House File 634 - Introduced HOUSE FILE 634 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HSB 228) A BILL FOR An Act relating to the policy administration of the tax and 1 related laws and related programs by the department of 2 revenue, including administration of income taxes, sales 3 and use taxes, the orderly wind-up and eventual repeal of 4 the Iowa fund of funds program, the replacement taxes task 5 force, a study report related to administrative appeals 6 processes for tax matters, and including effective date and 7 retroactive and other applicability provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 TLSB 1285HV (2) 85 mm/sc

H.F. 634 DIVISION I 1 INCOME TAXES 2 Section 1. Section 2.48, subsection 3, paragraph c, 3 subparagraph (4), Code 2013, is amended by striking the 4 subparagraph. 5 Sec. 2. Section 2.48, subsection 3, paragraph e, 6 subparagraph (5), Code 2013, is amended by striking the 7 subparagraph. 8 Sec. 3. Section 15.119, subsection 2, paragraph c, Code 9 2013, is amended by striking the paragraph. 10 Sec. 4. Section 422.5, subsection 1, paragraph j, 11 subparagraph (2), subparagraph division (a), Code 2013, is 12 amended to read as follows: 13 (a) The tax imposed upon the taxable income of a resident 14 shareholder in an S corporation or of an estate or trust with 15 a situs in Iowa that is a shareholder in an S corporation, 16 which S corporation has in effect for the tax year an election 17 under subchapter S of the Internal Revenue Code and carries 18 on business within and without the state , may be computed by 19 reducing the amount determined pursuant to paragraphs “a” 20 through “i” by the amounts of nonrefundable credits under 21 this division and by multiplying this resulting amount by a 22 fraction of which the resident’s or estate’s or trust’s net 23 income allocated to Iowa, as determined in section 422.8, 24 subsection 2 , paragraph “b” , is the numerator and the resident’s 25 or estate’s or trust’s total net income computed under section 26 422.7 is the denominator. If a resident shareholder , or an 27 estate or trust with a situs in Iowa that is a shareholder, 28 has elected to take advantage of this subparagraph (2), and 29 for the next tax year elects not to take advantage of this 30 subparagraph, the resident or estate or trust shareholder shall 31 not reelect to take advantage of this subparagraph for the 32 three tax years immediately following the first tax year for 33 which the shareholder elected not to take advantage of this 34 subparagraph, unless the director consents to the reelection. 35 -1- LSB 1285HV (2) 85 mm/sc 1/ 19

H.F. 634 This subparagraph also applies to individuals who are residents 1 of Iowa for less than the entire tax year. 2 Sec. 5. Section 422.8, subsection 2, paragraph b, 3 unnumbered paragraph 1, Code 2013, is amended to read as 4 follows: 5 A resident’s income , or the income of an estate or trust with 6 a situs in Iowa, allocable to Iowa is the income determined 7 under section 422.7 reduced by items of income and expenses 8 from an S corporation that carries on business within and 9 without the state when those items of income and expenses pass 10 directly to the shareholders under provisions of the Internal 11 Revenue Code. These items of income and expenses are increased 12 by the greater of the following: 13 Sec. 6. Section 422.15, subsection 2, Code 2013, is amended 14 to read as follows: 15 2. Every partnership , including limited partnerships 16 organized under chapter 488 , having a place of business in 17 the state , doing business in this state, or deriving income 18 from sources within this state as defined in section 422.33, 19 subsection 1, shall make a return, stating specifically the net 20 income and capital gains (or losses) reported on the federal 21 partnership return, the names and addresses of the partners, 22 and their respective shares in said amounts. 23 Sec. 7. Section 422.33, subsections 9 and 27, Code 2013, are 24 amended by striking the subsections. 25 Sec. 8. REPEAL. Sections 16.211, 16.212, and 422.11X, Code 26 2013, are repealed. 27 Sec. 9. EFFECTIVE UPON ENACTMENT. This division of this 28 Act, being deemed of immediate importance, takes effect upon 29 enactment. 30 Sec. 10. RETROACTIVE APPLICABILITY. The following 31 provision or provisions of this division of this Act apply 32 retroactively to January 1, 2013, for tax years beginning on 33 or after that date: 34 1. The section of this division of this Act amending section 35 -2- LSB 1285HV (2) 85 mm/sc 2/ 19

