Text: HF02084 Text: HF02086 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. Section 422.60, Code 1995, is amended by
1 2 striking the section and inserting in lieu thereof the
1 3 following:
1 4 422.60 IMPOSITION OF FRANCHISE TAX.
1 5 1. A franchise tax measured by net income is imposed on
1 6 every financial institution for the privilege of doing
1 7 business in this state and for exercising its franchise in a
1 8 corporate or organized capacity.
1 9 2. The franchise tax is imposed at a rate equal to five
1 10 percent of the net income received or accrued during the
1 11 taxable year. If the net income is derived from business
1 12 carried on partly within and partly without the state or from
1 13 sources partly within or without the state, the tax shall be
1 14 imposed on the portion of the net income allocated and
1 15 apportioned to the state as provided in section 422.61A.
1 16 Sec. 2. Section 422.61, Code Supplement 1995, is amended
1 17 by striking the section and inserting in lieu thereof the
1 18 following:
1 19 422.61 DEFINITIONS.
1 20 As used in this division, unless the context otherwise
1 21 requires:
1 22 1. "Bank" means any of the following:
1 23 a. A corporation or other business entity registered under
1 24 state law as a bank holding company, registered under the
1 25 Federal Bank Holding Company Act of 1956, as amended, or
1 26 registered as a savings and loan holding company under the
1 27 Federal National Housing Act, as amended.
1 28 b. A national bank organized and existing as a national
1 29 bank association pursuant to the National Bank Act, 12 U.S.C.
1 30 } 21 et seq.
1 31 c. A savings association or federal savings bank as
1 32 defined in the Federal Deposit Insurance Act, 12 U.S.C. }
1 33 1813(b)(1).
1 34 d. A bank or thrift institution incorporated or organized
1 35 under the laws of any state.
2 1 e. A corporation organized under 12 U.S.C. } 611-631.
2 2 f. An agency or branch of a foreign depository as defined
2 3 in 12 U.S.C. } 3101.
2 4 g. A production credit association organized under the
2 5 federal Farm Credit Act of 1933, of which all stock held by
2 6 the federal production corporation has been retired.
2 7 2. "Billing address" means the location indicated in the
2 8 books and records of the taxpayer on the first day of the
2 9 taxable year or on the later date in the taxable year when the
2 10 customer relationship began as the address where any notice,
2 11 statement, or bill relating to a customer's account is mailed.
2 12 3. "Borrower or credit cardholder located in this state"
2 13 means a borrower, other than a credit cardholder, that is
2 14 engaged in a trade or business which maintains its commercial
2 15 domicile in this state and a borrower that is not engaged in a
2 16 trade or business or a credit cardholder whose billing address
2 17 is in this state.
2 18 4. "Commercial domicile" means the place from which the
2 19 trade or business is principally managed and directed. If a
2 20 taxpayer is organized under the laws of a foreign country, of
2 21 the Commonwealth of Puerto Rico, or of any territory or
2 22 possession of the United States, the taxpayer's commercial
2 23 domicile is the state in which the taxpayer has declared to be
2 24 its home state pursuant to the federal International Banking
2 25 Act of 1978; or, if the taxpayer has not made such a
2 26 declaration or is not required to make such a declaration, its
2 27 commercial domicile is the state of the United States or the
2 28 District of Columbia to which the greatest number of employees
2 29 are regularly connected or out of which they are working,
2 30 irrespective of where the services of the employee are
2 31 performed, as of the last day of the taxable year.
2 32 5. "Credit card" means credit, travel, or entertainment
2 33 card.
2 34 6. "Credit card issuer's reimbursement fee" means the fee
2 35 a taxpayer receives from a merchant's bank because one of the
3 1 persons to whom the taxpayer has issued a credit card has
3 2 charged merchandise or services to the credit card.
3 3 7. "Financial institution" means any of the following:
3 4 a. A bank.
3 5 b. A corporation whose voting stock is more than fifty
3 6 percent owned, directly or indirectly, by a bank, other than
3 7 an insurance company taxable under chapter 432 or a
3 8 corporation taxable under division III of this chapter.
