Senate Study Bill 1082 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF REVENUE BILL) A BILL FOR An Act relating to the technical administration of the tax 1 and related laws by the department of revenue, including 2 the administration of income taxes, sales and use taxes, 3 franchise fees, property taxes, the environmental protection 4 charge, and notification of annexation or severance by 5 cities and including retroactive applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 1232DP (14) 84 tw/sc

S.F. _____ H.F. _____ DIVISION I 1 INCOME TAXES 2 Section 1. Section 2.48, subsection 3, paragraph a, 3 subparagraph (2), Code 2011, is amended to read as follows: 4 (2) The tax credits for increasing research activities 5 available under sections 15.335 , 15A.9 , 422.10 , and 422.33 . 6 Sec. 2. Section 15.119, subsection 2, paragraph c, Code 7 2011, is amended by striking the paragraph. 8 Sec. 3. Section 15.293A, subsection 2, paragraph f, Code 9 2011, is amended to read as follows: 10 f. A tax credit shall not be claimed by a transferee 11 under this section until a replacement tax credit certificate 12 identifying the transferee as the proper holder has been 13 issued. The transferee may use the amount of the tax credit 14 transferred against the taxes imposed in chapter 422, divisions 15 II , III , and V , and in chapter 432 , and against the moneys and 16 credits tax imposed in section 533.329 , for any tax year the 17 original transferor could have claimed the tax credit. Any 18 consideration received for the transfer of the tax credit shall 19 not be included as income under chapter 422, divisions II , III , 20 and V , under chapter 432 , or against the moneys and credits tax 21 imposed in section 533.329 . Any consideration paid for the 22 transfer of the tax credit shall not be deducted from income 23 under chapter 422, divisions II , III , and V , under chapter 24 432 , or against the moneys and credits tax imposed in section 25 533.329 . 26 Sec. 4. Section 15.329, subsection 3, Code 2011, is amended 27 by striking the subsection. 28 Sec. 5. Section 15.333, subsection 1, paragraph b, Code 29 2011, is amended by striking the paragraph. 30 Sec. 6. Section 15.393, subsection 2, paragraph a, 31 subparagraph (3), Code 2011, is amended to read as follows: 32 (3) After verifying the eligibility for a tax credit under 33 this paragraph “a” , the department of economic development 34 shall issue a film, television, and video project promotion 35 -1- LSB 1232DP (14) 84 tw/sc 1/ 12

S.F. _____ H.F. _____ program tax credit certificate to be attached to the person’s 1 tax return. The tax credit certificate shall contain the 2 taxpayer’s name, address, tax identification number, the date 3 of project completion, the amount of credit, other information 4 required by the department of revenue, and a place for the name 5 and tax identification number of a transferee and the amount 6 of the tax credit being transferred. Tax credit certificates 7 issued under this paragraph “a” may be transferred to any person 8 or entity. Within ninety days of transfer, the transferee 9 shall submit the transferred tax credit certificate to the 10 department of revenue along with a statement containing the 11 transferee’s name, tax identification number, and address, 12 and the denomination that each replacement tax credit 13 certificate is to carry and any other information required by 14 the department of revenue. Within thirty days of receiving 15 the transferred tax credit certificate and the transferee’s 16 statement, the department of revenue shall issue one or more 17 replacement tax credit certificates to the transferee. Each 18 replacement tax credit certificate must contain the information 19 required for the original tax credit certificate and must have 20 the same expiration date that appeared in the transferred 21 tax credit certificate. Tax credit certificate amounts 22 of less than the minimum amount established by rule of the 23 department of economic development shall not be transferable. 24 A tax credit shall not be claimed by a transferee under this 25 paragraph “a” until a replacement tax credit certificate 26 identifying the transferee as the proper holder has been 27 issued. The transferee may use the amount of the tax credit 28 transferred against the taxes imposed in chapter 422, divisions 29 II , III , and V , and in chapter 432 , and against the moneys and 30 credits tax imposed in section 533.329 , for any tax year the 31 original transferor could have claimed the tax credit. Any 32 consideration received for the transfer of the tax credit shall 33 not be included as income under chapter 422, divisions II , III , 34 and V , under chapter 432 , or against the moneys and credits tax 35 -2- LSB 1232DP (14) 84 tw/sc 2/ 12

