SSB 3042 (LSB 5436XD (8) 83)

SENATE/HOUSE FILE _____

BY  (PROPOSED DEPARTMENT OF REVENUE BILL)

A BILL FOR

An Act updating the Code references to the Internal Revenue Code, providing for decoupling from certain bonus depreciation provisions, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 15.335, subsection 1, paragraphs b and c, Code Supplement 2009, are amended to read as follows:
   b.  In lieu of the credit amount computed in paragraph “a”, subparagraph (1), an eligible business may elect to compute the credit amount for qualified research expenses incurred in this state in a manner consistent with the alternative incremental simplified credit described in section 41(c)(4) 41(c)(5) of the Internal Revenue Code. 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 any subsequent year.
   c.  For purposes of the alternate credit computation method in paragraph “b”, the credit percentages applicable to qualified research expenses described in clauses (i), (ii), and (iii) of section 41(c)(4)(A) 41(c)(5)(A) and clause (ii) of section 41(c)(5)(B) of the Internal Revenue Code are one and sixty-five hundredths percent, two and twenty hundredths percent, and two and seventy-five hundredths four and fifty-five hundredths percent and one and ninety-five hundredths percent, respectively.
    Sec. 2.  Section 15.335, subsection 4, Code Supplement 2009, is amended to read as follows:
   4.  a.  For purposes of this section, “base amount”, “basic research payment”, and “qualified research expense” mean the same as defined for the federal credit for increasing research activities under section 41 of the Internal Revenue Code, except that for the alternative incremental simplified credit such amounts are for research conducted within this state.
   b.  For purposes of this section, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2009 2010.
    Sec. 3.  Section 15A.9, subsection 8, paragraphs b, c, and e, Code Supplement 2009, are amended to read as follows:
   b.  In lieu of the credit amount computed in paragraph “a”, subparagraph (1), subparagraph division (a), a business may elect to compute the credit amount for qualified research expenses incurred in this state within the zone in a manner consistent with the alternative incremental simplified credit described in section 41(c)(4) 41(c)(5) of the Internal Revenue Code. 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 any subsequent year.
   c.  For purposes of the alternate credit computation method in paragraph “b”, the credit percentages applicable to qualified research expenses described in clauses (i), (ii), and (iii) of section 41(c)(4)(A) 41(c)(5)(A) and clause (ii) of section 41(c)(5)(B) of the Internal Revenue Code are three and thirty hundredths percent, four and forty hundredths percent, and five and fifty hundredths four and fifty-five hundredths percent and one and ninety-five hundredths percent, respectively.
   e.  (1)  For the purposes of this subsection, “base amount”, “basic research payment”, and “qualified research expense” mean the same as defined for the federal credit for increasing research activities under section 41 of the Internal Revenue Code, except that for the alternative incremental simplified credit such amounts are for research conducted within this state within the zone.
   (2)  For purposes of this subsection, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2009 2010.
    Sec. 4.  Section 422.3, subsection 5, Code 2009, is amended to read as follows:
   5.  “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended to and including January 1, 2008 2010.
    Sec. 5.  Section 422.5, subsection 2, paragraph b, subparagraph (1), Code Supplement 2009, is amended to read as follows:
   (1)  Add items of tax preference included in federal alternative minimum taxable income under section 57, except subsections (a)(1), (a)(2), and (a)(5), of the Internal Revenue Code, make the adjustments included in federal alternative minimum taxable income under section 56, except subsections (a)(4), (b)(1)(C)(iii), and (d), of the Internal Revenue Code, and add losses as required by section 58 of the Internal Revenue Code. To the extent that any preference or adjustment is determined by an individual’s federal adjusted gross income, the individual’s federal adjusted gross income is computed in accordance with section 422.7, subsection 39 subsections 39, 39A, and 39B. In the case of an estate or trust, the items of tax preference, adjustments, and losses shall be apportioned between the estate or trust and the beneficiaries in accordance with rules prescribed by the director.
    Sec. 6.  Section 422.7, Code Supplement 2009, is amended by adding the following new subsections:
   NEW SUBSECTION.  39A.  The additional first-year depreciation allowance authorized in section 168(k) of the Internal Revenue Code, as enacted by Pub. L. No. 110-85, section 103, and Pub. L. No. 111-5, section 1201, does not apply in computing net income for state tax purposes. If a taxpayer has taken a deduction for additional first-year depreciation in computing federal adjusted gross income, the following adjustments to federal adjusted gross income shall be made:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(k) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to depreciation allowed on such property for the tax year using the modified accelerated cost recovery system depreciation method applicable under section 168 of the Internal Revenue Code without regard to section 168(k).