H.F. 634 422.5. 1 2. The section of this division of this Act amending section 2 422.8. 3 3. The section of this division of this Act amending section 4 422.15. 5 DIVISION II 6 SALES AND USE TAXES 7 Sec. 11. Section 421.26, Code 2013, is amended to read as 8 follows: 9 421.26 Personal liability for tax due. 10 If a licensee or other person under section 452A.65 , a 11 retailer or purchaser under chapter 423A , 423B , or 423E , or 12 section 423.31 or 423.33 , or a retailer or purchaser under 13 section 423.32 , a user under section 423.34 , or a permit holder 14 or licensee under section 453A.13 , 453A.16 , or 453A.44 fails 15 to pay a tax under those sections when due or is subject 16 to repayment of a sales and use tax refund received under 17 section 15.331A , an officer of a corporation or association, 18 notwithstanding section 489.304 , a member or manager of a 19 limited liability company, or a partner of a partnership, 20 having control or supervision of or the authority for remitting 21 the tax payments or receiving sales and use tax refunds 22 and having a substantial legal or equitable interest in the 23 ownership of the corporation, association, limited liability 24 company, or partnership, who has intentionally failed to pay 25 the tax or whose corporation, association, limited liability 26 company, or partnership is subject to repayment of a sales and 27 use tax refund received under section 15.331A, is personally 28 liable for the payment of the tax, interest, and penalty due 29 and unpaid or repayment of the sales and use tax refund . 30 However, this section shall not apply to taxes on accounts 31 receivable. The dissolution of a corporation, association, 32 limited liability company, or partnership shall not discharge a 33 person’s liability for failure to remit the tax due or repay a 34 sales and use tax refund . 35 -3- LSB 1285HV (2) 85 mm/sc 3/ 19

H.F. 634 Sec. 12. Section 423.1, subsection 5, Code 2013, is amended 1 to read as follows: 2 5. “Agricultural production” includes the production of 3 flowering, ornamental, or vegetable plants in commercial 4 greenhouses or otherwise, and production from aquaculture , 5 and production from silvicultural activities . “Agricultural 6 products” includes flowering, ornamental, or vegetable plants 7 and those products of aquaculture and silviculture . 8 Sec. 13. Section 423.2, subsection 6, paragraph a, Code 9 2013, is amended to read as follows: 10 a. The sales price of any of the following enumerated 11 services is subject to the tax imposed by subsection 12 5 : alteration and garment repair; armored car; vehicle repair; 13 battery, tire, and allied; investment counseling; service 14 charges of all financial institutions; barber and beauty; 15 boat repair; vehicle wash and wax; campgrounds; carpentry; 16 roof, shingle, and glass repair; dance schools and dance 17 studios; dating services; dry cleaning, pressing, dyeing, and 18 laundering; electrical and electronic repair and installation; 19 excavating and grading; farm implement repair of all kinds; 20 flying service; furniture, rug, carpet, and upholstery 21 repair and cleaning; fur storage and repair; golf and country 22 clubs and all commercial recreation; gun and camera repair; 23 house and building moving; household appliance, television, 24 and radio repair; janitorial and building maintenance or 25 cleaning; jewelry and watch repair; lawn care, landscaping, 26 and tree trimming and removal; limousine service, including 27 driver; machine operator; machine repair of all kinds; motor 28 repair; motorcycle, scooter, and bicycle repair; oilers and 29 lubricators; office and business machine repair; painting, 30 papering, and interior decorating; parking facilities; pay 31 television; pet grooming; pipe fitting and plumbing; wood 32 preparation; executive search agencies; private employment 33 agencies, excluding services for placing a person in employment 34 where the principal place of employment of that person is to 35 -4- LSB 1285HV (2) 85 mm/sc 4/ 19

