House Study Bill 568 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON ECONOMIC GROWTH/REBUILD IOWA BILL BY CHAIRPERSON GRASSLEY) A BILL FOR An Act relating to the exclusion from the computation of net 1 income for the individual state income tax of net capital 2 gains from the sale of a business and including retroactive 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5735YC (4) 84 mm/sc

H.F. _____ Section 1. Section 422.7, subsection 21, paragraph a, Code 1 Supplement 2011, is amended to read as follows: 2 a. (1) (a) Net capital gain from the sale of real 3 property used in a business, in which the taxpayer materially 4 participated for ten years, as defined in section 469(h) 5 of the Internal Revenue Code, and which has been held for 6 a minimum of ten years, or from the sale of a business, as 7 defined in section 423.1 , in which the taxpayer materially 8 participated for ten years, as defined in section 469(h) of the 9 Internal Revenue Code, and which has been held for a minimum 10 of ten years. The sale of a business means the sale of all or 11 substantially all of the tangible personal property or service 12 of the business. 13 (b) However, where the business is sold If the sale of the 14 business in subparagraph division (a) is made to individuals 15 who are all lineal descendants of the taxpayer, the taxpayer 16 does not have to have materially participated in the business 17 in order for the net capital gain from the sale to be excluded 18 from taxation. 19 (2) However, in In lieu of the net capital gain deduction 20 in this paragraph and paragraphs “b” , “c” , and “d” , where the 21 business is sold if the sale of the business in subparagraph 22 (1) is made to individuals who are all lineal descendants of 23 the taxpayer, the amount of capital gain from each capital 24 asset may be subtracted in determining net income. 25 (2) (3) For purposes of this paragraph, unless the context 26 otherwise requires: 27 (a) “lineal “Lineal descendant” means children of the 28 taxpayer, including legally adopted children and biological 29 children, stepchildren, grandchildren, great-grandchildren, and 30 any other lineal descendants of the taxpayer. 31 (b) “Sale of a business” means the sale of all or 32 substantially all of the tangible personal property, intangible 33 property, or service of the business, or the sale of all 34 or substantially all of the stock or equity interests 35 -1- LSB 5735YC (4) 84 mm/sc 1/ 2

H.F. _____ in the business, whether the business is held as a sole 1 proprietorship, corporation, partnership, joint venture, trust, 2 limited liability company, or another business entity. 3 Sec. 2. RETROACTIVE APPLICABILITY. This Act applies 4 retroactively to January 1, 2012, for tax years beginning on 5 or after that date. 6 EXPLANATION 7 This bill relates to the taxation of net capital gains from 8 the sale of a business. 9 This state provides an exclusion from the computation of net 10 income for the individual state income tax of any net capital 11 gains realized from the sale of a business if the taxpayer held 12 the business for at least 10 years and materially participated 13 in the business for at least 10 years. 14 Under current law, “sale of a business” is defined as the 15 sale of all or substantially all of the tangible personal 16 property or service of the business. The bill expands the 17 definition to include intangible property, or the sale of 18 all or substantially all of the stock or equity interests 19 in the business, whether the business is held as a sole 20 proprietorship, corporation, partnership, joint venture, trust, 21 limited liability company, or another business entity. 22 The bill applies retroactively to January 1, 2012, for tax 23 years beginning on or after that date. 24 -2- LSB 5735YC (4) 84 mm/sc 2/ 2