S.F. 528 Section 1. Section 2.48, subsection 3, paragraph e, 1 subparagraph (4), Code 2011, is amended to read as follows: 2 (4) The minimum tax credit under sections 422.11B , 422.33 , 3 and 422.60 . 4 Sec. 2. Section 12D.9, subsection 2, Code 2011, is amended 5 by striking the subsection. 6 Sec. 3. Section 422.4, subsections 1 and 2, Code 2011, are 7 amended by striking the subsections. 8 Sec. 4. Section 422.4, subsection 16, Code 2011, is amended 9 to read as follows: 10 16. The words “taxable income” mean the net income as 11 defined in section 422.7 minus the deductions allowed by 12 section 422.9 , in the case of individuals ; in . In the case of 13 estates or trusts, the words “taxable income” mean the taxable 14 income (without a deduction for personal exemption) as computed 15 for federal income tax purposes under the Internal Revenue 16 Code, but with the adjustments specified in section 422.7 plus 17 the Iowa income tax deducted in computing the federal taxable 18 income and minus federal income taxes as provided in section 19 422.9 . 20 Sec. 5. Section 422.5, subsections 1 and 2, Code 2011, 21 are amended by striking the subsections and inserting in lieu 22 thereof the following: 23 1. A tax is imposed upon every resident and nonresident of 24 the state which tax is levied, collected, and paid annually 25 upon, and with respect to the taxable income, at the rate of 26 six percent. 27 2. A tax is imposed upon every estate and trust which tax is 28 levied, collected, and paid annually upon, and with respect to 29 the taxable income, at the rate of six percent. 30 Sec. 6. Section 422.5, subsection 6, Code 2011, is amended 31 by striking the subsection. 32 Sec. 7. Section 422.7, Code 2011, is amended by striking the 33 section and inserting in lieu thereof the following: 34 422.7 Computation of “net income”. 35 -1- LSB 2293XS (11) 84 tw/sc 1/ 6

S.F. 528 1. In the case of individuals, “net income” means the 1 adjusted gross income as properly computed for federal 2 income tax purposes under the Internal Revenue Code with the 3 adjustments made in this subsection. 4 a. The adjusted gross income is adjusted by adding the sum 5 of the following: 6 (1) The amounts paid or accrued to the taxpayer as interest 7 or dividends during the tax year to the extent excluded. 8 (2) The amount of tax imposed under this division to the 9 extent deducted for the tax year. 10 b. The adjusted gross income is adjusted by subtracting the 11 sum of the following: 12 (1) The amounts included pursuant to sections 402(a), 13 402(c), 403(a), 403(b), 406(a), 407(a), 408, and 409 of the 14 Internal Revenue Code, or included as distributions under any 15 retirement or disability plan for employees of a governmental 16 agency or unit, or retirement payments to retired partners that 17 are excluded in computing net earnings from self-employment 18 by section 1402 of the Internal Revenue Code and regulations 19 adopted pursuant to that section. 20 (2) The amount of tax imposed under this division which was 21 refunded to the extent included for the tax year. 22 (3) The amount included pursuant to section 111 of the 23 Internal Revenue Code as a recovery of items previously 24 deducted from adjusted gross income in computing taxable 25 income. 26 (4) The amount of social security benefits and railroad 27 retirement benefits, included pursuant to section 72(r) and 28 section 86 of the Internal Revenue Code. 29 (5) The sum of the amounts disallowed as deductions by 30 section 171(a)(2) and section 265(a)(2) of the Internal Revenue 31 Code and the amounts of expenses allocable to interest and 32 disallowed as deductions by section 265(a)(1) of the Internal 33 Revenue Code. 34 2. In the case of estates and trusts, “net income” means 35 -2- LSB 2293XS (11) 84 tw/sc 2/ 6

S.F. 528 the taxable income as properly computed for federal income tax 1 purposes under the Internal Revenue Code with the adjustments 2 made in this subsection. 3 a. The taxable income is adjusted by adding the sum of the 4 following: 5 (1) The amounts paid or accrued to the taxpayer as interest 6 or dividends during the tax year to the extent excluded. 7 (2) The following amounts to the extent deducted for the 8 items designated: 9 (a) For an estate, six hundred dollars. 10 (b) For a trust required under its governing instrument to 11 distribute all of its income currently, three hundred dollars. 12 (c) For a trust other than a trust described in subparagraph 13 division (b), one hundred dollars. 14 (3) The amount of tax imposed under this division to the 15 extent deducted for the tax year. 16 b. The taxable income is adjusted by subtracting the sum of 17 the following: 18 (1) The amounts included pursuant to sections 402(a), 19 402(c), 403(a), 403(b), 406(a), 407(a), 408, and 409 of the 20 Internal Revenue Code, or included as distributions under any 21 retirement or disability plan for employees of a governmental 22 agency or unit, or retirement payments to retired partners that 23 are excluded in computing net earnings from self-employment 24 by section 1402 of the Internal Revenue Code and regulations 25 adopted pursuant to that section. 26 (2) The amount of tax imposed under this division which was 27 refunded to the extent included for the tax year. 28 (3) The sum of the amounts disallowed as deductions by 29 section 171(a)(2) and section 265(a)(2) of the Internal Revenue 30 Code and the amounts of expenses allocable to interest and 31 disallowed as deductions by section 265(a)(1) of the Internal 32 Revenue Code. 33 (4) The amounts included in taxable income as adjusted 34 pursuant to paragraph “a” that are exempt from taxation by this 35 -3- LSB 2293XS (11) 84 tw/sc 3/ 6

