Senate Study Bill 3131 - 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, notification of annexation or severance 4 by cities, and cigarette and tobacco taxes, and including 5 retroactive applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5305DP (13) 84 mm/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 Supplement 2011, is amended by striking the paragraph. 8 Sec. 3. Section 15.293A, subsection 2, paragraph b, 9 subparagraph (6), Code Supplement 2011, is amended to read as 10 follows: 11 (6) A tax credit shall not be claimed by a transferee 12 under this section until a replacement tax credit certificate 13 identifying the transferee as the proper holder has been 14 issued. The transferee may use the amount of the tax credit 15 transferred against the taxes imposed in chapter 422, divisions 16 II , III , and V , and in chapter 432 , and against the moneys and 17 credits tax imposed in section 533.329 , for any tax year the 18 original transferor could have claimed the tax credit. Any 19 consideration received for the transfer of the tax credit shall 20 not be included as income under chapter 422, divisions II , III , 21 and V , under chapter 432 , or against the moneys and credits tax 22 imposed in section 533.329 . Any consideration paid for the 23 transfer of the tax credit shall not be deducted from income 24 under chapter 422, divisions II , III , and V , under chapter 25 432 , or against the moneys and credits tax imposed in section 26 533.329 . 27 Sec. 4. Section 15.329, subsection 3, Code Supplement 2011, 28 is amended by striking the subsection. 29 Sec. 5. Section 15.393, subsection 2, paragraph a, 30 subparagraph (3), Code Supplement 2011, is amended to read as 31 follows: 32 (3) After verifying the eligibility for a tax credit 33 under this paragraph “a” , the economic development authority 34 shall issue a film, television, and video project promotion 35 -1- LSB 5305DP (13) 84 mm/sc 1/ 14

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 tax 21 credit certificate. Tax credit certificate amounts of less 22 than the minimum amount established by rule of the economic 23 development authority shall not be transferable. A tax credit 24 shall not be claimed by a transferee under this paragraph 25 “a” until a replacement tax credit certificate identifying 26 the transferee as the proper holder has been issued. The 27 transferee may use the amount of the tax credit transferred 28 against the taxes imposed in chapter 422, divisions II , 29 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 5305DP (13) 84 mm/sc 2/ 14

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. 6. Section 15.393, subsection 2, paragraph b, 6 subparagraph (2), Code Supplement 2011, is amended to read as 7 follows: 8 (2) After verifying the eligibility for a tax credit 9 under this paragraph “b” , the economic development authority 10 shall issue a film, television, and video project promotion 11 program tax credit certificate to be attached to the person’s 12 tax return. The tax credit certificate shall contain the 13 taxpayer’s name, address, tax identification number, the date 14 of project completion, the amount of credit, other information 15 required by the department of revenue, and a place for the name 16 and tax identification number of a transferee and the amount 17 of the tax credit being transferred. Tax credit certificates 18 issued under this paragraph “b” may be transferred to any person 19 or entity. Within ninety days of transfer, the transferee 20 shall submit the transferred tax credit certificate to the 21 department of revenue along with a statement containing the 22 transferee’s name, tax identification number, and address, 23 and the denomination that each replacement tax credit 24 certificate is to carry and any other information required by 25 the department of revenue. Within thirty days of receiving 26 the transferred tax credit certificate and the transferee’s 27 statement, the department of revenue shall issue one or more 28 replacement tax credit certificates to the transferee. Each 29 replacement tax credit certificate must contain the information 30 required for the original tax credit certificate and must have 31 the same expiration date that appeared in the transferred tax 32 credit certificate. Tax credit certificate amounts of less 33 than the minimum amount established by rule of the economic 34 development authority shall not be transferable. A tax credit 35 -3- LSB 5305DP (13) 84 mm/sc 3/ 14

