House File 288 - Introduced HOUSE FILE 288 BY NUNN A BILL FOR An Act relating to water service taxation by exempting from the 1 state sales tax the sales price from the sale or furnishing 2 of a water service by a water utility and creating related 3 state and local water service excise taxes and providing for 4 transfer and distribution of the water service excise taxes. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2077YH (3) 87 mm/sc/rj

H.F. 288 Section 1. Section 423.3, Code 2017, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 103. a. The sales price from the sale or 3 furnishing by a water utility of a water service in the state 4 to consumers or users. 5 b. For purposes of this subsection: 6 (1) “Water service” means the delivery of water by piped 7 distribution system. 8 (2) “Water utility” means a public utility as defined in 9 section 476.1 that furnishes water by piped distribution system 10 to the public for compensation. 11 Sec. 2. NEW SECTION . 423G.1 Short title. 12 This chapter may be cited as the “Water Service Tax Act” . 13 Sec. 3. NEW SECTION . 423G.2 Definitions. 14 1. All words and phrases used in this chapter and defined in 15 section 423.1 have the same meaning given them by section 423.1 16 for purposes of this chapter. 17 2. As used in this chapter, “water service” and “water 18 utility” mean the same as defined in section 423.3, subsection 19 103. 20 Sec. 4. NEW SECTION . 423G.3 State-imposed water service 21 tax. 22 1. A tax at the rate specified in subsection 2 is imposed on 23 the sales price from the sale or furnishing by a water utility 24 of a water service in the state to consumers or users. 25 2. a. If the date of the utility billing or meter reading 26 cycle of the customer for the sale or furnishing of water is on 27 or after July 1, 2017, but before July 1, 2018, or if the sale 28 or furnishing of the water and the delivery of the water occurs 29 on or after July 1, 2017, but before July 1, 2018, the rate of 30 tax is six percent. 31 b. If the date of the utility billing or meter reading cycle 32 of the customer for the sale or furnishing of water is on or 33 after July 1, 2018, but before July 1, 2019, or if the sale or 34 furnishing of the water and the delivery of the water occurs 35 -1- LSB 2077YH (3) 87 mm/sc/rj 1/ 7

H.F. 288 on or after July 1, 2018, but before July 1, 2019, the rate of 1 tax is five percent. 2 c. If the date of the utility billing or meter reading cycle 3 of the customer for the sale or furnishing of water is on or 4 after July 1, 2019, but before July 1, 2020, or if the sale or 5 furnishing of the water and the delivery of the water occurs 6 on or after July 1, 2019, but before July 1, 2020, the rate of 7 tax is four percent. 8 d. If the date of the utility billing or meter reading cycle 9 of the customer for the sale or furnishing of water is on or 10 after July 1, 2020, but before July 1, 2021, or if the sale or 11 furnishing of the water and the delivery of the water occurs on 12 or after July 1, 2020, but before July 1, 2021, the rate of tax 13 is three percent. 14 e. If the date of the utility billing or meter reading cycle 15 of the customer for the sale or furnishing of water is on or 16 after July 1, 2021, but before July 1, 2022, or if the sale or 17 furnishing of the water and the delivery of the water occurs 18 on or after July 1, 2021, but before July 1, 2022, the rate of 19 tax is two percent. 20 f. If the date of the utility billing or meter reading cycle 21 of the customer for the sale or furnishing of water is on or 22 after July 1, 2022, but before July 1, 2023, or if the sale or 23 furnishing of the water and the delivery of the water occurs 24 on or after July 1, 2022, but before July 1, 2023, the rate of 25 tax is one percent. 26 g. If the date of the utility billing or meter reading cycle 27 of the customer for the sale or furnishing of water, or the 28 date of the sale or furnishing of the water and the delivery of 29 the water, is on or after July 1, 2023, the rate of tax is zero 30 percent. 31 3. This section is repealed January 1, 2024. 32 Sec. 5. NEW SECTION . 423G.4 Locally imposed water service 33 tax. 34 1. a. A county that is not subject to subsection 2 may 35 -2- LSB 2077YH (3) 87 mm/sc/rj 2/ 7

H.F. 288 impose a local water service tax at a rate of not more than one 1 percent of the sales price from the sale or furnishing by a 2 water utility of a water service in the state to consumers or 3 users. The tax shall be imposed, collected, and administered 4 in the same manner as the local sales and services tax in 5 chapter 423B and sections 423B.1 and 423B.5 through 423B.10, 6 consistent with the provisions of this chapter, shall apply 7 with respect to the tax authorized under this subsection, in 8 the same manner and with the same effect as if the local water 9 service tax was a local sales and services tax within the 10 meaning of chapter 423B. 11 b. The question of the imposition of a local water service 12 tax may be submitted at the same election as the local option 13 taxes authorized under chapter 423B and shall be stated on the 14 ballot as questions to be voted on separately. 15 c. This subsection shall not be construed to require a 16 county to impose a local water service tax if the question 17 of imposing a local sales and services tax is approved at 18 election. 19 2. a. If a city or county has in effect a local sales 20 and services tax under chapter 423B on the effective date of 21 this Act, that city or county shall impose on and after the 22 effective date of this Act a local water service tax at the 23 same rate as the local sales and services tax on the sales 24 price from the sale or furnishing by a water utility of a water 25 service in the state to consumers or users. The local water 26 service tax shall be imposed, collected, and administered in 27 the same manner and with the same effect as the city’s or 28 county’s local sales and services tax under chapter 423B and 29 sections 423B.1 and 423B.5 through 423B.10, consistent with the 30 provisions of this chapter, shall apply with respect to the tax 31 imposed under this subsection, in the same manner and with the 32 same effect as if the local water service tax was a local sales 33 and services tax within the meaning of chapter 423B. 34 b. The city or county shall within sixty days of the 35 -3- LSB 2077YH (3) 87 mm/sc/rj 3/ 7

