1996 SUMMARY OF LEGISLATION

TAXATION

TAXATION LEGISLATION

SENATE FILE 2097 - Sales, Services, and Use Tax Exemption for Agricultural Packaging Materials (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act establishes a sales and use tax exemption for packaging materials such as twine, wrapping, baling wire, and containers used in agricultural, livestock or dairy production. The exemption would also apply to producers of ornamental, flowering or vegetable plants in commercial greenhouses or other places which are for sale in the ordinary course of business since that activity is considered agricultural production as a result of enactment during the 1995 Session. The Act applies to sales occurring on or after July 1, 1996.

SENATE FILE 2168 - Internal Revenue Code References and Income Tax Provisions (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act updates the references to the Internal Revenue Code to make the federal income tax changes enacted by Congress in the remainder of the 1995 calendar year after April 15, 1995, and through March 20, 1996, applicable for Iowa income tax purposes. The Act also allows a taxpayer to receive a tax benefit due to reduced tax on income repaid by the taxpayer.
Those sections of the Act updating the federal Internal Revenue Code references apply retroactively to tax years beginning on or after January 1, 1995. The section of the Act allowing a tax benefit on repaid income applies retroactively to January 1, 1992, for tax years beginning on or after that date.
The Act takes effect April 24, 1996.

SENATE FILE 2449 - Tax Revisions and Related Matters (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act relates to indexation of tax brackets and standard deduction amounts and an alternative method of computing taxable income of shareholders of Subchapter S corporations under the individual income tax; full funding of homestead, military and elderly or disabled property tax credits and rent reimbursements; the regular program foundation level under the state school aid program; an additional goal for school study; and a refundable tax credit for limited livestock production.

DIVISION I -- INDEXATION. Under present law the tax brackets and standard deduction for the state individual income tax are adjusted by an inflation factor that used 50 percent of the change in the implicit price deflator for the gross national product. The Division increases this to 100 percent of the change in the gross domestic product price deflator. The Division changes the reference from the gross national product price deflator to the gross domestic product price deflator since the former no longer exists. This Division eliminates the requirement that before indexing of tax brackets, the State General Fund must have a $60 million balance.

DIVISION II -- SCHOOL FOUNDATION LEVEL. In this Division, the regular program foundation base for purposes of the state school aid program is increased from 83 percent to 87.5 percent, except for that portion that is attributable to additional enrollment because of special education, which remains at 79 percent.
This Division takes effect May 29, 1996, and applies to the computation of school foundation aid payable in budget years beginning on or after July 1, 1996.

DIVISION III -- HOMESTEAD, MILITARY SERVICE, AND ELDERLY OR DISABLED TAX CREDIT AND REIMBURSEMENT CLAIMS -- ITEM VETOED BY THE GOVERNOR. This Division would have fully funded the amounts of the homestead tax credit, military service tax credit, the elderly or disabled tax credit, and rent reimbursement for the 1996-1997 fiscal year and appropriated these amounts annually thereafter. Under present law these credits are funded only to the extent funded in the 1992-1993 fiscal year.
The Division would have taken effect July 1, 1996, and applied to homestead, military service, and elderly or disabled homestead tax credit, and rent reimbursement claims payable in fiscal years beginning on or after July 1, 1996.

DIVISION IV -- SUBCHAPTER S CORPORATIONS. This Division allows resident shareholders of Subchapter S corporations to reduce their state individual income tax if the corporation is a value-added business that is carried on both in-state and out-of-state. A value-added corporation is one that purchases, receives or holds personal property of any description and which adds to its value by a process of manufacturing, construction, processing, or combining different materials with a view to selling the finished product for gain or profit.
The method for reducing the income tax is through a refund process provided by the state as follows: First, complete the regular tax return and pay any tax owed, then recompute the income tax liability on a special return. The difference between the two is the taxpayer's claim for refund. In recomputing the income tax liability, the taxpayer does not include all of the income and expenses of the taxpayer's share of the corporation but only the greater of that income and expenses attributable to the state based upon Iowa's corporate tax allocation rules or the actual cash or other property distributed to the taxpayer which was not subject to Iowa tax, less 50 percent of any amount distributed that was used to pay federal income taxes. (Note: Subchapter S corporations are not subject to federal or state corporate income tax but their income and expenses pass directly to the shareholders and are counted as the shareholder's income and expenses.)
The Division provides that only $5 million, in the aggregate, of refunds may be paid for any tax year. For calendar year taxpayers, the Department of Revenue and Finance will determine by February 1 of the year following the year in which the returns are due if the amount of refund claims exceeds $5 million. If the claims do, the department shall prorate each claim and that prorated amount constitutes the refund claim for the taxpayer. Any amount not refunded may not be carried forward or backward to another tax year. Refund claims may not be used as estimated payments for succeeding tax years.
This Division applies retroactively to January 1, 1996, for tax years beginning on or after that date.

