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PAG LIN 1 1 FLAT TAX RATE 1 2 Section 1. Section 422.4, subsections 1 and 2, Code 1997, 1 3 are amended by striking the subsections. 1 4 Sec. 2. Section 422.4, subsection 16, Code 1997, is 1 5 amended to read as follows: 1 6 16. The words "taxable income" mean the net income as 1 7 defined in section 422.7 minus the deductions allowed by 1 8 section 422.9, in the case of individuals; in. In the case of 1 9 estates or trusts,the words"taxable income"meanmeans the 1 10 taxable income,(without a deduction for personal exemption), 1 11 as computed for federal income tax purposes under the Internal 1 12 Revenue Code, but with the adjustments specified in section 1 13 422.7plus the Iowa income tax deducted in computing the1 14federal taxable income and minus federal income taxes as1 15provided in section 422.9. 1 16 Sec. 3. Section 422.5, subsection 1, Code 1997, is amended 1 17 by striking the subsection and inserting in lieu thereof the 1 18 following: 1 19 1. a. A tax is imposed upon every resident and 1 20 nonresident of the state or estate and trust which tax is 1 21 levied, collected, and paid annually upon and with respect to 1 22 the taxable income at the rate of three and eight-tenths 1 23 percent. 1 24 b. (1) The tax imposed upon the taxable income of a 1 25 nonresident shall be computed by reducing the amount 1 26 determined pursuant to paragraph "a" by the amounts of 1 27 nonrefundable credits under this division and by multiplying 1 28 this resulting amount by a fraction of which the nonresident's 1 29 net income allocated to Iowa, as determined in section 422.8, 1 30 subsection 2, paragraph "a", is the numerator and the 1 31 nonresident's total net income computed under section 422.7 is 1 32 the denominator. This provision also applies to individuals 1 33 who are residents of Iowa for less than the entire tax year. 1 34 (2) The tax imposed upon the taxable income of a resident 1 35 shareholder in a value-added corporation which has in effect 2 1 for the tax year an election under subchapter S of the 2 2 Internal Revenue Code and carries on business within and 2 3 without the state may be computed by reducing the amount 2 4 determined pursuant to paragraph "a" by the amounts of 2 5 nonrefundable credits under this division and by multiplying 2 6 this resulting amount by a fraction of which the resident's 2 7 net income allocated to Iowa, as determined in section 422.8, 2 8 subsection 2, paragraph "b", is the numerator and the 2 9 resident's total net income computed under section 422.7 is 2 10 the denominator. If a resident shareholder has elected to 2 11 take advantage of this subparagraph, and for the next tax year 2 12 elects not to take advantage of this subparagraph, the 2 13 resident shareholder shall not reelect to take advantage of 2 14 this subparagraph for the three tax years immediately 2 15 following the first tax year for which the shareholder elected 2 16 not to take advantage of this subparagraph, unless the 2 17 director consents to the reelection. This subparagraph also 2 18 applies to individuals who are residents of Iowa for less than 2 19 the entire tax year. 2 20 (a) In order for a resident shareholder in a value-added 2 21 corporation which has in effect for the tax year an election 2 22 under subchapter S of the Internal Revenue Code and carries on 2 23 business within and without the state, to claim the benefits 2 24 of apportionment of income of the value-added corporation, the 2 25 taxpayer must completely fill out the return, determine the 2 26 taxpayer's income tax liability without the benefit of 2 27 apportionment of the value-added corporation's income, and pay 2 28 the amount of tax owed. The taxpayer shall recompute the 2 29 taxpayer's income tax liability, by applying the provisions of 2 30 this subparagraph on a special return. This special return 2 31 shall be filed under rules of the director and constitutes a 2 32 claim for refund of the difference between the amount of tax 2 33 the taxpayer paid as determined without the provisions of this 2 34 subparagraph and the amount of tax determined with the 2 35 provisions of this subparagraph. 3 1 (b) This subparagraph shall not affect the amount of the 3 2 taxpayer's checkoff to the Iowa election campaign fund under 3 3 section 56.18, the checkoff for the fish and game fund in 3 4 section 456A.16, the credits from tax provided in sections 3 5 422.10, 422.11A, and 422.12 and the allocation of these 3 6 credits between spouses if the taxpayers filed separate 3 7 returns or separately on combined returns. 