taxes, and to make other changes to the administration of the taxes.
   Current law requires lessors, as defined with respect to each excise tax, to collect the excise tax. The bill amends the definition of “lessor” under each tax to more broadly include any person who acquires a right or interest in lodging or an automobile, any person who actually or constructively rents lodging or an automobile, lodging facilitators and rental facilitators, and retailers who would be required to collect the excise taxes if the excise taxes were a sales and use tax under Code chapter 423. The bill defines a lodging facilitator with respect to the hotel and motel excise tax, and defines a rental facilitator with respect to the automobile rental excise tax, to include certain persons who facilitate the renting of the taxable items by directly or indirectly performing certain acts with regard to the rental transaction. The bill modifies the definition of “sales price” for purposes of the hotel and motel excise tax and “rental price” with respect to the automobile rental excise tax.
   The bill repeals an exemption from the hotel and motel excise tax provided for the renting of rooms in a memorial union of an Iowa college or university, and expands an exemption for the renting of rooms in certain religious institutions so that it also applies to the state and local hotel and motel excise tax. Under current law, that exemption only applies to the local hotel and motel excise tax.
   The bill modifies the definition of “lodging” for purposes of the hotel and motel excise tax to include a cabin, apartment, or residential property. The bill provides that it is the intent of the general assembly that the change to the definition of “lodging” is a conforming amendment consistent with current state law, and that the amendments do not change the application of current law but instead reflect current law both before and after the enactment of these changes. The changes to the definition of “lodging” take effect July 1, 2018.
   Finally, the bill provides that if a transaction under either excise tax involves both a lessor and a lodging facilitator or rental facilitator, as applicable, then both parties will be jointly and severally liable for the applicable tax, and further provides that the lodging facilitator or rental facilitator shall collect the entire amount of tax due on the transaction, regardless of the amount that will ultimately accrue to the benefit of the lodging facilitator or rental facilitator, or any other person.
   EFFECTIVE DATE PROVISIONS. Except as otherwise provided above, the division takes effect January 1, 2019.