SENATE/HOUSE FILE _____

BY  (PROPOSED DEPARTMENT OF REVENUE BILL)

A BILL FOR

An Act relating to the policy administration of the tax and related laws of the department of revenue, including administration of income taxes, sales and use taxes, and an environmental protection charge, a financial account matching and debt collection system, property taxes, and study reports related to property taxes and the office of the state debt coordinator, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I

INCOME TAXES
    Section 1.  Section 2.48, subsection 3, paragraph c, subparagraph (4), Code 2011, is amended by striking the subparagraph.
    Sec. 2.  Section 2.48, subsection 3, paragraph e, subparagraph (5), Code 2011, is amended by striking the subparagraph.
    Sec. 3.  Section 15.119, subsection 2, paragraph e, Code Supplement 2011, is amended by striking the paragraph.
    Sec. 4.  Section 422.7, subsection 21, paragraph a, subparagraph (1), unnumbered paragraph 1, Code Supplement 2011, is amended to read as follows:
   Net capital gain from the sale of real property used in a business,
 
excluding passive activity businesses as defined in section 469(c) of the Internal Revenue Code, 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,
 
excluding passive activity businesses as defined in section 469(c) of the Internal Revenue Code, 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.
    Sec. 5.  Section 422.15, subsection 2, Code 2011, is amended to read as follows:
   2.  Every partnership, including limited partnerships organized under chapter 488, having a place of business in the state
 
doing business in this state or deriving income from sources within this state as defined in section 422.33, subsection 1, shall make a return, stating specifically the net income and capital gains (or losses)
 
or losses reported on the federal partnership return, the names and addresses of the partners, and their respective shares in said amounts.
    Sec. 6.  Section 422.25, subsection 1, paragraph b, Code 2011, is amended to read as follows:
   b.  The period for examination and determination of the correct amount of tax is unlimited in the case of a false or fraudulent return made with the intent to evade tax or in the case of a failure to file a return. In lieu of the period of limitation for any prior year for which an overpayment of tax or an elimination or reduction of an underpayment of tax due for that prior year results from the carryback to that prior year of a net operating loss or net capital loss, the period is the period of limitation for the taxable year of the net operating loss or net capital loss which results in the carryback. If the tax found due is greater than the amount paid, the department shall compute the amount due, together with interest and penalties as provided in subsection 2, and shall mail a notice of assessment to the taxpayer and, if applicable, to the taxpayer’s authorized representative of the total, which shall be computed as a sum certain if paid on or before, with interest computed to the last day of the month in which the notice is dated, or on or before the last day of the following month if the notice is dated after the twentieth day of any month. The notice shall also inform the taxpayer of the additional interest and penalty which will be added to the total due if not paid on or before the last day of the applicable month.
    Sec. 7.  Section 422.33, subsections 9 and 27, Code Supplement 2011, are amended by striking the subsections.
    Sec. 8.  REPEAL.  Sections 16.211, 16.212, and 422.11X, Code 2011, are repealed.
    Sec. 9.  RETROACTIVE APPLICABILITY.  The following provision or provisions of this division of this Act apply retroactively to January 1, 2012, for tax years beginning on or after that date:
   1.  The section of this Act amending section 422.7, subsection 21.
   2.  The section of this Act amending section 422.15, subsection 2.

DIVISION II

SALES AND USE TAXES
    Sec. 10.  Section 423.3, subsection 47, paragraph a, unnumbered paragraph 1, Code Supplement 2011, is amended to read as follows:
   The sales price from the sale or rental of computers, machinery, and equipment, including replacement parts
 
but excluding computer software and prewritten computer software, and materials used to construct or self-construct computers, machinery, and equipment if such items are any of the following:
    Sec. 11.  Section 423.3, subsection 47, paragraph a, subparagraph (4), Code Supplement 2011, is amended to read as follows:
   (4)  Computers
 
