House File 478 - Introduced HOUSE FILE 478 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 3) A BILL FOR An Act relating to the individual income tax by creating an 1 alternative base income tax and an alternative cumulative 2 income surtax imposed at the election of the taxpayer and 3 including effective date and retroactive applicability 4 provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 1421HV (2) 85 mm/sc

H.F. 478 DIVISION I 1 ALTERNATIVE BASE INCOME TAX AND 2 ALTERNATIVE CUMULATIVE INCOME SURTAX 3 Section 1. NEW SECTION . 422.5A Tax imposed —— alternative 4 base income tax. 5 1. For purposes of this section, “base income” means the 6 adjusted gross income before the net operating loss deduction 7 as properly computed for federal income tax purposes under the 8 Internal Revenue Code, with the following adjustments: 9 a. Subtract a standard deduction equal to six thousand two 10 hundred thirty-five dollars for a married person who files 11 separately or a single person or equal to twelve thousand four 12 hundred seventy dollars for a married couple who files a joint 13 return, a surviving spouse, or a head of household. 14 b. Subtract interest and dividends from federal securities. 15 2. Notwithstanding any other provision of law, a resident 16 or nonresident may, in lieu of the taxes imposed under section 17 422.5, elect to be subject to state income tax as imposed and 18 computed pursuant to subsection 3. Such election must be made 19 not later than the due date for filing the return for a taxable 20 year, including extensions thereof, and under rules to be 21 prescribed by the director. 22 3. A tax is imposed upon every resident and nonresident 23 of the state making the election under subsection 2 which tax 24 shall be levied, collected, and paid annually in an amount 25 equal to the base income of the resident or nonresident times 26 four and one-half percent. 27 4. Notwithstanding any other provision of law, a resident or 28 nonresident making the election under subsection 2 shall not 29 be allowed any nonrefundable or refundable credit otherwise 30 allowed under this division for the tax year for which the 31 election is made, except for the credits for withheld tax and 32 estimated tax paid under section 422.16. 33 5. A taxpayer making the election under subsection 2 shall 34 be subject to an alternative cumulative income surtax as 35 -1- LSB 1421HV (2) 85 mm/sc 1/ 7

H.F. 478 provided in section 298.14. 1 Sec. 2. Section 298.14, Code 2013, is amended to read as 2 follows: 3 298.14 School district income surtaxes. 4 1. a. For each fiscal year, the cumulative total of the 5 percents of surtax approved by the board of directors of a 6 school district and collected by the department of revenue 7 under sections 257.21 , 257.29 , and 298.2 , and the enrichment 8 surtax under section 442.15 , Code 1989, and an income surtax 9 collected by a political subdivision under chapter 422D , shall 10 not exceed twenty percent. 11 b. Notwithstanding paragraph “a” , or any other provision 12 of law to the contrary, for a taxpayer who makes an election 13 under section 422.5A, subsection 2, and who is subject to an 14 income surtax as provided in section 257.21, 257.29, 298.2, 15 442.15, Code 1989, or chapter 422D, the appropriate governing 16 body shall impose, and the department of revenue shall collect, 17 an alternative cumulative income surtax from the taxpayer in an 18 amount equal to one hundred twenty-two percent of the amount 19 generated by each surtax imposed by the school district or 20 political subdivision for the tax year in which the election 21 is made. 22 2. A school district income surtax fund is created in the 23 office of treasurer of state. Income surtaxes collected by 24 the department of revenue under sections 257.21 , 257.29 , and 25 298.2 and section 442.15 , Code 1989, shall be deposited in the 26 school district income surtax fund to the credit of each school 27 district. A separate accounting of each surtax, by school 28 district, shall be maintained. 29 3. The director of the department of administrative 30 services shall draw warrants in payment of the surtaxes 31 collected in each school district. Warrants shall be payable 32 in two installments to be paid on approximately the first day 33 of December and the first day of February following collection 34 of the taxes and shall be delivered to the respective school 35 -2- LSB 1421HV (2) 85 mm/sc 2/ 7

H.F. 478 districts. 1 DIVISION II 2 CONFORMING CHANGES 3 Sec. 3. Section 68A.102, subsection 21, Code 2013, is 4 amended to read as follows: 5 21. “State income tax liability” means either the state 6 individual income tax imposed under section 422.5 , less the 7 amounts of nonrefundable credits allowed under chapter 422, 8 division II , or the alternative base income tax imposed under 9 section 422.5A if applicable . 10 Sec. 4. Section 257.21, unnumbered paragraph 2, Code 2013, 11 is amended to read as follows: 12 The instructional support income surtax shall be imposed on 13 the state individual income tax for the calendar year during 14 which the school’s budget year begins, or for a taxpayer’s 15 fiscal year ending during the second half of that calendar year 16 and after the date the board adopts a resolution to participate 17 in the program or the first half of the succeeding calendar 18 year, and shall be imposed on all individuals residing in the 19 school district on the last day of the applicable tax year. As 20 used in this section , “state individual income tax” means either 21 the taxes computed under section 422.5 , less the amounts of 22 nonrefundable credits allowed under chapter 422, division II , 23 or the tax computed under section 422.5A if applicable . 24 Sec. 5. Section 422.16, subsection 8, Code 2013, is amended 25 to read as follows: 26 8. An employer or withholding agent shall be liable for 27 the payment of the tax required to be deducted and withheld 28 or the amount actually deducted, whichever is greater, under 29 subsections 1 and 12 of this section ; and any amount deducted 30 and withheld as tax under subsections 1 and 12 of this section 31 during any calendar year upon the wages of any employee, 32 nonresident, or other person shall be allowed as a credit to 33 the employee, nonresident, or other person against the tax 34 imposed by section 422.5 , or section 422.5A if applicable , 35 -3- LSB 1421HV (2) 85 mm/sc 3/ 7