3 9 c. A corporation or other business entity that derives
3 10 more than fifty percent of its total gross income for
3 11 financial accounting purposes from finance leases. For
3 12 purposes of this subsection, a "finance lease" means a lease
3 13 transaction which is the functional equivalent of an extension
3 14 of credit and that transfers substantially all of the benefits
3 15 and risks incident to the ownership of property. "Finance
3 16 lease" includes a direct financing lease or leverage lease
3 17 that meets the criteria of financial accounting standards
3 18 board statement No. 13, regarding accounting for leases, or
3 19 any other lease that is accounted for as a financing by a
3 20 lessor under generally accepted accounting principles. For
3 21 this classification to apply, the average of the gross income
3 22 in the current tax year and immediately preceding two tax
3 23 years must satisfy the more than fifty percent requirement and
3 24 gross income from incidental or occasional transactions shall
3 25 be disregarded in determining the fifty percent requirement.
3 26 d. Any other person, other than an insurance company
3 27 taxable under chapter 432, which derives more than fifty
3 28 percent of its gross income from activities that a bank, or a
3 29 company described in paragraph "c", is authorized to transact.
3 30 For the purposes of this paragraph, the computation of gross
3 31 income shall not include income from nonrecurring,
3 32 extraordinary items.
3 33 The department is authorized to exclude any person from the
3 34 application of this paragraph upon the person proving, by
3 35 clear and convincing evidence, that the income-producing
4 1 activity of the person is not in substantial competition with
4 2 those of a bank or a company described in paragraph "c".
4 3 8. "Gross rents" means the actual sum of money or other
4 4 consideration payable for the use or possession of property.
4 5 "Gross rents" includes, but is not limited to, the following:
4 6 a. An amount payable for the use or possession of real
4 7 property or tangible property whether designated as a fixed
4 8 sum of money or as a percentage of receipts, profits, or
4 9 otherwise.
4 10 b. An amount payable as additional rent or in lieu of
4 11 rent, such as interest, taxes, insurance, repairs, or any
4 12 other amount required to be paid by the terms of a lease or
4 13 other arrangement.
4 14 c. A proportionate part of the cost of an improvement to
4 15 real property made by or on behalf of the taxpayer which
4 16 reverts to the owner or lessor upon termination of a lease or
4 17 other arrangement. The amount to be included in gross rents
4 18 is the amount of amortization or depreciation allowed in
4 19 computing the taxable income base for the taxable year.
4 20 However, where a building is erected on leased land by or on
4 21 behalf of the taxpayer, the value of the land is determined by
4 22 multiplying the gross rent by eight and the value of the
4 23 building is determined in the same manner as if owned by the
4 24 taxpayer.
4 25 d. All of the following are not included in the term
4 26 "gross rents":
4 27 (1) Reasonable amounts payable as separate charges for
4 28 water and electric service furnished by the lessor.
4 29 (2) Reasonable amounts payable as service charges for
4 30 janitoral services furnished by the lessor.
4 31 (3) Reasonable amounts payable for storage, provided such
4 32 amounts are payable for space not designated and not under the
4 33 control of the taxpayer.
4 34 (4) That portion of any rental payment which is applicable
4 35 to the space subleased from the taxpayer and not used by it.
5 1 9. "Loan" means any extension of credit resulting from
5 2 direct negotiations between the taxpayer and its customer, or
5 3 the purchase, in whole or in part, of such extension of credit
5 4 from another. Loans include participations, syndications, and
5 5 leases treated as loans for federal income tax purposes.
5 6 "Loan" does not include any of the following: properties
5 7 treated as loans under section 595 of the Internal Revenue
5 8 Code; futures or forward contracts; options; notional
5 9 principal contracts such as swaps; credit card receivables,
5 10 including purchased credit card relationships; non-interest-
5 11 bearing balances due from depository institutions; cash items
5 12 in the process of collection; federal funds sold; securities
5 13 purchased under agreements to resell; assets held in a trading
5 14 account; securities; interests in a real estate mortgage
5 15 investment conduit (REMIC) or other mortgage-backed or asset-
5 16 backed security; or other similar items.
5 17 10. "Loan secured by real property" means a loan in which
5 18 fifty percent or more of the aggregate value of the collateral
5 19 used to secure the loan or other obligation, when valued at
5 20 fair market value as of the time the original loan or
5 21 obligation was incurred, was real property.
5 22 11. "Merchant discount" means the fee or negotiated
5 23 discount charged to a merchant by the taxpayer for the
5 24 privilege of participating in a program whereby a credit card
5 25 is accepted in payment for merchandise or services sold to the
5 26 cardholder.
