House File 2317 - Enrolled House File 2317 AN ACT RELATING TO STATE REVENUE AND FINANCE BY MODIFYING INDIVIDUAL INCOME TAX RATES, EXEMPTIONS, AND CREDITS, CORPORATE INCOME TAX RATES AND CREDITS, CREDITS AGAINST THE FRANCHISE TAX, THE INSURANCE PREMIUMS TAX, AND THE MONEYS AND CREDITS TAX, AND THE TAX EXPENDITURE COMMITTEE, MAKING CONTINGENT TRANSFERS FROM THE TAXPAYER RELIEF FUND, AND INCLUDING EFFECTIVE DATE AND APPLICABILITY PROVISIONS. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: DIVISION I SALE OF CERTAIN QUALIFIED STOCK —— NET CAPITAL GAIN EXCLUSION Section 1. Section 422.7, Code 2022, is amended by adding the following new subsection: NEW SUBSECTION . 63. a. Subtract the following percentage of the net capital gain from the sale or exchange of capital stock of a qualified corporation for which an election is made by an employee-owner: (1) For the tax year beginning in the 2023 calendar year, thirty-three percent. (2) For the tax year beginning in the 2024 calendar year, sixty-six percent. (3) For tax years beginning on or after January 1, 2025, one hundred percent. b. (1) An employee-owner is entitled to make one irrevocable lifetime election to exclude the net capital gain from the sale or exchange of capital stock of one

House File 2317, p. 2 qualified corporation which capital stock was acquired by the employee-owner while employed and on account of employment by such qualified corporation. (2) The election shall apply to all subsequent sales or exchanges of qualifying capital stock of the elected corporation within fifteen years of the date of the election, provided that the subsequent sales or exchanges were of capital stock in the same qualified corporation and were acquired by the employee-owner while employed and on account of employment by such qualified corporation. (3) The election shall apply to qualifying capital stock that has been transferred by inter vivos gift from the employee-owner to the employee-owner’s spouse or to a trust for the benefit of the employee-owner’s spouse following the transfer. This subparagraph (3) shall apply to a spouse only if the spouse was married to the employee-owner on the date of the sale or exchange or the date of death of the employee-owner. (4) If the employee-owner dies after having sold or exchanged qualifying capital stock without having made an election under this subsection, the surviving spouse or, if there is no surviving spouse, the personal representative of the employee-owner’s estate, may make the election that would have qualified under this subsection. (5) The election shall be made in the manner and form prescribed by the department and shall be included with the taxpayer’s state income tax return for the taxable year in which the election is made. c. For purposes of this subsection: (1) “Capital stock” means common or preferred stock, either voting or nonvoting. “Capital stock” does not include stock rights, stock warrants, stock options, or debt securities. (2) “Employee-owner” means an individual who owns capital stock in a qualified corporation for at least ten years, which capital stock was acquired by the individual while employed and on account of employment by such corporation for at least ten cumulative years. (3) “Personal representative” means the same as defined in section 633.3, or if there is no such personal representative

House File 2317, p. 3 appointed, then the person legally authorized to perform substantially the same functions. (4) (a) “Qualified corporation” means, with respect to an employee-owner, a corporation which, at the time of the first sale or exchange for which an election is made by the employee- owner under this subsection, meets all of the following conditions: (i) The corporation employed individuals in this state for at least ten years. (ii) The corporation has had at least five shareholders for the ten years prior to the first sale or exchange under this subsection. (iii) The corporation has had at least two shareholders or groups of shareholders who are not related for the ten years prior to the first sale or exchange under this subsection. Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly. (b) “Qualified corporation” includes any member of an Iowa affiliated group if the Iowa affiliated group includes a member that has employed individuals in this state for at least ten years. For purposes of this subparagraph division, “Iowa affiliated group” means an affiliated group that has made a valid election to file an Iowa consolidated income tax return under section 422.37 in the year in which the deduction under this subsection is claimed. “Member” includes any entity included in the consolidated return under section 422.37, subsection 2, for the tax year in which the deduction is claimed. (c) “Qualified corporation” also includes any corporation that was a party to a reorganization that was entirely or substantially tax free if such reorganization occurred during or after the employment of the employee-owner. Sec. 2. EFFECTIVE DATE. This division of this Act takes effect January 1, 2023. Sec. 3. APPLICABILITY. This division of this Act applies to

