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Senate Study Bill 1268 - IntroducedA Bill ForAn Act 1relating to the administration of the tax and related
2laws by the department of revenue by requiring composite
3returns for pass-through entities, restricting public
4disclosure of certain information, providing penalties, and
5including applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2Administration, PENALTIES, AND CANCELLATION OF UNUSED PERMITS
3 Section 1. Section 421.17, subsection 13, Code 2021, is
4amended by striking the subsection.
5 Sec. 2. Section 421.27, Code 2021, is amended to read as
6follows:
7421.27 Penalties.
81. Failure to timely file a return or deposit form.
9a. If a person fails to file a return with the department
10on or before the due date, a return or deposit form there shall
11be added to the tax shown due or required to be shown due
12 remaining unpaid by the due date a penalty of ten five percent
13of the remaining unpaid tax shown due or required to be shown
14due.
15b. In the case of a specified business with no tax shown
16due or required to be shown due that fails to timely file an
17income return, the specified business shall pay the greater of
18the following penalty amounts:
19(1) Two hundred dollars.
20(2) An amount equal to ten five percent of the imputed Iowa
21liability of the specified business, not to exceed twenty-five
22thousand dollars.
23c. The penalty, if assessed pursuant to paragraph “a” or
24“b”, shall be in addition to any other penalty provided by law.
25d. The penalty, if assessed pursuant to paragraph “a” or
26“b”, shall be waived by the department upon a showing by the
27taxpayer of any of the following conditions:
28(1) An amount of tax greater than zero is required to be
29shown due and at least ninety percent of the tax required to be
30shown due has been paid by the due date of the tax.
31(2) (a) Those taxpayers who are A taxpayer who is
32 required to file a monthly or quarterly returns, or monthly or
33semimonthly deposit forms return may have one late return or
34deposit form one late payment within a three-year period.
35(b) If the taxpayer receives a waiver of a penalty under
-1-1this subparagraph, the taxpayer must make timely filings
2and payments for three years prior to being eligible for
3receiving another waiver under this subparagraph. If the
4taxpayer receives a waiver under this subparagraph, the waiver
5shall apply to penalties assessed under this subsection and
6subsection 2.
7(c) The use of any other penalty exception will shall
8 not count as a late return or deposit form late payment for
9purposes of this exception receiving a waiver by the taxpayer
10under this subparagraph.
11(3) The death of a taxpayer, death of a member of the
12immediate family of the taxpayer, or death of the person
13directly responsible for filing the return and paying the tax,
14when the death interferes with timely filing of a return or
15timely payment of tax.
16(4) The onset of serious, long-term illness or
17hospitalization of the taxpayer, of a member of the immediate
18family of the taxpayer, or of the person directly responsible
19for filing the return and paying the tax when such illness or
20hospitalization interferes with the timely filing of a return
21or timely payment of tax.
22(5) Destruction of records by fire, flood, or other act of
23God when the destruction interferes with the timely filing of a
24return or timely payment of tax.
25(6) The taxpayer presents proof that the taxpayer relied
26upon applicable, documented, written advice specifically
27made to the taxpayer, to the taxpayer’s preparer, or to an
28association representative of the taxpayer from the department,
29state department of transportation, county treasurer, or
30federal internal revenue service, whichever is appropriate,
31that the reliance was the direct cause of the failure to file
32or failure to pay, and that the advice has not been superseded
33by a court decision, ruling by a quasi-judicial body, or the
34adoption, amendment, or repeal of a rule or law.
35(7) Reliance upon results in a previous audit was a direct
-2-1cause for the failure to file or the failure to pay where the
2previous audit expressly and clearly addressed the issue and
3the previous audit results have not been superseded by a court
4decision, or the adoption, amendment, or repeal of a rule or
5law.
6(8) Under rules prescribed by the director, the taxpayer
7presents documented proof of substantial authority to rely
8upon a particular position or upon proof that all facts and
9circumstances are disclosed on a return or deposit form.
10(9) The return, deposit form, or payment is timely, but
11erroneously, mailed with adequate postage to the internal
12revenue service, another state agency, or a local government
13agency and the taxpayer provides proof of timely mailing with
14adequate postage.
15(10) The tax has been paid by the wrong licensee and the
16payments were timely remitted to the department for one or more
17tax periods prior to notification by the department.
18(11) The failure to file was discovered through a sanctioned
19self-audit program conducted by the department.
20(12) If the availability of funds in payment of tax required
21to be made through electronic funds transfer is delayed and the
22delay of availability is due to reasons beyond the control of
23the taxpayer. “Electronic funds transfer” means any transfer
24of funds, other than a transaction originated by check, draft,
25or similar paper instrument, that is initiated through an
26electronic terminal telephone, computer, magnetic tape, or
27similar device for the purpose of ordering, instructing, or
28authorizing a financial institution to debit or credit an
29account.
30(13) The failure to file a timely inheritance tax return
31resulting solely from a disclaimer that required the personal
32representative to file an inheritance tax return. The penalty
33shall be waived if such return is filed and any tax due is paid
34within the later of nine months from the date of death or sixty
35days from the delivery or filing of the disclaimer pursuant to
-3-1section 633E.12.
2(14) That an Iowa inheritance tax return is filed for
3an estate within the later of nine months from the date of
4death or sixty days from the filing of a disclaimer by the
5beneficiary of the estate refusing to take the property or
6right or interest in the property.
72. Failure to timely pay the tax shown due, or the tax
8required to be shown due, with the filing of a return or deposit
9form. If a person fails to pay the tax shown due or required
10to be shown due, on a return or deposit form on or before the
11due date, there shall be added to the tax shown due or required
12to be shown due remaining unpaid by the due date a penalty of
13five percent of the unpaid tax due. The penalty shall be in
14addition to any other penalty provided by law. The penalty, if
15assessed, shall be waived by the department upon a showing by
16the taxpayer of any of the following conditions:
17a. At least ninety percent of the tax required to be
18shown due has been paid by the due date of the tax Any reason
19listed under subsection 1, paragraph “d”, except subsection 1,
20paragraph “d”, subparagraph (11).
21b. The taxpayer voluntarily files an amended return and pays
22all tax shown to be due on the return prior to any contact by
23the department, except under a sanctioned self-audit program
24conducted by the department.
25c. (1) Except in the case of a final federal partnership
26adjustment governed by subparagraph (2), the taxpayer
27voluntarily files an amended return which includes a copy of
28the federal document showing the final disposition or final
29federal adjustments and pays any additional Iowa tax due within
30one hundred eighty days of the final determination date of the
31federal government’s audit. For purposes of this subparagraph,
32“final determination date” means the same as defined in section
33422.25.
34(2) (a) In the case of a final federal partnership
35adjustment arising from a partnership level audit, with respect
-4-1to the audited partnership or a direct partner or indirect
2partner of the audited partnership, the audited partnership,
3direct partner, or indirect partner voluntarily and timely
4complies with its reporting and payment requirements under
5section 422.25A, subsection 4 or 5.
6(b) As used in this subparagraph, all words and phrases
7defined in section 422.25A shall have the same meaning given
8them by that section.
9d. The taxpayer presents proof that the taxpayer relied
10upon applicable, documented, written advice specifically
11made to the taxpayer, to the taxpayer’s preparer, or to an
12association representative of the taxpayer from the department,
13state department of transportation, county treasurer, or
14federal internal revenue service, whichever is appropriate,
15that has not been superseded by a court decision, ruling by a
16quasi-judicial body, or the adoption, amendment, or repeal of
17a rule or law.
18e. Reliance upon results in a previous audit was a direct
19cause for the failure to pay the tax required to be shown due
20where the previous audit expressly and clearly addressed the
21issue and the previous audit results have not been superseded
22by a court decision, or the adoption, amendment, or repeal of
23a rule or law.
24f. Under rules prescribed by the director, the taxpayer
25presents documented proof of substantial authority to rely
26upon a particular position or upon proof that all facts and
27circumstances are disclosed on a return or deposit form.
28g. The return, deposit form, or payment is timely, but
29erroneously, mailed with adequate postage to the internal
30revenue service, another state agency, or a local government
31agency and the taxpayer provides proof of timely mailing with
32adequate postage.
33h. The tax has been paid by the wrong licensee and the
34payments were timely remitted to the department for one or more
35tax periods prior to notification by the department.
-5- 1i. That an Iowa inheritance tax return is filed for an
2estate within the later of nine months from the date of
3death or sixty days from the filing of a disclaimer by the
4beneficiary of the estate refusing to take the property or
5right or interest in the property.