5 27 12. "Net income" means taxable income of the financial
5 28 institution as computed in accordance with section 422.35.
5 29 13. "Participation" is an extension of credit in which an
5 30 undivided ownership interest is held on a pro rata basis in a
5 31 single loan or pool of loans and related collateral. In a
5 32 loan participation, the credit originator initially makes the
5 33 loan and then subsequently resells all or a portion of it to
5 34 other lenders. The participation may or may not be known to
5 35 the borrower.
6 1 14. "Principal base of operations" with respect to
6 2 transportation property means the place of a more or less
6 3 permanent nature from which that property is regularly
6 4 directed or controlled. With respect to an employee,
6 5 "principal base of operations" means the place of a more or
6 6 less permanent nature from which the employee regularly starts
6 7 the employee's work and to which the employee customarily
6 8 returns in order to receive instructions from the taxpayer,
6 9 communicates with the employee's customers or other persons,
6 10 or performs any other functions necessary to the exercise of
6 11 the employee's trade or profession at some other point or
6 12 points.
6 13 15. "Real property owned" and "tangible personal property
6 14 owned" mean real and tangible personal property, respectively,
6 15 on which the taxpayer may claim depreciation for federal
6 16 income tax purposes, or property to which the taxpayer holds
6 17 legal title and on which no other person may claim
6 18 depreciation for federal income tax purposes or could claim
6 19 depreciation if subject to federal income tax. Real and
6 20 tangible personal property do not include coin, currency, or
6 21 property acquired in lieu of or pursuant to a foreclosure.
6 22 16. "Regular place of business" means an office at which
6 23 the taxpayer carries on its business in a regular and
6 24 systematic manner and which is continuously maintained,
6 25 occupied, and used by employees of the taxpayer.
6 26 17. "State" means a state of the United States, the
6 27 District of Columbia, the Commonwealth of Puerto Rico, any
6 28 territory or possession of the United States, or any foreign
6 29 country.
6 30 18. "Syndication" is an extension of credit in which two
6 31 or more persons fund and for which each person is at risk only
6 32 up to a specified percentage of the total extension of credit
6 33 or up to a specified dollar amount.
6 34 19. "Taxable in another state" means that a taxpayer is
6 35 subject in another state to a net income tax, a franchise tax
7 1 measured by net income, a franchise tax for the privilege of
7 2 doing business, a corporate stock tax including a bank shares
7 3 tax, a single business tax, an earned surplus tax, or any
7 4 other tax which is imposed upon or measured by net income.
7 5 20. "Taxable year" means a fiscal or calendar year or
7 6 period for which the taxpayer is required to make a return to
7 7 the federal government; or means the period for which a return
7 8 is made by the taxpayer, if a return is made for a period of
7 9 less than twelve months, or made for a period for which no
7 10 return to the federal government is required.
7 11 21. "Transportation property" means vehicles or vessels
7 12 capable of moving under their own power, such as aircraft,
7 13 trains, water vessels, and motor vehicles, as well as any
7 14 equipment or containers attached to that property, such as
7 15 rolling stock, barges, trailers, or the like.
7 16 Sec. 3. NEW SECTION. 422.61A APPORTIONMENT AND
7 17 ALLOCATION INCOME.
7 18 1. The director shall determine that part of the net
7 19 income of a financial institution derived from business
7 20 carried on within the state as follows:
7 21 a. If the financial institution does not have income from
7 22 a business activity which is taxable in another state, the
7 23 whole of its net income shall be taxable under section 422.60.
7 24 b. If the financial institution has income from business
7 25 activity which is taxable both within and without this state,
7 26 its net income shall be apportioned to this state by
7 27 multiplying its net income by the apportionment factor
7 28 determined pursuant to section 422.61B.
7 29 c. The factor shall be computed according to the method of
7 30 accounting, cash or accrual basis, used by the taxpayer for
7 31 the taxable year.
7 32 2. All items of nonbusiness income which are not
7 33 includeable in the apportionable tax base determined pursuant
7 34 to section 422.61B shall be allocated pursuant to section
7 35 422.33.
8 1 Sec. 4. NEW SECTION. 422.61B APPORTIONMENT FACTOR.
