House File 2049 - Introduced HOUSE FILE 2049 BY BALTIMORE A BILL FOR An Act providing an exemption from the computation of the 1 individual and corporate state income tax of net income 2 from the sale or exchange by an eligible manufacturer of 3 tangible personal property that was manufactured within this 4 state by the eligible manufacturer and including retroactive 5 applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5046YH (2) 84 mm/sc

H.F. 2049 Section 1. Section 422.7, Code Supplement 2011, is amended 1 by adding the following new subsection: 2 NEW SUBSECTION . 57. a. Subtract, to the extent 3 included, net income from the sale or exchange by an 4 eligible manufacturer of tangible personal property that was 5 manufactured within this state by the eligible manufacturer. 6 b. The adjustment in paragraph “a” for an item of tangible 7 personal property manufactured both within and without this 8 state shall not exceed an amount equal to the same proportion 9 of net income as the allocable costs paid in this state by the 10 taxpayer for the item of tangible personal property bears to 11 the total allocable costs paid by the taxpayer for the item of 12 tangible personal property. 13 c. For purposes of this subsection: 14 (1) “Allocable costs ” means the same as defined in section 15 263A(a)(2) of the Internal Revenue Code. 16 (2) “Eligible manufacturer” means a taxpayer who meets all 17 the following requirements: 18 (a) The taxpayer’s principal business activity is 19 manufacturing. A taxpayer primarily engaged in selling 20 tangible personal property or services in order to earn a 21 profit and only incidentally engaged in manufacturing tangible 22 personal property is not a manufacturer for purposes of this 23 subsection. 24 (b) The taxpayer does not claim or receive any tax credits 25 listed or allowed in division II or III of this chapter for 26 the tax year in which an adjustment is made pursuant to this 27 subsection. 28 (3) “Manufactured” or “manufacturing” means adding value to 29 personal property through a process of manufacturing, refining, 30 purifying, combining of different materials, the packaging of 31 meats, extracting and recovering natural resources, and all 32 processes of fabricating and curing, with a view to selling the 33 property for gain or profit. 34 (4) “Paid” means paid or accrued or paid or incurred, and 35 -1- LSB 5046YH (2) 84 mm/sc 1/ 5

H.F. 2049 the terms “paid or accrued” and “paid or incurred” shall be 1 construed according to the method of accounting upon the basis 2 of which the net income is computed under this division. 3 (5) “Tangible personal property” means corporeal personal 4 property, such as machinery, tools, implements, goods, wares, 5 computer software, and merchandise, and shall not be taken to 6 mean money deposits in banks, shares of stock, bonds, notes, 7 credits, or evidence of an interest in property and evidences 8 of debt. 9 d. The director shall adopt rules for the administration of 10 this subsection. 11 Sec. 2. Section 422.33, subsection 4, paragraph a, Code 12 Supplement 2011, is amended to read as follows: 13 a. Add items of tax preference included in federal 14 alternative minimum taxable income under section 57, except 15 subsections (a)(1) and (a)(5), of the Internal Revenue Code, 16 make the adjustments included in federal alternative minimum 17 taxable income under section 56, except subsections (a)(4) and 18 (d), of the Internal Revenue Code, and add losses as required 19 by section 58 of the Internal Revenue Code. In making the 20 adjustment under section 56(c)(1) of the Internal Revenue Code, 21 the net income excluded in section 422.35, subsection 26, 22 shall be subtracted, and interest and dividends from federal 23 securities and interest and dividends from state and other 24 political subdivisions and from regulated investment companies 25 exempt from federal income tax under the Internal Revenue 26 Code, net of amortization of any discount or premium, shall be 27 subtracted. 28 Sec. 3. Section 422.35, Code Supplement 2011, is amended by 29 adding the following new subsection: 30 NEW SUBSECTION . 26. a. Subtract, to the extent 31 included, net income from the sale or exchange by an 32 eligible manufacturer of tangible personal property that was 33 manufactured within this state by the eligible manufacturer. 34 b. The adjustment in paragraph “a” for an item of tangible 35 -2- LSB 5046YH (2) 84 mm/sc 2/ 5

