Text: HF00074 Text: HF00076 Text: HF00000 - HF00099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN 1 1 Section 1. Section 422.5, subsection 1, paragraph j, Code 1 2 1995, is amended by adding the following new unnumbered 1 3 paragraph: 1 4 NEW UNNUMBERED PARAGRAPH. The tax imposed upon the taxable 1 5 income of a resident shareholder in a corporation which has in 1 6 effect for the tax year an election under subchapter S of the 1 7 Internal Revenue Code and carries on business within and 1 8 without the state may be computed by reducing the amount 1 9 determined pursuant to paragraphs "a" through "i" by the 1 10 amounts of nonrefundable credits under this division and by 1 11 multiplying this resulting amount by a fraction of which the 1 12 resident's net income allocated to Iowa, as determined in 1 13 section 422.8, subsection 2, paragraph "b", is the numerator 1 14 and the resident's total net income computed under section 1 15 422.7 is the denominator. This paragraph also applies to 1 16 individuals who are residents of Iowa for less than the entire 1 17 tax year. 1 18 Sec. 2. Section 422.5, subsection 1, paragraph k, 1 19 unnumbered paragraph 4, Code 1995, is amended to read as 1 20 follows: 1 21 In the case of a resident, including a resident estate or 1 22 trust, the state's apportioned share of the state alternative 1 23 minimum tax is one hundred percent of the state alternative 1 24 minimum tax computed in this subsection. In the case of a 1 25 resident or part year resident shareholder in a corporation 1 26 which has in effect for the tax year an election under 1 27 subchapter S of the Internal Revenue Code and carries on 1 28 business within and without the state, nonresident, including 1 29 a nonresident estate or trust, or an individual, estate, or 1 30 trust that is domiciled in the state for less than the entire 1 31 tax year, the state's apportioned share of the state 1 32 alternative minimum tax is the amount of tax computed under 1 33 this subsection, reduced by the applicable credits in sections 1 34 422.10 through 422.12 and this result multiplied by a fraction 1 35 with a numerator of the sum of state net income allocated to 2 1 Iowa as determined in section 422.8, subsection 2, paragraph 2 2 "a" or "b" as applicable, plus tax preference items, 2 3 adjustments, and losses under subparagraph (1) attributable to 2 4 Iowa and with a denominator of the sum of total net income 2 5 computed under section 422.7 plus all tax preference items, 2 6 adjustments, and losses under subparagraph (1). In computing 2 7 this fraction, those items excludable under subparagraph (1) 2 8 shall not be used in computing the tax preference items. 2 9 Married taxpayers electing to file separate returns or 2 10 separately on a combined return must allocate the minimum tax 2 11 computed in this subsection in the proportion that each 2 12 spouse's respective preference items, adjustments, and losses 2 13 under subparagraph (1) bear to the combined preference items, 2 14 adjustments, and losses under subparagraph (1) of both 2 15 spouses. 2 16 Sec. 3. Section 422.7, Code 1995, is amended by adding the 2 17 following new subsection: 2 18 NEW SUBSECTION. 32. Resident shareholders of a 2 19 corporation which has an election in effect under subchapter S 2 20 of the Internal Revenue Code shall add their proportionate 2 21 share of a deemed distribution of current year income, upon 2 22 which Iowa income tax has not been paid as determined under 2 23 rules of the director, to the extent that the salaries, wages, 2 24 or other compensation for services performed by all 2 25 shareholders does not equal ten percent of net income of the 2 26 corporation computed in accordance with section 422.35 and 2 27 considering items of income and expense which pass directly to 2 28 the shareholders under provisions of the Internal Revenue Code 2 29 before deduction of shareholders' salaries, wages, or other 2 30 compensation for services performed. In addition there shall 2 31 be added any cash or the value of any property distributions 2 32 made to the extent they are made from income upon which Iowa 2 33 income tax has not been paid as determined under rules of the 2 34 director. 