SENATE/HOUSE FILE _____

BY  (PROPOSED DEPARTMENT OF REVENUE BILL)

A BILL FOR

An Act relating to the technical administration of the tax and related laws by the department of revenue, including the administration of income taxes, sales and use taxes, franchise fees, notification of annexation or severance by cities, and cigarette and tobacco taxes, 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 a, subparagraph (2), Code 2011, is amended to read as follows:
   (2)  The tax credits for increasing research activities available under sections 15.335, 15A.9, 422.10, and 422.33.
    Sec. 2.  Section 15.119, subsection 2, paragraph c, Code Supplement 2011, is amended by striking the paragraph.
    Sec. 3.  Section 15.293A, subsection 2, paragraph b, subparagraph (6), Code Supplement 2011, is amended to read as follows:
   (6)  A tax credit shall not be claimed by a transferee under this section until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. The transferee may use the amount of the tax credit transferred against the taxes imposed in chapter 422, divisions II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329.
    Sec. 4.  Section 15.329, subsection 3, Code Supplement 2011, is amended by striking the subsection.
    Sec. 5.  Section 15.393, subsection 2, paragraph a, subparagraph (3), Code Supplement 2011, is amended to read as follows:
   (3)  After verifying the eligibility for a tax credit under this paragraph “a”, the economic development authority shall issue a film, television, and video project promotion program tax credit certificate to be attached to the person’s tax return. The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the date of project completion, the amount of credit, other information required by the department of revenue, and a place for the name and tax identification number of a transferee and the amount of the tax credit being transferred. Tax credit certificates issued under this paragraph “a” may be transferred to any person or entity. Within ninety days of transfer, the transferee shall submit the transferred tax credit certificate to the department of revenue along with a statement containing the transferee’s name, tax identification number, and address, and the denomination that each replacement tax credit certificate is to carry and any other information required by the department of revenue. Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the department of revenue shall issue one or more replacement tax credit certificates to the transferee. Each replacement tax credit certificate must contain the information required for the original tax credit certificate and must have the same expiration date that appeared in the transferred tax credit certificate. Tax credit certificate amounts of less than the minimum amount established by rule of the economic development authority shall not be transferable. A tax credit shall not be claimed by a transferee under this paragraph “a” until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. The transferee may use the amount of the tax credit transferred against the taxes imposed in chapter 422, divisions II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329.
    Sec. 6.  Section 15.393, subsection 2, paragraph b, subparagraph (2), Code Supplement 2011, is amended to read as follows:
   (2)  After verifying the eligibility for a tax credit under this paragraph “b”, the economic development authority shall issue a film, television, and video project promotion program tax credit certificate to be attached to the person’s tax return. The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the date of project completion, the amount of credit, other information required by the department of revenue, and a place for the name and tax identification number of a transferee and the amount of the tax credit being transferred. Tax credit certificates issued under this paragraph “b” may be transferred to any person or entity. Within ninety days of transfer, the transferee shall submit the transferred tax credit certificate to the department of revenue along with a statement containing the transferee’s name, tax identification number, and address, and the denomination that each replacement tax credit certificate is to carry and any other information required by the department of revenue. Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the department of revenue shall issue one or more replacement tax credit certificates to the transferee. Each replacement tax credit certificate must contain the information required for the original tax credit certificate and must have the same expiration date that appeared in the transferred tax credit certificate. Tax credit certificate amounts of less than the minimum amount established by rule of the economic development authority shall not be transferable. A tax credit shall not be claimed by a transferee under this paragraph “b” until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. The transferee may use the amount of the tax credit transferred against the taxes imposed in chapter 422, divisions II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, divisions II, III, and V, under chapter 432, or against the moneys and credits tax imposed in section 533.329.
    Sec. 7.  Section 422.7, subsection 9, Code Supplement 2011, is amended to read as follows:
   9.  Subtract the amount of the alcohol fuel
 
and cellulosic biofuel fuels credit allowable for the tax year under section 40 of the Internal Revenue Code to the extent that the credit increased federal adjusted gross income.
    Sec. 8.  Section 422.13, subsection 1, paragraph a, Code 2011, is amended to read as follows:
   a.  The individual has net income of
 
more than nine thousand dollars or more for the tax year from sources taxable under this division.
    Sec. 9.  Section 422.28, Code 2011, is amended to read as follows:
   422.28  Revision of tax.
   A taxpayer may appeal to the director for revision of the tax, interest, or penalties assessed at any time within sixty days from the date of the notice of the assessment of tax, additional tax, interest, or penalties. The director shall grant a hearing and if, upon the hearing, the director determines that the tax, interest, or penalties are excessive or incorrect, the director shall revise them according to the law and the facts and adjust the computation of the tax, interest, or penalties accordingly. The director shall notify the taxpayer by mail of the result of the hearing and shall refund to the taxpayer the amount, if any, paid in excess of the tax, interest, or penalties found by the director to be due, with interest after sixty days
 
