HSB 272 (LSB 2795YC (1) 89)

HOUSE FILE _____ 

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON HEIN)

A BILL FOR

An Act relating to tax collection and penalties, tax permits, and loans made by state-chartered banks.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 421.27, Code 2021, is amended to read as follows:
   421.27  Penalties.
   1.  Failure to timely file a return or deposit form.
   a.  If a person fails to file a return with the department on or before the due date a return or deposit form, there shall be added to the tax shown due or required to be shown due remaining unpaid by the due date a penalty of ten five percent of the remaining unpaid tax shown due or required to be shown due.
   b.  In the case of a specified business with no tax shown due or required to be shown due that fails to timely file an income return, the specified business shall pay the greater of the following penalty amounts:
   (1)  Two hundred dollars.
   (2)  An amount equal to ten five percent of the imputed Iowa liability of the specified business, not to exceed twenty-five thousand dollars.
   c.  The penalty, if assessed pursuant to paragraph “a” or “b”, shall be in addition to any other penalty provided by law.
   d.  The penalty, if assessed pursuant to paragraph “a” or “b”, shall be waived by the department upon a showing by the taxpayer of any of the following conditions:
   (1)  An amount of tax greater than zero is required to be shown due and at least ninety percent of the tax required to be shown due has been paid by the due date of the tax.
   (2)  (a)  Those taxpayers who are A taxpayer who is required to file a monthly or quarterly returns, or monthly or semimonthly deposit forms return may have one late return or deposit form one late payment within a three-year period.
   (b)  If the taxpayer receives a waiver of a penalty under this subparagraph, the taxpayer must make timely filings and payments for three years prior to being eligible for receiving another waiver under this subparagraph. If the taxpayer receives a waiver under this subparagraph, the waiver shall apply to penalties assessed under this subsection and subsection 2.
   (c)  The use of any other penalty exception will shall not count as a late return or deposit form late payment for purposes of this exception receiving a waiver by the taxpayer under this subparagraph.
   (3)  The death of a taxpayer, death of a member of the immediate family of the taxpayer, or death of the person directly responsible for filing the return and paying the tax, when the death interferes with timely filing of a return or timely payment of tax.
   (4)  The onset of serious, long-term illness or hospitalization of the taxpayer, of a member of the immediate family of the taxpayer, or of the person directly responsible for filing the return and paying the tax when such illness or hospitalization interferes with the timely filing of a return or timely payment of tax.
   (5)  Destruction of records by fire, flood, or other act of God when the destruction interferes with the timely filing of a return or timely payment of tax.
   (6)  The taxpayer presents proof that the taxpayer relied upon applicable, documented, written advice specifically made to the taxpayer, to the taxpayer’s preparer, or to an association representative of the taxpayer from the department, state department of transportation, county treasurer, or federal internal revenue service, whichever is appropriate, that the reliance was the direct cause of the failure to file or failure to pay, and that the advice has not been superseded by a court decision, ruling by a quasi-judicial body, or the adoption, amendment, or repeal of a rule or law.
   (7)  Reliance upon results in a previous audit was a direct cause for the failure to file or the failure to pay where the previous audit expressly and clearly addressed the issue and the previous audit results have not been superseded by a court decision, or the adoption, amendment, or repeal of a rule or law.
   (8)  Under rules prescribed by the director, the taxpayer presents documented proof of substantial authority to rely upon a particular position or upon proof that all facts and circumstances are disclosed on a return or deposit form.
   (9)  The return, deposit form, or payment is timely, but erroneously, mailed with adequate postage to the internal revenue service, another state agency, or a local government agency and the taxpayer provides proof of timely mailing with adequate postage.
   (10)  The tax has been paid by the wrong licensee and the payments were timely remitted to the department for one or more tax periods prior to notification by the department.
   (11)  The failure to file was discovered through a sanctioned self-audit program conducted by the department.
   (12)  If the availability of funds in payment of tax required to be made through electronic funds transfer is delayed and the delay of availability is due to reasons beyond the control of the taxpayer. “Electronic funds transfer” means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal telephone, computer, magnetic tape, or similar device for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account.
