House File 721 - Introduced
HOUSE FILE
BY COMMITTEE ON ECONOMIC GROWTH
(SUCCESSOR TO HSB 139)
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to state individual income tax exemptions for
2 residents of border cities, replacement local option sales and
3 services, withholding tax credits, and property tax, and
4 including an effective date.
5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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1 1 Section 1. Section 257.21, unnumbered paragraph 2, Code
1 2 2005, is amended to read as follows:
1 3 The instructional support income surtax shall be imposed on
1 4 the state individual income tax for the calendar year during
1 5 which the school's budget year begins, or for a taxpayer's
1 6 fiscal year ending during the second half of that calendar
1 7 year and after the date the board adopts a resolution to
1 8 participate in the program or the first half of the succeeding
1 9 calendar year, and shall be imposed on all individuals
1 10 residing in the school district on the last day of the
1 11 applicable tax year. As used in this section, "state
1 12 individual income tax" means the taxes computed under section
1 13 422.5, less the credits without the exemption in section
1 14 422.5, subsection 11, and with the credit adjustments allowed
1 15 in sections 422.11A, 422.11B, 422.12, and 422.12B.
1 16 Sec. 2. Section 384.12, Code 2005, is amended by adding
1 17 the following new subsection:
1 18 NEW SUBSECTION. 23. If the city is a border city, as
1 19 defined in section 422.126, that has approved a state income
1 20 tax exemption for its residents, a tax to provide funding to
1 21 reimburse the state for lost state income tax revenues as
1 22 provided in sections 422.125 through 422.130.
1 23 Sec. 3. Section 422.5, Code 2005, is amended by adding the
1 24 following new subsection:
1 25 NEW SUBSECTION. 11. If a border city has approved the
1 26 local option exemption for border city residents pursuant to
1 27 sections 422.125 through 422.130, the taxes under this
1 28 division, including the alternative minimum tax, shall not be
1 29 imposed on the exemption amount of a resident of that border
1 30 city and shall not be imposed on the exemption amount derived
1 31 by a nonresident of Iowa who lives in a border city outside of
1 32 Iowa from employment or business activity engaged in the Iowa
1 33 border city.
1 34 Sec. 4. NEW SECTION. 422.125 LEGISLATIVE FINDINGS AND
1 35 INTENT.
2 1 The general assembly realizes the inequities faced by
2 2 cities in this state and their inhabitants when the cities are
2 3 adjacent to another state in which the tax burden of the
2 4 citizens of the adjoining state is substantially less than the
2 5 tax burden imposed by the laws of this state upon the citizens
2 6 of a border city in this state.
2 7 The general assembly finds that these tax inequities offer
2 8 inducements to citizens who would otherwise settle in Iowa and
2 9 operate businesses in Iowa to move to the adjoining states.
2 10 The general assembly declares that the passage of this
2 11 division is designed to establish a method of equalizing the
2 12 inequities imposed under the tax laws of this state, thereby
2 13 offering inducements to persons to establish their homes and
2 14 businesses in the Iowa border city.
2 15 The general assembly further declares that the
2 16 reimbursement to the state by the border city under this
2 17 division in lieu of the state income tax on the exemption
2 18 amount of the residents of the border city shall be a benefit
2 19 to the state and all of its residents.
2 20 Sec. 5. NEW SECTION. 422.126 DEFINITIONS.
2 21 For the purposes of this division and unless the context
2 22 otherwise requires:
2 23 1. "Base year" means the fiscal year beginning immediately
2 24 prior to the effective date of the income tax exemption under
2 25 this division.
2 26 2. "Border city" means a city with a corporate limit that
2 27 is within five miles of the border of another state.
2 28 3. "Business" means any commercial, professional services,
2 29 or industrial enterprise engaged in interstate or intrastate
2 30 commerce, including, but not limited to, medical treatment
2 31 facilities, manufacturing facilities, corporate headquarters,
2 32 or research facilities. "Business" does not include a
2 33 business which closes or substantially reduces its operation
2 34 in one area of the state of Iowa and relocates substantially
2 35 the same operation to another area of the state of Iowa.
3 1 4. "Employee" means the individual employed in a targeted
3 2 job that is subject to a withholding agreement.
3 3 5. "Employer" means a business creating targeted jobs in a
3 4 border city pursuant to a withholding agreement.
3 5 6. "Exemption" means the amount of income that is not
3 6 subject to the state individual income taxes under division
3 7 II.
3 8 7. "Targeted job" means a job in a new or expanding
3 9 business which is or will be located in a border city, but
3 10 does not include jobs of recalled workers, or other jobs that
3 11 formerly existed in the business in the state of Iowa.
3 12 8. "Withholding agreement" means the agreement between a
3 13 border city and an employer concerning the targeted jobs
3 14 withholding credit authorized in section 422.129.