accruing from the date of
 
first day of the second calendar month following the date of payment by the taxpayer at the rate in effect under section 421.7 for each month or a fraction of a month.
    Sec. 10.  Section 422.33, subsection 5, paragraph f, Code Supplement 2011, is amended by striking the paragraph.
    Sec. 11.  Section 422.33, subsection 12, paragraph b, Code Supplement 2011, is amended to read as follows:
   b.  The taxes imposed under this division shall be reduced by investment tax credits authorized pursuant to sections
 
section 15.333, 15A.9, subsection 4, and section 15E.193B, subsection 6.
    Sec. 12.  Section 422.35, subsection 7, Code Supplement 2011, is amended to read as follows:
   7.  Subtract the amount of the alcohol fuel
 
and cellulosic biofuel fuels credit allowable for the tax year under section 40 of the Internal Revenue Code to the extent that the credit increased federal taxable income.
    Sec. 13.  Section 422.36, subsection 4, Code 2011, is amended to read as follows:
   4.  Foreign
 
and domestic corporations shall file a copy of their federal income tax return for the current tax year with the return required by this section.
    Sec. 14.  Section 422.73, subsection 2, Code Supplement 2011, is amended by striking the subsection.
    Sec. 15.  Section 422.89, subsection 3, paragraph a, unnumbered paragraph 1, Code Supplement 2011, is amended to read as follows:
   An amount equal to ninety
 
one hundred percent of the tax for the taxable year computed by placing on an annualized basis the taxable income:
    Sec. 16.  REPEAL.  Section 15A.9, Code Supplement 2011, is repealed.
    Sec. 17.  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 422.89.

DIVISION II

SALES TAXES
    Sec. 18.  Section 423.3, subsection 40, Code Supplement 2011, is amended to read as follows:
   40.  The sales price from the sale of automotive fluids to a retailer to be used either in providing a service which includes the installation or application of the fluids in or on a motor vehicle, which service is subject to section 423.2, subsection 6, or to be installed in or applied to a motor vehicle which the retailer intends to sell, which sale is subject to section 423.26
 
321.105A. For purposes of this subsection, automotive fluids are all those which are refined, manufactured, or otherwise processed and packaged for sale prior to their installation in or application to a motor vehicle. They include but are not limited to motor oil and other lubricants, hydraulic fluids, brake fluid, transmission fluid, sealants, undercoatings, antifreeze, and gasoline additives.
    Sec. 19.  Section 423.3, Code Supplement 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  96.  The sale price of fees charged for the release of medical records as described in section 622.10.
    Sec. 20.  Section 423.36, subsection 3, paragraph a, Code 2011, is amended to read as follows:
   a.  The department shall grant and issue to each applicant a permit for each place of business in this state where sales or use tax is collected. A permit is not assignable and is valid only for the person in whose name it is issued and for the transaction of business at the place designated or at a place of relocation within the state
 
same county if the ownership remains the same.
    Sec. 21.  Section 423.57, Code 2011, is amended to read as follows:
   423.57  Statutes applicable.
   The director shall administer this subchapter as it relates to the taxes imposed in this chapter in the same manner and subject to all the provisions of, and all of the powers, duties, authority, and restrictions contained in sections 423.14, 423.15, 423.16, 423.17, 423.19, 423.20, 423.21, 423.22, 423.23, 423.24, 423.25, 423.28, 423.29, 423.31, 423.32, 423.33, 423.34, 423.34A, 423.35, 423.37, 423.38, 423.39, 423.40, 423.41, and 423.42, section 423.43, subsection 1, and sections 423.45, 423.46, and 423.47.
    Sec. 22.  Section 622.10, subsection 6, paragraph c, Code Supplement 2011, is amended to read as follows:
   c.  Fees charged pursuant to this subsection are not subject to a sales or use tax
 
exempt from the sales tax pursuant to section 423.3, subsection 96. A provider providing the records or images may require payment in advance if an itemized statement demanding such is provided to the requesting party within fifteen days of the request. Upon a timely request for payment in advance, the time for providing the records or images shall be extended until the greater of thirty days from the date of the original request or ten days from the receipt of payment.
    Sec. 23.  REPEAL.  Section 423.28, Code 2011, is repealed.