   (13)  The failure to file a timely inheritance tax return resulting solely from a disclaimer that required the personal representative to file an inheritance tax return. The penalty shall be waived if such return is filed and any tax due is paid within the later of nine months from the date of death or sixty days from the delivery or filing of the disclaimer pursuant to section 633E.12.
   (14)  That an Iowa inheritance tax return is filed for an estate within the later of nine months from the date of death or sixty days from the filing of a disclaimer by the beneficiary of the estate refusing to take the property or right or interest in the property.
   2.  Failure to timely pay the tax shown due, or the tax required to be shown due, with the filing of a return or deposit form.  If a person fails to pay the tax shown due or required to be shown due, on a return or deposit form on or before the due date, there shall be added to the tax shown due or required to be shown due remaining unpaid by the due date a penalty of five percent of the unpaid tax due.  The penalty shall be in addition to any other penalty provided by law. The penalty, if assessed, shall be waived by the department upon a showing by the taxpayer of any of the following conditions:
   a.  At least ninety percent of the tax required to be shown due has been paid by the due date of the tax Any reason listed under subsection 1, paragraph “d”, except subsection 1, paragraph “d”, subparagraph (11).
   b.  The taxpayer voluntarily files an amended return and pays all tax shown to be due on the return prior to any contact by the department, except under a sanctioned self-audit program conducted by the department.
   c.  (1)  Except in the case of a final federal partnership adjustment governed by subparagraph (2), the taxpayer voluntarily files an amended return which includes a copy of the federal document showing the final disposition or final federal adjustments and pays any additional Iowa tax due within one hundred eighty days of the final determination date of the federal government’s audit. For purposes of this subparagraph, “final determination date” means the same as defined in section 422.25.
   (2)  (a)  In the case of a final federal partnership adjustment arising from a partnership level audit, with respect to the audited partnership or a direct partner or indirect partner of the audited partnership, the audited partnership, direct partner, or indirect partner voluntarily and timely complies with its reporting and payment requirements under section 422.25A, subsection 4 or 5.
   (b)  As used in this subparagraph, all words and phrases defined in section 422.25A shall have the same meaning given them by that section.
   d.  The taxpayer presents proof that the taxpayer relied upon applicable, documented, written advice specifically made to the taxpayer, to the taxpayer’s preparer, or to an association representative of the taxpayer from the department, state department of transportation, county treasurer, or federal internal revenue service, whichever is appropriate, that has not been superseded by a court decision, ruling by a quasi-judicial body, or the adoption, amendment, or repeal of a rule or law.
   e.  Reliance upon results in a previous audit was a direct cause for the failure to pay the tax required to be shown due where the previous audit expressly and clearly addressed the issue and the previous audit results have not been superseded by a court decision, or the adoption, amendment, or repeal of a rule or law.
   f.  Under rules prescribed by the director, the taxpayer presents documented proof of substantial authority to rely upon a particular position or upon proof that all facts and circumstances are disclosed on a return or deposit form.
   g.  The return, deposit form, or payment is timely, but erroneously, mailed with adequate postage to the internal revenue service, another state agency, or a local government agency and the taxpayer provides proof of timely mailing with adequate postage.
   h.  The tax has been paid by the wrong licensee and the payments were timely remitted to the department for one or more tax periods prior to notification by the department.
   i.  That an Iowa inheritance tax return is filed for an estate within the later of nine months from the date of death or sixty days from the filing of a disclaimer by the beneficiary of the estate refusing to take the property or right or interest in the property.
   3.  Audit and examination deficiencies.  If any person fails to pay the tax required to be shown due with the filing of a return or deposit and the department discovers the underpayment, there shall be added to the tax required to be shown due a penalty of five percent of the unpaid tax required to be shown due, which shall be in lieu of the penalty in subsection 2. The penalty, if assessed, shall be waived by the department upon a showing by the taxpayer of any of the following conditions:
   a.  At least ninety percent of the tax required to be shown due has been paid by the due date.
   b.  The taxpayer presents proof that the taxpayer relied upon applicable, documented, written advice specifically made to the taxpayer, to the taxpayer’s preparer, or to an association representative of the taxpayer from the department, state department of transportation, county treasurer, or federal internal revenue service, whichever is appropriate, that the reliance was the direct cause for the failure to pay, and that the advice has not been superseded by a court decision, ruling by a quasi-judicial body, or the adoption, amendment, or repeal of a rule or law.
   c.  Reliance upon results in a previous audit was a direct cause for the failure to pay the tax shown due or required to be shown due where the previous audit expressly and clearly addressed the issue and the previous audit results have not been superseded by a court decision, or the adoption, amendment, or repeal of a rule or law.
   d.  Under rules prescribed by the director, the taxpayer presents documented proof of substantial authority to rely upon a particular position or upon proof that all facts and circumstances are disclosed on a return or deposit form.