63. Audit and examination deficiencies. If any person
7fails to pay the tax required to be shown due with the filing
8of a return or deposit and the department discovers the
9underpayment, there shall be added to the tax required to be
10shown due a penalty of five percent of the unpaid tax required
11to be shown due, which shall be in lieu of the penalty in
12subsection 2. The penalty, if assessed, shall be waived by
13the department upon a showing by the taxpayer of any of the
14following conditions:
15a. At least ninety percent of the tax required to be shown
16 due has been paid by the due date.
17b. The taxpayer presents proof that the taxpayer relied upon
18applicable, documented, written advice specifically made to
19the taxpayer, to the taxpayer’s preparer, or to an association
20representative of the taxpayer from the department, state
21department of transportation, county treasurer, or federal
22internal revenue service, whichever is appropriate, that the
23reliance was the direct cause for the failure to pay, and that
24the advice has not been superseded by a court decision, ruling
25by a quasi-judicial body, or the adoption, amendment, or repeal
26of a rule or law.
27c. Reliance upon results in a previous audit was a direct
28cause for the failure to pay the tax shown due or required to
29be shown due where the previous audit expressly and clearly
30addressed the issue and the previous audit results have
31not been superseded by a court decision, or the adoption,
32amendment, or repeal of a rule or law.
33d. Under rules prescribed by the director, the taxpayer
34presents documented proof of substantial authority to rely
35upon a particular position or upon proof that all facts and
-6-1circumstances are disclosed on a return or deposit form.
24. Willful failure to file or deposit pay.
3a. (1) In case of willful failure to file a return
4or deposit form with the intent to evade tax or a filing
5requirement, willful failure to pay with the intent to evade
6tax, or in case of willfully filing a false return or deposit
7form with the intent to evade tax, in lieu of the penalties
8otherwise provided in this section, there shall be added to the
9tax remaining unpaid by the due date a penalty of seventy-five
10percent shall be added to the amount shown due or required to
11be shown as tax on the return or deposit form of the unpaid tax.
12(2) In case of a willful failure by a specified business to
13file an income return with no tax shown due or required to be
14shown due with intent to evade a filing requirement, or in case
15of willfully filing a false income return with no tax shown due
16or required to be shown due with the intent to evade reporting
17of Iowa-source income, the penalty imposed shall be the greater
18of the following amounts:
19(a) One thousand five hundred dollars.
20(b) An amount equal to seventy-five percent of the imputed
21Iowa liability of the specified business.
22(3) If penalties are applicable for failure to file a
23return or deposit form and failure to pay the tax shown due or
24required to be shown due on the return or deposit form, the
25penalty provision for failure to file shall be in lieu of the
26penalty provisions for failure to pay the tax shown due or
27required to be shown due on the return or deposit form, except
28in the case of willful failure to file a return or deposit form
29or willfully filing a false return or deposit form with intent
30to evade tax.
31b. The penalties imposed under this subsection are not
32subject to waiver.
335. Failure to remit on extension. If a person fails to
34remit at least ninety percent of the tax required to be shown
35 due by the time an extension for further time to file a return
-7-1is made, there shall be added to the tax shown due or required
2to be shown due a penalty of ten percent of the unpaid tax due.
36. Liability — fraudulent practice. A person who makes
4an erroneous application for refund, credit, reimbursement,
5rebate, or other payment shall be liable for any overpayment
6received or tax liability reduced plus interest at the rate in
7effect under section 421.7.
8a. In addition, a person commits a fraudulent practice and
9is liable for a penalty equal to seventy-five percent of the
10refund, credit, exemption, reimbursement, rebate, or other
11payment or benefit being claimed if the person does any of the
12following:
13(1) Willfully makes a false or frivolous application for
14refund, credit, exemption, reimbursement, rebate, or other
15payment or benefit with intent to evade tax or with intent to
16receive a refund, credit, exemption, reimbursement, rebate, or
17other payment or benefit, to which the person is not entitled.
18(2) Willfully submits any false information, document,
19or document containing false information in support of an
20application for refund, credit, exemption, reimbursement,
21rebate, or other payment or benefit with the intent to evade
22tax or with intent to receive a refund, credit exemption,
23reimbursement, rebate, or other payment or benefit, to which
24the person is not entitled.
25(3) Willfully submits with any false information, document,
26or document containing false information in support of an
27application for refund with the intent to evade tax or with
28intent to receive a refund, credit, exemption, reimbursement,
29rebate, or other payment benefit, to which the person is not
30entitled.
31b. Payments, penalties, and interest due under this
32subsection may be collected and enforced in the same manner as
33the tax imposed.
34c. Penalties imposed under this subsection are not subject
35to waiver.
-8- 17. Failure to use required form or manner. If a person fails
2to remit payment of taxes in the form or manner required by the
3rules of the director, there shall be added to the amount of
4the tax a penalty of five percent of the amount of tax shown
5due or required to be shown due the payment remitted in the
6incorrect form or manner not to exceed five hundred dollars
7per instance of incorrect form or manner of payment. The
8penalty shall be in addition to any other penalty provided by
9law. The penalty imposed by this subsection shall be waived if
10the taxpayer did not receive notification of the requirement
11to remit tax payments electronically or if the electronic
12transmission of the payment was not in a format or by means
13specified by the director and the payment was made before the
14taxpayer was notified of the requirement to remit tax payments
15electronically.
168. Additional penalty. In addition to the penalties imposed
17by this section, if a taxpayer fails to file a return within
18ninety days of written notice demand issued by the department
19pursuant to the rules implementing this subsection that the
20taxpayer is required to do so, there shall be added to the
21amount shown due or required to be shown due a penalty in the
22amount of one thousand dollars. The penalty shall be waived by
23the department upon a showing of good reason as defined by the
24department by rule.
259. Definitions. As used in this section:
26a. “Imputed Iowa liability” means any of the following:
27(1) In the case of corporations other than corporations
28described in section 422.34 or section 422.36, subsection 5,
29the corporation’s Iowa net income after the application of the
30Iowa business activity ratio, if applicable, multiplied by the
31top income tax rate imposed under section 422.33 for the tax
32year.
33(2) In the case of financial institutions as defined in
34section 422.61, the financial institution’s Iowa net income
35after the application of the Iowa business activity ratio, if
-9-1applicable, multiplied by the franchise tax rate imposed under
2section 422.63 for the tax year.
3(3) In this case of all other entities, including
4corporations described in section 422.36, subsection 5, and all
5other entities required to file an information return under
6section 422.15, subsection 2, the entity’s Iowa net income
7after the application of the Iowa business activity ratio, if
8applicable, multiplied by the top income tax rate imposed under
9section 422.5A for the tax year.
10b. “Income return” means an income tax return or information
11return required under section 422.15, subsection 2, or section
12422.36, 422.37, or 422.62.
13c. “Specified business” means a partnership or other entity
14required to file an information return under section 422.15,
15subsection 2, a corporation required to file a return under
16section 422.36 or 422.37, or a financial institution required
17to file a return under section 422.62.
18 Sec. 3. Section 421.60, subsection 2, paragraph d, Code
192021, is amended to read as follows:
20d. (1) A taxpayer is permitted to designate in writing
21the type of tax and tax periods to which any voluntary payment
22relates, provided that separate written instructions accompany
23the payment. This paragraph does not apply to jeopardy
24assessments and does not apply if the department has to enforce
25collection of the payment.
26(2) As used in this paragraph, “tax period” means a period
27of time for which a return is required.
28 Sec. 4. Section 422.25, subsection 4, Code 2021, is amended
29to read as follows:
304. a. All payments received must be credited first, to
31the penalty and interest accrued, and then to the tax due. If
32payments in multiple tax periods are unpaid, payments received
33shall be credited first to the penalty and interest accrued and
34then tax due for the earliest period, and then credited to each
35following tax period in chronological order from the earliest
-10-1tax period to the latest tax period. Payments required to be
2made within a tax period must be credited first to the earliest
3deposit period within the tax period. For purposes of this
4subsection, the department shall not reapply prior payments
5made on or before the due date of the original return by the
6taxpayer to penalty or interest determined to be due after the
7date of those prior payments, except that the taxpayer and the
8department may agree to apply payments in accordance with rules
9adopted by the director when there are both agreed and unagreed
10to items as a result of an examination.
11b. As used in this subsection, “tax period” means a period
12of time for which a return is required.
13 Sec. 5. Section 422.75, Code 2021, is amended to read as
14follows:
15422.75 Statistics — publication.
16The department shall prepare and publish an annual report
17which shall include statistics reasonably available, with
18respect to the operation of this chapter, including amounts
19collected, classification of taxpayers, and such other facts
20as are deemed pertinent and valuable. The annual report shall
21also include the reports and information required pursuant to
22section 421.17, subsection 13, and section 421.60, subsection
232, paragraphs “i” and “l”.