directly and primarily used in processing or storage of data or information by an insurance company, financial institution, or commercial enterprise.
    Sec. 12.  Section 423.3, subsection 47, paragraph c, subparagraph (2), Code Supplement 2011, is amended to read as follows:
   (2)  Point-of-sale equipment and computers, electronic equipment with embedded computerized components, and stand-alone entertainment devices.
    Sec. 13.  Section 423.3, subsection 47, paragraph c, Code Supplement 2011, is amended by adding the following new subparagraph:
   NEW SUBPARAGRAPH.  (5)  Computers, machinery, and equipment, including replacement parts, and materials used to construct or self-construct computers, machinery, and equipment that otherwise meet the requirements of paragraph “a”, subparagraphs (1), (2), or (6), but are used at a location where a manufacturer makes retail sales.
    Sec. 14.  Section 423.37, subsection 2, Code 2011, is amended to read as follows:
   2.  If a return required by this subchapter is not filed, or if a return when filed is incorrect or insufficient and the maker fails to file a corrected or sufficient return within twenty days after the same is required by notice from the department, the department shall determine the amount of tax due from information as the department may be able to obtain and, if necessary, may estimate the tax on the basis of external indices, such as number of employees of the person concerned, rentals paid by the person, stock on hand, or other factors. The determination may be made using any generally recognized valid and reliable sampling technique, whether or not the person being audited has complete records, as mutually agreed upon by the department and the taxpayer. The department shall give notice of the determination to the person liable for the tax. The determination shall fix the tax unless the person against whom it is assessed shall, within sixty days after the giving of notice of the determination, apply to the director for a hearing or unless the taxpayer contests the determination by paying the tax, interest, and penalty and timely filing a claim for refund. At the hearing, evidence may be offered to support the determination or to prove that it is incorrect. After the hearing the director shall give notice of the decision to the person liable for the tax.

DIVISION III

ENVIRONMENTAL PROTECTION CHARGE
    Sec. 15.  Section 424.10, subsection 2, paragraph a, Code Supplement 2011, is amended to read as follows:
   a.  If a return required by this chapter is not filed, or if a return when filed is incorrect or insufficient and the maker fails to file a corrected or sufficient return within twenty days after the return is required by notice from the department, the department shall determine the amount of charge due from information as the department may be able to obtain and, if necessary, may estimate the charge on the basis of external indices or factors. The department shall give notice of the determination to the person liable for the charge. The determination shall fix the charge unless the person against whom it is assessed shall, within sixty days after the date of the notice of the determination, apply to the director for a hearing or unless the person against whom it is assessed contests the determination by paying the charge, interest, and penalty and timely filing a claim for refund. At the hearing evidence may be offered to support the determination or to prove that it is incorrect. After the hearing the director shall give notice of the decision to the person liable for the charge.

DIVISION IV

FINANCIAL ACCOUNT MATCHING AND DEBT COLLECTION
    Sec. 16.  Section 421.17A, subsection 4, Code 2011, is amended to read as follows:
   4.  Verification of accounts and immunity from liability.
   a.  The facility may contact a financial institution to obtain verification of the account number, the names and social security numbers listed for the account, and the account balance of an account held by an obligor. Contact with a financial institution may be by telephone or by written communication. The financial institution may require positive voice recognition and may require the telephone number of the authorized person from the facility before releasing an obligor’s account information by telephone.
   b.  The facility and financial institutions doing business in Iowa shall enter into agreements to share information through a data match system. The agreements shall require that each financial institution shall provide to the facility for each calendar quarter the name, record address, social security number or other taxpayer identification number, and other identifying information for each obligor who maintains an account at the institution and who has delinquent accounts, charges, fees, loans, taxes, or other indebtedness owed to or being collected by the state, as identified by the facility by name and social security number or other taxpayer identification number.
   c.  A financial institution shall provide the information required in paragraph “b” through the same data match system developed by the department of human services child support recovery unit pursuant to section 252I.4. A financial institution that provides information on an obligor to the department of human services child support recovery unit data match system in one calendar quarter shall not be required to provide information to the facility on the same obligor in the same calendar quarter.
   d.  The department of revenue and the department of human services shall enter into a cooperative agreement to implement paragraph “b” and to share information in the data match system to the extent allowed by federal law, including Tit. IV, part D of the federal Social Security Act. As part of the agreement, the facility and the department of revenue shall reimburse the department of human services and its child support recovery unit for any additional cost incurred in implementing this subsection.
   e.  The facility shall pay a reasonable fee to a financial institution for conducting the data match required in paragraphs “b” and “c”, not to exceed the lower of either one hundred fifty dollars for each quarterly data match or the actual costs incurred by the financial institution for each quarterly data match. The facility may use the state share of funds collected under this subsection to pay the fees to financial institutions under this paragraph. The director may adopt rules pursuant to chapter 17A to specify a time period and deadline to submit a claim for a fee under this paragraph.
   b.

