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House Study Bill 708

Bill Text

PAG LIN
  1  1    Section 1.  Section 422.5, subsection 1, paragraph j,
  1  2 subparagraph (2), unnumbered paragraph 1, Code 2001, is
  1  3 amended to read as follows:
  1  4    The tax imposed upon the taxable income of a resident
  1  5 shareholder in an S corporation which has in effect for the
  1  6 tax year an election under subchapter S of the Internal
  1  7 Revenue Code or of a resident member of a limited liability
  1  8 company which has elected to have its income taxed directly to
  1  9 the member and carries on business within and without the
  1 10 state may be computed by reducing the amount determined
  1 11 pursuant to paragraphs "a" through "i" by the amounts of
  1 12 nonrefundable credits under this division and by multiplying
  1 13 this resulting amount by a fraction of which the resident's
  1 14 net income allocated to Iowa, as determined in section 422.8,
  1 15 subsection 2, paragraph "b", is the numerator and the
  1 16 resident's total net income computed under section 422.7 is
  1 17 the denominator.  If a resident shareholder or resident member
  1 18 has elected to take advantage of this subparagraph, and for
  1 19 the next tax year elects not to take advantage of this
  1 20 subparagraph, the resident shareholder or resident member
  1 21 shall not reelect to take advantage of this subparagraph for
  1 22 the three tax years immediately following the first tax year
  1 23 for which the shareholder or member elected not to take
  1 24 advantage of this subparagraph, unless the director consents
  1 25 to the reelection.  This subparagraph also applies to
  1 26 individuals who are residents of Iowa for less than the entire
  1 27 tax year.
  1 28    Sec. 2.  Section 422.5, subsection 1, paragraph k,
  1 29 unnumbered paragraph 4, Code 2001, is amended to read as
  1 30 follows:
  1 31    In the case of a resident, including a resident estate or
  1 32 trust, the state's apportioned share of the state alternative
  1 33 minimum tax is one hundred percent of the state alternative
  1 34 minimum tax computed in this subsection.  In the case of a
  1 35 resident or part-year resident shareholder in an S corporation
  2  1 which has in effect for the tax year an election under
  2  2 subchapter S of the Internal Revenue Code or of a resident or
  2  3 part-year resident member of a limited liability company which
  2  4 has elected to have its income taxed directly to the member
  2  5 and carries on business within and without the state, a
  2  6 nonresident, including a nonresident estate or trust, or an
  2  7 individual, estate, or trust that is domiciled in the state
  2  8 for less than the entire tax year, the state's apportioned
  2  9 share of the state alternative minimum tax is the amount of
  2 10 tax computed under this subsection, reduced by the applicable
  2 11 credits in sections 422.10 through 422.12 and this result
  2 12 multiplied by a fraction with a numerator of the sum of state
  2 13 net income allocated to Iowa as determined in section 422.8,
  2 14 subsection 2, paragraph "a" or "b" as applicable, plus tax
  2 15 preference items, adjustments, and losses under subparagraph
  2 16 (1) attributable to Iowa and with a denominator of the sum of
  2 17 total net income computed under section 422.7 plus all tax
  2 18 preference items, adjustments, and losses under subparagraph
  2 19 (1).  In computing this fraction, those items excludable under
  2 20 subparagraph (1) shall not be used in computing the tax
  2 21 preference items.  Married taxpayers electing to file separate
  2 22 returns or separately on a combined return must allocate the
  2 23 minimum tax computed in this subsection in the proportion that
  2 24 each spouse's respective preference items, adjustments, and
  2 25 losses under subparagraph (1) bear to the combined preference
  2 26 items, adjustments, and losses under subparagraph (1) of both
  2 27 spouses.
  2 28    Sec. 3.  Section 422.8, subsection 2, paragraph b, Code
  2 29 2001, is amended to read as follows:
  2 30    b.  A resident's income allocable to Iowa is the income
  2 31 determined under section 422.7 reduced by items of income and
  2 32 expenses from an S corporation or limited liability company
  2 33 that carries on business within and without the state when
  2 34 those items of income and expenses pass directly to the
  2 35 shareholders or members under provisions of the Internal
  3  1 Revenue Code.  These items of income and expenses are
  3  2 increased by the greater of the following:
  3  3    (1)  The net income or loss of the S corporation or limited
  3  4 liability company which is fairly and equitably attributable
  3  5 to this state under section 422.33, subsections 2 and 3.
  3  6    (2)  Any cash or the value of property distributions which
  3  7 are made only to the extent that they are paid from income
  3  8 upon which Iowa income tax has not been paid, as determined
  3  9 under rules of the director, reduced by fifty percent of the
  3 10 amount of any of these distributions that are made to enable
  3 11 the shareholder or member to pay federal income tax on items
  3 12 of income, loss, and expenses from the S corporation or
  3 13 limited liability company.
  3 14    Sec. 4.  Section 422.8, subsection 6, Code 2001, is amended
  3 15 to read as follows:
  3 16    6.  If the resident or part-year resident is a shareholder
  3 17 of an S corporation which has in effect an election under
  3 18 subchapter S of the Internal Revenue Code or is a member of a
  3 19 limited liability company which has elected to have its income
  3 20 taxed directly to its members, subsections 1 and 3 do not
  3 21 apply to any income taxes paid to another state or foreign
  3 22 country on the income from the S corporation which has in
  3 23 effect an election under subchapter S of the Internal Revenue
  3 24 Code or from the limited liability company which has elected
  3 25 to have its income taxed directly to its members.
  3 26    Sec. 5.  APPLICABILITY PROVISION.  This Act applies
  3 27 retroactively to January 1, 2002, for tax years beginning on
  3 28 or after that date.  
  3 29                           EXPLANATION 
  3 30    This bill provides that in determining the income of a
  3 31 resident member of a limited liability company that elects to
  3 32 have the income taxed directly to the member, the income shall
  3 33 be apportioned based upon corporate income taxation rules.
  3 34 The income is not taxable until actually received by the
  3 35 member.  Present law taxes all the member's share of the
  4  1 income of the limited liability company whether distributed to
  4  2 the member or not.
  4  3    The bill applies retroactively to January 1, 2002, for tax
  4  4 years beginning on or after that date.  
  4  5 LSB 6595HC 79
  4  6 mg/cls/14
     

Text: HSB00707                          Text: HSB00709
Text: HSB00700 - HSB00799               Text: HSB Index
Bills and Amendments: General Index     Bill History: General Index

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