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House File 352 - ReprintedA Bill ForAn Act 1relating to an entity-level taxation election for
2pass-through entities and allowing a partner or shareholder
3to claim a credit against the individual and corporate
4income taxes and the franchise tax, and including effective
5date and retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.11, Code 2023, is amended to read as
2follows:
3422.11 Franchise tax credit.
41. The taxes imposed under this subchapter, less the credits
5allowed under section 422.12, shall be reduced by a franchise
6tax credit. A taxpayer who is a shareholder in a financial
7institution, as defined in section 581 of the Internal Revenue
8Code, which has in effect for the tax year an election under
9subchapter S of the Internal Revenue Code, or is a member of a
10financial institution organized as a limited liability company
11under chapter 524 that is taxed as a partnership for federal
12income tax purposes, shall compute the amount of the tax credit
13by recomputing the amount of tax under this subchapter by
14reducing the taxable income of the taxpayer by the taxpayer’s
15pro rata share of the items of income and expense of the
16financial institution and subtracting the credits allowed
17under section 422.12. This recomputed tax shall be subtracted
18from the amount of tax computed under this subchapter after
19the deduction for credits allowed under section 422.12. The
20resulting amount, which shall not exceed the taxpayer’s
21pro rata share of the franchise tax paid by the financial
22institution, is the amount of the franchise tax credit allowed.
232. For a taxpayer making an election under section 422.16C
24that is also a financial institution subject to the franchise
25tax under subchapter V, the tax imposed under section 422.16C
26shall be reduced by a franchise tax credit equal to the amount
27of franchise tax paid by the taxpayer for the same year.
28 Sec. 2. NEW SECTION. 422.16C Pass-through entity —
29election — entity-level tax — credit.
301. As used in this section, unless the context otherwise
31requires:
32a. “Partnership” means the same as defined in section
33422.25A, except a “partnership” does not include a pass-through
34entity that is a publicly traded partnership as defined in
35section 7704 of the Internal Revenue Code.
-1- 1b. “Taxpayer” means a partnership or an S corporation.
22. For tax years beginning on or after January 1, 2022,
3notwithstanding any other provision of law to the contrary,
4a taxpayer may elect to be subject to the provisions of this
5section. This section only applies to tax years for which
6the limitation on individual deductions applies under section
7164(b)(6) of the Internal Revenue Code.
83. a. A separate election shall be made for each tax year
9on a form and at a time prescribed by the department. An
10election shall be irrevocable once made and shall be binding on
11the taxpayer and all partners or shareholders of the taxpayer.
12b. If an election is made under this section, a taxpayer
13shall not be required to file a composite return for the same
14tax year pursuant to section 422.16B.
154. a. A taxpayer making an election under this section
16shall be subject to tax in an amount equal to the maximum rate
17under section 422.5A, imposed against the taxable income of the
18taxpayer for the taxable year properly determined under this
19chapter and allocated and apportioned to the state under the
20rules adopted by the department. The tax shall be due with the
21taxpayer’s return required under this chapter.
22b. The tax under this section shall be reduced by the credit
23provided in subsection 5, paragraph “b”, and the franchise
24tax credit in section 422.11, subsection 2, and the composite
25credit in section 422.16B, subsection 4. Any other tax
26credits shall not be claimed by the taxpayer against the tax
27imposed under this section. A net operating loss or other loss
28carryback or carryforward shall not be claimed by the taxpayer.
295. a. For a taxable year in which a taxpayer made an
30election under this section, for the partners or shareholders
31of the taxpayer, the taxes imposed under this subchapter, less
32the credits allowed under section 422.12, or the taxes imposed
33under subchapter III or V, as applicable, shall be reduced by a
34credit equal to the product of the following amounts:
35(1) The ratio of the partner’s or shareholder’s share of
-2-1the taxpayer’s taxable income over the taxpayer’s total taxable
2income multiplied by the state tax liability actually paid by
3the taxpayer.
4(2) The difference between one hundred percent and the
5highest individual income tax rate in effect for the tax year.
6b. If the taxpayer is itself a partner or shareholder of
7another taxpayer making an election under this section, the
8credit under this subsection shall be allowed.
9c. Any credit in excess of the tax liability is refundable.
10In lieu of claiming a refund, the partner or shareholder
11may elect to have the overpayment shown on the partner’s or
12shareholder’s final, completed return credited to the tax
13liability for the following tax year.
146. A nonresident individual who is a partner or shareholder
15of a taxpayer for a tax year in which an election is made under
16this section shall not be required to file an individual income
17tax return under section 422.13 for such tax year if the only
18Iowa source income of the individual is from a taxpayer making
19the election under this section, the credit allowed to the
20partner or shareholder equals or exceeds the tax liability of
21the partner or shareholder for the tax imposed in the tax year
22the election is made, and if the taxpayer files and pays the
23tax due under this section.