S.F. _____ H.F. _____ shall not be claimed by a transferee under this paragraph 1 “b” until a replacement tax credit certificate identifying 2 the transferee as the proper holder has been issued. The 3 transferee may use the amount of the tax credit transferred 4 against the taxes imposed in chapter 422, divisions II , 5 III , and V , and in chapter 432 , and against the moneys and 6 credits tax imposed in section 533.329 , for any tax year the 7 original transferor could have claimed the tax credit. Any 8 consideration received for the transfer of the tax credit shall 9 not be included as income under chapter 422, divisions II , III , 10 and V , under chapter 432 , or against the moneys and credits tax 11 imposed in section 533.329 . Any consideration paid for the 12 transfer of the tax credit shall not be deducted from income 13 under chapter 422, divisions II , III , and V , under chapter 14 432 , or against the moneys and credits tax imposed in section 15 533.329 . 16 Sec. 7. Section 422.7, subsection 9, Code Supplement 2011, 17 is amended to read as follows: 18 9. Subtract the amount of the alcohol fuel and cellulosic 19 biofuel fuels credit allowable for the tax year under section 20 40 of the Internal Revenue Code to the extent that the credit 21 increased federal adjusted gross income. 22 Sec. 8. Section 422.13, subsection 1, paragraph a, Code 23 2011, is amended to read as follows: 24 a. The individual has net income of more than nine thousand 25 dollars or more for the tax year from sources taxable under 26 this division . 27 Sec. 9. Section 422.28, Code 2011, is amended to read as 28 follows: 29 422.28 Revision of tax. 30 A taxpayer may appeal to the director for revision of 31 the tax, interest, or penalties assessed at any time within 32 sixty days from the date of the notice of the assessment of 33 tax, additional tax, interest, or penalties. The director 34 shall grant a hearing and if, upon the hearing, the director 35 -4- LSB 5305DP (13) 84 mm/sc 4/ 14

S.F. _____ H.F. _____ determines that the tax, interest, or penalties are excessive 1 or incorrect, the director shall revise them according to 2 the law and the facts and adjust the computation of the tax, 3 interest, or penalties accordingly. The director shall notify 4 the taxpayer by mail of the result of the hearing and shall 5 refund to the taxpayer the amount, if any, paid in excess of 6 the tax, interest, or penalties found by the director to be 7 due, with interest after sixty days accruing from the date of 8 first day of the second calendar month following the date of 9 payment by the taxpayer at the rate in effect under section 10 421.7 for each month or a fraction of a month. 11 Sec. 10. Section 422.33, subsection 5, paragraph f, Code 12 Supplement 2011, is amended by striking the paragraph. 13 Sec. 11. Section 422.33, subsection 12, paragraph b, Code 14 Supplement 2011, is amended to read as follows: 15 b. The taxes imposed under this division shall be reduced by 16 investment tax credits authorized pursuant to sections section 17 15.333 , 15A.9, subsection 4 , and section 15E.193B, subsection 18 6 . 19 Sec. 12. Section 422.35, subsection 7, Code Supplement 20 2011, is amended to read as follows: 21 7. Subtract the amount of the alcohol fuel and cellulosic 22 biofuel fuels credit allowable for the tax year under section 23 40 of the Internal Revenue Code to the extent that the credit 24 increased federal taxable income. 25 Sec. 13. Section 422.36, subsection 4, Code 2011, is amended 26 to read as follows: 27 4. Foreign and domestic corporations shall file a copy of 28 their federal income tax return for the current tax year with 29 the return required by this section . 30 Sec. 14. Section 422.73, subsection 2, Code Supplement 31 2011, is amended by striking the subsection. 32 Sec. 15. Section 422.89, subsection 3, paragraph a, 33 unnumbered paragraph 1, Code Supplement 2011, is amended to 34 read as follows: 35 -5- LSB 5305DP (13) 84 mm/sc 5/ 14

S.F. _____ H.F. _____ An amount equal to ninety one hundred percent of the tax for 1 the taxable year computed by placing on an annualized basis the 2 taxable income: 3 Sec. 16. REPEAL. Section 15A.9, Code Supplement 2011, is 4 repealed. 5 Sec. 17. RETROACTIVE APPLICABILITY. The following 6 provision or provisions of this division of this Act apply 7 retroactively to January 1, 2012, for tax years beginning on 8 or after that date: 9 1. The section of this Act amending section 422.89. 10 DIVISION II 11 SALES TAXES 12 Sec. 18. Section 423.3, subsection 40, Code Supplement 13 2011, is amended to read as follows: 14 40. The sales price from the sale of automotive fluids 15 to a retailer to be used either in providing a service which 16 includes the installation or application of the fluids in 17 or on a motor vehicle, which service is subject to section 18 423.2, subsection 6 , or to be installed in or applied to a 19 motor vehicle which the retailer intends to sell, which sale 20 is subject to section 423.26 321.105A . For purposes of this 21 subsection , automotive fluids are all those which are refined, 22 manufactured, or otherwise processed and packaged for sale 23 prior to their installation in or application to a motor 24 vehicle. They include but are not limited to motor oil and 25 other lubricants, hydraulic fluids, brake fluid, transmission 26 fluid, sealants, undercoatings, antifreeze, and gasoline 27 additives. 28 Sec. 19. Section 423.3, Code Supplement 2011, is amended by 29 adding the following new subsection: 30 NEW SUBSECTION . 96. The sale price of fees charged for the 31 release of medical records as described in section 622.10. 32 Sec. 20. Section 423.36, subsection 3, paragraph a, Code 33 2011, is amended to read as follows: 34 a. The department shall grant and issue to each applicant 35 -6- LSB 5305DP (13) 84 mm/sc 6/ 14