8 2 1. GENERAL. The receipts factor is a fraction, the
8 3 numerator of which is the total receipts of the taxpayer in
8 4 this state during the taxable year and the denominator of
8 5 which is the total receipts of the taxpayer within and without
8 6 this state during the taxable year. The method of calculating
8 7 receipts for purposes of the denominator is the same as the
8 8 method used in calculating receipts for purposes of the
8 9 numerator.
8 10 The numerator of the receipts factor is the sum of only
8 11 those receipts described in subsections 2 through 14 which
8 12 constitute business income and are included in the computation
8 13 of the apportionable income base for the taxable year.
8 14 2. RECEIPTS FROM THE LEASE OF REAL PROPERTY. Receipts
8 15 from the lease or rental of real property owned by the
8 16 taxpayer if the property is located within this state or
8 17 receipts from the sublease of real property if the property is
8 18 located within this state.
8 19 3. RECEIPTS FROM THE LEASE OF TANGIBLE PERSONAL PROPERTY.
8 20 a. Except as described in paragraph "b", receipts from the
8 21 lease or rental of tangible personal property owned by the
8 22 taxpayer if the property is located within this state when it
8 23 is first placed in service by the lessee.
8 24 b. Receipts from the lease or rental of transportation
8 25 property owned by the taxpayer are included in the numerator
8 26 of the receipts factor to the extent that the property is used
8 27 in this state. The extent to which an aircraft is deemed to
8 28 be used in this state and the amount of receipts to be
8 29 included in the numerator of the receipts factor is determined
8 30 by multiplying all the receipts from the lease or rental of
8 31 the aircraft by a fraction, the numerator of which is the
8 32 number of landings of the aircraft in this state and the
8 33 denominator of which is the total number of landings of the
8 34 aircraft. If the extent of the use of any transportation
8 35 property within this state cannot be determined, the property
9 1 is deemed to be used wholly in the state in which the property
9 2 has its principal base of operations. A motor vehicle is
9 3 deemed to be used wholly in the state in which it is
9 4 registered.
9 5 4. INTEREST FROM LOANS SECURED BY REAL PROPERTY. Interest
9 6 and fees or penalties in the nature of interest from loans
9 7 secured by real property if the property is located within
9 8 this state. If the property is located within this state and
9 9 one or more other states, the receipts described in this
9 10 subsection are included in the numerator of the receipts
9 11 factor if more than fifty percent of the fair market value of
9 12 the real property is located within this state. If more than
9 13 fifty percent of the fair market value of the real property is
9 14 not located within any one state, the receipts described in
9 15 this subsection are included in the numerator of the receipts
9 16 factor if the borrower is located in this state.
9 17 The determination of whether the real property securing a
9 18 loan is located within this state shall be made as of the time
9 19 the original agreement was made and any and all subsequent
9 20 substitutions of collateral shall be disregarded.
9 21 5. INTEREST FROM LOANS NOT SECURED BY REAL PROPERTY.
9 22 Interest and fees or penalties in the nature of interest from
9 23 loans not secured by real property if the borrower is located
9 24 in this state.
9 25 6. NET GAINS FROM THE SALES OF LOANS. Net gains from the
9 26 sale of loans includes income recorded under the coupon
9 27 stripping rules of section 1286 of the Internal Revenue Code.
9 28 a. The amount of net gains, but not less than zero, from
9 29 the sale of loans secured by real property included in the
9 30 numerator is determined by multiplying these net gains by a
9 31 fraction, the numerator of which is the amount included in the
9 32 numerator of the receipts factor pursuant to subsection 4 and
9 33 the denominator of which is the total amount of interest and
9 34 fees or penalties in the nature of interest from loans secured
9 35 by real property.
10 1 b. The amount of net gains, but not less than zero, from
10 2 the sale of loans not secured by real property included in the
10 3 numerator is determined by multiplying these net gains by a
10 4 fraction, the numerator of which is the amount included in the
10 5 numerator of the receipts factor pursuant to subsection 5 and
10 6 the denominator of which is the total amount of interest and
10 7 fees or penalties in the nature of interest from loans not
10 8 secured by real property.
10 9 7. RECEIPTS FROM CREDIT CARD RECEIVABLES. Interest and
10 10 fees or penalties in the nature of interest from credit card
10 11 receivables and receipts from fees charged to cardholders,
10 12 such as annual fees, if the billing address of the cardholder
10 13 is in this state.