2 35 Sec. 4. Section 422.8, subsection 2, Code 1995, is amended 3 1 to read as follows: 3 2 2. a. Nonresident's net income allocated to Iowa is the 3 3 net income, or portion thereof, which is derived from a 3 4 business, trade, profession, or occupation carried on within 3 5 this state or income from any property, trust, estate, or 3 6 other source within Iowa. However, income derived from a 3 7 business, trade, profession, or occupation carried on within 3 8 this state and income from any property, trust, estate, or 3 9 other source within Iowa shall not include distributions from 3 10 pensions, including defined benefit or defined contribution 3 11 plans, annuities, individual retirement accounts, and deferred 3 12 compensation plans or any earnings attributable thereto so 3 13 long as the distribution is directly related to an 3 14 individual's documented retirement and received while the 3 15 individual is a nonresident of this state. If a business, 3 16 trade, profession, or occupation is carried on partly within 3 17 and partly without the state, only the portion of the net 3 18 income which is fairly and equitably attributable to that part 3 19 of the business, trade, profession, or occupation carried on 3 20 within the state is allocated to Iowa for purposes of section 3 21 422.5, subsection 1, paragraph "j", and section 422.13 and 3 22 income from any property, trust, estate, or other source 3 23 partly within and partly without the state is allocated to 3 24 Iowa in the same manner, except that annuities, interest on 3 25 bank deposits and interest-bearing obligations, and dividends 3 26 are allocated to Iowa only to the extent to which they are 3 27 derived from a business, trade, profession, or occupation 3 28 carried on within the state. 3 29 b. A resident's income allocable to Iowa is the income 3 30 determined under section 422.7 reduced by the net income or 3 31 loss of a corporation which is fairly and equitably 3 32 attributable without the state under section 422.33. For the 3 33 purposes of this paragraph, "corporation" means a corporation 3 34 which has in effect for the tax year an election under 3 35 subchapter S of the Internal Revenue Code and carries on 4 1 business partly within and partly without the state. This 4 2 paragraph also applies to individuals who are residents of 4 3 Iowa for less than the entire tax year. 4 4 Sec. 5. Section 422.8, Code 1995, is amended by adding the 4 5 following new subsection: 4 6 NEW SUBSECTION. 6. If the resident or part year resident 4 7 is a shareholder of a corporation which has in effect an 4 8 election under subchapter S of the Internal Revenue Code, 4 9 subsections 1 and 3 do not apply to any income taxes paid to 4 10 another state or foreign country on the income from the 4 11 corporation which has in effect an election under subchapter S 4 12 of the Internal Revenue Code. 4 13 Sec. 6. This Act takes effect upon enactment and applies 4 14 retroactively to January 1, 1995, for tax years beginning on 4 15 or after that date. 4 16 EXPLANATION 4 17 Under current statutory provisions, a nonresident 4 18 shareholder of a subchapter S corporation computes an amount 4 19 of Iowa individual income tax on the nonresident's total 4 20 income earned everywhere and then that amount of tax is 4 21 prorated to Iowa in the ratio of gross income from Iowa 4 22 sources to total gross income. 4 23 The bill taxes the income from a subchapter S corporation 4 24 for a resident shareholder the same way as the income is taxed 4 25 for a nonresident. An amount of Iowa individual income tax is 4 26 computed on the total resident shareholder's total income 4 27 everywhere and then the amount of tax is prorated to Iowa in 4 28 the ratio of gross income everywhere reduced by the non-Iowa 4 29 income of the subchapter S corporation to total income 4 30 everywhere. The resident shareholder may still take an out- 4 31 of-state tax credit on income other than income from the 4 32 subchapter S corporation for taxes paid to another state. 4 33 The bill applies retroactively to January 1, 1995, for tax 4 34 years beginning on or after that date. 4 35 LSB 1066HV 76 5 1 mg/cf/24
Text: HF00074 Text: HF00076 Text: HF00000 - HF00099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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