S.F. _____ H.F. _____ imposed in section 533.329 . Any consideration paid for the 1 transfer of the tax credit shall not be deducted from income 2 under chapter 422, divisions II , III , and V , under chapter 3 432 , or against the moneys and credits tax imposed in section 4 533.329 . 5 Sec. 7. Section 15.393, subsection 2, paragraph b, 6 subparagraph (2), Code 2011, is amended to read as follows: 7 (2) After verifying the eligibility for a tax credit under 8 this paragraph “b” , the department of economic development 9 shall issue a film, television, and video project promotion 10 program tax credit certificate to be attached to the person’s 11 tax return. The tax credit certificate shall contain the 12 taxpayer’s name, address, tax identification number, the date 13 of project completion, the amount of credit, other information 14 required by the department of revenue, and a place for the name 15 and tax identification number of a transferee and the amount 16 of the tax credit being transferred. Tax credit certificates 17 issued under this paragraph “b” may be transferred to any person 18 or entity. Within ninety days of transfer, the transferee 19 shall submit the transferred tax credit certificate to the 20 department of revenue along with a statement containing the 21 transferee’s name, tax identification number, and address, 22 and the denomination that each replacement tax credit 23 certificate is to carry and any other information required by 24 the department of revenue. Within thirty days of receiving 25 the transferred tax credit certificate and the transferee’s 26 statement, the department of revenue shall issue one or more 27 replacement tax credit certificates to the transferee. Each 28 replacement tax credit certificate must contain the information 29 required for the original tax credit certificate and must have 30 the same expiration date that appeared in the transferred 31 tax credit certificate. Tax credit certificate amounts 32 of less than the minimum amount established by rule of the 33 department of economic development shall not be transferable. 34 A tax credit shall not be claimed by a transferee under this 35 -3- LSB 1232DP (14) 84 tw/sc 3/ 12

S.F. _____ H.F. _____ paragraph “b” until a replacement tax credit certificate 1 identifying the transferee as the proper holder has been 2 issued. The transferee may use the amount of the tax credit 3 transferred against the taxes imposed in chapter 422, divisions 4 II , III , and V , and in chapter 432 , and against the moneys and 5 credits tax imposed in section 533.329 , for any tax year the 6 original transferor could have claimed the tax credit. Any 7 consideration received for the transfer of the tax credit shall 8 not be included as income under chapter 422, divisions II , III , 9 and V , under chapter 432 , or against the moneys and credits tax 10 imposed in section 533.329 . Any consideration paid for the 11 transfer of the tax credit shall not be deducted from income 12 under chapter 422, divisions II , III , and V , under chapter 13 432 , or against the moneys and credits tax imposed in section 14 533.329 . 15 Sec. 8. Section 422.7, subsection 9, Code 2011, is amended 16 to read as follows: 17 9. Subtract the amount of the alcohol fuel and cellulosic 18 biofuels credit allowable for the tax year under section 40 19 of the Internal Revenue Code to the extent that the credit 20 increased federal adjusted gross income. 21 Sec. 9. Section 422.33, subsection 5, paragraph f, Code 22 2011, is amended by striking the paragraph. 23 Sec. 10. Section 422.33, subsection 12, paragraph b, Code 24 2011, is amended to read as follows: 25 b. The taxes imposed under this division shall be reduced by 26 investment tax credits authorized pursuant to sections section 27 15.333 , 15A.9, subsection 4 , and section 15E.193B, subsection 28 6 . 29 Sec. 11. Section 422.35, subsection 7, Code 2011, is amended 30 to read as follows: 31 7. Subtract the amount of the alcohol fuel and cellulosic 32 biofuels credit allowable for the tax year under section 40 33 of the Internal Revenue Code to the extent that the credit 34 increased federal taxable income. 35 -4- LSB 1232DP (14) 84 tw/sc 4/ 12