DIVISION III

MISCELLANEOUS
    Sec. 24.  Section 364.2, subsection 4, paragraph f, Code 2011, is amended to read as follows:
   f.
  (1)  A franchise fee assessed by a city may be based upon a percentage of gross revenues generated from sales of the franchisee within the city not to exceed five percent, without regard to the city’s cost of inspecting, supervising, and otherwise regulating the franchise. Franchise fees collected pursuant to an ordinance in effect on May 26, 2009, shall be deposited in the city’s general fund and such fees collected in excess of the amounts necessary to inspect, supervise, and otherwise regulate the franchise may be used by the city for any other purpose authorized by law. Franchise fees collected pursuant to an ordinance that is adopted or amended on or after May 26, 2009, to increase the percentage rate at which franchise fees are assessed shall be credited to the franchise fee account within the city’s general fund and used pursuant to section 384.3A. If a city franchise fee is assessed to customers of a franchise, the fee shall not be assessed to the city as a customer. Before a city adopts or amends a franchise fee rate ordinance or franchise ordinance to increase the percentage rate at which franchise fees are assessed, a revenue purpose statement shall be prepared specifying the purpose or purposes for which the revenue collected from the increased rate will be expended. If property tax relief is listed as a purpose, the revenue purpose statement shall also include information regarding the amount of the property tax relief to be provided with revenue collected from the increased rate. The revenue purpose statement shall be published as provided in section 362.3.
   (2)  If a city adopts, amends, or repeals an ordinance imposing a franchise fee, the city shall promptly notify the director of revenue of such action.
    Sec. 25.  Section 368.24, Code 2011, is amended to read as follows:
   368.24  Notification to public utilities
 
and to the department of revenue.
   Notwithstanding any other provision of law to the contrary, any city that annexes territory
 
or any city from which territory is severed shall provide written notification consisting of a legal description and map of the annexed
 
or severed territory, each street address within the annexed
 
or severed area, where possible, a statement containing the effective date of the annexation
 
or severance and a copy of the order, resolution, or ordinance proclaiming the annexation
 
or severance to all public utilities operating in the annexed
 
or severed area
 
and to the department of revenue. If the notification of the
 
an annexation is provided to a public utility less than sixty days prior to the effective date of the annexation, the public utility shall have sixty days from the date of notification to adjust its tax and accounting records to reflect the annexation for any tax purpose.

DIVISION IV

CIGARETTE AND TOBACCO TAXES
    Sec. 26.  Section 453A.1, subsections 4 and 14, Code 2011, are amended to read as follows:
   4.  “Cigarette vending machine” means any self-service device offered for public use which, upon insertion of a coin, coins, paper currency, or by other means
 
payment or insertion of loose tobacco product, dispenses, or assembles and dispenses, cigarettes or tobacco products without the necessity of replenishing the device between each vending operation.
   14.  “Individual packages of cigarettes” shall mean and include every package of cigarettes
 
or quantity of cigarettes assembled and ordinarily sold at retail.
    Sec. 27.  Section 453A.6, subsection 7, Code 2011, is amended to read as follows:
   7.  Cigarettes shall be sold
 
or dispensed only in packages
 
or quantities of twenty or more cigarettes.
   8.  Any permit holder owning, renting, leasing, or otherwise operating a cigarette vending machine that dispenses unstamped cigarettes shall pay the tax directly to the department.
    Sec. 28.  Section 453A.36, subsections 6 and 8, Code 2011, are amended to read as follows:
   6.  Any sales of cigarettes or tobacco products made through a cigarette vending machine are subject to rules and penalties relative to retail sales of cigarettes and tobacco products provided for in this chapter. Cigarettes shall not be sold
 
or dispensed through any cigarette vending machine unless the cigarettes have been properly stamped or metered as provided by this division, and in case of violation of this provision, the permit of the dealer authorizing retail sales of cigarettes shall be revoked. Payment of the permit fee as provided in section 453A.13 authorizes a cigarette vendor to sell cigarettes or tobacco products through vending machines. However, cigarettes or tobacco products shall not be sold
 
or dispensed through a vending machine unless the vending machine is located in a place where the retailer ensures that no person younger than eighteen years of age is present or permitted to enter at any time. Cigarettes or tobacco products shall not be sold
 