House File 2317, p. 4 tax years beginning on or after January 1, 2023. DIVISION II RETIRED FARMER LEASE INCOME EXCLUSION Sec. 4. Section 422.7, Code 2022, is amended by adding the following new subsection: NEW SUBSECTION . 21A. a. Subtract, to the extent included, net income received by an eligible individual pursuant to a farm tenancy agreement covering real property held by the eligible individual for ten or more years, if the eligible individual materially participated in a farming business for ten or more years. b. An individual who elects to exclude income received pursuant to a farm tenancy agreement under this subsection shall not claim any of the following in the tax year in which the election is made or in any succeeding year: (1) The capital gain exclusion under subsection 21. (2) The beginning farmer tax credit under section 422.11E. c. Married individuals who file separate state income tax returns shall allocate their combined annual exclusion limit to each spouse in the proportion that each spouse’s respective net income from a farm tenancy agreement bears to the total net income from a farm tenancy agreement. d. The department shall establish criteria, by rule, relating to whether and how a surviving spouse may claim the income exclusion for which a deceased eligible individual would have been eligible under this subsection. e. Net income from a farm tenancy agreement earned, received, or reported by an entity taxed as a partnership for federal tax purposes, an S corporation, or a trust or estate is not eligible for the election and deduction in this subsection, even if such net income ultimately passes through to an eligible individual. f. For purposes of this subsection: (1) “Eligible individual” means an individual who is disabled or who is fifty-five years of age or older at the time the election is made, who no longer materially participates in a farming business at the time the election is made, and who, as an owner-lessor, is party to a farm tenancy agreement. (2) “Farm tenancy agreement” means a written agreement

House File 2317, p. 5 outlining the rights and obligations of an owner-lessor and a tenant-lessee where the tenant-lessee has a farm tenancy as defined in section 562.1A. A “farm tenancy agreement” includes cash leases, crop share leases, or livestock share leases. (3) “Farming business” means the production, care, growing, harvesting, preservation, handling, or storage of crops or forest or fruit trees; the production, care, feeding, management, and housing of livestock; or horticulture, all intended for profit. (4) “Livestock” means the same as defined in section 717.1. (5) “Materially participated” means the same as “material participation” in section 469(h) of the Internal Revenue Code. Sec. 5. EFFECTIVE DATE. This division of this Act takes effect January 1, 2023. Sec. 6. APPLICABILITY. This division of this Act applies to tax years beginning on or after January 1, 2023. DIVISION III RETIRED FARMER CAPITAL GAIN EXCLUSION Sec. 7. Section 422.7, subsection 21, Code 2022, is amended by striking the subsection and inserting in lieu thereof the following: 21. a. For purposes of this subsection: (1) “Farming business” means the production, care, growing, harvesting, preservation, handling, or storage of crops or forest or fruit trees; the production, care, feeding, management, and housing of livestock; or horticulture, all for intended profit. (2) “Held” shall be determined with reference to the holding period provisions of section 1223 of the Internal Revenue Code and the federal regulations pursuant thereto. (3) “Livestock” means the same as defined in section 717.1. (4) “Materially participated” means the same as “material participation” in section 469(h) of the Internal Revenue Code. (5) (a) “Real property used in a farming business” means all tracts of land and the improvements and structures located on such tracts which are in good faith used primarily for a farming business. Buildings which are primarily used or intended for human habitation are deemed to be used in a farming business when the building is located on or adjacent

