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 income for the individual state income tax of net capital gains from the sale of a business and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 21, paragraph a, Code Supplement 2011, is amended to read as follows:
   a.
  (1)  (a)  Net capital gain from the sale of real property used in a business, in which the taxpayer materially participated for ten years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten years, or from the sale of a business, as defined in section 423.1, in which the taxpayer materially participated for ten years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten years. The sale of a business means the sale of all or substantially all of the tangible personal property or service of the business.
   (b)  However, where the business is sold
 
If the sale of the business in subparagraph division (a) is made to individuals who are all lineal descendants of the taxpayer, the taxpayer does not have to have materially participated in the business in order for the net capital gain from the sale to be excluded from taxation.
   (2)  However, in
 
In lieu of the net capital gain deduction in this paragraph and paragraphs “b”, “c”, and “d”, where the business is sold
 
if the sale of the business in subparagraph (1) is made to individuals who are all lineal descendants of the taxpayer, the amount of capital gain from each capital asset may be subtracted in determining net income.
   (2)
  (3)  For purposes of this paragraph,
 
unless the context otherwise requires:
   (a)  “lineal
 
“Lineal descendant” means children of the taxpayer, including legally adopted children and biological children, stepchildren, grandchildren, great-grandchildren, and any other lineal descendants of the taxpayer.
   (b)  “Sale of a business” means the sale of all or substantially all of the tangible personal property, intangible property, or service of the business, or the sale of all or substantially all of the stock or equity interests in the business, whether the business is held as a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or another business entity.
    Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2012, for tax years beginning on or after that date.
EXPLANATION
   This bill relates to the taxation of net capital gains from the sale of a business.
   This state provides an exclusion from the computation of net income for the individual state income tax of any net capital gains realized from the sale of a business if the taxpayer held the business for at least 10 years and materially participated in the business for at least 10 years.
   Under current law, “sale of a business” is defined as the sale of all or substantially all of the tangible personal property or service of the business. The bill expands the definition to include intangible property, or the sale of all or substantially all of the stock or equity interests in the business, whether the business is held as a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or another business entity.
   The bill applies retroactively to January 1, 2012, for tax years beginning on or after that date.