S.F. 528 state either by reason of its constitution or by reason of the 1 constitution, treaties, or statutes of the United States. 2 Sec. 8. Section 422.8, subsection 2, paragraph a, Code 2011, 3 is amended to read as follows: 4 a. Nonresident’s net income allocated to Iowa is the net 5 income, or portion of net income, which is derived from a 6 business, trade, profession, or occupation carried on within 7 this state or income from any property, trust, estate, or 8 other source within Iowa. However, income derived from a 9 business, trade, profession, or occupation carried on within 10 this state and income from any property, trust, estate, or 11 other source within Iowa shall not include distributions from 12 pensions, including defined benefit or defined contribution 13 plans, annuities, individual retirement accounts, and deferred 14 compensation plans or any earnings attributable thereto so long 15 as the distribution is directly related to an individual’s 16 documented retirement and received while the individual is a 17 nonresident of this state. If a business, trade, profession, 18 or occupation is carried on partly within and partly without 19 the state, only the portion of the net income which is fairly 20 and equitably attributable to that part of the business, trade, 21 profession, or occupation carried on within the state is 22 allocated to Iowa for purposes of section 422.5, subsection 1 , 23 paragraph “j” , and section 422.13 and income from any property, 24 trust, estate, or other source partly within and partly without 25 the state is allocated to Iowa in the same manner, except that 26 annuities, interest on bank deposits and interest-bearing 27 obligations, and dividends are allocated to Iowa only to the 28 extent to which they are derived from a business, trade, 29 profession, or occupation carried on within the state. 30 Sec. 9. Section 422.8, subsection 4, Code 2011, is amended 31 by striking the subsection. 32 Sec. 10. Section 422.9, subsections 1 and 2, Code 2011, 33 are amended by striking the subsections and inserting in lieu 34 thereof the following: 35 -4- LSB 2293XS (11) 84 tw/sc 4/ 6

S.F. 528 1. In computing the taxable income of an individual, 1 there is deducted from net income the standard deduction as 2 determined under subsection 2, or in the case of a nonresident, 3 there is deducted from net income the product of the standard 4 deduction as determined under subsection 2 times a fraction 5 of which the nonresident’s net income allocated to Iowa, as 6 determined in section 422.8, subsection 2, is the numerator and 7 the nonresident’s total net income computed under section 422.7 8 is the denominator. 9 2. The standard deduction is equal to the product of one 10 thousand dollars times the number of exemptions allowable to 11 the taxpayer for the tax year under section 151 of the Internal 12 Revenue Code. 13 Sec. 11. Section 422.9, subsections 4 through 8, Code 2011, 14 are amended by striking the subsections. 15 Sec. 12. Section 422.13, subsection 1, paragraph c, Code 16 2011, is amended to read as follows: 17 c. However, if that part of the net income of a nonresident 18 which is allocated to Iowa pursuant to section 422.8, 19 subsection 2 , is less than one thousand dollars the nonresident 20 is not required to make and sign a return except when the 21 nonresident is subject to the state alternative minimum tax 22 imposed pursuant to section 422.5, subsection 2 . 23 Sec. 13. Section 422.13, subsection 2, Code 2011, is amended 24 to read as follows: 25 2. Notwithstanding any other provision in this section , 26 a resident of this state is not required to make and file a 27 return if the person’s net income is equal to or less than the 28 appropriate dollar amount listed in section 422.5, subsection 29 3 , upon which tax is not imposed. A nonresident of this state 30 is not required to make and file a return if the person’s total 31 net income allocated to Iowa in section 422.5 422.8 , subsection 32 1 , paragraph “j” 2 , is equal to or less than the appropriate 33 dollar amount provided in section 422.5, subsection 3 , upon 34 which tax is not imposed. For purposes of this subsection , 35 -5- LSB 2293XS (11) 84 tw/sc 5/ 6

S.F. 528 the amount of a lump sum distribution subject to separate 1 federal tax shall be included in net income for purposes of 2 determining if a resident is required to file a return and the 3 portion of the lump sum distribution that is allocable to Iowa 4 is included in total net income for purposes of determining if 5 a nonresident is required to make and file a return. 6 Sec. 14. Section 422.21, subsection 5, Code 2011, is amended 7 by striking the subsection. 8 Sec. 15. REPEAL. Section 422.11B, Code 2011, is repealed. 9 Sec. 16. EFFECTIVE DATE AND APPLICABILITY. This Act takes 10 effect January 1, 2012, and applies to tax years beginning on 11 or after that date. 12 EXPLANATION 13 This bill rewrites the state individual income tax by 14 creating a flat tax structure and imposes a single rate of 6 15 percent on the taxable income of every taxpayer subject to the 16 individual income tax. 17 The bill creates a flat tax structure by eliminating most 18 of the deductions and exclusions previously available when 19 computing net income and taxable income for Iowa tax purposes 20 and by eliminating the alternative minimum tax. 21 The bill provides for a standard deduction equal to $1,000 22 for each personal exemption the taxpayer is allowed to take 23 under the federal Internal Revenue Code. 24 The bill retains the current tax credits available under the 25 individual income tax with the exception of the minimum tax 26 credit. 27 The bill takes effect January 1, 2012, for tax years 28 beginning on or after that date. 29 -6- LSB 2293XS (11) 84 tw/sc 6/ 6