House File 2420 - Introduced HOUSE FILE BY QUIRK Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act allowing the creation of capital improvement investment 2 accounts for certain small businesses and providing tax 3 credits and exemptions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 6348HH 81 6 tm/je/5 PAG LIN 1 1 Section 1. NEW SECTION. 15E.361 CAPITAL IMPROVEMENT 1 2 INVESTMENT ACCOUNTS. 1 3 1. As used in this section, unless the context otherwise 1 4 requires: 1 5 a. "Account" means a capital improvement investment 1 6 account. 1 7 b. "Eligible borrower" means a small business located in 1 8 this state, operated for profit, under the management of an 1 9 individual, which has either fewer than twenty full=time 1 10 employees or an annual gross income of less than three million 1 11 dollars computed as an average over the three fiscal years 1 12 preceding the opening of a capital improvement investment 1 13 account. 1 14 2. An eligible borrower may open a capital improvement 1 15 investment account at a financial institution for the purpose 1 16 of making capital improvements to the borrower's business. A 1 17 tax credit under subsection 3 may be claimed for a 1 18 contribution to an account. State income tax treatment of 1 19 accounts shall be as provided in section 422.7, subsection 45, 1 20 and section 422.35, subsection 22. Assets shall only be 1 21 withdrawn from an account if the assets are to be used for 1 22 improvements to real property. The department shall develop 1 23 and administer a procedure for purposes of verifying that 1 24 withdrawn assets are used for improvements to real property. 1 25 3. An eligible borrower may claim a tax credit equal to 1 26 twenty=five percent of a contribution to an account. The tax 1 27 credit shall be allowed against taxes imposed under chapter 1 28 422, divisions II and III. If the business is a partnership, 1 29 S corporation, limited liability company, cooperative 1 30 organized under chapter 501 and filing as a partnership for 1 31 federal tax purposes, or estate or trust electing to have the 1 32 income taxed directly to the individual, an individual may 1 33 claim the tax credit allowed. The amount claimed by the 1 34 individual shall be based upon the pro rata share of the 1 35 individual's earnings of the partnership, S corporation, 2 1 limited liability company, cooperative organized under chapter 2 2 501 and filing as a partnership for federal tax purposes, or 2 3 estate or trust. Any tax credit in excess of the tax 2 4 liability for the tax year may be credited to the tax 2 5 liability for the following seven years or until depleted, 2 6 whichever occurs first. 2 7 4. The department of economic development, in cooperation 2 8 with the department of revenue, shall adopt rules pursuant to 2 9 chapter 17A for purposes of administering this section. 2 10 Sec. 2. Section 422.7, Code Supplement 2005, is amended by 2 11 adding the following new subsection: 2 12 NEW SUBSECTION. 45. a. Subtract interest and earnings on 2 13 a capital improvement investment account under section 2 14 15E.361. 2 15 b. Add the amount equal to the balance at the time a 2 16 capital improvement investment account under section 15E.361 2 17 is closed. 2 18 Sec. 3. NEW SECTION. 422.11M CAPITAL IMPROVEMENT 2 19 INVESTMENT ACCOUNT CONTRIBUTION TAX CREDIT. 2 20 The taxes imposed under this division, less the credits 2 21 allowed under sections 422.12 and 422.12B, shall be reduced by 2 22 a capital improvement investment account contribution tax 2 23 credit authorized pursuant to section 15E.361. 2 24 Sec. 4. Section 422.33, Code Supplement 2005, is amended 2 25 by adding the following new subsection: 2 26 NEW SUBSECTION. 20. The taxes imposed under this division 2 27 shall be reduced by a capital improvement investment account 2 28 contribution tax credit authorized pursuant to section 2 29 15E.361. 2 30 Sec. 5. Section 422.35, Code Supplement 2005, is amended 2 31 by adding the following new subsection: 2 32 NEW SUBSECTION. 22. a. Subtract interest and earnings on 2 33 a capital improvement investment account under section 2 34 15E.361. 2 35 b. Add the amount equal to the balance at the time a 3 1 capital improvement investment account under section 15E.361 3 2 is closed. 3 3 EXPLANATION 3 4 This bill allows the creation of capital improvement 3 5 investment accounts by certain small businesses and provides 3 6 tax credits and exemptions. 3 7 The bill allows an eligible borrower to open a capital 3 8 improvement investment account at a financial institution for 3 9 the purpose of making capital improvements to the borrower's 3 10 business. An eligible borrower is a small business located in 3 11 this state, operated for profit, under the management of an 3 12 individual, which has either fewer than 20 full=time employees 3 13 or an annual gross income of less than $3 million computed as 3 14 an average over the three fiscal years preceding the opening 3 15 of a capital improvement investment account. The bill allows 3 16 a tax credit to be claimed for a contribution to an account. 3 17 The tax credit is equal to 25 percent of a contribution and 3 18 may be used against personal and corporate tax liabilities. 3 19 The bill provides that assets shall only be withdrawn from an 3 20 account if the assets are to be used for improvements to real 3 21 property. The bill requires the department of economic 3 22 development to develop and administer a procedure for purposes 3 23 of verifying that withdrawn assets are used for improvements 3 24 to real property. 3 25 The bill provides that interest and earnings on accounts 3 26 are exempt from income for purposes of personal and corporate 3 27 tax liabilities. The bill provides that the amount equal to 3 28 the balance at the time a capital improvement investment 3 29 account is closed is added to income for purposes of 3 30 determining personal and corporate income tax liability. 3 31 LSB 6348HH 81 3 32 tm:nh/je/5