S.F. _____ H.F. _____ a permit for each place of business in this state where sales 1 or use tax is collected. A permit is not assignable and is 2 valid only for the person in whose name it is issued and for the 3 transaction of business at the place designated or at a place 4 of relocation within the state same county if the ownership 5 remains the same. 6 Sec. 21. Section 423.57, Code 2011, is amended to read as 7 follows: 8 423.57 Statutes applicable. 9 The director shall administer this subchapter as it relates 10 to the taxes imposed in this chapter in the same manner and 11 subject to all the provisions of, and all of the powers, 12 duties, authority, and restrictions contained in sections 13 423.14 , 423.15 , 423.16 , 423.17 , 423.19 , 423.20 , 423.21 , 423.22 , 14 423.23 , 423.24 , 423.25 , 423.28 , 423.29 , 423.31 , 423.32 , 423.33 , 15 423.34 , 423.34A , 423.35 , 423.37 , 423.38 , 423.39 , 423.40 , 16 423.41 , and 423.42 , section 423.43, subsection 1 , and sections 17 423.45 , 423.46 , and 423.47 . 18 Sec. 22. Section 622.10, subsection 6, paragraph c, Code 19 Supplement 2011, is amended to read as follows: 20 c. Fees charged pursuant to this subsection are not subject 21 to a sales or use tax exempt from the sales tax pursuant 22 to section 423.3, subsection 96 . A provider providing the 23 records or images may require payment in advance if an itemized 24 statement demanding such is provided to the requesting party 25 within fifteen days of the request. Upon a timely request 26 for payment in advance, the time for providing the records or 27 images shall be extended until the greater of thirty days from 28 the date of the original request or ten days from the receipt 29 of payment. 30 Sec. 23. REPEAL. Section 423.28, Code 2011, is repealed. 31 DIVISION III 32 MISCELLANEOUS 33 Sec. 24. Section 364.2, subsection 4, paragraph f, Code 34 2011, is amended to read as follows: 35 -7- LSB 5305DP (13) 84 mm/sc 7/ 14

S.F. _____ H.F. _____ f. (1) A franchise fee assessed by a city may be based 1 upon a percentage of gross revenues generated from sales of the 2 franchisee within the city not to exceed five percent, without 3 regard to the city’s cost of inspecting, supervising, and 4 otherwise regulating the franchise. Franchise fees collected 5 pursuant to an ordinance in effect on May 26, 2009, shall be 6 deposited in the city’s general fund and such fees collected 7 in excess of the amounts necessary to inspect, supervise, and 8 otherwise regulate the franchise may be used by the city for 9 any other purpose authorized by law. Franchise fees collected 10 pursuant to an ordinance that is adopted or amended on or 11 after May 26, 2009, to increase the percentage rate at which 12 franchise fees are assessed shall be credited to the franchise 13 fee account within the city’s general fund and used pursuant 14 to section 384.3A . If a city franchise fee is assessed to 15 customers of a franchise, the fee shall not be assessed to the 16 city as a customer. Before a city adopts or amends a franchise 17 fee rate ordinance or franchise ordinance to increase the 18 percentage rate at which franchise fees are assessed, a revenue 19 purpose statement shall be prepared specifying the purpose or 20 purposes for which the revenue collected from the increased 21 rate will be expended. If property tax relief is listed as 22 a purpose, the revenue purpose statement shall also include 23 information regarding the amount of the property tax relief to 24 be provided with revenue collected from the increased rate. 25 The revenue purpose statement shall be published as provided 26 in section 362.3 . 27 (2) If a city adopts, amends, or repeals an ordinance 28 imposing a franchise fee, the city shall promptly notify the 29 director of revenue of such action. 30 Sec. 25. Section 368.24, Code 2011, is amended to read as 31 follows: 32 368.24 Notification to public utilities and to the department 33 of revenue . 34 Notwithstanding any other provision of law to the contrary, 35 -8- LSB 5305DP (13) 84 mm/sc 8/ 14