House File 2317, p. 6 to the parcel used in the farming business. Land and the nonresidential improvements and structures located on such land that shall be considered to be used primarily in a farming business include but are not limited to land, improvements or structures used for the storage or maintenance of farm machinery or equipment, for the drying, storage, handling, or preservation of agricultural crops, or for the storage of farm inputs, feed, or manure. Real property used in a farming business shall also include woodland, wasteland, pastureland, and idled land used for the conservation of natural resources including soil and water. (b) Real property classified as agricultural property for Iowa property tax purposes, except real property described in section 441.21, subsection 12, paragraph “a” or “b” , shall be presumed to be real property used in a farming business. This presumption is rebuttable by the department by a preponderance of evidence that the real property did not meet the requirements of subparagraph division (a). (6) “Relative” means a person that satisfies one or more of the following conditions: (a) The individual is related to the taxpayer by consanguinity or affinity within the second degree as determined by common law. (b) The individual is a lineal descendent of the taxpayer. For purposes of this subparagraph division, “lineal descendent” means children of the taxpayer, including legally adopted children and biological children, stepchildren, grandchildren, great-grandchildren, and any other lineal descendent of the taxpayer. (c) An entity in which an individual who satisfies the conditions of either subparagraph division (a) or (b) has a legal or equitable interest as an owner, member, partner, or beneficiary. (7) “Retired farmer” means an individual who is disabled or who is fifty-five years of age or older and who no longer materially participates in a farming business when an exclusion and deduction is claimed under this subsection. b. Subtract the net capital gain from the sale of real property used in a farming business if one of the following

House File 2317, p. 7 conditions are satisfied: (1) The taxpayer has materially participated in a farming business for a minimum of ten years and has held the real property used in a farming business for a minimum of ten years. If the taxpayer is a retired farmer, the taxpayer is considered to meet the material participation requirement if the taxpayer materially participated in a farming business for ten years or more in the aggregate, prior to making an election under this subsection. (2) The taxpayer has held the real property used in a farming business which is sold to a relative of the taxpayer. c. For a taxpayer who is a retired farmer, subtract the net capital gain from the sale of cattle or horses held by the taxpayer for breeding, draft, dairy, or sporting purposes for a period of twenty-four months or more from the date of acquisition; but only if the taxpayer materially participated in the farming business for five of the eight years preceding the farmer’s retirement or disability and who has sold all or substantially all of the taxpayer’s interest in the farming business by the time the election under this paragraph is made. d. For a taxpayer who is a retired farmer, subtract the net capital gain from the sale of breeding livestock, other than cattle and horses, if the livestock is held by the taxpayer for a period of twelve months or more from the date of acquisition; but only if the taxpayer materially participated in the farming business for five of the eight years preceding the farmer’s retirement or disability and who has sold all or substantially all of the taxpayer’s interest in the farming business by the time the election under this paragraph is made. e. A taxpayer who is a retired farmer may make, subject to the limitations described in paragraphs “f” and “g” , a single, lifetime election to exclude all qualifying capital gains under paragraphs “b” , “c” , and “d” . f. A taxpayer who is a retired farmer who elects to exclude capital gains under paragraph “b” , “c” , or “d” shall not claim the beginning farmer tax credit under section 422.11E or the exclusion for net income received pursuant to a farm tenancy agreement in subsection 21A, in the tax year in which this election is made or in any subsequent year.

House File 2317, p. 8 g. A taxpayer who is a retired farmer who claims the beginning farmer tax credit under section 422.11E shall not, in the same year, make an election under this subsection. A taxpayer who is a retired farmer and who elects to exclude the net income received from a farm tenancy agreement under subsection 21A, shall not, in the same tax year or in any subsequent tax year, make the election under this subsection. h. Married individuals who file separate state income tax returns shall allocate their combined annual net capital gain exclusion under paragraphs “b” , “c” , and “d” to each spouse in the proportion that each spouse’s respective net capital gain bears to the total net capital gain. i. The department shall establish criteria, by rule, relating to whether and how a surviving spouse may claim the income exclusion for which a deceased retired farmer would have been eligible under this subsection. Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113, is repealed. Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is repealed. Sec. 10. EFFECTIVE DATE. This division of this Act takes effect January 1, 2023. Sec. 11. APPLICABILITY. 1. This division of this Act applies to tax years beginning on or after January 1, 2023. 2. This division of this Act applies to sales consummated on or after the effective date of this division of this Act, and sales consummated prior to the effective date of this division of this Act shall be governed by the law as it existed prior to the effective date of this division of this Act. DIVISION IV INDIVIDUAL INCOME TAX RATES —— TAX YEARS 2023-2025 Sec. 12. Section 422.5, subsection 3, paragraph b, Code 2022, is amended to read as follows: b. (1) In lieu of the computation in subsection 1 or 2 , or in paragraph “a” of this subsection , if the married persons’, filing jointly or filing separately on a combined return , head of household’s, or surviving spouse’s net income exceeds thirteen thousand five hundred dollars, the regular

