House File 3 - Introduced HOUSE FILE 3 BY SANDS , PAULSEN , UPMEYER , S. OLSON , SODERBERG , BRANDENBURG , DRAKE , GARRETT , L. MILLER , RAYHONS , SHEETS , FORRISTALL , BYRNES , HIGHFILL , HUSEMAN , LOFGREN , ALONS , PETTENGILL , HAGENOW , SALMON , FISHER , BACON , KOESTER , LANDON , HESS , SCHULTZ , BALTIMORE , SHAW , STANERSON , VANDER LINDEN , FRY , HEIN , COSTELLO , ROGERS , BAUDLER , HANUSA , MOORE , WATTS , R. TAYLOR , HEARTSILL , GRASSLEY , JORGENSEN , GASSMAN , DOLECHECK , KLEIN , WINDSCHITL , WORTHAN , MAXWELL , COWNIE , J. SMITH , KAUFMANN , HEATON , and DEYOE A BILL FOR An Act relating to the individual income tax by creating an 1 alternative base income tax imposed at the election of 2 the taxpayer and including effective date and retroactive 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1421YH (8) 85 mm/sc

H.F. 3 DIVISION I 1 ALTERNATIVE BASE INCOME TAX 2 Section 1. NEW SECTION . 422.5A Tax imposed —— alternative 3 base income tax. 4 1. For purposes of this section, “base income” means the 5 adjusted gross income before the net operating loss deduction 6 as properly computed for federal income tax purposes under the 7 Internal Revenue Code, less a standard deduction equal to six 8 thousand two hundred thirty-five dollars for a married person 9 who files separately or a single person or equal to twelve 10 thousand four hundred seventy dollars for a married couple 11 who files a joint return, a surviving spouse, or a head of 12 household. 13 2. Notwithstanding any other provision of law, a resident 14 or nonresident may, in lieu of the taxes imposed under section 15 422.5, elect to be subject to state income tax as imposed and 16 computed pursuant to subsection 3. Such election must be made 17 not later than the due date for filing the return for a taxable 18 year, including extensions thereof, and under rules to be 19 prescribed by the director. 20 3. A tax is imposed upon every resident and nonresident 21 of the state making the election under subsection 2 which tax 22 shall be levied, collected, and paid annually in an amount 23 equal to the base income of the resident or nonresident times 24 four and one-half percent. 25 4. Notwithstanding any other provision of law, a resident or 26 nonresident making the election under subsection 2 shall not 27 be allowed any nonrefundable or refundable credit otherwise 28 allowed under this division for the tax year for which the 29 election is made, except for the credits for withheld tax and 30 estimated tax paid under section 422.16. 31 DIVISION II 32 CONFORMING CHANGES 33 Sec. 2. Section 68A.102, subsection 21, Code 2013, is 34 amended to read as follows: 35 -1- LSB 1421YH (8) 85 mm/sc 1/ 5

H.F. 3 21. “State income tax liability” means either the state 1 individual income tax imposed under section 422.5 , less the 2 amounts of nonrefundable credits allowed under chapter 422, 3 division II , or the alternative base income tax imposed under 4 section 422.5A if applicable . 5 Sec. 3. Section 257.21, unnumbered paragraph 2, Code 2013, 6 is amended to read as follows: 7 The instructional support income surtax shall be imposed on 8 the state individual income tax for the calendar year during 9 which the school’s budget year begins, or for a taxpayer’s 10 fiscal year ending during the second half of that calendar year 11 and after the date the board adopts a resolution to participate 12 in the program or the first half of the succeeding calendar 13 year, and shall be imposed on all individuals residing in the 14 school district on the last day of the applicable tax year. As 15 used in this section , “state individual income tax” means either 16 the taxes computed under section 422.5 , less the amounts of 17 nonrefundable credits allowed under chapter 422, division II , 18 or the tax computed under section 422.5A if applicable . 19 Sec. 4. Section 422.16, subsection 8, Code 2013, is amended 20 to read as follows: 21 8. An employer or withholding agent shall be liable for 22 the payment of the tax required to be deducted and withheld 23 or the amount actually deducted, whichever is greater, under 24 subsections 1 and 12 of this section ; and any amount deducted 25 and withheld as tax under subsections 1 and 12 of this section 26 during any calendar year upon the wages of any employee, 27 nonresident, or other person shall be allowed as a credit to 28 the employee, nonresident, or other person against the tax 29 imposed by section 422.5 , or section 422.5A if applicable , 30 irrespective of whether or not such tax has been, or will 31 be, paid over by the employer or withholding agent to the 32 department as provided by this chapter . 33 Sec. 5. Section 422.21, subsection 1, Code 2013, is amended 34 to read as follows: 35 -2- LSB 1421YH (8) 85 mm/sc 2/ 5