DIVISION V -- LIVESTOCK PRODUCTION TAX CREDIT. This Division provides a livestock production income tax credit not to exceed $3,000 per livestock operation. However, a taxpayer may only receive $3,000 in total credits for a tax year. The credit is available to an individual or corporate taxpayer if the total net worth of the taxpayer during the tax year is less than $1 million and more than one-half of the taxpayer's income for the tax year is from farming or ranching operations. The credit is based upon the amount of corn or corn equivalents used by hog operations, beef (including dairy) operations, sheep operations, and poultry operations. The amount of the credit is computed by multiplying 10 cents times the amount of corn or corn equivalents consumed by the livestock in the production operation.
The Division appropriates from the General Fund of the State $2 million annually to fund livestock production tax credit refunds. The Division applies retroactively to January 1, 1996, for income tax years beginning on or after that date. However, for the tax year beginning on or after January 1, 1996, the state appropriation shall only be used to pay livestock production credit claims for cow-calf production.
The Division applies to tax years beginning on or after January 1, 1996.

DIVISION VI -- SCHOOL STUDY GOALS. This Division expresses the General Assembly's support for the study of the Department of Education required in the Education Appropriations Act, H.F. 2477, and requests an additional goal be added to the study. This additional goal is for achieving parity between the percentage of regular program state cost per pupil and the percentage for that portion of weighted enrollment that is additional enrollment because of special education, which constitute the regular program foundation base, and the percentage of special education support services state cost per pupil, which constitutes the special education support services foundation base.

DIVISION VII -- FUNDING CREDITS AND EXEMPTIONS -- ITEM VETOED BY THE GOVERNOR. This Division would require the state to fully fund the cost of providing a property tax credit or property tax exemption if the credit or exemption was enacted after January 1, 1997. If the state did not fully fund the cost of the credit or exemption, the taxpayer would only receive a portion of the credit or exemption equal to the amount funded. The requirement for fully funding or the reduction to a portion of the credit or exemption would have applied to the homestead tax credit, military service credit and exemption, and the low-income, elderly or disabled tax credit.

SENATE FILE 2455 - Tax Administration and Related Matters (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act allows the Director of Revenue and Finance to establish criteria for allowing tax returns and other documents required for tax administration to be filed by electronic means or other alternative methods rather than on a paper document. It further provides that the director may establish criteria allowing for payments of taxes, penalty and interest to be made to the Department of Revenue and Finance by electronic funds transfer.
This Act allows the department to recover taxes refunded in error plus applicable interest. If the refund is false or frivolous, with the intent to evade tax, the department has the authority to assess a 75 percent penalty plus applicable interest. This action is made a fraudulent practice.
The Act extends the time for taxpayer filing of claims for the additional elderly and disabled homestead property tax credit by four months for certain good cause shown to the county treasurer, extends by nine months the time for counties to file claims with the department for these credits, gives the department an additional 26 days to reimburse counties for special assessment credits allowed on these homesteads, extends by four months the time for filing mobile home reduced tax rate claims for certain good cause shown to the county treasurer, and extends by three and one-half months the time for counties to file claims with the department for mobile home reduced tax rate claims.
The Act excludes from the definition of "consideration" the amount of any debt on the property that is not assumed by the grantee for purposes of the real estate transfer tax.
The Act repeals a provision pertaining to an exemption from personal property tax for military personnel since the personal property became exempt from taxation in 1986.
Provisions of the Act relating to electronic tax filing, electronic funds transfer, tax refund recovery, and the time for filing homestead tax credit and mobile home reduced tax rate claims take effect April 24, 1996, and apply retroactively to January 1, 1996. The provisions relating to homestead tax credits and mobile home reduced tax rate claims apply to claims filed on or after January 1, 1996.

SENATE FILE 2467 - Tuition and Textbook Income Tax Provisions (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act eliminates the income tax deduction for amounts paid for tuition and textbooks for dependents in elementary and secondary schools for taxpayers who itemize deductions. The Act increases the rate for elementary and secondary school tuition and textbook credit from 5 to 10 percent and makes the credit available to all taxpayers regardless of net income.
The Act takes effect April 25, 1996, and applies retroactively to tax years beginning on or after January 1, 1996.