10 14 8. NET GAINS FROM THE SALE OF CREDIT CARD RECEIVABLES.
10 15 Net gains, but not less than zero, from the sale of credit
10 16 card receivables multiplied by a fraction, the numerator of
10 17 which is the amount included in the numerator of the receipts
10 18 factor pursuant to subsection 7 and the denominator of which
10 19 is the taxpayer's total amount of interest and fees or
10 20 penalties in the nature of interest from credit card
10 21 receivables and fees charged to cardholders.
10 22 9. CREDIT CARD ISSUER'S REIMBURSEMENT FEES. All credit
10 23 card issuer's reimbursement fees multiplied by a fraction, the
10 24 numerator of which is the amount included in the numerator of
10 25 the receipts factor pursuant to subsection 7 and the
10 26 denominator of which is the taxpayer's total amount of
10 27 interest and fees or penalties in the nature of interest from
10 28 credit card receivables and fees charged to cardholders.
10 29 10. RECEIPTS FROM MERCHANT DISCOUNTS. Receipts from
10 30 merchant discounts if the commercial domicile of the merchant
10 31 is in this state. These receipts shall be computed net of any
10 32 cardholder charge backs, but shall not be reduced by any
10 33 interchange transaction fees or by any issuer's reimbursement
10 34 fees paid to another for charges made by its cardholders.
10 35 11. LOAN SERVICING FEES.
11 1 a. Loan servicing fees derived from loans secured by real
11 2 property multiplied by a fraction, the numerator of which is
11 3 the amount included in the numerator of the receipts factor
11 4 pursuant to subsection 4 and the denominator of which is the
11 5 total amount of interest and fees or penalties in the nature
11 6 of interest from loans secured by real property.
11 7 b. Loan servicing fees derived from loans not secured by
11 8 real property multiplied by a fraction, the numerator of which
11 9 is the amount included in the numerator of the receipts factor
11 10 pursuant to subsection 5 and the denominator of which is the
11 11 total amount of interest and fees or penalties in the nature
11 12 of interest from loans not secured by real property.
11 13 In circumstances in which the taxpayer receives loan
11 14 servicing fees for servicing either the secured or the
11 15 unsecured loans of another, the numerator of the receipts
11 16 factor shall include these fees if the borrower is located in
11 17 this state.
11 18 12. RECEIPTS FROM SERVICES. Receipts from services not
11 19 otherwise apportioned under this section if the service is
11 20 performed in this state. If the service is performed both
11 21 within and without this state, the numerator of the receipts
11 22 factor includes receipts from services not otherwise
11 23 apportioned under this section, if a greater proportion of the
11 24 income-producing activity is performed in this state based on
11 25 cost of performance.
11 26 13. RECEIPTS FROM INVESTMENT ASSETS AND ACTIVITIES AND
11 27 TRADING ASSETS AND ACTIVITIES.
11 28 a. Interest, dividends, net gains, and other income from
11 29 investment assets and activities and from trading assets and
11 30 activities shall be included in the receipts factor.
11 31 Investment assets and activities and trading assets and
11 32 activities include but are not limited to: investment
11 33 securities, trading account assets, federal funds, securities
11 34 purchased and sold under agreements to resell or repurchase,
11 35 options, future contracts, forward contracts, notional
12 1 principal contracts such as swaps, equities, and foreign
12 2 currency transactions. With respect to the investment and
12 3 trading assets and activities described in subparagraphs (1)
12 4 and (2), the receipts factor shall include the amounts
12 5 described in those subparagraphs.
12 6 (1) The receipts factor shall include the amount by which
12 7 interest from federal funds sold and securities purchased
12 8 under resale agreements exceeds interest expense on federal
12 9 funds purchased and securities sold under repurchase
12 10 agreements.
12 11 (2) The receipts factor shall include the amount by which
12 12 interest, dividends, net gains, and other income from trading
12 13 assets and activities, including but not limited to assets and
12 14 activities in the matched book, in the arbitrage book, and
12 15 foreign currency transactions, exceed interest expense from
12 16 securities sold but not yet repurchased and net losses from
12 17 those assets and activities.
12 18 b. The numerator of the receipts factor includes interest,
12 19 dividends, net gains, and other income from investment assets
12 20 and activities and from trading assets and activities
12 21 described in paragraph "a" that are attributable to this
12 22 state.