H.F. 3 1. Returns shall be in the form the director prescribes, 1 and shall be filed with the department on or before the last 2 day of the fourth month after the expiration of the tax year. 3 However, cooperative associations as defined in section 6072(d) 4 of the Internal Revenue Code shall file their returns on or 5 before the fifteenth day of the ninth month following the 6 close of the taxable year and nonprofit corporations subject 7 to the unrelated business income tax imposed by section 8 422.33, subsection 1A , shall file their returns on or before 9 the fifteenth day of the fifth month following the close of 10 the taxable year. If, under the Internal Revenue Code, a 11 corporation is required to file a return covering a tax period 12 of less than twelve months, the state return shall be for the 13 same period and is due forty-five days after the due date of 14 the federal tax return, excluding any extension of time to 15 file. In case of sickness, absence, or other disability, or 16 if good cause exists, the director may allow further time for 17 filing returns. The director shall cause to be prepared blank 18 forms for the returns and shall cause them to be distributed 19 throughout the state and to be furnished upon application, 20 but failure to receive or secure the form does not relieve 21 the taxpayer from the obligation of making a return that is 22 required. The department may as far as consistent with the 23 Code draft income tax forms to conform to the income tax 24 forms of the internal revenue department of the United States 25 government. Each return by a taxpayer upon whom a tax is 26 imposed by section 422.5 or 422.5A shall show the county of the 27 residence of the taxpayer. 28 Sec. 6. Section 422D.2, Code 2013, is amended to read as 29 follows: 30 422D.2 Local income surtax. 31 A county may impose by ordinance a local income surtax as 32 provided in section 422D.1 at the rate set by the board of 33 supervisors, of up to one percent, on the state individual 34 income tax of each individual residing in the county at the 35 -3- LSB 1421YH (8) 85 mm/sc 3/ 5

H.F. 3 end of the individual’s applicable tax year. However, the 1 cumulative total of the percents of income surtax imposed on 2 any taxpayer in the county shall not exceed twenty percent. 3 The reason for imposing the surtax and the amount needed shall 4 be set out in the ordinance. The surtax rate shall be set to 5 raise only the amount needed. For purposes of this section , 6 “state individual income tax” means either the tax computed 7 under section 422.5 , less the amounts of nonrefundable credits 8 allowed under chapter 422, division II , or the tax computed 9 under section 422.5A if applicable . 10 DIVISION III 11 IMPLEMENTATION 12 Sec. 7. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 13 immediate importance, takes effect upon enactment. 14 Sec. 8. RETROACTIVE APPLICABILITY. This Act applies 15 retroactively to January 1, 2013, for tax years beginning on 16 or after that date. 17 EXPLANATION 18 This bill relates to the individual income tax by creating 19 an alternative base income tax imposed at the election of the 20 taxpayer. 21 Division I relates to the computation and imposition of an 22 alternative base income tax. 23 In lieu of the regular personal net income tax computed and 24 imposed under Code section 422.5, a resident or nonresident 25 individual may elect to be subject to an alternative base 26 income tax as provided in the division. An election must be 27 made not later than the due date for filing the return for 28 a taxable year, including extensions, and under rules to be 29 prescribed by the director. 30 The state income tax of a taxpayer making an election shall 31 be an amount of tax equal to the taxpayer’s base income times 32 4.5 percent. “Base income” is defined as the taxpayer’s 33 adjusted gross income before the net operating loss deduction 34 as properly computed for federal income tax purposes, less a 35 -4- LSB 1421YH (8) 85 mm/sc 4/ 5

H.F. 3 standard deduction of $6,235 for a married person who files 1 separately or a single person or $12,470 for a married couple 2 filing a joint return, a surviving spouse, or a head of 3 household. A taxpayer shall not be allowed any nonrefundable 4 or refundable tax credit for the tax year for which the 5 election is made, except the credits for withheld tax and 6 estimated tax paid under Code section 422.16. 7 Division II relates to miscellaneous conforming changes. 8 The division makes conforming changes to the definitions of 9 “state income tax liability” for purposes of the Iowa election 10 campaign fund income tax checkoff in Code chapter 68A, and 11 “state individual income tax” for purposes of the emergency 12 medical services income surtax in Code chapter 422D, the 13 instructional support income surtax in Code section 257.21, 14 and, by reference, the educational improvement income surtax 15 in Code section 257.29 and the physical plant and equipment 16 income surtax in Code section 298.2, to include income tax 17 computed and imposed under the alternative system in new Code 18 section 422.5A. The division also amends Code sections 422.16 19 and 422.21 to include references to new Code section 422.5A 20 in provisions of those Code sections that reference the tax 21 imposed under Code section 422.5. 22 Division III relates to implementation of the bill. 23 The division provides that the bill takes effect upon 24 enactment and applies retroactively to January 1, 2013, for tax 25 years beginning on or after that date. 26 -5- LSB 1421YH (8) 85 mm/sc 5/ 5