or dispensed through any cigarette vending machine if such products are placed together with any nontobacco product, other than matches, in the cigarette vending machine. This section does not require a retail permit holder to buy a cigarette vendor’s permit if the retail permit holder is in fact the owner of the cigarette vending machines and the machines are operated in the location described in the retail permit.
   8.  It shall be unlawful for a holder of a retail permit to sell, dispense, or distribute any cigarettes or tobacco products, including but not limited to a single or loose cigarette, that are not contained within a sealed carton, pack, or package as provided by the manufacturer, which carton, pack, or package bears the health warning that is required by federal law.
EXPLANATION
   This bill relates to the technical administration of the tax and related laws by the department of revenue. 
   Division I of the bill relates to income taxes.
   The division repeals Code section 15A.9, the quality jobs enterprise zone program. The program, commonly known as the enterprise zone program, is currently administered pursuant to Code sections 15E.191 through 15E.197, and the last contract issued under the quality jobs enterprise zone program is now expired, making Code section 15A.9 no longer necessary. The bill makes changes to Code sections 2.48, 15.119, 15.329, and 422.33 in conformance with the repeal of Code section 15A.9.
   The division amends Code sections 15.293A and 15.393 to eliminate certain income-related references to the insurance premium tax and moneys and credits tax which are not imposed on an income basis. The amended Code sections relate to the tax credits available for brownfield redevelopment, film expenditures, and film investment.
   The division amends Code sections 422.7 and 422.35 to update the name of the individual and corporate tax credits for the production of alcohol and biofuels to be the same as the name of the credit available in section 40 of the federal Internal Revenue Code.
   The division amends Code section 422.13 to correct the filing requirement for an Iowa individual income tax return so that it is consistent with Code section 422.5.
   The division amends Code section 422.28 to provide that interest on a refund of the individual or corporate income tax, or the franchise tax, begins to accrue from the first day of the second month following the date of payment. By operation of Code sections 428A.8 and 453B.14, this change also applies to the real estate transfer tax and the excise tax on unlawful dealing in certain substances.
   The division amends Code section 422.36 to provide that domestic corporations must provide a copy of their federal income tax return when filing their Iowa corporation income tax return. 
   The division strikes Code section 422.73, subsection 2, which is an obsolete provision relating to refunds claimed on or before June 30, 1999, because of provisions in the federal Taxpayer Relief Act of 1997.
   In 2009, certain provisions were amended to increase the standard for the exception to the underpayment of estimated tax penalty for Iowa corporation income tax for annualization of income from 90 percent of the tax liability to 100 percent of the tax liability. Code section 422.89, which contains a similar provision, was not amended at that time. The bill amends Code section 422.89 to reflect the substance of the changes made in 2009. This provision of the bill applies retroactively to January 1, 2012, for tax years beginning on or after that date.
   Division II of the bill relates to sales taxes.
   The division amends Code section 423.3, relating to sales and use tax exemptions, to correct an internal reference relating to the sale of a motor vehicle and the fee for a new vehicle registration. 
   The division also amends Code section 423.3 to add the sales tax exemption for fees charged for the release of medical records, which is currently provided for in Code section 622.10. 
   Under current law, Code section 423.28 requires motor vehicle dealers to file reports related to the payment of sales tax for the sale of motor vehicles. Because such sales are now subject to the fee for new vehicle registration, such reports are no longer required, and the division repeals Code section 423.28 and makes a conforming amendment to Code section 423.57.
   The division amends Code section 423.36 to provide that a new sales tax permit must be obtained if a place of business is relocated from one county to another rather than from within the state. Without updated sales tax permit information, the distribution of local option sales tax revenue may be impacted.
   Division III of the bill contains miscellaneous changes.
   The division amends Code section 364.2, relating to franchise fees imposed by cities, to require a city to notify the department whenever an ordinance imposing a franchise fee is adopted, amended, or repealed. Because the imposition of a franchise fee requires utilities to stop collecting the local option sales and services tax and instead collect the franchise fee, the adoption, amendment, or repeal of such a fee impacts the department’s distribution of local option sales and services tax revenue to local governments.
   The division amends Code section 368.24 to require cities that annex or sever territory to also notify the department of revenue, in addition to notifying public utilities, in order to facilitate the department’s distribution of local option sales and service tax revenue to local governments.
   Division IV of the bill relates to cigarette and tobacco taxes.
   The division amends the definitions in Code section 453A.1 for “cigarette vending machine” to include a machine that assembles and dispenses cigarettes after payment or the insertion of loose tobacco product, and for “individual packages of cigarettes” to include a quantity of cigarettes assembled and ordinarily sold at retail.
   The division amends Code section 453A.6 to provide that cigarettes shall only be dispensed in quantities of 20 or more, and to provide that any permit holder owning, renting, leasing, or otherwise operating a cigarette vending machine that dispenses unstamped cigarettes shall pay the tax directly to the department.
   The division amends Code section 453A.36, relating to unlawful acts, to include cigarettes dispensed from cigarette vending machines within the scope of various unlawful acts.
   Any dealer who operates a vending machine that dispenses cigarettes shall have their retail permit revoked if the cigarettes are not properly stamped or metered, if the vending machine is located in a place where the dealer cannot ensure that persons younger than 18 are not present or permitted, or if the cigarettes are placed together with any nontobacco product other than matches. Also, any permit holder who dispenses cigarettes or tobacco products that are not contained within a sealed package containing the federally required health warning shall have their permit revoked.