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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, a nonresident,
1 29 including a nonresident estate or trust, or an individual,
1 30 estate, or trust that is domiciled in the state for less than
1 31 the entire tax year, the state's apportioned share of the
1 32 state alternative minimum tax is the amount of tax computed
1 33 under this subsection, reduced by the applicable credits in
1 34 sections 422.10 through 422.12 and this result multiplied by a
1 35 fraction with a numerator of the sum of state net income
2 1 allocated to Iowa as determined in section 422.8, subsection
2 2 2, paragraph "a" or "b" as applicable, plus tax preference
2 3 items, adjustments, and losses under subparagraph (1)
2 4 attributable to Iowa and with a denominator of the sum of
2 5 total net income computed under section 422.7 plus all tax
2 6 preference items, adjustments, and losses under subparagraph
2 7 (1). In computing this fraction, those items excludable under
2 8 subparagraph (1) shall not be used in computing the tax
2 9 preference items. Married taxpayers electing to file separate
2 10 returns or separately on a combined return must allocate the
2 11 minimum tax computed in this subsection in the proportion that
2 12 each spouse's respective preference items, adjustments, and
2 13 losses under subparagraph (1) bear to the combined preference
2 14 items, adjustments, and losses under subparagraph (1) of both
2 15 spouses.
2 16 Sec. 3. Section 422.7, Code Supplement 1995, is amended by
2 17 adding the following new subsection:
2 18 NEW SUBSECTION. 35. 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, 1996, 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, 1996, for tax
4 34 years beginning on or after that date.
4 35 LSB 3104YH 76
5 1 mg/cf/24
Text: HF02022 Text: HF02024 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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