House File 2317, p. 9 tax imposed under this subchapter shall be the lesser of the maximum alternate state individual income tax rate specified in subparagraph (2) times the portion of the net income in excess of thirteen thousand five hundred dollars or the regular tax liability computed without regard to this sentence. Taxpayers electing to file separately shall compute the alternate tax described in this paragraph using the total net income of the husband and wife spouses . The alternate tax described in this paragraph does not apply if one spouse elects to carry back or carry forward the loss as provided in section 422.9, subsection 3 . (2) (a) (i) (A) For the tax year beginning on or after January 1, 2023, but before January 1, 2024, the alternate tax rate is 6.00 percent. (B) For the tax year beginning on or after January 1, 2024, but before January 1, 2025, the alternate tax rate is 5.70 percent. (C) For the tax year beginning on or after January 1, 2025, but before January 1, 2026, the alternate tax rate is 5.20 percent. (ii) This subparagraph division (a) is repealed January 1, 2026. (b) For tax years beginning on or after January 1, 2026, the alternate tax rate is 4.40 percent. Sec. 13. Section 422.5, subsection 3B, paragraph b, Code 2022, is amended to read as follows: b. (1) In lieu of the computation in subsection 1, 2, or 3 , if the married persons’, filing jointly or filing separately on a combined return , head of household’s, or surviving spouse’s net income exceeds thirty-two thousand dollars, the regular tax imposed under this subchapter shall be the lesser of the maximum alternate state individual income tax rate specified in subparagraph (2) times the portion of the net income in excess of thirty-two thousand dollars or the regular tax liability computed without regard to this sentence. Taxpayers electing to file separately shall compute the alternate tax described in this paragraph using the total net income of the husband and wife spouses . The alternate tax described in this paragraph does not apply if one spouse elects to carry back or carry

House File 2317, p. 10 forward the loss as provided in section 422.9, subsection 3 . (2) (a) (i) (A) For the tax year beginning on or after January 1, 2023, but before January 1, 2024, the alternate tax rate is 6.00 percent. (B) For the tax year beginning on or after January 1, 2024, but before January 1, 2025, the alternate tax rate is 5.70 percent. (C) For the tax year beginning on or after January 1, 2025, but before January 1, 2026, the alternate tax rate is 5.20 percent. (ii) This subparagraph division (a) is repealed January 1, 2026. (b) For tax years beginning on or after January 1, 2026, the alternate tax rate is 4.40 percent. Sec. 14. Section 422.5, subsection 6, Code 2022, is amended to read as follows: 6. a. Upon determination of the latest cumulative inflation factor, the director shall multiply each dollar amount set forth in section 422.5A by this cumulative inflation factor, shall round off the resulting product to the nearest one dollar, and shall incorporate the result into the income tax forms and instructions for each tax year. b. This subsection is repealed on January 1, 2026. Sec. 15. Section 422.5A, Code 2022, is amended by striking the section and inserting in lieu thereof the following: 422.5A Tax rates. 1. a. The tax imposed in section 422.5 shall be calculated using the following rates in the following tax years in the case of married persons filing jointly: (1) For the tax year beginning on or after January 1, 2023, but before January 1, 2024: (a) On taxable income from 0 through $12,000, the rate of 4.40 percent. (b) On taxable income exceeding $12,000 but not exceeding $60,000, the rate of 4.82 percent. (c) On taxable income exceeding $60,000 but not exceeding $150,000, the rate of 5.70 percent. (d) On taxable income exceeding $150,000, the rate of 6.00 percent.