HOUSE FILE 560 - Family Farm Tax Credit (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act amends the definition of "designated person" for purposes of the family farm tax credit to include relatives of the owner within the third degree of consanguinity and those relatives' spouses. The definition is also amended to include family farm corporations if the combined stock of the corporation is equal to at least 51 percent and is owned by the owner of the land and persons related to the owner, and partnerships if a designated person's ownership interest in the partnership is equal to at least 51 percent of the entire ownership interest in the partnership.
The Act is effective January 1, 1996, and applies to credit claims filed on or after that date.

HOUSE FILE 569 - Motor Vehicle Lease Tax (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act imposes a 5 percent tax upon the use of a leased motor vehicle. The tax is based upon the value of the motor vehicle during the period of the lease rather than on the overall value of the motor vehicle. Thus the number of months of the lease multiplied by the monthly lease payments, plus the down payment, minus any manufacturer's rebate, is the calculation for determining the tax. The Act applies to leases entered into on or after January 1, 1997.

HOUSE FILE 2140 - Motor Fuel and Special Fuel Taxation and Regulation (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act makes several corrections to the motor fuel tax law enacted in H.F. 552 in 1995, which changed the point of taxation for the imposition of the motor fuel tax. One of the more substantive provisions allows a governmental agency to designate another governmental agency as an agent for purposes of filing and receiving the motor vehicle fuel tax refund.
The Act takes effect April 8, 1996, and applies retroactively to January 1, 1996.

HOUSE FILE 2165 - Taxation of Industrial Machinery, Equipment and Computers (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act makes several changes to the Iowa Code relating to taxation of industrial machinery, computers and equipment. The Act rewrites the section exempting such property from sales and use taxation.
The Act eliminates in the definition of "insurance company," for the purposes of the sales and use tax exemption, the requirement that 50 or more persons be employed by such an insurance company. The Act also includes in the definition of "insurance company," mutual insurance associations operating under Chapter 518A and licensed insurance agents under Chapter 522.
The Act strikes the provision that requires that industrial machinery, computers and equipment located in an urban renewal area for which indebtedness has been incurred continue to be taxed at 30 percent of net acquisition cost. This property will now be subject to those current Code provisions which provide that such property first assessed for taxation on or after January 1, 1995, will be exempt from property taxation, and the taxable value of such property purchased before that date will be phased out over a four-year period. This provision applies retroactively to assessment years beginning on or after January 1, 1995.
The Act also requires a community college to notify a county assessor by February 15 of each year if the taxpayer's property will be taxed to finance either an industrial new jobs or small business training project in the coming fiscal year.
The Act also defines a tax increment financing district in an urban renewal area as a taxing district for purposes of allocation of replacement moneys, and provides for the method of allocation in those districts. The Act also allows a city or county to appeal to the State Appeal Board for state assistance in meeting debt obligations for certain urban renewal taxing districts and allows a city or county to subtract machinery and equipment valuation from the base valuation of a tax increment financing district to the same extent that machinery and equipment valuation is removed from the regular property tax rolls.
The Act takes effect April 4, 1996.

HOUSE FILE 2166 - Taxation of Foreign Corporations (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act lists activities that a foreign corporation may engage in and not be considered as doing business in Iowa for Iowa corporate tax purposes.
Federal law restricts the state taxation of business income derived within the state from interstate commerce if the only business activity within the state is the solicitation of sales or the activities are ancillary to the solicitation of sales. In addition, if the business activities are not related to the solicitation of sales but are very meager in effect then state taxation is also restricted. The business activities listed in this Act include holding meetings of the board of directors or shareholders, holding holiday parties or employee appreciation dinners, maintaining bank accounts, borrowing money, utilizing Iowa courts for litigation, owning and controlling subsidiary corporations without a physical presence in the state as it relates to such ownership, and recruiting personnel where hiring occurs outside of the state.
The Act takes effect April 17, 1996, and applies retroactively to January 1, 1996, for tax years beginning on or after that date.

HOUSE FILE 2422 - Sales, Services, and Use Tax Exemption -- State and County Fairs (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act exempts from the state sales and use taxes the gross receipts from sales or services rendered, furnished or performed by the State Fair or a local district or county fair.

HOUSE FILE 2432 - Taxation of Organized Health Care Delivery Systems (full text of bill)

BY COMMITTEE ON WAYS AND MEANS. This Act provides that payments received by an organized health care delivery system licensed by the Director of Public Health shall be taxed in the same manner as payments received by a health maintenance organization. This method is an exemption from the insurance premiums tax for the first five years with complete taxation after that time.