H.F. 2049 personal property manufactured both within and without this 1 state shall not exceed an amount equal to the same proportion 2 of net income as the allocable costs paid by the taxpayer in 3 this state for the item of tangible personal property bears to 4 the total allocable costs paid by the taxpayer for the item of 5 tangible personal property. 6 c. For purposes of this subsection: 7 (1) “Allocable costs” means the same as defined in section 8 263A(a)(2) of the Internal Revenue Code. 9 (2) “Eligible manufacturer” means a taxpayer who meets all 10 the following requirements: 11 (a) The taxpayer’s principal business activity is 12 manufacturing. A taxpayer primarily engaged in selling 13 tangible personal property or services in order to earn a 14 profit and only incidentally engaged in manufacturing tangible 15 personal property is not a manufacturer for purposes of this 16 subsection. 17 (b) The taxpayer does not claim or receive any tax credits 18 listed or allowed in division II or III of this chapter for 19 the tax year in which an adjustment is made pursuant to this 20 subsection. 21 (3) “Manufactured” or “manufacturing” means adding value to 22 personal property through a process of manufacturing, refining, 23 purifying, combining of different materials, the packaging of 24 meats, extracting and recovering natural resources, and all 25 processes of fabricating and curing, with a view to selling the 26 property for gain or profit. 27 (4) “Paid” means paid or accrued or paid or incurred, and 28 the terms “paid or accrued” and “paid or incurred” shall be 29 construed according to the method of accounting upon the basis 30 of which the net income is computed under this division. 31 (5) “Tangible personal property” means corporeal personal 32 property, such as machinery, tools, implements, goods, wares, 33 computer software, and merchandise, and shall not be taken to 34 mean money deposits in banks, shares of stock, bonds, notes, 35 -3- LSB 5046YH (2) 84 mm/sc 3/ 5

H.F. 2049 credits, or evidence of an interest in property and evidences 1 of debt. 2 d. The director shall adopt rules for the administration of 3 this subsection. 4 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies 5 retroactively to January 1, 2012, for tax years beginning on 6 or after that date. 7 EXPLANATION 8 This bill relates to the state taxation of net income from 9 the sale or exchange of tangible personal property manufactured 10 within the state. 11 The bill exempts from the computation of net income and 12 state alternative minimum tax for the individual and corporate 13 income tax all net income from the sale or exchange of tangible 14 personal property manufactured within the state by an eligible 15 manufacturer and sold by the eligible manufacturer. To be 16 considered an eligible manufacturer, a taxpayer’s principal 17 business activity must be manufacturing and the taxpayer must 18 not claim or receive any tax credits listed or allowed under 19 the individual or corporate income tax. 20 “Manufactured” and “manufacturing” are defined as adding 21 value to personal property through a process of manufacturing, 22 refining, purifying, combining of different materials, 23 the packaging of meats, extracting and recovering natural 24 resources, and all processes of fabricating and curing, with a 25 view to selling the property for gain or profit. 26 “Tangible personal property” is defined as corporeal 27 personal property, such as machinery, tools, implements, goods, 28 wares, computer software, and merchandise, and shall not be 29 taken to mean money deposits in banks, shares of stock, bonds, 30 notes, credits, or evidence of an interest in property and 31 evidences of debt. 32 The exemption applies to tangible personal property 33 manufactured both within and without this state, but is limited 34 to the same proportion of net income as the allocable costs 35 -4- LSB 5046YH (2) 84 mm/sc 4/ 5

H.F. 2049 paid in this state by the taxpayer for the item of tangible 1 personal property bears to the total allocable costs paid for 2 the item of tangible personal property. Allocable costs, 3 as defined in section 263A(a)(2) of the Internal Revenue 4 Code, generally include those costs that are directly and 5 indirectly related to the production of property which the 6 Internal Revenue Service requires a taxpayer to either include 7 in inventory costs or capitalize. “Paid” is defined to mean 8 paid or accrued or paid or incurred, depending on the method 9 of accounting used by the taxpayer to compute net income for 10 purposes of the individual or corporate income tax. 11 The bill applies retroactively to January 1, 2012, for tax 12 years beginning on or after that date. 13 -5- LSB 5046YH (2) 84 mm/sc 5/ 5