24 Sec. 6. Section 423.14, subsection 2, paragraph b, Code
252021, is amended to read as follows:
26b. The tax upon the use of all tangible personal property
27and specified digital products other than that enumerated in
28paragraph “a”, which is sold by a seller who is a retailer or
29its agent that is not otherwise required to collect sales tax
30under the provisions of this chapter, shall may be collected by
31the retailer or agent and remitted to the department, pursuant
32to the provisions of paragraph “e”, and sections 423.24, 423.29,
33423.30, 423.32, and 423.33.
34 Sec. 7. CANCELLATION OF UNUSED PERMITS. Notwithstanding
35any other provision of law to the contrary, from July 1, 2021,
-11-1through December 31, 2021, the department of revenue shall have
2authority to cancel withholding tax permits, sales tax permits,
3or use tax permits that the department of revenue has verified
4are no longer in use.
5DIVISION II
6PASS-THROUGH ENTITIES — COMPOSITE RETURNS
7 Sec. 8. Section 29C.24, subsection 3, paragraph a,
8subparagraph (3), Code 2021, is amended to read as follows:
9(3) The imposition of income taxes under chapter 422,
10subchapters II and III, including the requirement to file tax
11returns under sections 422.13 through 422.15, section 422.16B,
12 or section 422.36, as applicable, and including the requirement
13to withhold and remit income tax from out-of-state employees
14under section 422.16. In addition, the performance of disaster
15or emergency-related work during a disaster response period
16by an out-of-state business or out-of-state employee shall
17not require an out-of-state business to be included in a
18consolidated return under section 422.37, and shall not
19increase the amount of net income of the out-of-state business
20allocated and apportioned to the state under section 422.8 or
21422.33, as applicable.
22 Sec. 9. Section 422.9, subsection 2A, paragraph b, Code
232021, is amended by striking the paragraph.
24 Sec. 10. Section 422.13, subsection 5, Code 2021, is amended
25by striking the subsection.
26 Sec. 11. Section 422.13, subsection 6, Code 2021, is amended
27to read as follows:
286. Notwithstanding subsections 1 through 5 4 and sections
29422.14 and 422.15, a return is not required by a taxpayer as
30provided in section 29C.24.
31 Sec. 12. Section 422.16, subsection 12, paragraph a, Code
322021, is amended to read as follows:
33a. In the case of nonresidents having income subject to
34taxation by Iowa, but not subject to withholding of such tax
35under subsection 1 hereof or subject to the provisions of
-12-1section 422.16B, withholding agents shall withhold from such
2income at the same rate as provided in subsection 1 hereof, and
3such withholding agents and such nonresidents shall be subject
4to the provisions of this section, according to the context,
5except that such withholding agents may be absolved of such
6requirement to withhold taxes from such nonresident’s income
7upon receipt of a certificate from the department issued in
8accordance with the provisions of section 422.17, as hereby
9amended. In the case of nonresidents having income from a
10trade or business carried on by them in whole or in part within
11the state of Iowa, such nonresident shall be considered to be
12subject to the provisions of this subsection unless such trade
13or business is of such nature that the business entity itself,
14as a withholding agent, is required to and does withhold Iowa
15income tax from the distributions made to such nonresident from
16such trade or business.
17 Sec. 13. Section 422.16, subsection 12, paragraph c, Code
182021, is amended by striking the paragraph.
19 Sec. 14. NEW SECTION. 422.16B Pass-through entity composite
20returns.
211. As used in this section, unless the context otherwise
22requires:
23a. “Nonresident member” means a partner in a partnership as
24defined in section 422.25A, a shareholder of an S corporation,
25or a beneficiary of an estate or trust, who is any of the
26following:
27(1) An individual who is not a resident of this state.
28(2) A partnership without a commercial domicile in this
29state.
30(3) A trust or estate without a situs in this state.
31(4) A C corporation or S corporation without a commercial
32domicile in this state.
33(5) A financial institution as defined in section 422.61
34without a commercial domicile in this state.
35b. “Pass-through entity” includes any entity that is a
-13-1partnership or a pass-through entity as those terms are defined
2in 422.25A.
3c. “Tiered pass-through entity” means a member of a pass-
4through entity that is itself a pass-through entity.
52. a. (1) A pass-through entity shall file a composite
6return on behalf of all nonresident members and shall report
7and pay the income or franchise tax imposed under this chapter
8at the maximum state income or franchise tax rate applicable
9to the member under section 422.5A, 422.33, or 422.63 on the
10nonresident members’ distributive shares of the income from the
11pass-through entity.
12(2) The tax rate applicable to a tiered pass-through entity
13shall be the maximum state income tax rate under section
14422.5A.
15b. The composite return is due and shall be filed by the
16due date of the pass-through entity’s annual return required
17under section 422.14, 422.15, or 422.36, including extensions.
18The return shall be on a form prescribed by the department
19showing the total amounts paid or credited to the pass-through
20entity’s nonresident members, the amounts of income or
21franchise tax remitted in accordance with this section, if any,
22and such other information as the department may require. A
23pass-through entity shall furnish to its nonresident members a
24record of the amount of Iowa income or franchise tax remitted
25on behalf of such nonresident member in the manner and form
26prescribed by the department.
27c. The Iowa income or franchise tax on the composite return
28is due on and shall be paid by the due date of the pass-through
29entity’s annual return required under section 422.14, 422.15,
30or 422.36, without extensions.
313. a. A pass-through entity is liable to the state for
32the payment of the tax required to be remitted under this
33section, together with applicable interest and penalties,
34but is not liable to any nonresident member for any amount
35withheld from distributions to or from the distributive share
-14-1of such nonresident member and remitted in compliance with this
2section.
3b. If a pass-through entity fails to pay any amount of tax
4required under this section and thereafter the tax is paid
5by the nonresident member, the amount of tax as paid by the
6nonresident member shall not be collected from the pass-through
7entity, but such payment by the nonresident member shall not
8relieve the pass-through entity from any penalty or interest
9associated with the failure to pay.
104. a. A nonresident member that has been included on a
11composite return filed pursuant to this section shall receive
12credit for Iowa income or franchise tax paid on the nonresident
13member’s behalf by the pass-through entity, and any amounts in
14excess of the nonresident member’s Iowa tax liability for the
15applicable tax period may be refunded to the nonresident member
16with interest in accordance with section 421.60, subsection
172, paragraph “e”. The nonresident member’s Iowa return shall
18constitute a claim for refund for this purpose. In lieu of
19claiming a refund, the nonresident member may elect to have the
20overpayment shown on the nonresident member’s final, completed
21return for the taxable year credited to the taxpayer’s tax
22liability for the following taxable year.
23b. A tiered pass-through entity shall be subject to the
24same requirements to file a composite return and pay tax
25under this section with respect to the distributive shares
26of the tiered pass-through entity’s income. Any Iowa income
27or franchise tax paid on the tiered pass-through entity’s
28behalf by another pass-through entity may be applied against
29that tiered pass-through entity’s own composite tax remittance
30obligation imposed under this section.
31c. A nonresident individual included on a composite tax
32return filed pursuant to this section shall be relieved of
33the requirement to file an individual income tax return under
34section 422.13 if income from the pass-through entity is the
35nonresident individual’s only Iowa-source income.
-15- 15. A pass-through entity shall not be required to remit Iowa
2income or franchise tax on behalf of a nonresident member if
3any of the following apply:
4a. The pass-through entity is a publicly traded partnership
5as defined in section 7704(b) of the Internal Revenue Code,
6provided the publicly traded partnership files with the
7department an information return that reports the name,
8address, taxpayer identification number, and any other
9information requested by the department for each unit
10holder with an income in this state from the publicly traded
11partnership in excess of five hundred dollars.
12b. A composite return is not required as provided in section
1329C.24.
14c. The department determines by rule or through a ruling
15that the nonresident member’s income should not be subject to
16composite return reporting, such as a member that is exempt
17from Iowa income or franchise tax.
186. If the director determines that it is necessary for the
19efficient administration of this chapter, the director may
20require that a composite return be filed for nonresidents other
21than nonresident members of a pass-through entity.
227. All powers of the director and requirements of the
23director apply to returns filed under this section including
24but not limited to the provisions of this subchapter and
25subchapter VI. The provisions of section 422.16, subsection
262, paragraph “c”, and subsections 6, 10, and 14, applying
27to withholding agents, shall apply in the same manner to
28pass-through entities under this section.
298. For the efficient administration of this chapter, the
30director may require or provide for the composite return on the
31same form as or combined with a pass-through entity’s annual
32return required under section 422.14, 422.15, or 422.36, but in
33such case the composite return shall be considered a separate
34return for purposes of this chapter and section 421.27.
35 Sec. 15. APPLICABILITY. This division of this Act applies
-16-1to tax years beginning on or after January 1, 2022.