House File 2317, p. 11 (2) For the tax year beginning on or after January 1, 2024, but before January 1, 2025: (a) On taxable income from 0 through $12,000, the rate of 4.40 percent. (b) On taxable income exceeding $12,000 but not exceeding $60,000, the rate of 4.82 percent. (c) On taxable income exceeding $60,000, the rate of 5.70 percent. (3) For the tax year beginning on or after January 1, 2025, but before January 1, 2026: (a) On taxable income from 0 through $12,000, the rate of 4.40 percent. (b) On taxable income exceeding $12,000, the rate of 4.82 percent. b. The tax imposed in section 422.5 shall be calculated using the following rates in the following tax years in the case of any other taxpayer other than married persons filing jointly: (1) For the tax year beginning on or after January 1, 2023, but before January 1, 2024: (a) On taxable income from 0 through $6,000, the rate of 4.40 percent. (b) On taxable income exceeding $6,000 but not exceeding $30,000, the rate of 4.82 percent. (c) On taxable income exceeding $30,000 but not exceeding $75,000, the rate of 5.70 percent. (d) On taxable income exceeding $75,000, the rate of 6.00 percent. (2) For the tax year beginning on or after January 1, 2024, but before January 1, 2025: (a) On taxable income from 0 through $6,000, the rate of 4.40 percent. (b) On taxable income exceeding $6,000 but not exceeding $30,000, the rate of 4.82 percent. (c) On taxable income exceeding $30,000, the rate of 5.70 percent. (3) For the tax year beginning on or after January 1, 2025, but before January 1, 2026: (a) On taxable income from 0 through $6,000, the rate of

House File 2317, p. 12 4.40 percent. (b) On taxable income exceeding $6,000, the rate of 4.82 percent. 2. This section is repealed January 1, 2026. Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107, is repealed. Sec. 17. EFFECTIVE DATE. This division of this Act takes effect January 1, 2023. Sec. 18. APPLICABILITY. This division of this Act applies to tax years beginning on or after January 1, 2023. DIVISION V INDIVIDUAL INCOME TAX —— FLAT RATE Sec. 19. Section 421.27, subsection 9, paragraph a, subparagraph (3), Code 2022, is amended to read as follows: (3) In the case of all other entities, including corporations described in section 422.36, subsection 5 , and all other entities required to file an information return under section 422.15, subsection 2 , the entity’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the top income tax rate imposed under section 422.5A 422.5 for the tax year, less any Iowa tax credits available to the entity. Sec. 20. Section 422.5, subsection 1, paragraph a, Code 2022, is amended to read as follows: a. A tax is imposed upon every resident and nonresident of the state which tax shall be levied, collected, and paid annually upon and with respect to the entire taxable income as defined in this subchapter at rates as provided in section 422.5A a rate of three and nine-tenths percent . Sec. 21. Section 422.16B, subsection 2, paragraph a, Code 2022, is amended to read as follows: a. (1) A pass-through entity shall file a composite return on behalf of all nonresident members and shall report and pay the income or franchise tax imposed under this chapter at the maximum state income or franchise tax rate applicable to the member under section 422.5A 422.5 , 422.33 , or 422.63 on the nonresident members’ distributive shares of the income from the pass-through entity. (2) The tax rate applicable to a tiered pass-through entity