   4.  Willful failure to file or deposit pay.
   a.  (1)  In case of willful failure to file a return or deposit form with the intent to evade tax or a filing requirement, willful failure to pay with the intent to evade tax, or in case of willfully filing a false return or deposit form with the intent to evade tax, in lieu of the penalties otherwise provided in this section, there shall be added to the tax remaining unpaid by the due date a penalty of seventy-five percent shall be added to the amount shown due or required to be shown as tax on the return or deposit form of the unpaid tax.
   (2)  In case of a willful failure by a specified business to file an income return with no tax shown due or required to be shown due with intent to evade a filing requirement, or in case of willfully filing a false income return with no tax shown due or required to be shown due with the intent to evade reporting of Iowa-source income, the penalty imposed shall be the greater of the following amounts:
   (a)  One thousand five hundred dollars.
   (b)  An amount equal to seventy-five percent of the imputed Iowa liability of the specified business.
   (3)  If penalties are applicable for failure to file a return or deposit form and failure to pay the tax shown due or required to be shown due on the return or deposit form, the penalty provision for failure to file shall be in lieu of the penalty provisions for failure to pay the tax shown due or required to be shown due on the return or deposit form, except in the case of willful failure to file a return or deposit form or willfully filing a false return or deposit form with intent to evade tax.
   b.  The penalties imposed under this subsection are not subject to waiver.
   5.  Failure to remit on extension.  If a person fails to remit at least ninety percent of the tax required to be shown due by the time an extension for further time to file a return is made, there shall be added to the tax shown due or required to be shown due a penalty of ten percent of the unpaid tax due.
   6.  Liability —— fraudulent practice.  A person who makes an erroneous application for refund, credit, reimbursement, rebate, or other payment shall be liable for any overpayment received or tax liability reduced plus interest at the rate in effect under section 421.7.
   a.  In addition, a person commits a fraudulent practice and is liable for a penalty equal to seventy-five percent of the refund, credit, exemption, reimbursement, rebate, or other payment or benefit being claimed if the person does any of the following:
   (1)  Willfully makes a false or frivolous application for refund, credit, exemption, reimbursement, rebate, or other payment or benefit with intent to evade tax or with intent to receive a refund, credit, exemption, reimbursement, rebate, or other payment or benefit, to which the person is not entitled. 
   (2)  Willfully submits any false information, document, or document containing false information in support of an application for refund, credit, exemption, reimbursement, rebate, or other payment or benefit with the intent to evade tax or with intent to receive a refund, credit exemption, reimbursement, rebate, or other payment or benefit, to which the person is not entitled.
   (3)  Willfully submits with any false information, document, or document containing false information in support of an application for refund with the intent to evade tax or with intent to receive a refund, credit, exemption, reimbursement, rebate, or other payment benefit, to which the person is not entitled.
   b.  Payments, penalties, and interest due under this subsection may be collected and enforced in the same manner as the tax imposed.
   c.  Penalties imposed under this subsection are not subject to waiver.
   7.  Failure to use required form or manner.  If a person fails to remit payment of taxes in the form or manner required by the rules of the director, there shall be added to the amount of the tax a penalty of five percent of the amount of tax shown due or required to be shown due the payment remitted in the incorrect form or manner not to exceed five hundred dollars per instance of incorrect form or manner of payment.  The penalty shall be in addition to any other penalty provided by law. The penalty imposed by this subsection shall be waived if the taxpayer did not receive notification of the requirement to remit tax payments electronically or if the electronic transmission of the payment was not in a format or by means specified by the director and the payment was made before the taxpayer was notified of the requirement to remit tax payments electronically.