3 8 (c) For any tax year, the aggregate amount of refund 3 9 claims that shall be paid pursuant to this subparagraph shall 3 10 not exceed five million dollars. If, for a tax year, the 3 11 aggregate amount of refund claims filed pursuant to this 3 12 subparagraph exceeds five million dollars, each claim for 3 13 refund shall be paid on a pro rata basis so that the aggregate 3 14 amount of refund claims does not exceed five million dollars. 3 15 In the case where refund claims are not paid in full, the 3 16 amount of the refund to which the taxpayer is entitled under 3 17 this subparagraph is the pro rata amount that was paid and the 3 18 taxpayer is not entitled to a refund of the unpaid portion and 3 19 is not entitled to carry that amount forward or backward to 3 20 another tax year. Taxpayers shall not use refunds as 3 21 estimated payments for the succeeding tax year. Taxpayers 3 22 whose tax years begin on January 1 must file their refund 3 23 claims by October 31 of the calendar year following the end of 3 24 their tax year to be eligible for refunds. Taxpayers whose 3 25 tax years begin on a date other than January 1 must file their 3 26 refund claims by the end of the tenth month following the end 3 27 of their tax years to be eligible. The department shall 3 28 determine on February 1 of the second succeeding calendar year 3 29 if the total amount of claims for refund exceeds five million 3 30 dollars for the tax year. Notwithstanding any other 3 31 provision, interest shall not be due on any refund claims that 3 32 are paid by the last day of February of the second succeeding 3 33 calendar year. If the claim is not payable on February 1 of 3 34 the second succeeding calendar year, because the taxpayer is a 3 35 fiscal year filer, then the amount of the claim allowed shall 4 1 be in the same ratio as the refund claims available on 4 2 February 1 of the second succeeding calendar year. These 4 3 claims shall be funded by moneys appropriated for payment of 4 4 individual income tax refunds. 4 5 Sec. 4. Section 422.5, subsection 6, Code 1997, is amended 4 6 by striking the subsection. 4 7 Sec. 5. Section 422.7, Code 1997, is amended by striking 4 8 the section and inserting in lieu thereof the following: 4 9 422.7 "NET INCOME" – HOW COMPUTED. 4 10 1. For individuals, "net income" means the adjusted gross 4 11 income as properly computed for federal income tax purposes 4 12 under the Internal Revenue Code with the adjustments made in 4 13 paragraphs "a" and "b". 4 14 a. The adjusted gross income is adjusted by adding the sum 4 15 of the following: 4 16 (1) The amounts paid or accrued to the taxpayer as 4 17 interest or dividends during the tax year to the extent 4 18 excluded. 4 19 (2) The amount of tax imposed under this division to the 4 20 extent deducted for the tax year. 4 21 b. The adjusted gross income is adjusted by subtracting 4 22 the sum of the following: 4 23 (1) The amounts included pursuant to sections 402(a), 4 24 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the 4 25 Internal Revenue Code, or included as distributions under any 4 26 retirement or disability plan for employees of a governmental 4 27 agency or unit, or retirement payments to retired partners 4 28 which payments are excluded in computing net earnings from 4 29 self employment by section 1402 of the Internal Revenue Code 4 30 and regulations adopted pursuant thereto. 4 31 (2) The amount of tax imposed under this division which 4 32 was refunded to the extent included for the tax year. 4 33 (3) The amount included pursuant to section 111 of the 4 34 Internal Revenue Code as a recovery of items previously 4 35 deducted from adjusted gross income in computing taxable 5 1 income. 5 2 (4) The amount of social security benefits and railroad 5 3 retirement benefits, included pursuant to sections 72(r) and 5 4 86 of the Internal Revenue Code. 5 5 (5) The sum of the amounts disallowed as deductions by 5 6 sections 171(a)(2) and 265(a)(2) of the Internal Revenue Code 5 7 and the amounts of expenses allocable to interest and 5 8 disallowed as deductions by section 265(a)(1) of the Internal 5 9 Revenue Code. 5 10 2. For estates and trusts, "net income" means the taxable 5 11 income as properly computed for federal income tax purposes 5 12 under the Internal Revenue Code with the adjustments made in 5 13 paragraphs "a" and "b". 5 14 a. The taxable income is adjusted by adding the sum of the 5 15 following: 5 16 (1) The amounts paid or accrued to the taxpayer as 5 17 interest or dividends during the tax year to the extent 5 18 excluded. 