House File 2317, p. 13 shall be the maximum state income tax rate under section 422.5A 422.5 . Sec. 22. Section 422.25A, subsection 5, paragraph c, subparagraphs (3), (4), and (5), Code 2022, are amended to read as follows: (3) Determine the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to nonresident individual partners and nonresident fiduciary partners and allocate and apportion such adjustments as provided in section 422.33 at the partnership or tiered partner level, and multiply the resulting amount by the maximum individual income tax rate pursuant to section 422.5A 422.5 for the reviewed year. (4) For the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to tiered partners: (a) Determine the amount of such adjustments which are of a type that would be subject to sourcing to Iowa under section 422.8, subsection 2 , paragraph “a” , as a nonresident, and then determine the portion of this amount that would be sourced to Iowa under those provisions as if the tiered partner were a nonresident. (b) Determine the amount of such adjustments which are of a type that would not be subject to sourcing to Iowa under section 422.8, subsection 2 , paragraph “a” , as a nonresident. (c) Determine the portion of the amount in subparagraph division (b) that can be established, as prescribed by the department by rule, to be properly allocable to indirect partners that are nonresident partners or other partners not subject to tax on the adjustments. (d) Multiply the total of the amounts determined in subparagraph divisions (a) and (b), reduced by any amount determined in subparagraph division (c), by the highest individual income tax rate pursuant to section 422.5A 422.5 for the reviewed year. (5) For the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to resident

House File 2317, p. 14 individual partners and resident fiduciary partners, multiply that amount by the highest individual income tax rate pursuant to section 422.5A 422.5 for the reviewed year. Sec. 23. EFFECTIVE DATE. This division of this Act takes effect January 1, 2026. Sec. 24. APPLICABILITY. This division of this Act applies to tax years beginning on or after January 1, 2026. DIVISION VI RETIREMENT INCOME Sec. 25. Section 422.5, subsection 3, paragraph a, Code 2022, is amended to read as follows: a. The tax shall not be imposed on a resident or nonresident whose net income, as defined in section 422.7 , is thirteen thousand five hundred dollars or less in the case of married persons filing jointly or filing separately on a combined return, heads of household, and surviving spouses or nine thousand dollars or less in the case of all other persons; but in the event that the payment of tax under this subchapter would reduce the net income to less than thirteen thousand five hundred dollars or nine thousand dollars as applicable, then the tax shall be reduced to that amount which would result in allowing the taxpayer to retain a net income of thirteen thousand five hundred dollars or nine thousand dollars as applicable. The preceding sentence does not apply to estates or trusts. For the purpose of this subsection , the entire net income, including any part of the net income not allocated to Iowa, shall be taken into account. For purposes of this subsection , net income includes all amounts of pensions or other retirement income, except for military retirement pay excluded under section 422.7, subsection 31A , paragraph “a” , or section 422.7, subsection 31B , paragraph “a” , received from any source which is not taxable under this subchapter as a result of the government pension exclusions in section 422.7 , or any other state law. If the combined net income of a husband and wife exceeds thirteen thousand five hundred dollars, neither of them shall receive the benefit of this subsection , and it is immaterial whether they file a joint return or separate returns. However, if a husband and wife file separate returns and have a combined net income of thirteen thousand five

House File 2317, p. 15 hundred dollars or less, neither spouse shall receive the benefit of this paragraph, if one spouse has a net operating loss and elects to carry back or carry forward the loss as provided in section 422.9, subsection 3 . A person who is claimed as a dependent by another person as defined in section 422.12 shall not receive the benefit of this subsection if the person claiming the dependent has net income exceeding thirteen thousand five hundred dollars or nine thousand dollars as applicable or the person claiming the dependent and the person’s spouse have combined net income exceeding thirteen thousand five hundred dollars or nine thousand dollars as applicable. Sec. 26. Section 422.5, subsection 3B, paragraph a, Code 2022, is amended to read as follows: a. The tax shall not be imposed on a resident or nonresident who is at least sixty-five years old on December 31 of the tax year and whose net income, as defined in section 422.7 , is thirty-two thousand dollars or less in the case of married persons filing jointly or filing separately on a combined return, heads of household, and surviving spouses or twenty-four thousand dollars or less in the case of all other persons; but in the event that the payment of tax under this subchapter would reduce the net income to less than thirty-two thousand dollars or twenty-four thousand dollars as applicable, then the tax shall be reduced to that amount which would result in allowing the taxpayer to retain a net income of thirty-two thousand dollars or twenty-four thousand dollars as applicable. The preceding sentence does not apply to estates or trusts. For the purpose of this subsection , the entire net income, including any part of the net income not allocated to Iowa, shall be taken into account. For purposes of this subsection , net income includes all amounts of pensions or other retirement income, except for military retirement pay excluded under section 422.7, subsection 31A , paragraph “a” , or section 422.7, subsection 31B , paragraph “a” , received from any source which is not taxable under this subchapter as a result of the government pension exclusions in section 422.7 , or any other state law. If the combined net income of a husband and wife exceeds thirty-two thousand dollars, neither of them shall receive the