S.F. _____ H.F. _____ any city that annexes territory or any city from which 1 territory is severed shall provide written notification 2 consisting of a legal description and map of the annexed or 3 severed territory, each street address within the annexed 4 or severed area, where possible, a statement containing the 5 effective date of the annexation or severance and a copy of 6 the order, resolution, or ordinance proclaiming the annexation 7 or severance to all public utilities operating in the annexed 8 or severed area and to the department of revenue . If the 9 notification of the an annexation is provided to a public 10 utility less than sixty days prior to the effective date of the 11 annexation, the public utility shall have sixty days from the 12 date of notification to adjust its tax and accounting records 13 to reflect the annexation for any tax purpose. 14 DIVISION IV 15 CIGARETTE AND TOBACCO TAXES 16 Sec. 26. Section 453A.1, subsections 4 and 14, Code 2011, 17 are amended to read as follows: 18 4. “Cigarette vending machine” means any self-service device 19 offered for public use which, upon insertion of a coin, coins, 20 paper currency, or by other means payment or insertion of 21 loose tobacco product , dispenses , or assembles and dispenses, 22 cigarettes or tobacco products without the necessity of 23 replenishing the device between each vending operation . 24 14. “Individual packages of cigarettes” shall mean and 25 include every package of cigarettes or quantity of cigarettes 26 assembled and ordinarily sold at retail. 27 Sec. 27. Section 453A.6, subsection 7, Code 2011, is amended 28 to read as follows: 29 7. Cigarettes shall be sold or dispensed only in packages or 30 quantities of twenty or more cigarettes. 31 8. Any permit holder owning, renting, leasing, or otherwise 32 operating a cigarette vending machine that dispenses unstamped 33 cigarettes shall pay the tax directly to the department. 34 Sec. 28. Section 453A.36, subsections 6 and 8, Code 2011, 35 -9- LSB 5305DP (13) 84 mm/sc 9/ 14

S.F. _____ H.F. _____ are amended to read as follows: 1 6. Any sales of cigarettes or tobacco products made 2 through a cigarette vending machine are subject to rules and 3 penalties relative to retail sales of cigarettes and tobacco 4 products provided for in this chapter . Cigarettes shall not 5 be sold or dispensed through any cigarette vending machine 6 unless the cigarettes have been properly stamped or metered as 7 provided by this division , and in case of violation of this 8 provision, the permit of the dealer authorizing retail sales 9 of cigarettes shall be revoked. Payment of the permit fee as 10 provided in section 453A.13 authorizes a cigarette vendor to 11 sell cigarettes or tobacco products through vending machines. 12 However, cigarettes or tobacco products shall not be sold or 13 dispensed through a vending machine unless the vending machine 14 is located in a place where the retailer ensures that no person 15 younger than eighteen years of age is present or permitted to 16 enter at any time. Cigarettes or tobacco products shall not be 17 sold or dispensed through any cigarette vending machine if such 18 products are placed together with any nontobacco product, other 19 than matches, in the cigarette vending machine. This section 20 does not require a retail permit holder to buy a cigarette 21 vendor’s permit if the retail permit holder is in fact the 22 owner of the cigarette vending machines and the machines are 23 operated in the location described in the retail permit. 24 8. It shall be unlawful for a holder of a retail permit 25 to sell , dispense, or distribute any cigarettes or tobacco 26 products, including but not limited to a single or loose 27 cigarette, that are not contained within a sealed carton, pack, 28 or package as provided by the manufacturer, which carton, pack, 29 or package bears the health warning that is required by federal 30 law. 31 EXPLANATION 32 This bill relates to the technical administration of the tax 33 and related laws by the department of revenue. 34 Division I of the bill relates to income taxes. 35 -10- LSB 5305DP (13) 84 mm/sc 10/ 14