5 19 (2) Six hundred dollars for an estate, three hundred 5 20 dollars for a trust which under its governing instrument is 5 21 required to distribute all of its income currently, or one 5 22 hundred dollars for all other trusts. However, the amount 5 23 added is only to the extent deducted. 5 24 (3) The amount of tax imposed under this division to the 5 25 extent deducted for the tax year. 5 26 b. The taxable income is adjusted by subtracting the sum 5 27 of the following: 5 28 (1) The amounts included pursuant to sections 402(a), 5 29 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the 5 30 Internal Revenue Code, or included as distributions under any 5 31 retirement or disability plan for employees of a governmental 5 32 agency or unit, or retirement payments to retired partners 5 33 which payments are excluded in computing net earnings from 5 34 self employment by section 1402 of the Internal Revenue Code 5 35 and regulations adopted pursuant thereto. 6 1 (2) The amount of tax imposed under this division which 6 2 was refunded to the taxpayer to the extent included for the 6 3 tax year. 6 4 (3) The amounts included in taxable income as adjusted by 6 5 paragraph "a" which are exempt from taxation by this state 6 6 either by reason of its constitution or by reason of the 6 7 constitution, treaties, or statutes of the United States. 6 8 (4) The amounts disallowed as deductions by sections 6 9 171(a)(2) and 265(a)(2) of the Internal Revenue Code and the 6 10 amounts of expenses allocable to interest and disallowed as 6 11 deductions by section 265(a)(1) of the Internal Revenue Code. 6 12 Sec. 6. Section 422.8, subsection 2, paragraph a, Code 6 13 1997, is amended to read as follows: 6 14 a. Nonresident's net income allocated to Iowa is the net 6 15 income, or portion of net income, which is derived from a 6 16 business, trade, profession, or occupation carried on within 6 17 this state or income from any property, trust, estate, or 6 18 other source within Iowa. However, income derived from a 6 19 business, trade, profession, or occupation carried on within 6 20 this state and income from any property, trust, estate, or 6 21 other source within Iowa shall not include distributions from 6 22 pensions, including defined benefit or defined contribution 6 23 plans, annuities, individual retirement accounts, and deferred 6 24 compensation plans or any earnings attributable thereto so 6 25 long as the distribution is directly related to an 6 26 individual's documented retirement and received while the 6 27 individual is a nonresident of this state. If a business, 6 28 trade, profession, or occupation is carried on partly within 6 29 and partly without the state, only the portion of the net 6 30 income which is fairly and equitably attributable to that part 6 31 of the business, trade, profession, or occupation carried on 6 32 within the state is allocated to Iowa for purposes of section 6 33 422.5, subsection 1, paragraph"j""b", and section 422.13 and 6 34 income from any property, trust, estate, or other source 6 35 partly within and partly without the state is allocated to 7 1 Iowa in the same manner, except that annuities, interest on 7 2 bank deposits and interest-bearing obligations, and dividends 7 3 are allocated to Iowa only to the extent to which they are 7 4 derived from a business, trade, profession, or occupation 7 5 carried on within the state. 7 6 Sec. 7. Section 422.8, subsection 4, Code 1997, is amended 7 7 by striking the subsection. 7 8 Sec. 8. Section 422.9, subsections 1 and 2, Code 1997, are 7 9 amended by striking the subsections and inserting in lieu 7 10 thereof the following: 7 11 1. In computing taxable income of an individual, there is 7 12 deducted from net income the standard deduction as determined 7 13 under subsection 2. 7 14 2. The standard deduction is equal to the product of one 7 15 thousand dollars times the number of exemptions allowable to 7 16 the taxpayer for the tax year under section 151 of the 7 17 Internal Revenue Code. 7 18 Sec. 9. Section 422.9, subsections 4 and 5, Code 1997, are 7 19 amended by striking the subsections. 7 20 Sec. 10. Section 422.21, unnumbered paragraph 5, Code 7 21 1997, is amended by striking the unnumbered paragraph. 7 22 Sec. 11. Section 422.11B, Code 1997, is repealed. 