S.F. _____ H.F. _____ Sec. 12. Section 422.36, subsection 4, Code 2011, is amended 1 to read as follows: 2 4. Foreign and domestic corporations shall file a copy of 3 their federal income tax return for the current tax year with 4 the return required by this section . 5 Sec. 13. Section 422.89, subsection 3, unnumbered paragraph 6 1, Code 2011, is amended to read as follows: 7 An amount equal to ninety one hundred percent of the tax for 8 the taxable year computed by placing on an annualized basis the 9 taxable income: 10 Sec. 14. REPEAL. Section 15A.9, Code 2011, is repealed. 11 Sec. 15. RETROACTIVE APPLICABILITY. The following 12 provision or provisions of this division of this Act apply 13 retroactively to January 1, 2011, for tax years beginning on 14 or after that date: 15 1. The section of this Act amending section 422.89. 16 DIVISION II 17 SALES TAXES 18 Sec. 16. Section 423.3, subsection 40, Code 2011, is amended 19 to read as follows: 20 40. The sales price from the sale of automotive fluids 21 to a retailer to be used either in providing a service which 22 includes the installation or application of the fluids in 23 or on a motor vehicle, which service is subject to section 24 423.2, subsection 6 , or to be installed in or applied to a 25 motor vehicle which the retailer intends to sell, which sale 26 is subject to section 423.26 321.105A . For purposes of this 27 subsection , automotive fluids are all those which are refined, 28 manufactured, or otherwise processed and packaged for sale 29 prior to their installation in or application to a motor 30 vehicle. They include but are not limited to motor oil and 31 other lubricants, hydraulic fluids, brake fluid, transmission 32 fluid, sealants, undercoatings, antifreeze, and gasoline 33 additives. 34 Sec. 17. Section 423.36, subsection 3, paragraph a, Code 35 -5- LSB 1232DP (14) 84 tw/sc 5/ 12

S.F. _____ H.F. _____ 2011, is amended to read as follows: 1 a. The department shall grant and issue to each applicant 2 a permit for each place of business in this state where sales 3 or use tax is collected. A permit is not assignable and is 4 valid only for the person in whose name it is issued and for the 5 transaction of business at the place designated or at a place 6 of relocation within the state same county if the ownership 7 remains the same. 8 Sec. 18. Section 423.57, Code 2011, is amended to read as 9 follows: 10 423.57 Statutes applicable. 11 The director shall administer this subchapter as it relates 12 to the taxes imposed in this chapter in the same manner and 13 subject to all the provisions of, and all of the powers, 14 duties, authority, and restrictions contained in sections 15 423.14 , 423.15 , 423.16 , 423.17 , 423.19 , 423.20 , 423.21 , 423.22 , 16 423.23 , 423.24 , 423.25 , 423.28 , 423.29 , 423.31 , 423.32 , 423.33 , 17 423.34 , 423.34A , 423.35 , 423.37 , 423.38 , 423.39 , 423.40 , 18 423.41 , and 423.42 , section 423.43, subsection 1 , and sections 19 423.45 , 423.46 , and 423.47 . 20 Sec. 19. REPEAL. Section 423.28, Code 2011, is repealed. 21 DIVISION III 22 PROPERTY TAXES 23 Sec. 20. Section 427B.4, Code 2011, is amended to read as 24 follows: 25 427B.4 Application for exemption by property owner. 26 1. a. An application shall be filed for each project 27 resulting in actual value added for which an exemption is 28 claimed. The first application for exemption shall be filed 29 by the owner of the property with the local assessor governing 30 body of the city or county in which the property is located by 31 February 1 of the assessment year in which the value added is 32 first assessed for taxation for which the exemption is first 33 claimed, but not later than the year in which all improvements 34 included in the project are first assessed for taxation, or the 35 -6- LSB 1232DP (14) 84 tw/sc 6/ 12

S.F. _____ H.F. _____ following two assessment years . 1 b. Applications for exemption shall be made on forms 2 prescribed by the director of revenue and shall contain 3 information pertaining to the nature of the improvement, its 4 cost, the estimated or actual date of completion, whether the 5 exemption schedules described in section 427B.3 or an alternate 6 schedule adopted pursuant to section 427B.1 will be elected, 7 and any other information deemed necessary by the director of 8 revenue. 9 2. a. A person may submit a proposal to the city council 10 of the city or the board of supervisors of a county to receive 11 prior approval for eligibility for a tax exemption on new 12 construction. The city council or the board of supervisors, by 13 ordinance, may give its prior approval of a tax exemption for 14 new construction if the new construction is in conformance with 15 the zoning plans for the city or county. The prior approval 16 shall also be subject to the hearing requirements of section 17 427B.1 . 18 b. Prior approval received under this subsection does not 19 entitle the owner to exemption from taxation until the new 20 construction has been completed and found to be qualified real 21 estate. However, if the tax exemption for new construction is 22 not approved, the person may submit an amended proposal to the 23 city council or board of supervisors to approve or reject. 24 Sec. 21. RETROACTIVE APPLICABILITY. This division of this 25 Act applies retroactively to January 1, 2011, for assessment 26 years beginning on or after that date. 27 DIVISION IV 28 MISCELLANEOUS 29 Sec. 22. Section 364.2, subsection 4, paragraph f, Code 30 2011, is amended to read as follows: 31 f. (1) A franchise fee assessed by a city may be based 32 upon a percentage of gross revenues generated from sales of the 33 franchisee within the city not to exceed five percent, without 34 regard to the city’s cost of inspecting, supervising, and 35 -7- LSB 1232DP (14) 84 tw/sc 7/ 12