247. A taxpayer making an election under this section is
25liable for the entity-level tax imposed pursuant to this
26section, including applicable penalties and interest. This
27section shall not prohibit the department from assessing
28direct or indirect partners and shareholders for taxes owed in
29the event that the taxpayer fails to timely make any payment
30required by this section for any reason.
318. In addition to and not in lieu of any period of
32limitation provided in section 422.25, if a taxpayer files an
33amended return that requests a refund of tax previously paid
34within one year prior to the expiration of the department’s
35applicable period of limitations in section 422.25, the
-3-1department has one year from the date of receipt of the
2amended return to assess any direct or indirect partners
3and shareholders related to the reduction of any tax credit
4provided under subsection 5.
59. The department shall adopt rules pursuant to chapter 17A
6to administer this section.
7 Sec. 3. Section 422.85, Code 2023, is amended to read as
8follows:
9422.85 Imposition of estimated tax.
10A taxpayer subject to the tax imposed by sections 422.16C,
11 422.33, and 422.60 shall make payments of estimated tax for the
12taxable year if the amount of tax payable, less credits, can
13reasonably be expected to be more than one thousand dollars for
14the taxable year. For purposes of this subchapter, “estimated
15tax” means the amount which the taxpayer estimates to be the tax
16due and payable under subchapter II, III, or V of this chapter
17for the taxable year.
18 Sec. 4. ESTIMATED TAX PAYMENTS FOR TAX YEARS BEGINNING PRIOR
19TO EFFECTIVE DATE OF ACT. Notwithstanding sections 422.16 and
20422.85, a taxpayer electing to apply the provisions of section
21422.16C shall not be required to make estimated tax payments
22for a tax year beginning prior to the effective date of this
23Act.
24 Sec. 5. PENALTY AND INTEREST WAIVER RELATED TO TAX YEARS
25ENDING PRIOR TO EFFECTIVE DATE OF ACT. Notwithstanding any
26provision of law to the contrary, the department may waive
27penalty and interest for a return filing or tax payment related
28to an election to be subject to the provisions of section
29422.16C for a tax year ending prior to the effective date of
30this Act.
31 Sec. 6. EFFECTIVE DATE. This Act, being deemed of immediate
32importance, takes effect upon enactment.
33 Sec. 7. RETROACTIVE APPLICABILITY. This Act applies
34retroactively to January 1, 2022, for tax years beginning on
35or after that date.
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2pass-through entities and allowing a partner or shareholder
3to claim a credit against the individual and corporate
4income taxes and the franchise tax, and including effective
5date and retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.11, Code 2023, is amended to read as
2follows:
3422.11 Franchise tax credit.
41. The taxes imposed under this subchapter, less the credits
5allowed under section 422.12, shall be reduced by a franchise
6tax credit. A taxpayer who is a shareholder in a financial
7institution, as defined in section 581 of the Internal Revenue
8Code, which has in effect for the tax year an election under
9subchapter S of the Internal Revenue Code, or is a member of a
10financial institution organized as a limited liability company
11under chapter 524 that is taxed as a partnership for federal
12income tax purposes, shall compute the amount of the tax credit
13by recomputing the amount of tax under this subchapter by
14reducing the taxable income of the taxpayer by the taxpayer’s
15pro rata share of the items of income and expense of the
16financial institution and subtracting the credits allowed
17under section 422.12. This recomputed tax shall be subtracted
18from the amount of tax computed under this subchapter after
19the deduction for credits allowed under section 422.12. The
20resulting amount, which shall not exceed the taxpayer’s
21pro rata share of the franchise tax paid by the financial
22institution, is the amount of the franchise tax credit allowed.
232. For a taxpayer making an election under section 422.16C
24that is also a financial institution subject to the franchise
25tax under subchapter V, the tax imposed under section 422.16C
26shall be reduced by a franchise tax credit equal to the amount
27of franchise tax paid by the taxpayer for the same year.
28 Sec. 2. NEW SECTION. 422.16C Pass-through entity —
29election — entity-level tax — credit.
301. As used in this section, unless the context otherwise
31requires:
32a. “Partnership” means the same as defined in section
33422.25A, except a “partnership” does not include a pass-through
34entity that is a publicly traded partnership as defined in
35section 7704 of the Internal Revenue Code.
-1- 1b. “Taxpayer” means a partnership or an S corporation.
22. For tax years beginning on or after January 1, 2022,
3notwithstanding any other provision of law to the contrary,
4a taxpayer may elect to be subject to the provisions of this
5section. This section only applies to tax years for which
6the limitation on individual deductions applies under section
7164(b)(6) of the Internal Revenue Code.
83. a. A separate election shall be made for each tax year
9on a form and at a time prescribed by the department. An
10election shall be irrevocable once made and shall be binding on
11the taxpayer and all partners or shareholders of the taxpayer.