12 23 (1) The amount of interest, dividends, net gains, and
12 24 other income from investment assets and activities in the
12 25 investment account to be attributed to this state and included
12 26 in the numerator is determined by multiplying all income from
12 27 the assets and activities by a fraction, the numerator of
12 28 which is the average value of the assets which are properly
12 29 assigned to a regular place of business of the taxpayer within
12 30 this state and the denominator of which is the average value
12 31 of all the assets.
12 32 (2) The amount of interest from federal funds sold and
12 33 purchased and from securities purchased under resale
12 34 agreements and securities sold under repurchase agreements
12 35 attributable to this state and included in the numerator is
13 1 determined by multiplying the amount described in paragraph
13 2 "a", subparagraph (1), from the federal funds and securities
13 3 by a fraction, the numerator of which is the average value of
13 4 federal funds sold and securities purchased under agreements
13 5 to resell which are properly assigned to a regular place of
13 6 business of the taxpayer within this state and the denominator
13 7 of which is the average value of all the federal funds and the
13 8 securities.
13 9 (3) The amount of interest, dividends, net gains, and
13 10 other income from trading assets and activities, including but
13 11 not limited to assets and activities in the matched book, in
13 12 the arbitrage book, and foreign currency transactions, but
13 13 excluding amounts described in subparagraph (1) or (2),
13 14 attributable to this state and included in the numerator is
13 15 determined by multiplying the amount described in paragraph
13 16 "a", subparagraph (2), by a fraction, the numerator of which
13 17 is the average value of the trading assets which are properly
13 18 assigned to a regular place of business of the taxpayer within
13 19 this state and the denominator of which is the average value
13 20 of all the assets.
13 21 (4) For purposes of this lettered paragraph, average value
13 22 shall be determined as follows:
13 23 (a) The value of real property and tangible personal
13 24 property owned by the taxpayer is the original cost or other
13 25 basis of such property for federal income tax purposes without
13 26 regard to depletion, depreciation, or amortization.
13 27 (b) Loans are valued at their outstanding principal
13 28 balance, without regard to any reserve for bad debts. If a
13 29 loan is charged-off in whole or in part for federal income tax
13 30 purposes, the portion of the loan charged-off is not
13 31 outstanding. A specifically allocated reserve established
13 32 pursuant to regulatory or financial accounting guidelines
13 33 which is treated as charged-off for federal income tax
13 34 purposes shall be treated as charged-off for purposes of this
13 35 lettered paragraph.
14 1 (c) Credit card receivables are valued at their
14 2 outstanding principal balance, without regard to any reserve
14 3 for bad debts. If a credit card receivable is charged-off in
14 4 whole or in part for federal income tax purposes, the portion
14 5 of the receivable charged-off is not outstanding.
14 6 (d) The average value of property owned by the taxpayer is
14 7 computed on an annual basis by adding the value of the
14 8 property on the first day of the taxable year and the value on
14 9 the last day of the taxable year and dividing the sum by two.
14 10 If averaging on this basis does not properly reflect the
14 11 average value, the director may require averaging on a more
14 12 frequent basis. The taxpayer may elect to average on a more
14 13 frequent basis. When averaging on a more frequent basis is
14 14 required by the director or is elected by the taxpayer, the
14 15 same method of valuation must be used consistently by the
14 16 taxpayer with respect to property within and without the state
14 17 and on all subsequent returns unless the taxpayer receives
14 18 prior permission from the director or the director requires a
14 19 different method of determining average value.
14 20 c. In lieu of using the method set forth in paragraph "b",
14 21 the taxpayer may elect, or the director may require in order
14 22 to fairly represent the business activity of the taxpayer in
14 23 this state, the use of the method set forth in this lettered
14 24 paragraph.
14 25 (1) The amount of interest, dividends, net gains, and
14 26 other income from investment assets and activities in the
14 27 investment account to be attributed to this state and included
14 28 in the numerator is determined by multiplying all the income
14 29 from the assets and activities by a fraction, the numerator of
14 30 which is the gross income from the assets and activities which
14 31 are properly assigned to a regular place of business of the
14 32 taxpayer within this state and the denominator of which is the
14 33 gross income from all the assets and activities.