2DIVISION III
3PUBLIC AGENCY DISCLOSURE — TAX-EXEMPT entities — DEPARTMENT
4OF REVENUE
5 Sec. 16. 2021 Iowa Acts, House File 309, if enacted, is
6amended by adding the following new section:
7SEC. 6A. NEW SECTION. 22A.6 Applicability — department
8of revenue.
91. The following shall not be construed as a violation of
10this chapter with respect to the department of revenue:
11a. The identification of a person as a representative,
12responsible party, employee, withholding agent, or other
13signatory or contact of an entity exempt from taxation under
14section 501(c) of the Internal Revenue Code on any return,
15form, application, or other document required to be filed with
16the department, including but not limited to a tax return or
17tax permit.
18b. Powers exercised under section 422.70.
19c. Information sought pursuant to discovery in a contested
20case proceeding.
21d. Information that is expressly required to be provided
22by the department by law including but not limited to section
23422.11S.
242. The restrictions imposed under this chapter shall not
25be construed to entitle any taxpayer or tax-exempt entity to
26any deduction, exemption, credit, or other tax position which
27the taxpayer or exempt entity is unable to substantiate with
28sufficient evidence.
29EXPLANATION
30The inclusion of this explanation does not constitute agreement with
31the explanation’s substance by the members of the general assembly.
32This bill relates to the administration of the tax and
33related laws by the department of revenue by requiring
34composite returns for pass-through entities, restricting public
35disclosure of certain information, and modifying penalty
-17-1provisions.
2DIVISION I. The bill updates language in Code section 421.27
3(penalties) to enhance the readability of the Code section.
4The bill specifies that the taxpayer has the burden to prove
5any of the conditions necessary to waive a penalty under Code
6section 421.27.
7The bill modifies the penalty for the failure of a person to
8file a return from 10 percent of the tax shown due or required
9to be shown due to 5 percent of the unpaid tax.
10Currently, if a business fails to file a return, the business
11pays a penalty of $200 or an amount equal to 10 percent of the
12imputed Iowa liability, not to exceed $25,000, whichever is
13greater. The bill modifies the penalty provision to specify
14the business pays a penalty of $200 or an amount equal to 5
15percent of the imputed Iowa liability, not to exceed $25,000,
16whichever is greater.
17The bill specifies the penalties for failure to timely file a
18return are in addition to any other penalty provided by law.
19The bill specifies that a taxpayer who is required to file a
20quarterly or monthly return may have one late return or payment
21over a three-year period before being ineligible to receive a
22waiver of a penalty for failing to file a return.
23Currently, there are 14 conditions a taxpayer may raise
24in order to be eligible to receive the waiver of a penalty
25for failing to file a return. The bill strikes one of these
26conditions relating to the failure to file an inheritance tax
27return that resulted from a disclaimer, so in such a situation
28the penalty is not waivable.
29The penalty for failing to timely pay tax due is modified by
30the bill by assessing a 5 percent penalty against the unpaid
31tax due rather than 5 percent of the tax.
32The bill allows most conditions a taxpayer may raise in order
33to be eligible to receive a waiver of a penalty for failing to
34file a return to apply to the waiver of the penalty for failing
35to timely pay a tax due.
-18- 1If any person fails to pay the tax due and the department
2of revenue discovers the underpayment, the bill modifies the
3penalty from 5 percent of the tax to 5 percent of the unpaid
4tax. The bill specifies such a penalty is in lieu of the
5penalty for failing to timely pay a tax due.
6The bill modifies the penalty for willful failure to file a
7return or pay a tax from 75 percent of the tax required to be
8shown or shown due to 75 percent of the unpaid tax.
9The bill strikes a provision specifying which penalties are
10applicable if a person fails to file a return or fails to pay
11the tax, and willfully fails to file a return or willfully
12files a false return.
13The bill modifies the criminal offense of fraudulent
14practice relating to state taxes to include actions of a
15taxpayer who willfully submits any false information in support
16of the taxpayer’s taxes with the intent to receive a refund,
17credit exemption, reimbursement, rebate, or other payment or
18benefit, to which the tax person is not entitled.
19The bill modifies the criminal offense of fraudulent
20practice relating to state taxes to include actions of a
21taxpayer who willfully submits false information in support of
22an application for a refund with the intent to evade tax or
23receive a refund.
24The bill provides that the criminal offense of fraudulent
25practice is not waivable by the department of revenue.
26The penalties for fraudulent practice range from a simple
27misdemeanor to a class “C” felony depending upon the amount of
28money or value of property involved.
29The bill modifies the penalty for failure to use a required
30tax form to include failure to use the required manner to remit
31taxes. The penalty is modified from 5 percent of the amount of
32tax due or required to be shown due to 5 percent of the amount
33remitted in the incorrect form or manner not to exceed $500 per
34instance of incorrect form or manner. The bill specifies the
35penalty is in addition to any other penalty provided by law.
-19- 1Currently, in addition to any other tax penalty, if a
2taxpayer fails to file a return within 90 days of written
3notice by the department of revenue, a $1,000 penalty is added
4to the amount of tax shown due or required to be shown due.
5The bill modifies the penalty by requiring the department of
6revenue to send a written demand to file a tax return, and if
7the taxpayer fails to file the return under rules adopted by
8the department, a $1,000 penalty is assessed against the amount
9due.
10The bill specifies the order in which a payment will be
11applied if a taxpayer has multiple unpaid tax periods.
12The bill amends Code section 423.14(2)(b) by specifying
13that a seller of tangible personal property and specified
14digital products who is not otherwise required to collect sales
15tax may, but is not required to, collect and remit use tax.
16Current law requires the seller to collect and remit the use
17tax for such sales.
18The bill strikes the requirement that the director of
19revenue biennially submit a report to the governor and
20legislature containing recommendations for improvement to the
21system of taxation in the state.
22The bill allows the department of revenue to cancel
23withholding tax, sales tax, or use tax permits the department
24has verified are no longer in use. The department may cancel
25the permits from July 1, 2021, through December 31, 2021.
26DIVISION II. The bill establishes procedures and
27requirements for filing a composite return by a pass-through
28entity. A composite return is a single income tax return that
29reports the state income of numerous nonresident owners. The
30bill requires a pass-through entity to file a composite return
31on behalf of all nonresident owners of the pass-through entity
32based upon the nonresident owner’s Iowa-source income from
33the pass-through entity at the top individual, corporate, or
34franchise state tax rate, as applicable. The bill strikes
35provisions requiring a pass-through entity to withhold and
-20-1remit taxes on nonresident distributions made during the
2course of the tax year. If a nonresident individual owner of
3a pass-through entity has only Iowa-source income from the
4pass-through entity and a composite return is filed, the bill
5relieves the individual of the obligation to file an individual
6income tax return, though the individual may choose to file
7such a return.
8The bill amends Code section 29C.24(3)(a)(3) by exempting
9a pass-through entity from filing a composite return in this
10state if the contact with this state is to conduct business
11in this state solely for the purpose of performing disaster
12relief.
13The bill specifies that a nonresident that has been included
14on a composite return shall receive credit for Iowa income
15or franchise tax paid on the nonresident member’s behalf by
16the pass-through entity, and any amounts in excess of the
17nonresident member’s Iowa tax liability for the applicable tax
18period may be refunded to the nonresident member.
19The bill provides that a tiered pass-through entity is
20subject to the same requirements to file a composite return and
21pay tax on the distributive shares of the tiered pass-through
22entity’s income. The bill defines a tiered pass-through entity
23to mean a member of a pass-through entity that is itself a
24pass-through entity.
25If the director of revenue determines it necessary for
26efficient administration, the director may require a pass-
27through entity to file a composite return for nonresidents
28other than nonresident members of the pass-through entity.
29The bill makes the due date of a composite return coincide
30with the pass-through entity’s regular annual tax return due
31date.
32The bill specifies certain circumstances when a pass-
33through entity is not required to remit Iowa income or
34franchise tax on behalf of a nonresident member.
35DIVISION III. The bill amends new Code chapter 22A, if
-21-1enacted by 2021 Iowa Acts, House File 309, relating to the
2public disclosure of information relating to a tax-exempt
3entity by a public agency. The bill provides that a violation
4of Code chapter 22A does not occur if the department of
5revenue does any of the following: identifies a person as a
6representative, responsible party, employee, withholding agent,
7or other signatory or contact of an entity exempt from taxation
8on any return, form, application, or other document required
9to be filed with the department; exercises powers under
10Code section 422.70 (general powers — hearings); discloses
11information sought pursuant to a contested case; or discloses
12information expressly required by law including disclosures
13pursuant to Code section 411.11S (student tuition organization
14tax credit). The bill states disclosure restrictions imposed
15under Code chapter 22A, if enacted, shall not be construed to
16entitle any taxpayer or tax-exempt entity to any deduction,
17exemption, credit, or other tax position which the taxpayer
18or exempt entity is unable to substantiate with sufficient
19evidence.