House File 2317, p. 16 benefit of this subsection , and it is immaterial whether they file a joint return or separate returns. However, if a husband and wife file separate returns and have a combined net income of thirty-two thousand dollars or less, neither spouse shall receive the benefit of this paragraph, if one spouse has a net operating loss and elects to carry back or carry forward the loss as provided in section 422.9, subsection 3 . A person who is claimed as a dependent by another person as defined in section 422.12 shall not receive the benefit of this subsection if the person claiming the dependent has net income exceeding thirty-two thousand dollars or twenty-four thousand dollars as applicable or the person claiming the dependent and the person’s spouse have combined net income exceeding thirty-two thousand dollars or twenty-four thousand dollars as applicable. Sec. 27. Section 422.7, subsection 31, Code 2022, is amended to read as follows: 31. a. For a person who is disabled, or is fifty-five years of age or older, or is the surviving spouse of an individual or a survivor having an insurable interest in an individual who would have qualified for the exemption under this subsection for the tax year, subtract Subtract , to the extent included, the total amount of received from a governmental or other pension or retirement pay plan , including , but not limited to, defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans , up to a maximum of six thousand dollars for a person, other than a husband or wife, who files a separate state income tax return and up to a maximum of twelve thousand dollars for a husband and wife who file a joint state income tax return. However, a surviving spouse who is not disabled or fifty-five years of age or older can only exclude the amount of pension or retirement pay received as a result of the death of the other spouse. A husband and wife filing separate state income tax returns or separately on a combined state return are allowed a combined maximum exclusion under this subsection of up to twelve thousand dollars. The twelve thousand dollar

House File 2317, p. 17 exclusion shall be allocated to the husband or wife in the proportion that each spouse’s respective pension and retirement pay received bears to total combined pension and retirement pay received received by a person who is disabled, or is fifty-five years of age or older, or is the surviving spouse of an individual or is a survivor having an insurable interest in an individual who would have qualified for the exemption under this subsection for the tax year . b. Married taxpayers who file separate state income tax returns shall allocate their combined annual exclusion amount to each spouse in the proportion that each spouse’s respective income received from a pension or retirement plan bears to the total combined pension or retirement pay received. c. A taxpayer who is not disabled or fifty-five years of age or older and who receives pension or retirement pay as a surviving spouse or as a survivor with an insurable interest in an individual who would have qualified for the exemption for the tax year may only exclude the amount received from a pension or retirement plan in the tax year as a result of the death of the decedent. Sec. 28. EFFECTIVE DATE. This division of this Act takes effect January 1, 2023. Sec. 29. APPLICABILITY. This division of this Act applies to tax years beginning on or after January 1, 2023. DIVISION VII RESEARCH ACTIVITIES TAX CREDIT Sec. 30. Section 15.335, subsection 4, paragraph a, Code 2022, is amended to read as follows: a. In lieu of the credit amount computed in subsection 2 , an eligible business may shall elect to compute the credit amount for qualified research expenses incurred in this state in a manner consistent with the alternative simplified credit described in section 41(c)(4) of the Internal Revenue Code if the taxpayer elected or was required to use the alternative simplified credit method for federal income tax purposes for the same taxable year . The taxpayer may make this election regardless of the method used for the taxpayer’s federal income tax. The election made under this paragraph is for the tax year and the taxpayer may use another or the same method for