14 34 (2) The amount of interest from federal funds sold and
14 35 purchased and from securities purchased under resale
15 1 agreements and securities sold under repurchase agreements
15 2 attributable to this state and included in the numerator is
15 3 determined by multiplying the amount described in paragraph
15 4 "a", subparagraph (1), from the funds and securities by a
15 5 fraction, the numerator of which is the gross income from the
15 6 funds and securities which are properly assigned to a regular
15 7 place of business of the taxpayer within this state and the
15 8 denominator of which is the gross income from all the funds
15 9 and securities.
15 10 (3) The amount of interest, dividends, net gains, and
15 11 other income from trading assets and activities, including but
15 12 not limited to assets and activities in the matched book, in
15 13 the arbitrage book, and foreign currency transactions, but
15 14 excluding amounts described in subparagraph (1) or (2),
15 15 attributable to this state and included in the numerator is
15 16 determined by multiplying the amount described in paragraph
15 17 "a", subparagraph (2), by a fraction, the numerator of which
15 18 is the gross income from the trading assets and activities
15 19 which are properly assigned to a regular place of business of
15 20 the taxpayer within this state and the denominator of which is
15 21 the gross income from all the assets and activities.
15 22 d. If the taxpayer elects or is required by the director
15 23 to use the method set forth in paragraph "c", the taxpayer
15 24 shall use this method on all subsequent returns unless the
15 25 taxpayer receives prior permission from the director to use,
15 26 or the director requires a different method.
15 27 e. The taxpayer shall have the burden of proving that an
15 28 investment asset or activity or trading asset or activity was
15 29 properly assigned to a regular place of business outside of
15 30 this state by demonstrating that the day-to-day decisions
15 31 regarding the asset or activity occurred at a regular place of
15 32 business outside the state. Where the day-to-day decisions
15 33 regarding an investment asset or activity or trading asset or
15 34 activity occur at more than one regular place of business and
15 35 one such regular place of business is in this state and one
16 1 such regular place of business is outside this state, the
16 2 asset or activity shall be considered to be located at the
16 3 regular place of business of the taxpayer where the investment
16 4 or trading policies or guidelines with respect to the asset or
16 5 activity are established. Unless the taxpayer demonstrates to
16 6 the contrary, the policies and guidelines shall be presumed to
16 7 be established at the commercial domicile of the taxpayer.
16 8 14. ALL OTHER RECEIPTS. All other receipts which would be
16 9 assigned under this section to a state in which the taxpayer
16 10 is not taxable, if the taxpayer's commercial domicile is in
16 11 this state.
16 12 15. ALTERNATIVE METHOD. If a taxpayer believes that the
16 13 method of allocation and apportionment prescribed in this
16 14 section as administered by the director and applied to the
16 15 taxpayer's business has operated or will so operate as to
16 16 subject the taxpayer to taxation on a greater portion of the
16 17 taxpayer's net income than is reasonably attributable to
16 18 business or sources within the state, the taxpayer may file
16 19 with the director a statement of the taxpayer's objections and
16 20 an alternative method of allocation and apportionment which
16 21 the taxpayer believes to be proper under the circumstances
16 22 with the detail and proof and within the time as the director
16 23 may reasonably prescribe. If the director concludes that the
16 24 method of allocation and apportionment employed is in fact
16 25 inapplicable or inequitable, the director shall redetermine
16 26 the taxable income by another method of allocation and
16 27 apportionment as seems best calculated to assign to the state
16 28 for taxation the portion of the income reasonably attributable
16 29 to business and sources within the state, not exceeding,
16 30 however, the amount which would be arrived at by application
16 31 of the statutory rules for apportionment.
16 32 Sec. 5. Section 422.63, Code 1995, is amended by striking
16 33 the section and inserting in lieu thereof the following:
16 34 422.63 CONSOLIDATED RETURNS.
16 35 For taxable years beginning on or after January 1, 1996, if
17 1 two or more financial institutions participate in the filing
17 2 of a consolidated return for federal income tax purposes, the
17 3 director may require or those financial institutions may, if
17 4 all financial institutions so participating elect, and if that
17 5 election is made not later than the due date for filing its
17 6 return for the taxable year, including any extensions thereof,
17 7 make a consolidated return showing the consolidated income of
17 8 all these financial institutions and other information as the
17 9 director may require, subject to all of the following:
17 10 1. All members of an affiliated group shall join in the
17 11 filing of an Iowa consolidated return to the extent they are
17 12 subject to the tax imposed by this section. Members of an
17 13 affiliated group not subject to tax under this section shall
17 14 not be included in a consolidated return.