f.  The financial institution is immune from any civil or criminal liability which might otherwise be incurred or imposed for information released by the financial institution to the facility pursuant to this section.
   c.

g.  The financial institution or the facility is not liable for the cost of any early withdrawal penalty of an obligor’s certificate of deposit.
   h.  The information available to the facility pursuant to this subsection is confidential and shall be used by the facility only in administrative levy collection activities conducted pursuant to this section.
   i.  The director shall adopt rules pursuant to chapter 17A for the implementation and administration of this subsection. The rules shall specify an implementation plan for the data match system.
    Sec. 17.  Section 421.17A, subsection 7, Code 2011, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  d.  A financial institution shall not be liable for blocking access to or surrendering an obligor’s assets in response to an administrative levy action under this section, or for any other action taken in good faith to comply with the requirements of this section.
    Sec. 18.  Section 421.17A, Code 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  9.  This section shall not be construed to preclude a financial institution from doing either of the following:
   a.  Recouping a deposit made to an obligor’s account if the financial institution is lawfully entitled to do so.
   b.  Collecting standard or contractual account activity fees to the extent such fees are necessary to maintain an account during any period in which access to the account is blocked or encumbered pursuant to this section.
    Sec. 19.  Section 422.20, subsection 3, paragraph a, Code Supplement 2011, is amended to read as follows:
   a.  Unless otherwise expressly permitted by section 8A.504, section 8G.4, section 96.11, subsection 6, section 421.17, subsections 22, 23, and 26, subsection 27, paragraph “k”, and subsection 31, section 252B.9, section 321.40, subsection 6, sections 321.120,
 
421.17A, 421.19, 421.28, 422.72, and 452A.63, and this section, a tax return, return information, or investigative or audit information shall not be divulged to any person or entity, other than the taxpayer, the department, or internal revenue service for use in a matter unrelated to tax administration.
    Sec. 20.  Section 422.72, subsection 3, paragraph a, Code Supplement 2011, is amended to read as follows:
   a.  Unless otherwise expressly permitted by section 8A.504, section 8G.4, section 96.11, subsection 6, section 421.17, subsections 22, 23, and 26, subsection 27, paragraph “k”, and subsection 31, section 252B.9, section 321.40, subsection 6, sections 321.120,
 
421.17A, 421.19, 421.28, 422.20, and 452A.63, and this section, a tax return, return information, or investigative or audit information shall not be divulged to any person or entity, other than the taxpayer, the department, or internal revenue service for use in a matter unrelated to tax administration.

DIVISION V

PROPERTY TAXES
    Sec. 21.  Section 427B.4, Code 2011, is amended to read as follows:
   427B.4  Application for exemption by property owner.
   1.
  a.  An application shall be filed for each project resulting in actual value added for which an exemption is claimed. The
 
first application for exemption shall be filed by the owner of the property with the local assessor
 
governing board of the city or county in which the property is located by February 1 of the assessment year in which the value added is first assessed for taxation
 
for which the exemption is first claimed, but not later than the year in which all improvements included in the project are first assessed for taxation, or the following two assessment years.
   b.  Applications for exemption shall be made on forms prescribed by the director of revenue and shall contain information pertaining to the nature of the improvement, its cost,
 