-22-jm/jh
2laws by the department of revenue by requiring composite
3returns for pass-through entities, restricting public
4disclosure of certain information, providing penalties, and
5including applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2Administration, PENALTIES, AND CANCELLATION OF UNUSED PERMITS
3 Section 1. Section 421.17, subsection 13, Code 2021, is
4amended by striking the subsection.
5 Sec. 2. Section 421.27, Code 2021, is amended to read as
6follows:
7421.27 Penalties.
81. Failure to timely file a return or deposit form.
9a. If a person fails to file a return with the department
10on or before the due date, a return or deposit form there shall
11be added to the tax shown due or required to be shown due
12 remaining unpaid by the due date a penalty of ten five percent
13of the remaining unpaid tax shown due or required to be shown
14due.
15b. In the case of a specified business with no tax shown
16due or required to be shown due that fails to timely file an
17income return, the specified business shall pay the greater of
18the following penalty amounts:
19(1) Two hundred dollars.
20(2) An amount equal to ten five percent of the imputed Iowa
21liability of the specified business, not to exceed twenty-five
22thousand dollars.
23c. The penalty, if assessed pursuant to paragraph “a” or
24“b”, shall be in addition to any other penalty provided by law.
25d. The penalty, if assessed pursuant to paragraph “a” or
26“b”, shall be waived by the department upon a showing by the
27taxpayer of any of the following conditions:
28(1) An amount of tax greater than zero is required to be
29shown due and at least ninety percent of the tax required to be
30shown due has been paid by the due date of the tax.
31(2) (a) Those taxpayers who are A taxpayer who is
32 required to file a monthly or quarterly returns, or monthly or
33semimonthly deposit forms return may have one late return or
34deposit form one late payment within a three-year period.
35(b) If the taxpayer receives a waiver of a penalty under
-1-1this subparagraph, the taxpayer must make timely filings
2and payments for three years prior to being eligible for
3receiving another waiver under this subparagraph. If the
4taxpayer receives a waiver under this subparagraph, the waiver
5shall apply to penalties assessed under this subsection and
6subsection 2.
7(c) The use of any other penalty exception will shall
8 not count as a late return or deposit form late payment for
9purposes of this exception receiving a waiver by the taxpayer
10under this subparagraph.
11(3) The death of a taxpayer, death of a member of the
12immediate family of the taxpayer, or death of the person
13directly responsible for filing the return and paying the tax,
14when the death interferes with timely filing of a return or
15timely payment of tax.
16(4) The onset of serious, long-term illness or
17hospitalization of the taxpayer, of a member of the immediate
18family of the taxpayer, or of the person directly responsible
19for filing the return and paying the tax when such illness or
20hospitalization interferes with the timely filing of a return
21or timely payment of tax.
22(5) Destruction of records by fire, flood, or other act of
23God when the destruction interferes with the timely filing of a
24return or timely payment of tax.
25(6) The taxpayer presents proof that the taxpayer relied
26upon applicable, documented, written advice specifically
27made to the taxpayer, to the taxpayer’s preparer, or to an
28association representative of the taxpayer from the department,
29state department of transportation, county treasurer, or
30federal internal revenue service, whichever is appropriate,
31that the reliance was the direct cause of the failure to file
32or failure to pay, and that the advice has not been superseded
33by a court decision, ruling by a quasi-judicial body, or the
34adoption, amendment, or repeal of a rule or law.
35(7) Reliance upon results in a previous audit was a direct
-2-1cause for the failure to file or the failure to pay where the
2previous audit expressly and clearly addressed the issue and
3the previous audit results have not been superseded by a court
4decision, or the adoption, amendment, or repeal of a rule or
5law.
6(8) Under rules prescribed by the director, the taxpayer
7presents documented proof of substantial authority to rely
8upon a particular position or upon proof that all facts and
9circumstances are disclosed on a return or deposit form.
10(9) The return, deposit form, or payment is timely, but
11erroneously, mailed with adequate postage to the internal
12revenue service, another state agency, or a local government
13agency and the taxpayer provides proof of timely mailing with
14adequate postage.
15(10) The tax has been paid by the wrong licensee and the
16payments were timely remitted to the department for one or more
17tax periods prior to notification by the department.
18(11) The failure to file was discovered through a sanctioned
19self-audit program conducted by the department.
20(12) If the availability of funds in payment of tax required
21to be made through electronic funds transfer is delayed and the
22delay of availability is due to reasons beyond the control of
23the taxpayer. “Electronic funds transfer” means any transfer
24of funds, other than a transaction originated by check, draft,
25or similar paper instrument, that is initiated through an
26electronic terminal telephone, computer, magnetic tape, or
27similar device for the purpose of ordering, instructing, or
28authorizing a financial institution to debit or credit an
29account.
30(13) The failure to file a timely inheritance tax return
31resulting solely from a disclaimer that required the personal
32representative to file an inheritance tax return. The penalty
33shall be waived if such return is filed and any tax due is paid
34within the later of nine months from the date of death or sixty
35days from the delivery or filing of the disclaimer pursuant to
-3-1section 633E.12.
2(14) That an Iowa inheritance tax return is filed for
3an estate within the later of nine months from the date of
4death or sixty days from the filing of a disclaimer by the
5beneficiary of the estate refusing to take the property or
6right or interest in the property.
72. Failure to timely pay the tax shown due, or the tax
8required to be shown due, with the filing of a return or deposit
9form. If a person fails to pay the tax shown due or required
10to be shown due, on a return or deposit form on or before the
11due date, there shall be added to the tax shown due or required
12to be shown due remaining unpaid by the due date a penalty of
13five percent of the unpaid tax due. The penalty shall be in
14addition to any other penalty provided by law. The penalty, if
15assessed, shall be waived by the department upon a showing by
16the taxpayer of any of the following conditions:
17a. At least ninety percent of the tax required to be
18shown due has been paid by the due date of the tax Any reason
19listed under subsection 1, paragraph “d”, except subsection 1,
20paragraph “d”, subparagraph (11).
21b. The taxpayer voluntarily files an amended return and pays
22all tax shown to be due on the return prior to any contact by
23the department, except under a sanctioned self-audit program
24conducted by the department.
25c. (1) Except in the case of a final federal partnership
26adjustment governed by subparagraph (2), the taxpayer
27voluntarily files an amended return which includes a copy of
28the federal document showing the final disposition or final
29federal adjustments and pays any additional Iowa tax due within
30one hundred eighty days of the final determination date of the
31federal government’s audit. For purposes of this subparagraph,
32“final determination date” means the same as defined in section
33422.25.
34(2) (a) In the case of a final federal partnership
35adjustment arising from a partnership level audit, with respect
-4-1to the audited partnership or a direct partner or indirect
2partner of the audited partnership, the audited partnership,
3direct partner, or indirect partner voluntarily and timely
4complies with its reporting and payment requirements under
5section 422.25A, subsection 4 or 5.
6(b) As used in this subparagraph, all words and phrases
7defined in section 422.25A shall have the same meaning given
8them by that section.
9d. The taxpayer presents proof that the taxpayer relied
10upon applicable, documented, written advice specifically
11made to the taxpayer, to the taxpayer’s preparer, or to an
12association representative of the taxpayer from the department,
13state department of transportation, county treasurer, or
14federal internal revenue service, whichever is appropriate,
15that has not been superseded by a court decision, ruling by a
16quasi-judicial body, or the adoption, amendment, or repeal of
17a rule or law.
18e. Reliance upon results in a previous audit was a direct
19cause for the failure to pay the tax required to be shown due
20where the previous audit expressly and clearly addressed the
21issue and the previous audit results have not been superseded
22by a court decision, or the adoption, amendment, or repeal of
23a rule or law.
24f. Under rules prescribed by the director, the taxpayer
25presents documented proof of substantial authority to rely
26upon a particular position or upon proof that all facts and
27circumstances are disclosed on a return or deposit form.
28g. The return, deposit form, or payment is timely, but
29erroneously, mailed with adequate postage to the internal
30revenue service, another state agency, or a local government
31agency and the taxpayer provides proof of timely mailing with
32adequate postage.
33h. The tax has been paid by the wrong licensee and the
34payments were timely remitted to the department for one or more
35tax periods prior to notification by the department.
-5- 1i. That an Iowa inheritance tax return is filed for an
2estate within the later of nine months from the date of
3death or sixty days from the filing of a disclaimer by the
4beneficiary of the estate refusing to take the property or
5right or interest in the property.
63. Audit and examination deficiencies. If any person
7fails to pay the tax required to be shown due with the filing
8of a return or deposit and the department discovers the
9underpayment, there shall be added to the tax required to be
10shown due a penalty of five percent of the unpaid tax required
11to be shown due, which shall be in lieu of the penalty in
12subsection 2. The penalty, if assessed, shall be waived by
13the department upon a showing by the taxpayer of any of the
14following conditions:
15a. At least ninety percent of the tax required to be shown
16 due has been paid by the due date.