17 15 2. Each member of the affiliated group shall consent to
17 16 the rules governing a consolidated return prescribed by the
17 17 director at the time the consolidated return is filed, unless
17 18 the director requires the filing of a consolidated return.
17 19 The filing of a consolidated return shall be considered the
17 20 affiliated group's consent.
17 21 3. The filing of a consolidated return for any taxable
17 22 year shall require the filing of consolidated returns for all
17 23 subsequent taxable years as long as the filing taxpayers
17 24 remain members of an affiliated group unless the director
17 25 determines that the filing of separate returns will more
17 26 clearly disclose the taxable incomes of each member of the
17 27 affiliated group. This determination shall be made after a
17 28 specific request by the taxpayer for the filing of separate
17 29 returns.
17 30 4. The computation of consolidated taxable income for the
17 31 members of an affiliated group of financial institutions
17 32 subject to tax shall be made in the same manner and under the
17 33 same procedures, including all intercompany adjustments and
17 34 eliminations, as are required for consolidating the incomes of
17 35 affiliated financial institutions for federal income tax
18 1 purposes.
18 2 Sec. 6. This Act, being deemed of immediate importance,
18 3 takes effect upon enactment and applies to taxable years
18 4 beginning on or after January 1, 1996.
18 5 EXPLANATION
18 6 The bill rewrites the franchise tax, the tax on financial
18 7 institutions, and defines the term "financial institution" to
18 8 include the following:
18 9 1. Banks, including in-state and out-of-state banks.
18 10 2. Certain specifically enumerated corporations including
18 11 but not limited to: certain collection agencies, certain card
18 12 issuers, certain corporations involved in retail installment
18 13 sales, and certain mortgage lenders and brokers.
18 14 3. A business that any corporation carries on if such
18 15 corporation derives more than 50 percent of its gross income
18 16 from loan origination or lending activities including
18 17 discounting obligations and credit card activities in
18 18 substantial competition with a bank.
18 19 Currently, the entities listed above, with the exception of
18 20 banks, do not fall within Iowa's franchise tax or within
18 21 Iowa's corporate income tax. The definition as such broadens
18 22 the base of entities which could be subject to the franchise
18 23 tax.
18 24 The bill also introduces the concept of economic nexus. An
18 25 entity will be considered to be doing business within the
18 26 state even if the entity does not have a physical presence
18 27 within the state but transacts business with residents of this
18 28 state, i.e., a credit card issuer, or has receipts
18 29 attributable to sources within this state, i.e., loans secured
18 30 by property located within the state.
18 31 The bill addresses the issue of apportionment when a
18 32 financial institution is subject to taxation in another state.
18 33 If an Iowa-based financial institution has no taxable business
18 34 activity in another state, its entire net income is taxable by
18 35 Iowa. A financial institution is taxable in another state if,
19 1 in that state, the financial institution is subject to a
19 2 variety of taxes, including but not limited to a net income
19 3 tax, a franchise tax, or a corporate stock tax; or that state
19 4 has jurisdiction to subject such financial institution to any
19 5 of such taxes.
19 6 The bill utilizes in part the apportionment formula for
19 7 financial institutions recently recommended in a report issued
19 8 by the multistate tax commission (MTC) dated May 12, 1994, to
19 9 apportion net income of a financial institution which carries
19 10 on its business both within and without Iowa. Although the
19 11 MTC report recommends utilization of the three-factor approach
19 12 utilized by almost every state with the exception of Iowa,
19 13 i.e., property, payroll, and receipts, in keeping with Iowa's
19 14 single-factor approach, the proposed legislation utilizes
19 15 solely a receipts factor for apportionment purposes.
19 16 For purposes of the receipts factor, all receipts which
19 17 would otherwise be assigned to a state in which a financial
19 18 institution is not taxable shall be included in the numerator
19 19 of the receipts factor if the institution's commercial
19 20 domicile is in Iowa.
19 21 The bill takes effect upon enactment and applies
19 22 retroactively to taxable years beginning on or after January
19 23 1, 1996.
19 24 LSB 3163YH 76
19 25 mg/cf/24
Text: HF02084 Text: HF02086 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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