3 15 Sec. 6. NEW SECTION. 422.127 INCOME TAX EXEMPTION ==
3 16 ELECTION.
3 17 1. The governing body of a border city may enact an
3 18 ordinance to exempt from the state income tax all or a portion
3 19 of the income of the residents of the border city, subject to
3 20 this section.
3 21 2. The ordinance to provide for the income tax exemption
3 22 shall only be effective after an election at which a majority
3 23 of those voting on the question favors the enactment of the
3 24 ordinance and a repeal of the ordinance shall only be
3 25 effective after a subsequent election at which a majority of
3 26 those voting on the question favors the repeal of the
3 27 ordinance.
3 28 3. The governing body may submit the question of the
3 29 enactment or repeal of the ordinance for the income tax
3 30 exemption on its own motion and shall submit the question upon
3 31 receipt of a valid petition of the voters of the city pursuant
3 32 to section 362.4.
3 33 4. The county commissioner of elections shall submit the
3 34 question of the enactment or repeal of the ordinance at the
3 35 time of the state general election, city regular election, or
4 1 special election. However, the election shall not be held
4 2 sooner than sixty days after publication of the ballot
4 3 proposition. The ballot proposition shall contain a statement
4 4 that an income tax exemption for the city's residents will be
4 5 enacted and that the city will be required to reimburse the
4 6 state for lost revenue as a result of the exemption. The
4 7 ballot proposition shall state the amount of the income tax
4 8 exemption. The ballot proposition shall also specify the
4 9 sources for reimbursing the state for the lost state income
4 10 tax revenue. If one of the sources is a local sales and
4 11 services tax, the rate, in increments of one or more full
4 12 percentage points, and the date of imposition of the tax shall
4 13 be specified.
4 14 5. If a majority of those voting on the question of
4 15 enactment or repeal of the ordinance favors enactment or
4 16 repeal, the ordinance or repeal is effective for an unlimited
4 17 period of time. If the ordinance is enacted, the income tax
4 18 exemption takes effect January 1 following the favorable
4 19 election and applies to tax years beginning on or after the
4 20 effective date. If the ordinance is repealed, the income tax
4 21 exemption is repealed effective January 1 following the
4 22 favorable election and applies to tax years beginning on or
4 23 after the effective date.
4 24 Sec. 7. NEW SECTION. 422.128 APPLICABILITY OF EXEMPTION.
4 25 1. A state income tax exemption enacted by ordinance under
4 26 this division only applies to individual taxpayers and not to
4 27 estates, trusts, corporations, or any other person.
4 28 2. An individual taxpayer residing outside Iowa is
4 29 entitled to the state income tax exemption with respect to
4 30 income derived from employment or business activity engaged in
4 31 in an Iowa border city that has approved the state income tax
4 32 exemption pursuant to this division.
4 33 3. The amount of the state income tax exemption shall be
4 34 set at one of the following:
4 35 a. One hundred percent or less of income.
5 1 b. A specific dollar amount of income.
5 2 c. A combination using a percentage along with a specific
5 3 dollar amount of income.
5 4 Sec. 8. NEW SECTION. 422.129 WITHHOLDING AGREEMENT ==
5 5 TAX CREDIT == FUND.
5 6 1. A border city may further provide by ordinance for the
5 7 repayment of any or all of the state reimbursement from
5 8 revenue derived from the targeted jobs withholding credit
5 9 described in this section. The targeted jobs withholding
5 10 credit shall be based upon the wages paid to the employees
5 11 pursuant to the withholding agreement.
5 12 2. An amount equal to three percent of the gross wages
5 13 paid by the employer to each employee under a withholding
5 14 agreement shall be credited from the payment made by the
5 15 employer pursuant to section 422.16. If the amount of the
5 16 withholding by the employer is less than three percent of the
5 17 gross wages paid to the employees covered by the withholding
5 18 agreement, then the employer shall receive a credit against
5 19 other withholding taxes due by the employer. The employer
5 20 shall remit the amount of the credit quarterly in the same
5 21 manner as withholding payments are reported to the department
5 22 of revenue, to the border city to be allocated to and when
5 23 collected paid into a targeted jobs withholding credit fund of
5 24 the border city in which the targeted jobs are located.
5 25 3. The border city shall enter into a withholding
5 26 agreement with each employer concerning the targeted jobs
5 27 withholding credit. The withholding agreement may have a term
5 28 of up to ten years and shall be provided promptly to the
5 29 department of revenue following its execution by the border
5 30 city and the employer. An employer shall not be obligated to
5 31 enter into a withholding agreement. Following termination of
5 32 the withholding agreement, the employer credits shall cease
5 33 and any money received by the border city or contained in the
5 34 fund of the border city after termination shall be remitted to
5 35 the treasurer of state to be deposited into the general fund
6 1 of the state.