RELATED LEGISLATION

SENATE FILE 2030 - Mental Health and Developmental Disability Funding and Related Provisions (Complete summary under LOCAL GOVERNMENT.)

This Act relates to state and county mental health and developmental disability services funding provisions by amending provisions associated with the base year used for determining maximum county levy authority and state funding levels. The Act amends provisions initially enacted in 1995 Iowa Acts, Chapter 206, S. F. 69, and includes planning provisions for mental health and developmental disabilities services.

SENATE FILE 2324 - Miscellaneous Public Assistance Provisions and Related Matters (Complete summary under HUMAN SERVICES.)

This Act relates to public assistance and includes certain associated state tax provisions involving the Family Investment Program and individual development accounts.

SENATE FILE 2351 - Economic Development Programs (Complete summary under ECONOMIC DEVELOPMENT.)

This Act makes changes and additions to several economic development programs, including the Workforce Development Fund Program and the Iowa Small Business New Jobs Training Act, and provides a supplemental new jobs credit from income tax withholding for certain employers.

SENATE FILE 2357 - School Finance -- Levy Adjustment (Complete summary under EDUCATION.)

This Act provides that a school corporation board may increase amounts certified for levy for principal and interest bonded indebtedness repayment if the board determines such increases are necessary to offset projected future machinery and equipment-related property valuation decreases and resulting revenue shortfalls in a district in which machinery and equipment valuation exceeds 20 percent of total taxable valuation.

SENATE FILE 2464 - Housing Development and Related Matters (Complete summary under ECONOMIC DEVELOPMENT.)

This bill makes several changes to the tax increment financing provisions of Chapter 403 regarding urban renewal, and Chapter 404 regarding urban revitalization tax exemptions.

SENATE FILE 2470 - Miscellaneous Appropriations and Related Matters -- Economic Development Appropriations (Complete summary under APPROPRIATIONS.)

This Act relates to public levy, expenditure and regulatory matters by making standing, economic development and other appropriations, and includes provisions involving the county property tax limitation and levies for mental health, developmental disabilities and substance abuse services.

HOUSE FILE 334 - Instructional Support Program -- Hearings and Elections (Complete summary under EDUCATION.)

This Act strikes a current Code requirement that an election held to determine school district participation in the Instructional Support Program must be held not later than December 1 of the base year.

HOUSE FILE 2114 - Miscellaneous Supplemental Appropriations (Complete summary under APPROPRIATIONS.)

This Act includes a FY 1996 supplemental appropriation from the General Fund of the State to the Department of Revenue and Finance for internal resource management and a provision vetoed by the Governor that would have paid income tax refunds to certain federal retirees.

HOUSE FILE 2229 - Employment Security (Complete summary under LABOR & EMPLOYMENT.)

This Act permits the Department of Employment Services to deduct and withhold federal and state income tax from unemployment compensation benefits if the claimant chooses. This section of the Act takes effect January 1, 1997, and applies to unemployment compensation benefits paid on or after that date.

HOUSE FILE 2297 - Levee and Drainage Districts -- Warrants (Complete summary under NATURAL RESOURCES & OUTDOOR RECREATION.)

This Act repeals Section 468.185 of the Iowa Code, which provides that Chapter 74 is applicable to all warrants legally drawn on levee and drainage district funds which are not paid for want of funds. Chapter 74 establishes procedures applicable to public obligations not paid for want of funds.

HOUSE FILE 2315 - Reciprocal Shipment of Wines (Complete summary under ALCOHOL REGULATION & SUBSTANCE ABUSE.)

This Act provides that a winery may ship, not subject to state of Iowa sales tax, use tax, or wine gallonage tax, certain small quantities of wine into or out of the state of Iowa by private common carrier.

HOUSE FILE 2370 - Limited Liability Companies and Corporations -- Miscellaneous Provisions (Complete summary under BUSINESS, BANKING & FINANCE.)

This Act makes changes to statutory provisions applicable to limited liability companies and corporations, including exempting from the real estate transfer tax certain transfers involving limited liability companies.

HOUSE FILE 2481 - New Jobs and Income Program (Complete summary under ECONOMIC DEVELOPMENT.)

This Act creates additional sales and use tax and income tax benefits that are available to businesses that participate in the New Jobs and Income Program administered by the Department of Economic Development.

HOUSE FILE 2491 - Pioneer Cemeteries -- Cemetery Levy (Complete summary under LOCAL GOVERNMENT.)

This Act authorizes the board of supervisors, by ordinance, to assume responsibility for repair and maintenance of pioneer cemeteries in the county and to levy a property tax not exceeding six and three-fourths cents per thousand dollars of taxable property in the county for that purpose.

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