17b. The taxpayer presents proof that the taxpayer relied upon
18applicable, documented, written advice specifically made to
19the taxpayer, to the taxpayer’s preparer, or to an association
20representative of the taxpayer from the department, state
21department of transportation, county treasurer, or federal
22internal revenue service, whichever is appropriate, that the
23reliance was the direct cause for the failure to pay, and that
24the advice has not been superseded by a court decision, ruling
25by a quasi-judicial body, or the adoption, amendment, or repeal
26of a rule or law.
27c. Reliance upon results in a previous audit was a direct
28cause for the failure to pay the tax shown due or required to
29be shown due where the previous audit expressly and clearly
30addressed the issue and the previous audit results have
31not been superseded by a court decision, or the adoption,
32amendment, or repeal of a rule or law.
33d. Under rules prescribed by the director, the taxpayer
34presents documented proof of substantial authority to rely
35upon a particular position or upon proof that all facts and
-6-1circumstances are disclosed on a return or deposit form.
24. Willful failure to file or deposit pay.
3a. (1) In case of willful failure to file a return
4or deposit form with the intent to evade tax or a filing
5requirement, willful failure to pay with the intent to evade
6tax, or in case of willfully filing a false return or deposit
7form with the intent to evade tax, in lieu of the penalties
8otherwise provided in this section, there shall be added to the
9tax remaining unpaid by the due date a penalty of seventy-five
10percent shall be added to the amount shown due or required to
11be shown as tax on the return or deposit form of the unpaid tax.
12(2) In case of a willful failure by a specified business to
13file an income return with no tax shown due or required to be
14shown due with intent to evade a filing requirement, or in case
15of willfully filing a false income return with no tax shown due
16or required to be shown due with the intent to evade reporting
17of Iowa-source income, the penalty imposed shall be the greater
18of the following amounts:
19(a) One thousand five hundred dollars.
20(b) An amount equal to seventy-five percent of the imputed
21Iowa liability of the specified business.
22(3) If penalties are applicable for failure to file a
23return or deposit form and failure to pay the tax shown due or
24required to be shown due on the return or deposit form, the
25penalty provision for failure to file shall be in lieu of the
26penalty provisions for failure to pay the tax shown due or
27required to be shown due on the return or deposit form, except
28in the case of willful failure to file a return or deposit form
29or willfully filing a false return or deposit form with intent
30to evade tax.
31b. The penalties imposed under this subsection are not
32subject to waiver.
335. Failure to remit on extension. If a person fails to
34remit at least ninety percent of the tax required to be shown
35 due by the time an extension for further time to file a return
-7-1is made, there shall be added to the tax shown due or required
2to be shown due a penalty of ten percent of the unpaid tax due.
36. Liability — fraudulent practice. A person who makes
4an erroneous application for refund, credit, reimbursement,
5rebate, or other payment shall be liable for any overpayment
6received or tax liability reduced plus interest at the rate in
7effect under section 421.7.
8a. In addition, a person commits a fraudulent practice and
9is liable for a penalty equal to seventy-five percent of the
10refund, credit, exemption, reimbursement, rebate, or other
11payment or benefit being claimed if the person does any of the
12following:
13(1) Willfully makes a false or frivolous application for
14refund, credit, exemption, reimbursement, rebate, or other
15payment or benefit with intent to evade tax or with intent to
16receive a refund, credit, exemption, reimbursement, rebate, or
17other payment or benefit, to which the person is not entitled.
18(2) Willfully submits any false information, document,
19or document containing false information in support of an
20application for refund, credit, exemption, reimbursement,
21rebate, or other payment or benefit with the intent to evade
22tax or with intent to receive a refund, credit exemption,
23reimbursement, rebate, or other payment or benefit, to which
24the person is not entitled.
25(3) Willfully submits with any false information, document,
26or document containing false information in support of an
27application for refund with the intent to evade tax or with
28intent to receive a refund, credit, exemption, reimbursement,
29rebate, or other payment benefit, to which the person is not
30entitled.
31b. Payments, penalties, and interest due under this
32subsection may be collected and enforced in the same manner as
33the tax imposed.
34c. Penalties imposed under this subsection are not subject
35to waiver.
-8- 17. Failure to use required form or manner. If a person fails
2to remit payment of taxes in the form or manner required by the
3rules of the director, there shall be added to the amount of
4the tax a penalty of five percent of the amount of tax shown
5due or required to be shown due the payment remitted in the
6incorrect form or manner not to exceed five hundred dollars
7per instance of incorrect form or manner of payment. The
8penalty shall be in addition to any other penalty provided by
9law. The penalty imposed by this subsection shall be waived if
10the taxpayer did not receive notification of the requirement
11to remit tax payments electronically or if the electronic
12transmission of the payment was not in a format or by means
13specified by the director and the payment was made before the
14taxpayer was notified of the requirement to remit tax payments
15electronically.
168. Additional penalty. In addition to the penalties imposed
17by this section, if a taxpayer fails to file a return within
18ninety days of written notice demand issued by the department
19pursuant to the rules implementing this subsection that the
20taxpayer is required to do so, there shall be added to the
21amount shown due or required to be shown due a penalty in the
22amount of one thousand dollars. The penalty shall be waived by
23the department upon a showing of good reason as defined by the
24department by rule.
259. Definitions. As used in this section:
26a. “Imputed Iowa liability” means any of the following:
27(1) In the case of corporations other than corporations
28described in section 422.34 or section 422.36, subsection 5,
29the corporation’s Iowa net income after the application of the
30Iowa business activity ratio, if applicable, multiplied by the
31top income tax rate imposed under section 422.33 for the tax
32year.
33(2) In the case of financial institutions as defined in
34section 422.61, the financial institution’s Iowa net income
35after the application of the Iowa business activity ratio, if
-9-1applicable, multiplied by the franchise tax rate imposed under
2section 422.63 for the tax year.
3(3) In this case of all other entities, including
4corporations described in section 422.36, subsection 5, and all
5other entities required to file an information return under
6section 422.15, subsection 2, the entity’s Iowa net income
7after the application of the Iowa business activity ratio, if
8applicable, multiplied by the top income tax rate imposed under
9section 422.5A for the tax year.
10b. “Income return” means an income tax return or information
11return required under section 422.15, subsection 2, or section
12422.36, 422.37, or 422.62.
13c. “Specified business” means a partnership or other entity
14required to file an information return under section 422.15,
15subsection 2, a corporation required to file a return under
16section 422.36 or 422.37, or a financial institution required
17to file a return under section 422.62.
18 Sec. 3. Section 421.60, subsection 2, paragraph d, Code
192021, is amended to read as follows:
20d. (1) A taxpayer is permitted to designate in writing
21the type of tax and tax periods to which any voluntary payment
22relates, provided that separate written instructions accompany
23the payment. This paragraph does not apply to jeopardy
24assessments and does not apply if the department has to enforce
25collection of the payment.
26(2) As used in this paragraph, “tax period” means a period
27of time for which a return is required.
28 Sec. 4. Section 422.25, subsection 4, Code 2021, is amended
29to read as follows:
304. a. All payments received must be credited first, to
31the penalty and interest accrued, and then to the tax due. If
32payments in multiple tax periods are unpaid, payments received
33shall be credited first to the penalty and interest accrued and
34then tax due for the earliest period, and then credited to each
35following tax period in chronological order from the earliest
-10-1tax period to the latest tax period. Payments required to be
2made within a tax period must be credited first to the earliest
3deposit period within the tax period. For purposes of this
4subsection, the department shall not reapply prior payments
5made on or before the due date of the original return by the
6taxpayer to penalty or interest determined to be due after the
7date of those prior payments, except that the taxpayer and the
8department may agree to apply payments in accordance with rules
9adopted by the director when there are both agreed and unagreed
10to items as a result of an examination.
11b. As used in this subsection, “tax period” means a period
12of time for which a return is required.
13 Sec. 5. Section 422.75, Code 2021, is amended to read as
14follows:
15422.75 Statistics — publication.
16The department shall prepare and publish an annual report
17which shall include statistics reasonably available, with
18respect to the operation of this chapter, including amounts
19collected, classification of taxpayers, and such other facts
20as are deemed pertinent and valuable. The annual report shall
21also include the reports and information required pursuant to
22section 421.17, subsection 13, and section 421.60, subsection
232, paragraphs “i” and “l”.