the estimated or actual date of completion, whether the exemption schedules described in section 427B.3 or an alternate schedule adopted pursuant to section 427B.1 will be elected, and
 
any other information deemed necessary by the director of revenue.
   2.
  a.  A person may submit a proposal to the city council of the city or the board of supervisors of a county to receive prior approval for eligibility for a tax exemption on new construction. The city council or the board of supervisors, by ordinance, may give its prior approval of a tax exemption for new construction if the new construction is in conformance with the zoning plans for the city or county. The prior approval shall also be subject to the hearing requirements of section 427B.1.
   b.  Prior approval
 
received under this subsection does not entitle the owner to exemption from taxation until the new construction has been completed and found to be qualified real estate. However, if the tax exemption for new construction is not approved, the person may submit an amended proposal to the city council or board of supervisors to approve or reject.
    Sec. 22.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2012, for assessment years beginning on or after that date.

DIVISION VI

STUDY REPORT
    Sec. 23.  PROPERTY TAXATION OF TELECOMMUNICATIONS COMPANIES —— REPORT.  The department of revenue, in consultation with the department of management, representatives of the telecommunications industry, and other interested stakeholders, shall study the current system of assessing telecommunications property and levying property tax against telecommunications companies and make recommendations for changes. The department of revenue shall prepare and file a report detailing recommendations for changes to the current system of assessing telecommunications property and levying property tax against telecommunications companies. The report shall be filed by the department of revenue with the chairpersons and ranking members of the ways and means committees of the senate and the house of representatives and with the legislative services agency by January 11, 2013.