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraphs “a” and “b”, pursuant to rules adopted by the director.
   NEW SUBSECTION.  39B.  The additional first-year depreciation allowance authorized in section 168(n) of the Internal Revenue Code, as enacted by Pub. L. No. 110-343, section 710, does not apply in computing net income for state tax purposes. If a taxpayer has taken a deduction for additional first-year depreciation in computing federal adjusted gross income, the following adjustments to federal adjusted gross income shall be made:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(n) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to depreciation allowed on such property for the tax year using the modified accelerated cost recovery system depreciation method applicable under section 168 of the Internal Revenue Code without regard to section 168(n).
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraphs “a” and “b”, pursuant to rules adopted by the director.
    Sec. 7.  Section 422.7, subsection 53, Code Supplement 2009, is amended by striking the subsection.
    Sec. 8.  Section 422.9, subsection 2, paragraphs h and i, Code Supplement 2009, are amended to read as follows:
   h.  For purposes of calculating the deductions in this subsection that are authorized under the Internal Revenue Code, and to the extent that any of such deductions is determined by an individual’s federal adjusted gross income, the individual’s federal adjusted gross income is computed in accordance with section 422.7, subsection 39 subsections 39, 39A, and 39B.
   i.  The deduction for state sales and use taxes is allowable only if the taxpayer elected to deduct the state sales and use taxes in lieu of state income taxes under section 164 of the Internal Revenue Code. A deduction for state sales and use taxes is not allowed if the taxpayer has taken the deduction for state income taxes or claimed the standard deduction under section 63 of the Internal Revenue Code. This paragraph applies to taxable years beginning after December 31, 2003, and before January 1, 2006 2008, and to taxable years beginning after December 31, 2008, and before January 1, 2010.
    Sec. 9.  Section 422.10, subsection 1, paragraphs b and c, Code Supplement 2009, are amended to read as follows:
   b.  In lieu of the credit amount computed in paragraph “a”, subparagraph (1), subparagraph division (a), a taxpayer may elect to compute the credit amount for qualified research expenses incurred in this state in a manner consistent with the alternative incremental simplified credit described in section 41(c)(4) 41(c)(5) of the Internal Revenue Code. 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 any subsequent year.
   c.  For purposes of the alternate credit computation method in paragraph “b”, the credit percentages applicable to qualified research expenses described in clauses (i), (ii), and (iii) of section 41(c)(4)(A) section 41(c)(5)(A) and clause (ii) of section 41(c)(5)(B) of the Internal Revenue Code are one and sixty-five hundredths percent, two and twenty hundredths percent, and two and seventy-five hundredths four and fifty-five hundredths percent and one and ninety-five hundredths percent, respectively.
    Sec. 10.  Section 422.10, subsection 3, Code Supplement 2009, is amended to read as follows:
   3.  a.  For purposes of this section, “base amount”, “basic research payment”, and “qualified research expense” mean the same as defined for the federal credit for increasing research activities under section 41 of the Internal Revenue Code, except that for the alternative incremental simplified credit such amounts are for research conducted within this state.
   b.  For purposes of this section, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2009 2010.
    Sec. 11.  Section 422.32, subsection 7, Code Supplement 2009, is amended to read as follows:
   7.  “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended to and including January 1, 2008 2010.
    Sec. 12.  Section 422.33, subsection 5, paragraphs b, c, and d, Code Supplement 2009, are amended to read as follows:
   b.  In lieu of the credit amount computed in paragraph “a”, subparagraph (1), a corporation may elect to compute the credit amount for qualified research expenses incurred in this state in a manner consistent with the alternative incremental simplified credit described in section 41(c)(4) 41(c)(5) of the Internal Revenue Code. 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 any subsequent year.
   c.  For purposes of the alternate credit computation method in paragraph “b”, the credit percentages applicable to qualified research expenses described in clauses (i), (ii), and (iii) of section 41(c)(4)(A) section 41(c)(5)(A) and clause (ii) of section 41(c)(5)(B) of the Internal Revenue Code are one and sixty-five hundredths percent, two and twenty hundredths percent, and two and seventy-five hundredths four and fifty-five hundredths percent and one and ninety-five hundredths percent, respectively.
   d.  (1)  For purposes of this subsection, “base amount”, “basic research payment”, and “qualified research expense” mean the same as defined for the federal credit for increasing research activities under section 41 of the Internal Revenue Code, except that for the alternative incremental simplified credit such amounts are for research conducted within this state.
    (2)  For purposes of this subsection, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2009 2010.