24 Sec. 6. Section 423.14, subsection 2, paragraph b, Code
252021, is amended to read as follows:
26b. The tax upon the use of all tangible personal property
27and specified digital products other than that enumerated in
28paragraph “a”, which is sold by a seller who is a retailer or
29its agent that is not otherwise required to collect sales tax
30under the provisions of this chapter, shall may be collected by
31the retailer or agent and remitted to the department, pursuant
32to the provisions of paragraph “e”, and sections 423.24, 423.29,
33423.30, 423.32, and 423.33.
34 Sec. 7. CANCELLATION OF UNUSED PERMITS. Notwithstanding
35any other provision of law to the contrary, from July 1, 2021,
-11-1through December 31, 2021, the department of revenue shall have
2authority to cancel withholding tax permits, sales tax permits,
3or use tax permits that the department of revenue has verified
4are no longer in use.
5DIVISION II
6PASS-THROUGH ENTITIES — COMPOSITE RETURNS
7 Sec. 8. Section 29C.24, subsection 3, paragraph a,
8subparagraph (3), Code 2021, is amended to read as follows:
9(3) The imposition of income taxes under chapter 422,
10subchapters II and III, including the requirement to file tax
11returns under sections 422.13 through 422.15, section 422.16B,
12 or section 422.36, as applicable, and including the requirement
13to withhold and remit income tax from out-of-state employees
14under section 422.16. In addition, the performance of disaster
15or emergency-related work during a disaster response period
16by an out-of-state business or out-of-state employee shall
17not require an out-of-state business to be included in a
18consolidated return under section 422.37, and shall not
19increase the amount of net income of the out-of-state business
20allocated and apportioned to the state under section 422.8 or
21422.33, as applicable.
22 Sec. 9. Section 422.9, subsection 2A, paragraph b, Code
232021, is amended by striking the paragraph.
24 Sec. 10. Section 422.13, subsection 5, Code 2021, is amended
25by striking the subsection.
26 Sec. 11. Section 422.13, subsection 6, Code 2021, is amended
27to read as follows:
286. Notwithstanding subsections 1 through 5 4 and sections
29422.14 and 422.15, a return is not required by a taxpayer as
30provided in section 29C.24.
31 Sec. 12. Section 422.16, subsection 12, paragraph a, Code
322021, is amended to read as follows:
33a. In the case of nonresidents having income subject to
34taxation by Iowa, but not subject to withholding of such tax
35under subsection 1 hereof or subject to the provisions of
-12-1section 422.16B, withholding agents shall withhold from such
2income at the same rate as provided in subsection 1 hereof, and
3such withholding agents and such nonresidents shall be subject
4to the provisions of this section, according to the context,
5except that such withholding agents may be absolved of such
6requirement to withhold taxes from such nonresident’s income
7upon receipt of a certificate from the department issued in
8accordance with the provisions of section 422.17, as hereby
9amended. In the case of nonresidents having income from a
10trade or business carried on by them in whole or in part within
11the state of Iowa, such nonresident shall be considered to be
12subject to the provisions of this subsection unless such trade
13or business is of such nature that the business entity itself,
14as a withholding agent, is required to and does withhold Iowa
15income tax from the distributions made to such nonresident from
16such trade or business.
17 Sec. 13. Section 422.16, subsection 12, paragraph c, Code
182021, is amended by striking the paragraph.
19 Sec. 14. NEW SECTION. 422.16B Pass-through entity composite
20returns.
211. As used in this section, unless the context otherwise
22requires:
23a. “Nonresident member” means a partner in a partnership as
24defined in section 422.25A, a shareholder of an S corporation,
25or a beneficiary of an estate or trust, who is any of the
26following:
27(1) An individual who is not a resident of this state.
28(2) A partnership without a commercial domicile in this
29state.
30(3) A trust or estate without a situs in this state.
31(4) A C corporation or S corporation without a commercial
32domicile in this state.
33(5) A financial institution as defined in section 422.61
34without a commercial domicile in this state.
35b. “Pass-through entity” includes any entity that is a
-13-1partnership or a pass-through entity as those terms are defined
2in 422.25A.
3c. “Tiered pass-through entity” means a member of a pass-
4through entity that is itself a pass-through entity.
52. a. (1) A pass-through entity shall file a composite
6return on behalf of all nonresident members and shall report
7and pay the income or franchise tax imposed under this chapter
8at the maximum state income or franchise tax rate applicable
9to the member under section 422.5A, 422.33, or 422.63 on the
10nonresident members’ distributive shares of the income from the
11pass-through entity.
12(2) The tax rate applicable to a tiered pass-through entity
13shall be the maximum state income tax rate under section
14422.5A.
15b. The composite return is due and shall be filed by the
16due date of the pass-through entity’s annual return required
17under section 422.14, 422.15, or 422.36, including extensions.
18The return shall be on a form prescribed by the department
19showing the total amounts paid or credited to the pass-through
20entity’s nonresident members, the amounts of income or
21franchise tax remitted in accordance with this section, if any,
22and such other information as the department may require. A
23pass-through entity shall furnish to its nonresident members a
24record of the amount of Iowa income or franchise tax remitted
25on behalf of such nonresident member in the manner and form
26prescribed by the department.
27c. The Iowa income or franchise tax on the composite return
28is due on and shall be paid by the due date of the pass-through
29entity’s annual return required under section 422.14, 422.15,
30or 422.36, without extensions.
313. a. A pass-through entity is liable to the state for
32the payment of the tax required to be remitted under this
33section, together with applicable interest and penalties,
34but is not liable to any nonresident member for any amount
35withheld from distributions to or from the distributive share
-14-1of such nonresident member and remitted in compliance with this
2section.
3b. If a pass-through entity fails to pay any amount of tax
4required under this section and thereafter the tax is paid
5by the nonresident member, the amount of tax as paid by the
6nonresident member shall not be collected from the pass-through
7entity, but such payment by the nonresident member shall not
8relieve the pass-through entity from any penalty or interest
9associated with the failure to pay.
104. a. A nonresident member that has been included on a
11composite return filed pursuant to this section shall receive
12credit for Iowa income or franchise tax paid on the nonresident
13member’s behalf by the pass-through entity, and any amounts in
14excess of the nonresident member’s Iowa tax liability for the
15applicable tax period may be refunded to the nonresident member
16with interest in accordance with section 421.60, subsection
172, paragraph “e”. The nonresident member’s Iowa return shall
18constitute a claim for refund for this purpose. In lieu of
19claiming a refund, the nonresident member may elect to have the
20overpayment shown on the nonresident member’s final, completed
21return for the taxable year credited to the taxpayer’s tax
22liability for the following taxable year.
23b. A tiered pass-through entity shall be subject to the
24same requirements to file a composite return and pay tax
25under this section with respect to the distributive shares
26of the tiered pass-through entity’s income. Any Iowa income
27or franchise tax paid on the tiered pass-through entity’s
28behalf by another pass-through entity may be applied against
29that tiered pass-through entity’s own composite tax remittance
30obligation imposed under this section.
31c. A nonresident individual included on a composite tax
32return filed pursuant to this section shall be relieved of
33the requirement to file an individual income tax return under
34section 422.13 if income from the pass-through entity is the
35nonresident individual’s only Iowa-source income.
-15- 15. A pass-through entity shall not be required to remit Iowa
2income or franchise tax on behalf of a nonresident member if
3any of the following apply:
4a. The pass-through entity is a publicly traded partnership
5as defined in section 7704(b) of the Internal Revenue Code,
6provided the publicly traded partnership files with the
7department an information return that reports the name,
8address, taxpayer identification number, and any other
9information requested by the department for each unit
10holder with an income in this state from the publicly traded
11partnership in excess of five hundred dollars.
12b. A composite return is not required as provided in section
1329C.24.
14c. The department determines by rule or through a ruling
15that the nonresident member’s income should not be subject to
16composite return reporting, such as a member that is exempt
17from Iowa income or franchise tax.
186. If the director determines that it is necessary for the
19efficient administration of this chapter, the director may
20require that a composite return be filed for nonresidents other
21than nonresident members of a pass-through entity.
227. All powers of the director and requirements of the
23director apply to returns filed under this section including
24but not limited to the provisions of this subchapter and
25subchapter VI. The provisions of section 422.16, subsection
262, paragraph “c”, and subsections 6, 10, and 14, applying
27to withholding agents, shall apply in the same manner to
28pass-through entities under this section.
298. For the efficient administration of this chapter, the
30director may require or provide for the composite return on the
31same form as or combined with a pass-through entity’s annual
32return required under section 422.14, 422.15, or 422.36, but in
33such case the composite return shall be considered a separate
34return for purposes of this chapter and section 421.27.
35 Sec. 15. APPLICABILITY. This division of this Act applies
-16-1to tax years beginning on or after January 1, 2022.
