H.F. 2359 Section 1. NEW SECTION . 15.226 Definitions. 1 For purposes of this part: 2 1. “Anchor manufacturer” means a business that meets all of 3 the following: 4 a. Manufactures tangible personal property at a facility in 5 Iowa. 6 b. Exports at least fifty percent of the tangible personal 7 property produced at the facility to markets outside of the 8 state. 9 2. “Certified supplier” means a business certified pursuant 10 to section 15.227. 11 3. “Facility” means a building or buildings located in the 12 state at which tangible personal property is manufactured for 13 sale within or without the state of Iowa. 14 4. “Manufactured” or “Manufactures” means adding value to 15 personal property through a process of manufacturing, refining, 16 purifying, combining of different materials, the packaging of 17 meats, extracting and recovering natural resources, and all 18 processes of fabricating and curing, with a view to selling the 19 property for gain or profit. 20 5. “Tangible personal property” means the same as defined in 21 section 422.33, subsection 2, unnumbered paragraph 2. 22 Sec. 2. NEW SECTION . 15.227 Certification of suppliers. 23 1. A business meeting the requirements of subsection 2 may 24 apply to the authority, no later than ninety days after the 25 end of a tax year of the business, for certification under 26 this section. If a business applying to the authority meets 27 the requirements of subsection 2, the authority shall issue 28 a certificate to the business stating that the business is a 29 certified supplier. 30 2. To receive certification as a certified supplier, a 31 business must meet all of the following for the tax year 32 immediately preceding the tax year for which the requested 33 certificate will be valid: 34 a. The business manufactures tangible personal property at a 35 -1- LSB 5279HV (4) 84 mm/sc 1/ 6

H.F. 2359 facility in Iowa. 1 b. The business derives more than ten percent of its gross 2 sales of tangible personal property manufactured at a facility 3 in Iowa from sales to anchor manufacturers. For purposes of 4 the requirement in this paragraph, a business may aggregate 5 gross sales to more than one anchor manufacturer. 6 c. The business provides a statement from an anchor 7 manufacturer, signed by an officer or authorized representative 8 of the anchor manufacturer, attesting that the anchor 9 manufacturer meets the definition of anchor manufacturer under 10 section 15.226, and provides supporting documentation in a form 11 prescribed by the authority. 12 d. The business meets one of the following criteria: 13 (1) At least ten percent of the total payroll of the 14 business is located in the state. 15 (2) The business employs at least fifty employees at a 16 facility in the state. 17 e. The business agrees to annually provide to the authority 18 information and data on jobs created and capital investments 19 made in the state by the business. The information and data 20 shall be in a form prescribed by the authority. 21 3. A certificate is valid for one tax year and shall include 22 an expiration date. Reapplication may be made each year for 23 certification under this part. The department of revenue shall 24 accept a validly issued, unexpired certificate issued under 25 this section. 26 4. The authority shall not issue certificates pursuant 27 to this section for tax years beginning on or after January 28 1, 2015. On or after January 1, 2015, the authority and the 29 department of revenue shall coordinate with the chairpersons 30 of the senate and house standing committees on economic 31 growth and rebuild Iowa to evaluate the effectiveness of this 32 certification process and the related adjustments to net income 33 provided in chapter 422, and the feasibility of continuing both 34 into the future. 35 -2- LSB 5279HV (4) 84 mm/sc 2/ 6

H.F. 2359 Sec. 3. NEW SECTION . 15.228 Eligibility for adjustment to 1 net income of certified suppliers. 2 1. A certified supplier shall be eligible to make the 3 adjustment to net income in section 422.35, subsection 26, for 4 a tax year if all the following apply: 5 a. The certified supplier’s net business income for the tax 6 year, allocated and apportioned to this state under section 7 422.33, subsection 2, paragraph “b” , computed without regard 8 to section 422.35, subsection 26, increased by more than five 9 percent over the certified supplier’s net business income in 10 the prior year, allocated and apportioned to this state under 11 section 422.33, subsection 2, paragraph “b” . 12 b. The certified supplier attaches a copy of a valid, 13 unexpired certificate issued under section 15.227 to the 14 certified supplier’s tax return required under chapter 422. 15 2. A taxpayer who is a shareholder in a subchapter S 16 corporation that is a certified supplier shall be eligible to 17 make the adjustment to net income in section 422.7, subsection 18 57, for a tax year if all the following apply: 19 a. The certified supplier’s net business income for the tax 20 year, allocated and apportioned to this state under section 21 422.33, subsection 2, paragraph “b ”, computed without regard 22 to section 422.35, subsection 26, increased by more than five 23 percent over the certified supplier’s net business income in 24 the prior year, allocated and apportioned to this state under 25 section 422.33, subsection 2, paragraph “b” , computed with 26 regard to section 422.35, subsection 26, if the subchapter S 27 corporation was a certified supplier in the previous tax year 28 and met the eligibility requirements in this paragraph “a” . 29 b. The shareholder attaches a copy of a valid, unexpired 30 certificate issued under section 15.227 to the shareholder’s 31 tax return required under chapter 422. 32 Sec. 4. NEW SECTION . 15.229 Rules. 33 The authority and the department of revenue may adopt rules 34 for the implementation of this part. 35 -3- LSB 5279HV (4) 84 mm/sc 3/ 6