7 23 COORDINATING AMENDMENTS 7 24 Sec. 12. Section 257.21, unnumbered paragraph 2, Code 7 25 1997, is amended to read as follows: 7 26 The instructional support income surtax shall be imposed on 7 27 the state individual income tax for the calendar year during 7 28 which the school's budget year begins, or for a taxpayer's 7 29 fiscal year ending during the second half of that calendar 7 30 year and after the date the board adopts a resolution to 7 31 participate in the program or the first half of the succeeding 7 32 calendar year, and shall be imposed on all individuals 7 33 residing in the school district on the last day of the 7 34 applicable tax year. As used in this section, "state 7 35 individual income tax" means the taxes computed under section 8 1 422.5, less the credits allowed in sections 422.11A,422.11B,8 2 422.11C, 422.12, and 422.12B. 8 3 Sec. 13. Section 422.6, unnumbered paragraph 1, Code 1997, 8 4 is amended to read as follows: 8 5 The tax imposed by section 422.5 less the credits allowed 8 6 under sections 422.10, 422.11A,422.11B,and 422.11C, and the 8 7 personal exemption credit allowed under section 422.12 apply 8 8 to and are a charge against estates and trusts with respect to 8 9 their taxable income, and the rates are the same as those 8 10 applicable to individuals. The fiduciary shall make the 8 11 return of income for the estate or trust for which the 8 12 fiduciary acts, whether the income is taxable to the estate or 8 13 trust or to the beneficiaries. 8 14 Sec. 14. Section 422.12C, subsection 1, unnumbered 8 15 paragraph 1, Code 1997, is amended to read as follows: 8 16 The taxes imposed under this division, less the credits 8 17 allowed under sections 422.11A,422.11B,422.11C, 422.12, and 8 18 422.12B shall be reduced by a child and dependent care credit 8 19 equal to the following percentages of the federal child and 8 20 dependent care credit provided in section 21 of the Internal 8 21 Revenue Code: 8 22 Sec. 15. Section 422.13, subsection 1A, Code 1997, is 8 23 amended to read as follows: 8 24 1A. Notwithstanding any other provision in this section, a 8 25 resident of this state is not required to make and file a 8 26 return if the person's net income is equal to or less than the 8 27 appropriate dollar amount listed in section 422.5, subsection 8 28 2, upon which tax is not imposed. A nonresident of this state 8 29 is not required to make and file a return if the person's 8 30 total net income allocated to Iowa in section422.5422.8, 8 31 subsection1, paragraph "j"2, is equal to or less than the 8 32 appropriate dollar amount provided in section 422.5, 8 33 subsection 2, upon which tax is not imposed. For purposes of 8 34 this subsection, the amount of a lump sum distribution subject 8 35 to separate federal tax shall be included in net income for 9 1 purposes of determining if a resident is required to file a 9 2 return and the portion of the lump sum distribution that is 9 3 allocable to Iowa is included in total net income for purposes 9 4 of determining if a nonresident is required to make and file a 9 5 return. 9 6 Sec. 16. Section 422D.2, Code 1997, is amended to read as 9 7 follows: 9 8 422D.2 LOCAL INCOME SURTAX. 9 9 A county may impose by ordinance a local income surtax as 9 10 provided in section 422D.1 at the rate set by the board of 9 11 supervisors, of up to one percent, on the state individual 9 12 income tax of each individual residing in the county at the 9 13 end of the individual's applicable tax year. However, the 9 14 cumulative total of the percents of income surtax imposed on 9 15 any taxpayer in the county shall not exceed twenty percent. 9 16 The reason for imposing the surtax and the amount needed shall 9 17 be set out in the ordinance. The surtax rate shall be set to 9 18 raise only the amount needed. For purposes of this section, 9 19 "state individual income tax" means the tax computed under 9 20 section 422.5, less the credits allowed in sections 422.11A, 9 21422.11B,422.11C, 422.12, and 422.12B. 9 22 Sec. 17. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE. 9 23 This Act applies retroactively to January 1, 1997, for tax 9 24 years beginning on or after that date. 9 25 EXPLANATION 9 26 The bill rewrites the state individual income tax by 9 27 setting a flat rate of three and eight-tenths percent of the 9 28 taxable income. In arriving at the taxable income, all of the 9 29 itemized deductions allowed for federal tax purposes are 9 30 eliminated. A standard deduction is provided which is equal 9 31 to $1,000 for each personal exemption the taxpayer is allowed 9 32 under the federal tax code. The alternative minimum tax is 9 33 eliminated. The bill also retains the present credits that 9 34 are allowed except for the minimum tax credit. 9 35 The bill applies retroactively to January 1, 1997, for tax 10 1 years beginning on or after that date. 10 2 LSB 1176SS 77 10 3 mg/jj/8
Text: SF00104 Text: SF00106 Text: SF00100 - SF00199 Text: SF Index Bills and Amendments: General Index Bill History: General Index
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