Senate Study Bill 3122 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM) A BILL FOR An Act requiring combined corporate tax returns for unitary 1 businesses and including retroactive applicability 2 provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 5754XC (1) 83 tw/mg:sc

S.F. _____ Section 1. Section 422.37, Code 2009, is amended by striking 1 the section and inserting in lieu thereof the following: 2 422.37 Combined returns. 3 1. An affiliated group of corporations shall, under rules 4 prescribed by the director, file a combined return showing the 5 net income of all corporations engaged in a unitary business. 6 2. The affiliated group filing the combined return is 7 subject to the following conditions: 8 a. The affiliated group filing under this section shall 9 meet the requirements to file a consolidated return for federal 10 income tax purposes under the Internal Revenue Code for the 11 same taxable year. 12 b. All members of the affiliated group shall join in the 13 filing of an Iowa combined return to the extent they are 14 engaged in a unitary business. 15 c. Members of the affiliated group exempt from taxation by 16 section 422.34 shall not be included in a combined return. 17 d. All members of the affiliated group shall use the 18 statutory method of allocation and apportionment unless the 19 director has granted permission to all members to use an 20 alternative method of allocation and apportionment. 21 e. The computation of federal taxable income before the net 22 operating loss deduction on a combined return for members of 23 an affiliated group shall be made in the same manner and under 24 the same procedures, including all intercompany adjustments and 25 eliminations, as are required for consolidating the incomes of 26 affiliated corporations for the taxable year for federal income 27 tax purposes in accordance with the Internal Revenue Code. 28 f. The combined income approach reflects the federal taxable 29 income of the unitary members of the Iowa affiliated group as a 30 single economic unit, with the application of the adjustments 31 in section 422.35, and the affiliated group shall only file 32 one income tax return. Any nonunitary members of the federal 33 affiliated group subject to tax imposed by section 422.33 must 34 each file its own separate corporate income tax return. The 35 -1- LSB 5754XC (1) 83 tw/mg:sc 1/ 2

S.F. _____ net income of an affiliated group is determined by applying 1 the apportionment formula against the combined income of the 2 affiliated group. 3 g. Only the sales of those corporations in the affiliated 4 group subject to the tax imposed by section 422.33 are included 5 in the numerator of the apportionment formula. 6 h. Only those corporations in the affiliated group subject 7 to the tax imposed by section 422.33 are jointly and severally 8 liable for the Iowa tax of the combined group. 9 Sec. 2. APPLICABILITY. This Act applies retroactively to 10 January 1, 2010, for tax years beginning on or after that date. 11 EXPLANATION 12 This bill requires that the net income of affiliated groups 13 of corporations engaged in a unitary business be computed 14 on a combined return basis for corporate tax purposes if 15 the group meets the requirements for filing a consolidated 16 return for federal tax purposes. The affiliated group would 17 include corporations with common ownership whereby one or more 18 corporations own 80 percent or more of another corporation. 19 The bill would require that one Iowa corporate income tax 20 return be filed that would include all unitary members of an 21 affiliated group. Any nonunitary member that is subject to 22 Iowa tax would file its own separate corporate return. Only 23 Iowa sales of those corporations doing business in Iowa would 24 be included in the numerator of the Iowa sales ratio. The 25 bill also provides that only those corporations doing business 26 in Iowa are jointly and severally liable for the tax of the 27 combined return. 28 The bill applies retroactively to January 1, 2010, for tax 29 years beginning on or after that date. 30 -2- LSB 5754XC (1) 83 tw/mg:sc 2/ 2