H.F. 2359 Sec. 5. Section 422.7, Code Supplement 2011, is amended by 1 adding the following new subsection: 2 NEW SUBSECTION . 57. If the adjusted gross income includes 3 income from a subchapter S corporation for which the taxpayer 4 is a shareholder, which subchapter S corporation is a certified 5 supplier that meets the requirements in section 15.228, 6 subsection 2, paragraph “a” , the taxpayer may subtract an amount 7 based on the taxpayer’s pro rata share of the profits or losses 8 from the subchapter S corporation equal to the difference 9 between the subchapter S corporation’s net business income for 10 the tax year, allocated and apportioned to this state under 11 section 422.33, subsection 2, paragraph “b” , computed without 12 regard to section 422.35, subsection 26, and one hundred five 13 percent of the subchapter S corporation’s net business income 14 for the prior tax year, allocated and apportioned under section 15 422.33, subsection 2, paragraph “b” , computed with regard to 16 section 422.35, subsection 26, if the subchapter S corporation 17 was a certified supplier in the previous tax year and met the 18 requirements in section 15.228, subsection 2, paragraph “a” . 19 A taxpayer who is a resident shall not make the subtraction 20 provided in this subsection unless the taxpayer also makes an 21 election pursuant to section 422.5, subsection 1, paragraph 22 “j” , subparagraph (2). 23 Sec. 6. Section 422.35, Code Supplement 2011, is amended by 24 adding the following new subsection: 25 NEW SUBSECTION . 26. If the taxpayer is a certified supplier 26 that meets the requirements in section 15.228, subsection 27 1, subtract an amount equal to the difference between the 28 taxpayer’s net business income for the tax year, allocated and 29 apportioned under section 422.33, subsection 2, paragraph “b” , 30 computed without regard to this subsection, and one hundred 31 five percent of the taxpayer’s net business income for the 32 prior tax year, allocated and apportioned under section 422.33, 33 subsection 2, paragraph “b” . 34 Sec. 7. RETROACTIVE APPLICABILITY. This Act applies 35 -4- LSB 5279HV (4) 84 mm/sc 4/ 6

H.F. 2359 retroactively to January 1, 2012, for tax years beginning on 1 or after that date. 2 EXPLANATION 3 This bill creates an economic development program that 4 allows a certified supplier to make an adjustment to net income 5 for state individual and corporate income tax purposes. The 6 adjustment is available for corporations and shareholders of 7 subchapter S corporations. 8 To qualify as a certified supplier under the bill, a business 9 must manufacture tangible personal property in Iowa, derive 10 more than 10 percent of its gross sales from sales to anchor 11 manufacturers, supply the authority with a signed statement 12 from the anchor manufacturer attesting that the anchor 13 manufacturer qualifies as an anchor manufacturer, and must 14 either maintain at least 10 percent of its payroll in Iowa or 15 employ at least 50 employees in Iowa. “Anchor manufacturer” 16 is defined as a business that manufactures tangible personal 17 property in Iowa and exports at least 50 percent of the 18 tangible personal property produced in Iowa outside of the 19 state. 20 A business that meets all of the qualifications of a 21 certified supplier may annually apply to the authority to 22 receive a certificate labeling the business as a certified 23 supplier. A business must apply for a certificate no later 24 than 90 days after the end of its tax year. The certificate is 25 valid for one year and shall include an expiration date. 26 The certified supplier will be entitled to make an 27 adjustment to its net income if it attaches the valid, 28 unexpired certificate to its tax return, and if its net 29 business income allocated and apportioned to this state, 30 computed without regard to the adjustment to net income 31 provided in the bill, increased by more than 5 percent over 32 its prior year net business income allocated and apportioned 33 to this state. 34 If both requirements are met, the certified supplier is 35 -5- LSB 5279HV (4) 84 mm/sc 5/ 6

H.F. 2359 entitled to subtract from its net income an amount equal to 1 the difference between its current year net business income 2 allocated and apportioned to this state, computed without 3 regard to the adjustment to net income provided in the bill, 4 and 105 percent of its prior year net business income allocated 5 and apportioned to this state. The economic development 6 authority shall not issue certificates for tax years beginning 7 on or after January 1, 2015. After that date, the economic 8 development authority and the department are both required to 9 coordinate with the chairpersons of each committee on economic 10 growth/rebuild Iowa to evaluate the certification program. 11 The bill provides the authority and department of revenue 12 with rulemaking authority. 13 The bill applies retroactively to January 1, 2012, for tax 14 years beginning on or after that date. 15 -6- LSB 5279HV (4) 84 mm/sc 6/ 6