Text: SSB00266 Text: SSB00268 Text: SSB00200 - SSB00299 Text: SSB Index Bills and Amendments: General Index Bill History: General Index
PAG LIN 1 1 Section 1. NEW SECTION. 422.11 FRANCHISE TAX CREDIT. 1 2 The taxes imposed under this division, less the credits 1 3 allowed under section 422.12, shall be reduced by a franchise 1 4 tax credit. A taxpayer who is a shareholder in a financial 1 5 institution, as defined in section 581 of the Internal Revenue 1 6 Code, which has in effect for the tax year an election under 1 7 subchapter S of the Internal Revenue Code shall compute the 1 8 amount of the tax credit by dividing the financial institution 1 9 income taxed to the taxpayer by Iowa by the taxpayer's total 1 10 Iowa income and multiplying the resulting percentage times the 1 11 amount of tax under this division after the deduction for the 1 12 credits allowed under section 422.12. The resulting amount, 1 13 which shall not exceed the taxpayer's pro rata share of the 1 14 franchise tax paid by the financial institution, is the amount 1 15 of the franchise tax credit allowed. 1 16 Sec. 2. Section 422.61, subsection 3, Code 1997, is 1 17 amended by adding the following new paragraph: 1 18 NEW PARAGRAPH. g. Where a financial institution as 1 19 defined in section 581 of the Internal Revenue Code is not 1 20 subject to income tax and the shareholders of the financial 1 21 institution are taxed on the financial institution's income 1 22 under the provisions of the Internal Revenue Code, such tax 1 23 treatment shall be disregarded and the financial institution 1 24 shall compute its net income for franchise tax purposes in the 1 25 same manner under this subsection as a financial institution 1 26 that is subject to or liable for federal income tax under the 1 27 Internal Revenue Code in effect for the applicable year. 1 28 Sec. 3. This Act applies retroactively to January 1, 1997, 1 29 for tax years beginning on or after January 1, 1997. 1 30 EXPLANATION 1 31 The bill amends Code section 422.61 to disallow the federal 1 32 treatment for Iowa individual income tax purposes where a 1 33 financial institution, as defined in section 581 of the 1 34 Internal Revenue Code, is not subject to income tax and where 1 35 the shareholders of the financial institution are taxed on the 2 1 financial institutions' income on the shareholder's federal 2 2 individual income tax return. This federal provision is known 2 3 as a subchapter S corporation election. This amendment to 2 4 Code section 422.61 is intended to prevent any discrimination 2 5 in the taxation of federal obligation income of all financial 2 6 institutions because income of financial institutions would 2 7 only be taxed under the state franchise tax. 2 8 The bill provides for a franchise tax credit for 2 9 individuals who are shareholders of those financial 2 10 institutions that chose subchapter S tax treatment. Since the 2 11 financial institution is subject to the state franchise tax on 2 12 its income and the shareholder has included its pro rata share 2 13 of such income in its adjusted gross income for federal tax 2 14 purposes which is the shareholders net income for state tax 2 15 purposes such income would be taxed twice. The credit for the 2 16 shareholder prevents this. The amount of credit is determined 2 17 by dividing the shareholder's pro rata financial institution's 2 18 income by the shareholder's total Iowa income. This 2 19 percentage is then applied to the shareholder's state tax of 2 20 deduction of the personal credits and the resulting amount is 2 21 subtracted from shareholder's state tax after deduction of the 2 22 personal credits. 2 23 The bill applies retroactively to January 1, 1997, for tax 2 24 years beginning on or after that date. 2 25 LSB 2764SC 77 2 26 mg/sc/14
Text: SSB00266 Text: SSB00268 Text: SSB00200 - SSB00299 Text: SSB Index Bills and Amendments: General Index Bill History: General Index
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