6 2 4. The employer shall certify to the department of revenue
6 3 that the targeted jobs withholding credit is in accordance
6 4 with the withholding agreement and shall provide other
6 5 information the department may require.
6 6 5. A border city shall certify to the department of
6 7 revenue the amount of the targeted jobs withholding credit an
6 8 employer has remitted to the fund and shall provide other
6 9 information the department may require.
6 10 6. An employee whose wages are subject to a withholding
6 11 agreement shall receive full credit for the amount withheld as
6 12 provided in section 422.16.
6 13 Sec. 9. NEW SECTION. 422.130 REIMBURSEMENT OF LOSS TO
6 14 STATE == FUNDING SOURCES.
6 15 1. A border city that has approved the state income tax
6 16 exemption shall reimburse the state for the estimated loss in
6 17 state income tax revenues attributable to the exemption. The
6 18 estimated loss shall be based on the estimated amount of state
6 19 income tax revenues received during the base year from
6 20 residents of the border city and nonresidents who were
6 21 employed or had business activities in the border city. The
6 22 amount of the reimbursement equals a percentage of such
6 23 estimated amount during the base year. The percentage shall
6 24 be estimated by the department after considering the amount of
6 25 the state income tax exemption.
6 26 2. Funding sources available to the border city for
6 27 reimbursement for the state consists of the following:
6 28 a. A local option sales and services tax without a rate
6 29 limitation. However, the rate shall be listed on the ballot
6 30 proposition and in a whole number.
6 31 b. A special property tax levy without rate limitation.
6 32 c. Targeted jobs withholding credits.
6 33 d. Any other city funds not otherwise dedicated for a
6 34 specific purpose.
6 35 e. Any combination of funding sources referred to in
7 1 paragraphs "a", "b", "c", and "d".
7 2 3. a. If a local option sales and services tax imposed in
7 3 the incorporated area of the border city is to be used to
7 4 partially or fully fund the reimbursement, the tax shall be
7 5 imposed either January 1 or July 1 following notification of
7 6 the director but not sooner than ninety days following the
7 7 favorable election and not sooner than sixty days following
7 8 notice to sellers, as defined in section 423.1.
7 9 b. The provisions relating to the imposition of the local
7 10 sales and services tax in section 423B.5, the administration
7 11 of such tax in section 423B.6, and the refunds for
7 12 construction contractors in section 423B.8 apply to the local
7 13 option sales and services tax imposed by a border city, except
7 14 that the rate shall be as specified on the ballot proposition,
7 15 references to the county shall mean the border city, and other
7 16 provisions inconsistent with the intent and workings of this
7 17 tax shall not be considered.
7 18 Sec. 10. Section 422D.2, Code 2005, is amended to read as
7 19 follows:
7 20 422D.2 LOCAL INCOME SURTAX.
7 21 A county may impose by ordinance a local income surtax as
7 22 provided in section 422D.1 at the rate set by the board of
7 23 supervisors, of up to one percent, on the state individual
7 24 income tax of each individual residing in the county at the
7 25 end of the individual's applicable tax year. However, the
7 26 cumulative total of the percents of income surtax imposed on
7 27 any taxpayer in the county shall not exceed twenty percent.
7 28 The reason for imposing the surtax and the amount needed shall
7 29 be set out in the ordinance. The surtax rate shall be set to
7 30 raise only the amount needed. For purposes of this section,
7 31 "state individual income tax" means the tax computed under
7 32 section 422.5, less the credits without the exemption in
7 33 section 422.5, subsection 11, and with the credit adjustments
7 34 allowed in sections 422.11A, 422.11B, 422.12, and 422.12B.
7 35 Sec. 11. EFFECTIVE DATE. This Act, being deemed of
8 1 immediate importance, takes effect upon enactment.
8 2 EXPLANATION
8 3 This bill provides that a border city may vote to exempt
8 4 the residents of the city from all or a portion of the state
8 5 individual income tax. A border city is one with a corporate
8 6 limit that is within five miles of another state. The vote
8 7 taken must be a citywide election at which a majority votes in
8 8 favor of the exemption as well as in favor of reimbursement to
8 9 the state from a specified source of the estimated loss to the
8 10 state attributable to the exemption. The funding for the
8 11 reimbursement is optional and may consist of a local option
8 12 sales and services tax with no rate limit, a special property
8 13 tax with no rate limit, a credit on amounts withheld for state
8 14 tax purposes, or any other funds available to the city which
8 15 are not otherwise dedicated to another purpose. The sources
8 16 for reimbursement must be on the ballot and the sales tax rate
8 17 must also be on the ballot if that is to be one of the funding
8 18 sources.
8 19 The bill provides that income surtaxes for schools and
8 20 emergency medical services are not affected by the exemption
8 21 provided border city residents.
8 22 The bill takes effect upon enactment.
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