    Sec. 13.  Section 422.35, Code Supplement 2009, is amended by adding the following new subsections:
   NEW SUBSECTION.  19A.  The additional first-year depreciation allowance authorized in section 168(k) of the Internal Revenue Code, as enacted by Pub. L. No. 110-85, section 103, and Pub. L. No. 111-5, section 1201, does not apply in computing net income for state tax purposes. If a taxpayer has taken a deduction for additional first-year depreciation in computing federal taxable income, the following adjustments to federal taxable income shall be made:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(k) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to depreciation allowed on such property for the tax year using the modified accelerated cost recovery system depreciation method applicable under section 168 of the Internal Revenue Code without regard to section 168(k).
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraphs “a” and “b”, pursuant to rules adopted by the director.
   NEW SUBSECTION.  19B.  The additional first-year depreciation allowance authorized in section 168(n) of the Internal Revenue Code, as enacted by Pub. L. No. 110-343, section 710, does not apply in computing net income for state tax purposes. If a taxpayer has taken a deduction for additional first-year depreciation in computing federal taxable income, the following adjustments to federal taxable income shall be made:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(n) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to depreciation allowed on such property for the tax year using the modified accelerated cost recovery system depreciation method applicable under section 168 of the Internal Revenue Code without regard to section 168(n).
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraphs “a” and “b”, pursuant to rules adopted by the director.
    Sec. 14.  Section 422.35, subsection 24, Code Supplement 2009, is amended by striking the subsection.
    Sec. 15.  EFFECTIVE UPON ENACTMENT AND RETROACTIVE APPLICABILITY.
   1.  This Act, being deemed of immediate importance, takes effect upon enactment.
   2.  The sections of this Act amending sections 15.335, 15A.9, 422.3, 422.9, subsection 2, paragraph “i”, 422.10, 422.32, and 422.33 apply retroactively to January 1, 2009, for tax years beginning on or after that date.
   3.  The sections of this Act amending sections 422.5, 422.7, subsection 53, 422.9, subsection 2, paragraph “h”, and 422.35, subsection 24, and enacting sections 422.7, subsections 39A and 39B, and 422.35, subsections 19A and 19B, apply retroactively to January 1, 2008, for tax years ending on or after that date.
EXPLANATION
   This bill updates references in Code sections 15.335, 15A.9, 422.3, 422.10, 422.32, and 422.33 to the Internal Revenue Code, making certain federal income tax revisions enacted by Congress in 2008 and 2009 applicable for purposes of the corporate and individual income taxes and the franchise tax. These revisions only apply to tax years beginning on or after January 1, 2009, and thus do not include tax years beginning after December 31, 2007, and before January 1, 2009. 
   The bill amends certain Code sections relating to the state research activities tax credit for individuals, corporations, corporations in economic development areas, and corporations in quality jobs enterprise zones by updating references to the Internal Revenue Code that include changes in the research activities tax credit. The alternative incremental research tax credit was repealed for federal income tax purposes, so the bill strikes references to it and provides in its place an alternative simplified research tax credit for Iowa tax purposes. 
   The bill strikes Code section 422.7, subsection 53, and Code section 422.35, subsection 24, relating to the increased expensing allowance under section 179 of the Internal Revenue Code. Because the bill now couples Iowa with the federal Internal Revenue Code with regard to these provisions, they are no longer necessary.
   The bill amends certain sections of the individual and corporate income taxes related to the computation of net income (also known as “above-the-line” computation) by decoupling, for Iowa income tax purposes, from the federal accelerated depreciation deductions enacted by Congress as part of the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (“the federal Economic Stimulus Act of 2008”) and the American Recovery and Reinvestment Act of 2009. 
   The bill also decouples, for Iowa income tax purposes, from the federal accelerated depreciation deductions for certain disaster assistance property enacted by Congress as part of the Emergency Economic Stabilization Act of 2008. The bill makes a number of changes in conformance with this Act.
   In certain circumstances, Code section 422.9(2)(i) provides individuals a deduction from net income (a “below-the-line” deduction) for state sales and use taxes in lieu of a deduction for income taxes. This deduction was only available for taxable years beginning after December 31, 2003, and before January 1, 2006. The bill extends this deduction to taxable years beginning before January 1, 2008, and to taxable years beginning after December 31, 2008, and before January 1, 2010. The deduction is not available for the 2008 tax year. 
   The bill contains a number of retroactive applicability provisions: (1) the sections of the bill relating to the decoupling from federal bonus depreciation and recoupling with the expensing allowance apply retroactively to January 1, 2008, for tax years ending on or after that date; (2) all other sections of the bill apply retroactively to January 1, 2009, for tax years beginning on or after that date. 
   The bill takes effect upon enactment.