DIVISION VII

REPORT —— STATE DEBT COORDINATOR
    Sec. 24.  DEPARTMENT OF REVENUE AND OFFICE OF THE STATE DEBT COORDINATOR —— REPORT.  The director of the department of revenue shall develop and recommend legislative proposals deemed necessary for the continued efficiency of the functions of the office of the state debt coordinator established in section 421C.1, and shall prepare and file a report detailing the recommendations. The report shall be filed by the director of the department of revenue with the department of management, the governor, and the general assembly no later than January 14, 2013. 
EXPLANATION
   This bill relates to the policy administration of the tax and related laws by the department of revenue.
   Division I relates to income taxes.
   The division amends Code section 422.7, relating to the Iowa capital gain exclusion, to provide that capital gains from the sale of real property used in a business or from the sale of a business which is defined as a passive activity business under section 469(c) of the Internal Revenue Code does not qualify for the exclusion. This provision of the bill applies retroactively to January 1, 2012, for tax years beginning on or after that date.
   The division amends Code section 422.15 to provide that partnerships doing business in Iowa or deriving income from sources within Iowa are required to file Iowa partnership returns. This new language is consistent with the filing requirement for corporations set forth in Code section 422.33. This provision of the bill applies retroactively to January 1, 2012, for tax years beginning on or after that date.
   The division strikes language in Code section 422.25 to eliminate the requirement that notices of assessment issued after the twentieth day of a month include an interest calculation for the next month.
   The division amends Code section 422.33 to repeal the assistive device tax credit for corporate income tax. The assistive device tax credit for individual income tax was repealed by 2009 Iowa Acts, chapter 179, section 151, and no assistive device tax credit has been issued to a taxpayer since 2001. The division makes conforming changes to Code sections 2.48 and 15.119 to remove the assistive device credit from the list of tax credits to be reviewed by the legislative tax expenditure committee, and the list of tax credit programs among which the economic development authority allocates the annual aggregate tax credit limit.
   The division repeals the disaster recovery housing project tax credit in Code sections 16.211 and 16.212. This credit, which was to be implemented and administered by the Iowa finance authority, was never implemented. The division makes conforming changes to Code section 2.48 to remove the disaster recovery housing project tax credit from the list of tax credits to be reviewed by the legislative tax expenditure committee, and to Code sections 422.11X and 422.33 to remove references in the individual and corporate income tax.
   Division II relates to sales and use taxes.
   The division amends the sales tax exemption in Code section 423.3 for certain equipment used by manufacturers by providing that the exemption shall not apply if the equipment is computer software or prewritten computer software.
   The division amends the sales tax exemption in Code section 423.3 for computers used in the processing or storage of data or information by an insurance company, financial institution, or commercial enterprise to apply only to computers directly and primarily used in processing or storage of data by an insurance company, financial institution, or commercial enterprise.
   The division amends Code section 423.3 to provide that the sale or rental of electronic equipment with embedded computerized components or of stand-alone entertainment devices is not exempt from the sales tax. 
   The division adds a new exception to the sales tax exemptions in Code section 423.3, subsection 47, for certain computers, machinery, and equipment used by manufacturers by providing that the exemption shall not apply if the equipment is used at a location where the manufacturer makes retail sales.
   By operation of Code section 423.6, an item exempt from the imposition of the sales tax is also exempt from the use tax imposed in Code section 423.5.
   The division strikes language in Code section 423.37 to eliminate the requirement that the department send a notice to filers of sales or use tax returns if the return is either incorrect or insufficient. The department would be authorized to determine the amount of tax due and send a notice of assessment to the person liable for the tax.
   Division III relates to the environmental protection charge on petroleum diminution.
   The division strikes language in Code section 424.10 to eliminate the requirement that the department send a notice to filers of environmental protection charge returns if the return is either incorrect or insufficient. The department would be authorized to determine the amount of tax due and send a notice of assessment to the person liable for the tax.
   Division IV relates to the establishment of an automated data match process.
   The division amends Code section 421.17A to allow for the establishment of an automated data match process to request and receive certain obligor account information from financial institutions. Financial institutions will provide the requested information each calendar quarter through the data match system already established and developed by the department of human services child support recovery unit. Financial institutions will be required to enter into agreements to provide such information for persons who have delinquent accounts, charges, fees, loans, taxes, or other indebtedness owed to the state. If a financial institution provides information on a person to the department of human services through the data match system in any calendar quarter, it will not be required to fulfill a request by the department of revenue on that same person in the same calendar quarter.
   The department of revenue and the department of human services are directed to enter into an agreement to share information and costs related to use of the data match system by both departments. The financial institutions are also entitled to a reasonable fee, paid by the department of revenue, for fulfilling its data match requests.
   If the department of revenue acquires information on a person through the data match system, it may initiate an administrative action in accordance with existing law in Code section 421.17A to levy against the person’s account at the financial institution. 
   The division further amends Code section 421.17A to add a waiver of liability for a financial institution’s compliance with a levy action and to establish a financial institution’s right to recoup deposits and collect activity fees it is lawfully entitled to during the administrative levy process.
   Code sections 422.20 and 422.72, relating to the general prohibition against disclosure of taxpayer information by the department of revenue and other state officials, are amended to permit the department of revenue to share data with the department of human services and financial institutions pursuant to Code section 421.17A.
   Division V of the bill relates to property taxes.
   The division amends Code section 427B.4 to extend by two years the time period for claiming the industrial real estate or cattle facilities property tax exemptions. Currently, a taxpayer cannot claim one of these exemptions unless it is claimed in the first year the property is eligible for the exemption. The division applies retroactively to January 1, 2012, for assessment years beginning on or after that date.
   Division VI establishes a study to be facilitated by the department of revenue, in consultation with applicable stakeholders, regarding property tax on telecommunications companies. The department of revenue will study the current system of assessing property and levying property tax for telecommunications companies. A report detailing any recommended changes will be filed with the chairperson and ranking members of the ways and means committees of the senate and the house of representatives and with the legislative services agency by January 11, 2013.
   Division VII establishes a report to be prepared and filed by the director of the department of revenue. The director will develop and recommend legislative proposals deemed necessary for the office of the state debt coordinator, which shall be compiled in a report and filed with the department of management, the governor, and the general assembly no later than January 14, 2013.