   8.  Additional penalty.  In addition to the penalties imposed by this section, if a taxpayer fails to file a return within ninety days of written notice demand issued by the department pursuant to the rules implementing this subsection that the taxpayer is required to do so, there shall be added to the amount shown due or required to be shown due a penalty in the amount of one thousand dollars.  The penalty shall be waived by the department upon a showing of good reason as defined by the department by rule.
   9.  Definitions.  As used in this section:
   a.  “Imputed Iowa liability” means any of the following: 
   (1)  In the case of corporations other than corporations described in section 422.34 or section 422.36, subsection 5, the corporation’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the top income tax rate imposed under section 422.33 for the tax year.
   (2)  In the case of financial institutions as defined in section 422.61, the financial institution’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the franchise tax rate imposed under section 422.63 for the tax year.
   (3)  In this case of all other entities, including corporations described in section 422.36, subsection 5, and all other entities required to file an information return under section 422.15, subsection 2, the entity’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the top income tax rate imposed under section 422.5A for the tax year.
   b.  “Income return” means an income tax return or information return required under section 422.15, subsection 2, or section 422.36, 422.37, or 422.62.
   c.  “Specified business” means a partnership or other entity required to file an information return under section 422.15, subsection 2, a corporation required to file a return under section 422.36 or 422.37, or a financial institution required to file a return under section 422.62.
    Sec. 2.  Section 421.60, subsection 2, paragraph d, Code 2021, is amended to read as follows:
   d.  (1)  A taxpayer is permitted to designate in writing the type of tax and tax periods to which any voluntary payment relates, provided that separate written instructions accompany the payment. This paragraph does not apply to jeopardy assessments and does not apply if the department has to enforce collection of the payment.
   (2)  As used in this paragraph, “tax period” means a period of time for which a return is required.
    Sec. 3.  Section 422.25, subsection 4, Code 2021, is amended to read as follows:
   4.  a.  All payments received must be credited first, to the penalty and interest accrued, and then to the tax due.  If payments in multiple tax periods are unpaid, payments received shall be credited first to the penalty and interest accrued and then tax due for the earliest period, and then credited to each following tax period in chronological order from the earliest tax period to the latest tax period. Payments required to be made within a tax period must be credited first to the earliest deposit period within the tax period. For purposes of this subsection, the department shall not reapply prior payments made on or before the due date of the original return by the taxpayer to penalty or interest determined to be due after the date of those prior payments, except that the taxpayer and the department may agree to apply payments in accordance with rules adopted by the director when there are both agreed and unagreed to items as a result of an examination.
   b.  As used in this subsection, “tax period” means a period of time for which a return is required.
    Sec. 4.  Section 423.14, subsection 2, paragraph b, Code 2021, is 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 or its agent that is not otherwise required to collect sales tax under the provisions of this chapter, shall may 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.
    Sec. 5.  1980 Iowa Acts, chapter 1156, section 32, is amended to read as follows:
   SEC. 32.  The general assembly of the state of Iowa hereby declares and states that it does not want any of the provisions of Public Law No. 96-221 (94 stat. 132), section 501, subsection (a), paragraph (1), to apply with respect to loans, mortgages, credit sales, and advances made in this state; and that it does not want any of the provisions of Public Law No. 96-221 (94 stat. 132), Part B (section 511, subsections (a) and (b)), to apply with respect to loans made in this state; and that it does not want any of the provisions of any of the amendments contained in Public Law No. 96-221 (94 stat. 132), sections 521, 522 and 523 to apply with respect to loans made in this state; and that it does not want any of the provisions of Public Law No. 96-221 (94 stat. 132), section 524 to apply with respect to loans made in this state. It is the intent of the general assembly of the state of Iowa in enacting this section to exercise all authority granted by Congress and to satisfy all requirements imposed by congress in Public Law No. 96-221 (94 stat. 132), section 501 subsection (b), paragraph (2), and section 512, and section 524 subsection (i), paragraph (3), and section 525, for the purpose of rendering the provisions of Public Law No. 96-221 (94 stat. 132), Title V, inapplicable in this state.
    Sec. 6.  CANCELLATION OF UNUSED PERMITS.  Notwithstanding any other provision of law to the contrary, from July 1, 2021, through December 31, 2021, the department of revenue shall have authority to cancel withholding tax permits, sales tax permits, or use tax permits that the department of revenue has verified are no longer in use.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to tax collection and penalties, tax permits, and loans made by state-chartered banks.