12b. If an election is made under this section, a taxpayer
13shall not be required to file a composite return for the same
14tax year pursuant to section 422.16B.
154. a. A taxpayer making an election under this section
16shall be subject to tax in an amount equal to the maximum rate
17under section 422.5A, imposed against the taxable income of the
18taxpayer for the taxable year properly determined under this
19chapter and allocated and apportioned to the state under the
20rules adopted by the department. The tax shall be due with the
21taxpayer’s return required under this chapter.
22b. The tax under this section shall be reduced by the credit
23provided in subsection 5, paragraph “b”, and the franchise
24tax credit in section 422.11, subsection 2, and the composite
25credit in section 422.16B, subsection 4. Any other tax
26credits shall not be claimed by the taxpayer against the tax
27imposed under this section. A net operating loss or other loss
28carryback or carryforward shall not be claimed by the taxpayer.
295. a. For a taxable year in which a taxpayer made an
30election under this section, for the partners or shareholders
31of the taxpayer, the taxes imposed under this subchapter, less
32the credits allowed under section 422.12, or the taxes imposed
33under subchapter III or V, as applicable, shall be reduced by a
34credit equal to the product of the following amounts:
35(1) The ratio of the partner’s or shareholder’s share of
-2-1the taxpayer’s taxable income over the taxpayer’s total taxable
2income multiplied by the state tax liability actually paid by
3the taxpayer.
4(2) The difference between one hundred percent and the
5highest individual income tax rate in effect for the tax year.
6b. If the taxpayer is itself a partner or shareholder of
7another taxpayer making an election under this section, the
8credit under this subsection shall be allowed.
9c. Any credit in excess of the tax liability is refundable.
10In lieu of claiming a refund, the partner or shareholder
11may elect to have the overpayment shown on the partner’s or
12shareholder’s final, completed return credited to the tax
13liability for the following tax year.
146. A nonresident individual who is a partner or shareholder
15of a taxpayer for a tax year in which an election is made under
16this section shall not be required to file an individual income
17tax return under section 422.13 for such tax year if the only
18Iowa source income of the individual is from a taxpayer making
19the election under this section, the credit allowed to the
20partner or shareholder equals or exceeds the tax liability of
21the partner or shareholder for the tax imposed in the tax year
22the election is made, and if the taxpayer files and pays the
23tax due under this section.
247. A taxpayer making an election under this section is
25liable for the entity-level tax imposed pursuant to this
26section, including applicable penalties and interest. This
27section shall not prohibit the department from assessing
28direct or indirect partners and shareholders for taxes owed in
29the event that the taxpayer fails to timely make any payment
30required by this section for any reason.
318. In addition to and not in lieu of any period of
32limitation provided in section 422.25, if a taxpayer files an
33amended return that requests a refund of tax previously paid
34within one year prior to the expiration of the department’s
35applicable period of limitations in section 422.25, the
-3-1department has one year from the date of receipt of the
2amended return to assess any direct or indirect partners
3and shareholders related to the reduction of any tax credit
4provided under subsection 5.
59. The department shall adopt rules pursuant to chapter 17A
6to administer this section.
7 Sec. 3. Section 422.85, Code 2023, is amended to read as
8follows:
9422.85 Imposition of estimated tax.
10A taxpayer subject to the tax imposed by sections 422.16C,
11 422.33, and 422.60 shall make payments of estimated tax for the
12taxable year if the amount of tax payable, less credits, can
13reasonably be expected to be more than one thousand dollars for
14the taxable year. For purposes of this subchapter, “estimated
15tax” means the amount which the taxpayer estimates to be the tax
16due and payable under subchapter II, III, or V of this chapter
17for the taxable year.
18 Sec. 4. ESTIMATED TAX PAYMENTS FOR TAX YEARS BEGINNING PRIOR
19TO EFFECTIVE DATE OF ACT. Notwithstanding sections 422.16 and
20422.85, a taxpayer electing to apply the provisions of section
21422.16C shall not be required to make estimated tax payments
22for a tax year beginning prior to the effective date of this
23Act.
24 Sec. 5. PENALTY AND INTEREST WAIVER RELATED TO TAX YEARS
25ENDING PRIOR TO EFFECTIVE DATE OF ACT. Notwithstanding any
26provision of law to the contrary, the department may waive
27penalty and interest for a return filing or tax payment related
28to an election to be subject to the provisions of section
29422.16C for a tax year ending prior to the effective date of
30this Act.
31 Sec. 6. EFFECTIVE DATE. This Act, being deemed of immediate
32importance, takes effect upon enactment.
33 Sec. 7. RETROACTIVE APPLICABILITY. This Act applies
34retroactively to January 1, 2022, for tax years beginning on
35or after that date.
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