H.F. 478 irrespective of whether or not such tax has been, or will 1 be, paid over by the employer or withholding agent to the 2 department as provided by this chapter . 3 Sec. 6. Section 422.21, subsection 1, Code 2013, is amended 4 to read as follows: 5 1. Returns shall be in the form the director prescribes, 6 and shall be filed with the department on or before the last 7 day of the fourth month after the expiration of the tax year. 8 However, cooperative associations as defined in section 6072(d) 9 of the Internal Revenue Code shall file their returns on or 10 before the fifteenth day of the ninth month following the 11 close of the taxable year and nonprofit corporations subject 12 to the unrelated business income tax imposed by section 13 422.33, subsection 1A , shall file their returns on or before 14 the fifteenth day of the fifth month following the close of 15 the taxable year. If, under the Internal Revenue Code, a 16 corporation is required to file a return covering a tax period 17 of less than twelve months, the state return shall be for the 18 same period and is due forty-five days after the due date of 19 the federal tax return, excluding any extension of time to 20 file. In case of sickness, absence, or other disability, or 21 if good cause exists, the director may allow further time for 22 filing returns. The director shall cause to be prepared blank 23 forms for the returns and shall cause them to be distributed 24 throughout the state and to be furnished upon application, 25 but failure to receive or secure the form does not relieve 26 the taxpayer from the obligation of making a return that is 27 required. The department may as far as consistent with the 28 Code draft income tax forms to conform to the income tax 29 forms of the internal revenue department of the United States 30 government. Each return by a taxpayer upon whom a tax is 31 imposed by section 422.5 or 422.5A shall show the county of the 32 residence of the taxpayer. 33 Sec. 7. Section 422D.2, Code 2013, is amended to read as 34 follows: 35 -4- LSB 1421HV (2) 85 mm/sc 4/ 7

H.F. 478 422D.2 Local income surtax. 1 A county may impose by ordinance a local income surtax as 2 provided in section 422D.1 at the rate set by the board of 3 supervisors, of up to one percent, on the state individual 4 income tax of each individual residing in the county at the 5 end of the individual’s applicable tax year. However, the 6 cumulative total of the percents of income surtax imposed on 7 any taxpayer in the county shall not exceed twenty percent , 8 except as provided in section 298.14 . The reason for imposing 9 the surtax and the amount needed shall be set out in the 10 ordinance. The surtax rate shall be set to raise only the 11 amount needed. For purposes of this section , “state individual 12 income tax” means either the tax computed under section 422.5 , 13 less the amounts of nonrefundable credits allowed under chapter 14 422, division II , or the tax computed under section 422.5A if 15 applicable . 16 DIVISION III 17 IMPLEMENTATION 18 Sec. 8. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 19 immediate importance, takes effect upon enactment. 20 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies 21 retroactively to January 1, 2013, for tax years beginning on 22 or after that date. 23 EXPLANATION 24 This bill relates to the individual income tax by creating 25 an alternative base income tax imposed at the election of the 26 taxpayer. 27 Division I relates to the computation and imposition of an 28 alternative base income tax. 29 In lieu of the regular personal net income tax computed and 30 imposed under Code section 422.5, a resident or nonresident 31 individual may elect to be subject to an alternative base 32 income tax as provided in the division. An election must be 33 made not later than the due date for filing the return for 34 a taxable year, including extensions, and under rules to be 35 -5- LSB 1421HV (2) 85 mm/sc 5/ 7

H.F. 478 prescribed by the director. 1 The state income tax of a taxpayer making an election shall 2 be an amount of tax equal to the taxpayer’s base income times 3 4.5 percent. “Base income” is defined as the taxpayer’s 4 adjusted gross income before the net operating loss deduction 5 as properly computed for federal income tax purposes, less 6 a standard deduction of $6,235 for a married person who 7 files separately or a single person or $12,470 for a married 8 couple filing a joint return, a surviving spouse, or a head 9 of household and less interest and dividends from federal 10 securities. A taxpayer shall not be allowed any nonrefundable 11 or refundable tax credit for the tax year for which the 12 election is made, except the credits for withheld tax and 13 estimated tax paid under Code section 422.16. 14 If a taxpayer making an election is also subject to a local 15 income surtax, that taxpayer is subject to a local income 16 surtax rate that is 22 percent higher than the rate otherwise 17 imposed by the school district or political subdivision. 18 Division II relates to miscellaneous conforming changes. 19 The division makes conforming changes to the definitions of 20 “state income tax liability” for purposes of the Iowa election 21 campaign fund income tax checkoff in Code chapter 68A, and 22 “state individual income tax” for purposes of the emergency 23 medical services income surtax in Code chapter 422D, the 24 instructional support income surtax in Code section 257.21, 25 and, by reference, the educational improvement income surtax 26 in Code section 257.29 and the physical plant and equipment 27 income surtax in Code section 298.2, to include income tax 28 computed and imposed under the alternative system in new Code 29 section 422.5A. The division also amends Code sections 422.16 30 and 422.21 to include references to new Code section 422.5A 31 in provisions of those Code sections that reference the tax 32 imposed under Code section 422.5. 33 Division III relates to implementation of the bill. 34 The division provides that the bill takes effect upon 35 -6- LSB 1421HV (2) 85 mm/sc 6/ 7