   The bill updates language in Code section 421.27 (penalties) to enhance the readability of the Code section.
   The bill specifies that the taxpayer has the burden to prove any of the conditions necessary to waive a penalty under Code section 421.27.
   The bill reduces the penalty for the failure of a person to file a return from 10 percent of the tax shown due or required to be shown due to 5 percent of the unpaid tax.
   Currently, if a business fails to file a return, the business pays a penalty of $200 or an amount equal to 10 percent of the imputed Iowa liability, not to exceed $25,000, whichever is greater. The bill modifies the penalty provision to specify the business pays a penalty of $200 or an amount equal to 5 percent of the imputed Iowa liability, not to exceed $25,000, whichever is greater.
   The bill specifies the penalties for failure to timely file a return are in addition to any other penalty provided by law.
   The bill specifies that a taxpayer who is required to file a quarterly or monthly return may have one late return or payment over a three-year period before being ineligible to receive a waiver of a penalty for failing to file a return.
   Currently, there are 14 conditions a taxpayer may raise in order to be eligible to receive the waiver of a penalty for failing to file a return. The bill strikes one of these conditions relating to the failure to file an inheritance tax return that resulted from a disclaimer, so in such a situation the penalty is not waivable.
   The penalty for failing to timely pay tax due is modified by the bill by assessing a 5 percent penalty against the unpaid tax due rather than 5 percent of the tax.
   The bill allows most conditions a taxpayer may raise in order to be eligible to receive a waiver of a penalty for failing to file a return to apply to the waiver of the penalty for failing to timely pay a tax due.
   If any person fails to pay the tax due and the department of revenue discovers the underpayment, the bill modifies the penalty from 5 percent of the tax to 5 percent of the unpaid tax. The bill specifies such a penalty is in lieu of the penalty for failing to timely pay a tax due.
   The bill modifies the penalty for willful failure to file a return or pay a tax from 75 percent of the tax required to be shown or shown due to 75 percent of the unpaid tax.
   The bill strikes a provision specifying which penalties are applicable if a person fails to file a return or fails to pay the tax, and willfully fails to file a return or willfully files a false return.
   The bill modifies the criminal offense of fraudulent practice relating to state taxes to include actions of a taxpayer who willfully submits any false information in support of the taxpayer’s taxes with the intent to receive a refund, credit exemption, reimbursement, rebate, or other payment or benefit, to which the tax person is not entitled.
   The bill modifies the criminal offense of fraudulent practice relating to state taxes to include actions of a taxpayer who willfully submits false information in support of an application for a refund with the intent to evade tax or receive a refund.
   The bill provides that the criminal offense of fraudulent practice is not waivable by the department of revenue.
   The penalties for fraudulent practice range from a simple misdemeanor to a class “C” felony depending upon the amount of money or value of property involved.
   The bill modifies the penalty for failure to use a required tax form to include failure to use the required manner to remit taxes. The penalty is modified from 5 percent of the amount of tax due or required to be shown due to 5 percent of the amount remitted in the incorrect form or manner not to exceed $500 per instance of incorrect form or manner. The bill specifies the penalty is in addition to any other penalty provided by law.
   Currently, in addition to any other tax penalty, if a taxpayer fails to file a return within 90 days of written notice by the department of revenue, a $1,000 penalty is added to the amount of tax shown due or required to be shown due. The bill modifies the penalty by requiring the department of revenue to send a written demand to file a tax return, and if the taxpayer fails to file the return under rules adopted by the department, a $1,000 penalty is assessed against the amount due.
   The bill specifies the order in which a payment will be applied if a taxpayer has multiple unpaid tax periods.
   The bill amends Code section 423.14(2)(b) by specifying that a seller of tangible personal property and specified digital products who is not otherwise required to collect sales tax may, but is not required to, collect and remit use tax. Current law requires the seller to collect and remit the use tax for such sales.
   The bill strikes a provision from 1980 Iowa Acts, chapter 1156, section 32, restricting the ability of a state-chartered bank to use interest or fees on loans authorized by the chartering state in the issuance of loans in another state.
   The bill allows the department of revenue to cancel withholding tax, sales tax, or use tax permits the department has verified are no longer in use. The department may cancel the permits from July 1, 2021, through December 31, 2021.