S.F. _____ H.F. _____ otherwise regulating the franchise. Franchise fees collected 1 pursuant to an ordinance in effect on May 26, 2009, shall be 2 deposited in the city’s general fund and such fees collected 3 in excess of the amounts necessary to inspect, supervise, and 4 otherwise regulate the franchise may be used by the city for 5 any other purpose authorized by law. Franchise fees collected 6 pursuant to an ordinance that is adopted or amended on or 7 after May 26, 2009, to increase the percentage rate at which 8 franchise fees are assessed shall be credited to the franchise 9 fee account within the city’s general fund and used pursuant 10 to section 384.3A . If a city franchise fee is assessed to 11 customers of a franchise, the fee shall not be assessed to the 12 city as a customer. Before a city adopts or amends a franchise 13 fee rate ordinance or franchise ordinance to increase the 14 percentage rate at which franchise fees are assessed, a revenue 15 purpose statement shall be prepared specifying the purpose or 16 purposes for which the revenue collected from the increased 17 rate will be expended. If property tax relief is listed as 18 a purpose, the revenue purpose statement shall also include 19 information regarding the amount of the property tax relief to 20 be provided with revenue collected from the increased rate. 21 The revenue purpose statement shall be published as provided 22 in section 362.3 . 23 (2) If a city adopts, amends, or repeals an ordinance 24 imposing a franchise fee, the city shall promptly notify the 25 director of revenue of such action. 26 Sec. 23. Section 368.24, Code 2011, is amended to read as 27 follows: 28 368.24 Notification to public utilities and to the department 29 of revenue . 30 Notwithstanding any other provision of law to the contrary, 31 any city that annexes territory or any city from which 32 territory is severed shall provide written notification 33 consisting of a legal description and map of the annexed or 34 severed territory, each street address within the annexed 35 -8- LSB 1232DP (14) 84 tw/sc 8/ 12

S.F. _____ H.F. _____ or severed area, where possible, a statement containing the 1 effective date of the annexation or severance and a copy of 2 the order, resolution, or ordinance proclaiming the annexation 3 or severance to all public utilities operating in the annexed 4 or severed area and to the department of revenue . If the 5 notification of the an annexation is provided to a public 6 utility less than sixty days prior to the effective date of the 7 annexation, the public utility shall have sixty days from the 8 date of notification to adjust its tax and accounting records 9 to reflect the annexation for any tax purpose. 10 Sec. 24. Section 424.2, subsections 6, 10, and 13, Code 11 2011, are amended to read as follows: 12 6. “Depositor” means the person who deposits petroleum into 13 an underground storage tank subject to regulation under chapter 14 455G or an aboveground petroleum storage tank as defined 15 in section 101.21 , located at a retail motor vehicle fuel 16 outlet if the aboveground storage tank is physically connected 17 directly to pumps which dispense petroleum that is sold at the 18 motor vehicle fuel outlet on a retail basis. 19 10. “Owner or operator” means “owner or operator” of an 20 underground storage tank as used in chapter 455G or the “owner” 21 or “operator” of an aboveground petroleum storage tank as 22 defined in section 101.21 , located at a retail motor vehicle 23 fuel outlet if the aboveground storage tank is physically 24 connected directly to pumps which dispense petroleum that is 25 sold at the motor vehicle fuel outlet on a retail basis. 26 13. “Tank” means an underground storage tank subject to 27 regulation under chapter 455G or an aboveground petroleum 28 storage tank as defined in section 101.21 , located at a retail 29 motor vehicle fuel outlet if the aboveground storage tank is 30 physically connected directly to pumps which dispense petroleum 31 that is sold at the motor vehicle fuel outlet on a retail 32 basis. 33 EXPLANATION 34 This bill relates to the technical administration of the tax 35 -9- LSB 1232DP (14) 84 tw/sc 9/ 12