2DIVISION III
3PUBLIC AGENCY DISCLOSURE — TAX-EXEMPT entities — DEPARTMENT
4OF REVENUE
5 Sec. 16. 2021 Iowa Acts, House File 309, if enacted, is
6amended by adding the following new section:
7SEC. 6A. NEW SECTION. 22A.6 Applicability — department
8of revenue.
91. The following shall not be construed as a violation of
10this chapter with respect to the department of revenue:
11a. The identification of a person as a representative,
12responsible party, employee, withholding agent, or other
13signatory or contact of an entity exempt from taxation under
14section 501(c) of the Internal Revenue Code on any return,
15form, application, or other document required to be filed with
16the department, including but not limited to a tax return or
17tax permit.
18b. Powers exercised under section 422.70.
19c. Information sought pursuant to discovery in a contested
20case proceeding.
21d. Information that is expressly required to be provided
22by the department by law including but not limited to section
23422.11S.
242. The restrictions imposed under this chapter shall not
25be construed to entitle any taxpayer or tax-exempt entity to
26any deduction, exemption, credit, or other tax position which
27the taxpayer or exempt entity is unable to substantiate with
28sufficient evidence.
29EXPLANATION
30The inclusion of this explanation does not constitute agreement with
31the explanation’s substance by the members of the general assembly.
32This bill relates to the administration of the tax and
33related laws by the department of revenue by requiring
34composite returns for pass-through entities, restricting public
35disclosure of certain information, and modifying penalty
-17-1provisions.
2DIVISION I. The bill updates language in Code section 421.27
3(penalties) to enhance the readability of the Code section.
4The bill specifies that the taxpayer has the burden to prove
5any of the conditions necessary to waive a penalty under Code
6section 421.27.
7The bill modifies the penalty for the failure of a person to
8file a return from 10 percent of the tax shown due or required
9to be shown due to 5 percent of the unpaid tax.
10Currently, if a business fails to file a return, the business
11pays a penalty of $200 or an amount equal to 10 percent of the
12imputed Iowa liability, not to exceed $25,000, whichever is
13greater. The bill modifies the penalty provision to specify
14the business pays a penalty of $200 or an amount equal to 5
15percent of the imputed Iowa liability, not to exceed $25,000,
16whichever is greater.
17The bill specifies the penalties for failure to timely file a
18return are in addition to any other penalty provided by law.
19The bill specifies that a taxpayer who is required to file a
20quarterly or monthly return may have one late return or payment
21over a three-year period before being ineligible to receive a
22waiver of a penalty for failing to file a return.
23Currently, there are 14 conditions a taxpayer may raise
24in order to be eligible to receive the waiver of a penalty
25for failing to file a return. The bill strikes one of these
26conditions relating to the failure to file an inheritance tax
27return that resulted from a disclaimer, so in such a situation
28the penalty is not waivable.
29The penalty for failing to timely pay tax due is modified by
30the bill by assessing a 5 percent penalty against the unpaid
31tax due rather than 5 percent of the tax.
32The bill allows most conditions a taxpayer may raise in order
33to be eligible to receive a waiver of a penalty for failing to
34file a return to apply to the waiver of the penalty for failing
35to timely pay a tax due.
-18- 1If any person fails to pay the tax due and the department
2of revenue discovers the underpayment, the bill modifies the
3penalty from 5 percent of the tax to 5 percent of the unpaid
4tax. The bill specifies such a penalty is in lieu of the
5penalty for failing to timely pay a tax due.
6The bill modifies the penalty for willful failure to file a
7return or pay a tax from 75 percent of the tax required to be
8shown or shown due to 75 percent of the unpaid tax.
9The bill strikes a provision specifying which penalties are
10applicable if a person fails to file a return or fails to pay
11the tax, and willfully fails to file a return or willfully
12files a false return.
13The bill modifies the criminal offense of fraudulent
14practice relating to state taxes to include actions of a
15taxpayer who willfully submits any false information in support
16of the taxpayer’s taxes with the intent to receive a refund,
17credit exemption, reimbursement, rebate, or other payment or
18benefit, to which the tax person is not entitled.
19The bill modifies the criminal offense of fraudulent
20practice relating to state taxes to include actions of a
21taxpayer who willfully submits false information in support of
22an application for a refund with the intent to evade tax or
23receive a refund.
24The bill provides that the criminal offense of fraudulent
25practice is not waivable by the department of revenue.
26The penalties for fraudulent practice range from a simple
27misdemeanor to a class “C” felony depending upon the amount of
28money or value of property involved.
29The bill modifies the penalty for failure to use a required
30tax form to include failure to use the required manner to remit
31taxes. The penalty is modified from 5 percent of the amount of
32tax due or required to be shown due to 5 percent of the amount
33remitted in the incorrect form or manner not to exceed $500 per
34instance of incorrect form or manner. The bill specifies the
35penalty is in addition to any other penalty provided by law.
-19- 1Currently, in addition to any other tax penalty, if a
2taxpayer fails to file a return within 90 days of written
3notice by the department of revenue, a $1,000 penalty is added
4to the amount of tax shown due or required to be shown due.
5The bill modifies the penalty by requiring the department of
6revenue to send a written demand to file a tax return, and if
7the taxpayer fails to file the return under rules adopted by
8the department, a $1,000 penalty is assessed against the amount
9due.
10The bill specifies the order in which a payment will be
11applied if a taxpayer has multiple unpaid tax periods.
12The bill amends Code section 423.14(2)(b) by specifying
13that a seller of tangible personal property and specified
14digital products who is not otherwise required to collect sales
15tax may, but is not required to, collect and remit use tax.
16Current law requires the seller to collect and remit the use
17tax for such sales.
18The bill strikes the requirement that the director of
19revenue biennially submit a report to the governor and
20legislature containing recommendations for improvement to the
21system of taxation in the state.
22The bill allows the department of revenue to cancel
23withholding tax, sales tax, or use tax permits the department
24has verified are no longer in use. The department may cancel
25the permits from July 1, 2021, through December 31, 2021.
26DIVISION II. The bill establishes procedures and
27requirements for filing a composite return by a pass-through
28entity. A composite return is a single income tax return that
29reports the state income of numerous nonresident owners. The
30bill requires a pass-through entity to file a composite return
31on behalf of all nonresident owners of the pass-through entity
32based upon the nonresident owner’s Iowa-source income from
33the pass-through entity at the top individual, corporate, or
34franchise state tax rate, as applicable. The bill strikes
35provisions requiring a pass-through entity to withhold and
-20-1remit taxes on nonresident distributions made during the
2course of the tax year. If a nonresident individual owner of
3a pass-through entity has only Iowa-source income from the
4pass-through entity and a composite return is filed, the bill
5relieves the individual of the obligation to file an individual
6income tax return, though the individual may choose to file
7such a return.
8The bill amends Code section 29C.24(3)(a)(3) by exempting
9a pass-through entity from filing a composite return in this
10state if the contact with this state is to conduct business
11in this state solely for the purpose of performing disaster
12relief.
13The bill specifies that a nonresident that has been included
14on a composite return shall receive credit for Iowa income
15or franchise tax paid on the nonresident member’s behalf by
16the pass-through entity, and any amounts in excess of the
17nonresident member’s Iowa tax liability for the applicable tax
18period may be refunded to the nonresident member.
19The bill provides that a tiered pass-through entity is
20subject to the same requirements to file a composite return and
21pay tax on the distributive shares of the tiered pass-through
22entity’s income. The bill defines a tiered pass-through entity
23to mean a member of a pass-through entity that is itself a
24pass-through entity.
25If the director of revenue determines it necessary for
26efficient administration, the director may require a pass-
27through entity to file a composite return for nonresidents
28other than nonresident members of the pass-through entity.
29The bill makes the due date of a composite return coincide
30with the pass-through entity’s regular annual tax return due
31date.
32The bill specifies certain circumstances when a pass-
33through entity is not required to remit Iowa income or
34franchise tax on behalf of a nonresident member.
35DIVISION III. The bill amends new Code chapter 22A, if
-21-1enacted by 2021 Iowa Acts, House File 309, relating to the
2public disclosure of information relating to a tax-exempt
3entity by a public agency. The bill provides that a violation
4of Code chapter 22A does not occur if the department of
5revenue does any of the following: identifies a person as a
6representative, responsible party, employee, withholding agent,
7or other signatory or contact of an entity exempt from taxation
8on any return, form, application, or other document required
9to be filed with the department; exercises powers under
10Code section 422.70 (general powers — hearings); discloses
11information sought pursuant to a contested case; or discloses
12information expressly required by law including disclosures
13pursuant to Code section 411.11S (student tuition organization
14tax credit). The bill states disclosure restrictions imposed
15under Code chapter 22A, if enacted, shall not be construed to
16entitle any taxpayer or tax-exempt entity to any deduction,
17exemption, credit, or other tax position which the taxpayer
18or exempt entity is unable to substantiate with sufficient
19evidence.
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