S.F. _____ H.F. _____ The division repeals Code section 15A.9, the quality jobs 1 enterprise zone program. The program, commonly known as the 2 enterprise zone program, is currently administered pursuant to 3 Code sections 15E.191 through 15E.197, and the last contract 4 issued under the quality jobs enterprise zone program is now 5 expired, making Code section 15A.9 no longer necessary. The 6 bill makes changes to Code sections 2.48, 15.119, 15.329, and 7 422.33 in conformance with the repeal of Code section 15A.9. 8 The division amends Code sections 15.293A and 15.393 to 9 eliminate certain income-related references to the insurance 10 premium tax and moneys and credits tax which are not imposed 11 on an income basis. The amended Code sections relate to 12 the tax credits available for brownfield redevelopment, film 13 expenditures, and film investment. 14 The division amends Code sections 422.7 and 422.35 to update 15 the name of the individual and corporate tax credits for the 16 production of alcohol and biofuels to be the same as the name 17 of the credit available in section 40 of the federal Internal 18 Revenue Code. 19 The division amends Code section 422.13 to correct the 20 filing requirement for an Iowa individual income tax return so 21 that it is consistent with Code section 422.5. 22 The division amends Code section 422.28 to provide that 23 interest on a refund of the individual or corporate income tax, 24 or the franchise tax, begins to accrue from the first day of 25 the second month following the date of payment. By operation 26 of Code sections 428A.8 and 453B.14, this change also applies 27 to the real estate transfer tax and the excise tax on unlawful 28 dealing in certain substances. 29 The division amends Code section 422.36 to provide that 30 domestic corporations must provide a copy of their federal 31 income tax return when filing their Iowa corporation income tax 32 return. 33 The division strikes Code section 422.73, subsection 2, 34 which is an obsolete provision relating to refunds claimed on 35 -11- LSB 5305DP (13) 84 mm/sc 11/ 14

S.F. _____ H.F. _____ or before June 30, 1999, because of provisions in the federal 1 Taxpayer Relief Act of 1997. 2 In 2009, certain provisions were amended to increase the 3 standard for the exception to the underpayment of estimated 4 tax penalty for Iowa corporation income tax for annualization 5 of income from 90 percent of the tax liability to 100 percent 6 of the tax liability. Code section 422.89, which contains a 7 similar provision, was not amended at that time. The bill 8 amends Code section 422.89 to reflect the substance of the 9 changes made in 2009. This provision of the bill applies 10 retroactively to January 1, 2012, for tax years beginning on 11 or after that date. 12 Division II of the bill relates to sales taxes. 13 The division amends Code section 423.3, relating to sales 14 and use tax exemptions, to correct an internal reference 15 relating to the sale of a motor vehicle and the fee for a new 16 vehicle registration. 17 The division also amends Code section 423.3 to add the sales 18 tax exemption for fees charged for the release of medical 19 records, which is currently provided for in Code section 20 622.10. 21 Under current law, Code section 423.28 requires motor 22 vehicle dealers to file reports related to the payment of sales 23 tax for the sale of motor vehicles. Because such sales are now 24 subject to the fee for new vehicle registration, such reports 25 are no longer required, and the division repeals Code section 26 423.28 and makes a conforming amendment to Code section 423.57. 27 The division amends Code section 423.36 to provide that a 28 new sales tax permit must be obtained if a place of business is 29 relocated from one county to another rather than from within 30 the state. Without updated sales tax permit information, the 31 distribution of local option sales tax revenue may be impacted. 32 Division III 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 -12- LSB 5305DP (13) 84 mm/sc 12/ 14

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 Division IV of the bill relates to cigarette and tobacco 13 taxes. 14 The division amends the definitions in Code section 15 453A.1 for “cigarette vending machine” to include a machine 16 that assembles and dispenses cigarettes after payment or 17 the insertion of loose tobacco product, and for “individual 18 packages of cigarettes” to include a quantity of cigarettes 19 assembled and ordinarily sold at retail. 20 The division amends Code section 453A.6 to provide that 21 cigarettes shall only be dispensed in quantities of 20 or 22 more, and to provide that any permit holder owning, renting, 23 leasing, or otherwise operating a cigarette vending machine 24 that dispenses unstamped cigarettes shall pay the tax directly 25 to the department. 26 The division amends Code section 453A.36, relating to 27 unlawful acts, to include cigarettes dispensed from cigarette 28 vending machines within the scope of various unlawful acts. 29 Any dealer who operates a vending machine that dispenses 30 cigarettes shall have their retail permit revoked if the 31 cigarettes are not properly stamped or metered, if the vending 32 machine is located in a place where the dealer cannot ensure 33 that persons younger than 18 are not present or permitted, 34 or if the cigarettes are placed together with any nontobacco 35 -13- LSB 5305DP (13) 84 mm/sc 13/ 14