H.F. 288 effective date of this Act amend its local sales and services 1 tax ordinance to reflect the imposition of the local water 2 service tax under this subsection. 3 c. The city or county shall continue to collect the local 4 water service tax imposed under this subsection until such time 5 as the local sales and services tax in effect on the effective 6 date of this Act is repealed by the city or county. 7 Sec. 6. NEW SECTION . 423G.5 Exemptions. 8 The sales price from transactions exempt from state sales 9 tax under section 423.3, except section 423.3, subsection 103, 10 is also exempt from the tax imposed by this chapter. 11 Sec. 7. NEW SECTION . 423G.6 Administration by director. 12 1. The director of revenue shall administer the state and 13 local water service tax as nearly as possible in conjunction 14 with the administration of the state sales and use tax law, 15 except that portion of the law that implements the streamlined 16 sales and use tax agreement. The director shall provide 17 appropriate forms, or provide on the regular state tax forms, 18 for reporting state and local water service tax liability. 19 2. The director may require all persons who are engaged 20 in the business of deriving any sales price or purchase 21 price subject to tax under this chapter to register with 22 the department. The director may also require a tax permit 23 applicable only to this chapter for any retailer not 24 collecting, or any user not paying, taxes under chapter 423. 25 3. Section 422.25, subsection 4, sections 422.30, 422.67, 26 and 422.68, section 422.69, subsection 1, sections 422.70, 27 422.71, 422.72, 422.74, and 422.75, section 423.14, subsection 28 1, and sections 423.23, 423.24, 423.25, 423.31 through 29 423.35, 423.37 through 423.42, and 423.47, consistent with 30 the provisions of this chapter, shall apply with respect to 31 the taxes authorized under this chapter, in the same manner 32 and with the same effect as if the excise taxes on the sale 33 or furnishing of a water service were retail sales taxes 34 within the meaning of those statutes. Notwithstanding this 35 -4- LSB 2077YH (3) 87 mm/sc/rj 4/ 7

H.F. 288 subsection, the director shall provide for quarterly filing of 1 returns and for other than quarterly filing of returns both as 2 prescribed in section 423.31. All taxes collected under this 3 chapter by a retailer or any user are deemed to be held in trust 4 for the state of Iowa. 5 Sec. 8. NEW SECTION . 423G.7 Deposit of revenues. 6 1. All moneys received and all refunds shall be deposited in 7 or withdrawn from the general fund of the state. 8 2. The director, in consultation with local officials, 9 shall collect and account for a local water service tax and 10 shall credit all revenues in the same manner as provided in 11 section 423B.7. Local authorities shall not require any tax 12 permit not required by the director of revenue. 13 3. Subsequent to the deposit in the general fund of the 14 state, the department shall do the following in the order 15 prescribed: 16 a. Transfer the revenues collected under section 423G.3 in 17 the manner prescribed in section 423B.7. 18 b. Transfer one-sixth of the remaining revenues to the 19 secure an advanced vision for education fund created in section 20 423F.2. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 This bill relates to the taxation of the sale of a water 25 service by water utilities. 26 The bill exempts from the state sales tax the sales price 27 from the sale or furnishing by a water utility of a water 28 service in the state to consumers or users. “Water service” 29 and “water utility” are defined in the bill. 30 By operation of Code section 423.6, an item exempt from the 31 imposition of the sales tax is also exempt from the use tax 32 imposed in Code section 423.5. 33 The bill creates a state excise tax on the sales price from 34 the sale or furnishing by a water utility of a water service in 35 -5- LSB 2077YH (3) 87 mm/sc/rj 5/ 7

H.F. 288 the state to consumers or users. The rate of the excise tax 1 begins at 6 percent for fiscal year 2017-2018, which is the 2 same rate as the state sales tax, and is reduced one percentage 3 point each fiscal year for the next five fiscal years until it 4 is completely phased out beginning July 1, 2023. 5 The bill requires that one-sixth of the state water service 6 tax revenues collected each year be transferred to the secure 7 an advanced vision for education fund created in Code section 8 423F.2. 9 The bill also creates a locally imposed water service tax 10 of up to 1 percent that may, at the option of a county that 11 is not imposing a local sales and services tax on July 1, 12 2017, be imposed, collected, and administered by the county in 13 the same manner as the local sales and services tax in Code 14 chapter 423B if approved at election. The bill incorporates 15 by reference many of the provisions of Code chapter 423B. The 16 bill allows an election for the imposition of a local water 17 service tax to occur at the same election as for a local option 18 tax authorized under Code chapter 423B, but the ballot shall 19 state the questions so as to be voted separately. 20 The bill provides that a city or county that has a local 21 sales and services tax in effect on July 1, 2017, is required 22 to impose a local water service tax at the same rate and in the 23 same manner as the city’s or county’s local sales and services 24 tax. The city or county is required to amend its local sales 25 and services tax ordinance within 60 days of the effective 26 date of the bill to reflect the imposition of the local water 27 service tax. The city or county shall continue to collect the 28 required local water service tax until the city’s or county’s 29 sales and services tax in effect on July 1, 2017, is repealed. 30 The director of revenue is required to administer the 31 state and local water service tax as nearly as possible 32 in conjunction with the administration of the state sales 33 and use tax law, and to that end the bill incorporates by 34 reference numerous Code sections that relate to general tax 35 -6- LSB 2077YH (3) 87 mm/sc/rj 6/ 7