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