HF 2359 (LSB 5279HV (4) 84)

HOUSE FILE 2359

BY  COMMITTEE ON ECONOMIC GROWTH/REBUILD IOWA

(SUCCESSOR TO HSB 604)

A BILL FOR

An Act relating to economic development by providing an adjustment to net income for certified suppliers of anchor manufacturers for purposes of state taxation and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  15.226  Definitions.
   For purposes of this part:
   1.  “Anchor manufacturer” means a business that meets all of the following:
   a.  Manufactures tangible personal property at a facility in Iowa.
   b.  Exports at least fifty percent of the tangible personal property produced at the facility to markets outside of the state.
   2.  “Certified supplier” means a business certified pursuant to section 15.227.
   3.  “Facility” means a building or buildings located in the state at which tangible personal property is manufactured for sale within or without the state of Iowa.
   4.  “Manufactured” or “Manufactures”means adding value to personal property through a process of manufacturing, refining, purifying, combining of different materials, the packaging of meats, extracting and recovering natural resources, and all processes of fabricating and curing, with a view to selling the property for gain or profit.
   5.  “Tangible personal property” means the same as defined in section 422.33, subsection 2, unnumbered paragraph 2.
    Sec. 2.  NEW SECTION.  15.227  Certification of suppliers.
   1.  A business meeting the requirements of subsection 2 may apply to the authority, no later than ninety days after the end of a tax year of the business, for certification under this section. If a business applying to the authority meets the requirements of subsection 2, the authority shall issue a certificate to the business stating that the business is a certified supplier.
   2.  To receive certification as a certified supplier, a business must meet all of the following for the tax year immediately preceding the tax year for which the requested certificate will be valid:
   a.  The business manufactures tangible personal property at a facility in Iowa.
   b.  The business derives more than ten percent of its gross sales of tangible personal property manufactured at a facility in Iowa from sales to anchor manufacturers. For purposes of the requirement in this paragraph, a business may aggregate gross sales to more than one anchor manufacturer.
   c.  The business provides a statement from an anchor manufacturer, signed by an officer or authorized representative of the anchor manufacturer, attesting that the anchor manufacturer meets the definition of anchor manufacturer under section 15.226, and provides supporting documentation in a form prescribed by the authority.
   d.  The business meets one of the following criteria:
   (1)  At least ten percent of the total payroll of the business is located in the state.
   (2)  The business employs at least fifty employees at a facility in the state.
   e.  The business agrees to annually provide to the authority information and data on jobs created and capital investments made in the state by the business. The information and data shall be in a form prescribed by the authority.
   3.
  A certificate is valid for one tax year and shall include an expiration date. Reapplication may be made each year for certification under this part. The department of revenue shall accept a validly issued, unexpired certificate issued under this section.
   4.  The authority shall not issue certificates pursuant to this section for tax years beginning on or after January 1, 2015. On or after January 1, 2015, the authority and the department of revenue shall coordinate with the chairpersons of the senate and house standing committees on economic growth and rebuild Iowa to evaluate the effectiveness of this certification process and the related adjustments to net income provided in chapter 422, and the feasibility of continuing both into the future.
    Sec. 3.  NEW SECTION.  15.228  Eligibility for adjustment to net income of certified suppliers.
   1.  A certified supplier shall be eligible to make the adjustment to net income in section 422.35, subsection 26, for a tax year if all the following apply:
   a.  The certified supplier’s net business income for the tax year, allocated and apportioned to this state under section 422.33, subsection 2, paragraph “b”, computed without regard to section 422.35, subsection 26, increased by more than five percent over the certified supplier’s net business income in the prior year, allocated and apportioned to this state under section 422.33, subsection 2, paragraph “b”.
   b.  The certified supplier attaches a copy of a valid, unexpired certificate issued under section 15.227 to the certified supplier’s tax return required under chapter 422.
   2.  A taxpayer who is a shareholder in a subchapter S corporation that is a certified supplier shall be eligible to make the adjustment to net income in section 422.7, subsection 57, for a tax year if all the following apply:
   a.  The certified supplier’s net business income for the tax year, allocated and apportioned to this state under section 422.33, subsection 2, paragraph “b”, computed without regard to section 422.35, subsection 26, increased by more than five percent over the certified supplier’s net business income in the prior year, allocated and apportioned to this state under section 422.33, subsection 2, paragraph “b”, computed with regard to section 422.35, subsection 26, if the subchapter S corporation was a certified supplier in the previous tax year and met the eligibility requirements in this paragraph “a”.
   b.  The shareholder attaches a copy of a valid, unexpired certificate issued under section 15.227 to the shareholder’s tax return required under chapter 422.
    Sec. 4.  NEW SECTION.  15.229  Rules.
   The authority and the department of revenue may adopt rules for the implementation of this part.
    Sec. 5.  Section 422.7, Code Supplement 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  57.  If the adjusted gross income includes income from a subchapter S corporation for which the taxpayer is a shareholder, which subchapter S corporation is a certified supplier that meets the requirements in section 15.228, subsection 2, paragraph “a”, the taxpayer may subtract an amount based on the taxpayer’s pro rata share of the profits or losses from the subchapter S corporation equal to the difference between the subchapter S corporation’s net business income for the tax year, allocated and apportioned to this state under section 422.33, subsection 2, paragraph “b”, computed without regard to section 422.35, subsection 26, and one hundred five percent of the subchapter S corporation’s net business income for the prior tax year, allocated and apportioned under section 422.33, subsection 2, paragraph “b”, computed with regard to section 422.35, subsection 26, if the subchapter S corporation was a certified supplier in the previous tax year and met the requirements in section 15.228, subsection 2, paragraph “a”. A taxpayer who is a resident shall not make the subtraction provided in this subsection unless the taxpayer also makes an election pursuant to section 422.5, subsection 1, paragraph “j”, subparagraph (2).
    Sec. 6.  Section 422.35, Code Supplement 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  26.  If the taxpayer is a certified supplier that meets the requirements in section 15.228, subsection 1, subtract an amount equal to the difference between the taxpayer’s net business income for the tax year, allocated and apportioned under section 422.33, subsection 2, paragraph “b”, computed without regard to this subsection, and one hundred five percent of the taxpayer’s net business income for the prior tax year, allocated and apportioned under section 422.33, subsection 2, paragraph “b”.
    Sec. 7.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2012, for tax years beginning on or after that date.
EXPLANATION
   This bill creates an economic development program that allows a certified supplier to make an adjustment to net income for state individual and corporate income tax purposes. The adjustment is available for corporations and shareholders of subchapter S corporations.
   To qualify as a certified supplier under the bill, a business must manufacture tangible personal property in Iowa, derive more than 10 percent of its gross sales from sales to anchor manufacturers, supply the authority with a signed statement from the anchor manufacturer attesting that the anchor manufacturer qualifies as an anchor manufacturer, and must either maintain at least 10 percent of its payroll in Iowa or employ at least 50 employees in Iowa. “Anchor manufacturer” is defined as a business that manufactures tangible personal property in Iowa and exports at least 50 percent of the tangible personal property produced in Iowa outside of the state.
   A business that meets all of the qualifications of a certified supplier may annually apply to the authority to receive a certificate labeling the business as a certified supplier. A business must apply for a certificate no later than 90 days after the end of its tax year. The certificate is valid for one year and shall include an expiration date.
   The certified supplier will be entitled to make an adjustment to its net income if it attaches the valid, unexpired certificate to its tax return, and if its net business income allocated and apportioned to this state, computed without regard to the adjustment to net income provided in the bill, increased by more than 5 percent over its prior year net business income allocated and apportioned to this state.
   If both requirements are met, the certified supplier is entitled to subtract from its net income an amount equal to the difference between its current year net business income allocated and apportioned to this state, computed without regard to the adjustment to net income provided in the bill, and 105 percent of its prior year net business income allocated and apportioned to this state. The economic development authority shall not issue certificates for tax years beginning on or after January 1, 2015. After that date, the economic development authority and the department are both required to coordinate with the chairpersons of each committee on economic growth/rebuild Iowa to evaluate the certification program.
   The bill provides the authority and department of revenue with rulemaking authority.
   The bill applies retroactively to January 1, 2012, for tax years beginning on or after that date.