S.F. _____ H.F. _____ and related laws by the department of revenue. 1 Division I of the bill relates to income taxes. 2 The division repeals Code section 15A.9, which is the 3 quality jobs enterprise zone program. The program, commonly 4 known as the enterprise zone program, is currently administered 5 pursuant to Code sections 15E.191 through 15E.197, and the last 6 contract issued under the quality jobs enterprise zone program 7 is now expired, making Code section 15A.9 no longer necessary. 8 The bill makes changes to Code sections 2.48, 15.119, 15.329, 9 and 422.33 in conformance with the repeal of Code section 10 15A.9. 11 The division amends Code sections 15.293A and 15.393 to 12 eliminate certain income-related references to the insurance 13 premium tax and moneys and credits tax which are not imposed 14 on an income basis. The amended Code sections relate to 15 the tax credits available for brownfield redevelopment, film 16 expenditures, and film investment. 17 In 2010, the refundability of certain investment tax 18 credits related to value-added agricultural products was 19 repealed. Code section 15.333, subsection 1, paragraph “b”, 20 which contains a related provision, was not amended at that 21 time. The division strikes Code section 15.333, subsection 1, 22 paragraph “b”, to reflect the changes made in 2010. 23 The division amends Code sections 422.7 and 422.35 to update 24 the name of the individual and corporate tax credits for the 25 production of alcohol and biofuels to be the same as the name 26 of the credit available in section 40 of the federal Internal 27 Revenue Code. 28 The division amends Code section 422.36 to provide that 29 domestic corporations must provide a copy of their federal 30 income tax return when filing their state corporation income 31 tax return. 32 In 2009, certain provisions were enacted to increase the 33 standard for the exception to the underpayment of estimated 34 tax penalty for Iowa corporation income tax for annualization 35 -10- LSB 1232DP (14) 84 tw/sc 10/ 12

S.F. _____ H.F. _____ of income from 90 percent of the tax liability to 100 percent 1 of the tax liability. Code section 422.89, which contains a 2 similar provision, was not amended at that time. The bill 3 amends Code section 422.89 to reflect the substance of the 4 changes made in 2009. This provision of the bill applies 5 retroactively to January 1, 2011, for tax years beginning on 6 or after that date. 7 Division II of the bill relates to sales taxes. 8 The division amends Code section 423.3, relating to sales 9 and use tax exemptions, to correct an internal reference to 10 Code section 321.105A relating to the sale of a motor vehicle 11 and the fee for a new vehicle registration. 12 Code section 423.28 required motor vehicle dealers to file 13 reports related to the payment of sales tax for the sale of 14 motor vehicles. Because such sales are now subject to the 15 fee for new vehicle registration, such reports are no longer 16 required, and the division repeals Code section 423.28 and 17 makes a conforming amendment to Code section 423.57. 18 The division amends Code section 423.36 to provide that a 19 new sales tax permit must be obtained if a place of business is 20 relocated from one county to another rather than from within 21 the state. Without updated sales tax permit information, the 22 distribution of local option sales tax revenue may be impacted. 23 Division III of the bill relates to property taxes. 24 The division amends Code section 427B.4 to extend by two 25 years the time period for claiming the industrial real estate 26 or cattle facilities property tax exemptions. Currently, a 27 taxpayer cannot claim one of these exemptions unless it is 28 claimed in the first year the property is eligible for the 29 exemption. This provision of the bill applies retroactively 30 to January 1, 2011, for assessment years beginning on or after 31 that date. 32 Division IV of the bill contains miscellaneous changes. 33 The division amends Code section 364.2, relating to 34 franchise fees imposed by cities, to require a city to notify 35 -11- LSB 1232DP (14) 84 tw/sc 11/ 12

S.F. _____ H.F. _____ the department whenever an ordinance imposing a franchise fee 1 is adopted, amended, or repealed. Because the imposition of 2 a franchise fee requires utilities to stop collecting the 3 local option sales and services tax and instead collect the 4 franchise fee, the adoption, amendment, or repeal of such a fee 5 impacts the department’s distribution of local option sales and 6 services tax revenue to local governments. 7 The division amends Code section 368.24 to require cities 8 that annex or sever territory to also notify the department of 9 revenue, in addition to notifying public utilities, in order to 10 facilitate the department’s distribution of local option sales 11 and service tax revenue to local governments. 12 The division amends Code section 424.2, relating to the 13 environmental protection charge, by correcting out-of-date 14 language referring to motor fuel outlets. The division makes 15 language in Code section 424.2 consistent with similar language 16 used in Code chapter 452A, relating to motor fuel and special 17 fuel taxes. 18 -12- LSB 1232DP (14) 84 tw/sc 12/ 12