H.F. 634 be located outside of the state; reflexology; security and 1 detective services , excluding private security and detective 2 services furnished by a peace officer with the knowledge and 3 consent of the chief executive officer of the peace officer’s 4 law enforcement agency ; sewage services for nonresidential 5 commercial operations; sewing and stitching; shoe repair 6 and shoeshine; sign construction and installation; storage 7 of household goods, mini-storage, and warehousing of raw 8 agricultural products; swimming pool cleaning and maintenance; 9 tanning beds or salons; taxidermy services; telephone 10 answering service; test laboratories, including mobile testing 11 laboratories and field testing by testing laboratories, and 12 excluding tests on humans or animals; termite, bug, roach, and 13 pest eradicators; tin and sheet metal repair; transportation 14 service consisting of the rental of recreational vehicles or 15 recreational boats, or the rental of motor vehicles subject 16 to registration which are registered for a gross weight of 17 thirteen tons or less for a period of sixty days or less, or 18 the rental of aircraft for a period of sixty days or less; 19 Turkish baths, massage, and reducing salons, excluding services 20 provided by massage therapists licensed under chapter 152C ; 21 water conditioning and softening; weighing; welding; well 22 drilling; wrapping, packing, and packaging of merchandise other 23 than processed meat, fish, fowl, and vegetables; wrecking 24 service; wrecker and towing. 25 Sec. 14. Section 423.3, subsection 47, paragraph a, 26 unnumbered paragraph 1, Code 2013, is amended to read as 27 follows: 28 The sales price from the sale or rental of computers, 29 machinery, and equipment, including replacement parts and 30 consumable supplies , and materials used to construct or 31 self-construct computers, machinery, and equipment if such 32 items are any of the following: 33 Sec. 15. Section 423.3, subsection 47, paragraph d, Code 34 2013, is amended by adding the following new subparagraph: 35 -5- LSB 1285HV (2) 85 mm/sc 5/ 19

H.F. 634 NEW SUBPARAGRAPH . (02) “Consumable supplies” means tangible 1 personal property, other than computers, machinery, equipment, 2 or raw materials, that is consumed or expended during the 3 manufacture of other tangible personal property. The term 4 “consumable supplies” includes but is not limited to oils, 5 greases, hydraulic fluids, coolants, and lubricants. 6 Sec. 16. Section 423.3, subsection 47, paragraph d, 7 subparagraph (4), Code 2013, is amended to read as follows: 8 (4) “Manufacturer” means as defined in section 428.20 a 9 person who purchases, receives, or holds personal property 10 of any description for the purpose of adding to its value by 11 a process of manufacturing, refining, purifying, combining 12 of different materials, or by the packing of meats, with a 13 view to selling the property for gain or profit , but also 14 includes contract manufacturers. A contract manufacturer is 15 a manufacturer that otherwise falls within the definition of 16 manufacturer under section 428.20 , except that a contract 17 manufacturer does not sell the tangible personal property 18 the contract manufacturer processes on behalf of other 19 manufacturers. A business engaged in activities subsequent 20 to the extractive process of quarrying or mining, such as 21 crushing, washing, sizing, or blending of aggregate materials, 22 is a manufacturer with respect to these activities. This 23 subparagraph (4) shall not be construed to require that a 24 person be primarily engaged in an activity listed in this 25 subparagraph in order to qualify as a manufacturer for purposes 26 of this subsection. 27 Sec. 17. Section 423.3, subsection 47, paragraph d, Code 28 2013, is amended by adding the following new subparagraph: 29 NEW SUBPARAGRAPH . (7) (a) “Replacement part” means 30 tangible personal property that meets all the following 31 conditions: 32 (i) The tangible personal property replaces a component of 33 a computer, machinery, or equipment, which component is capable 34 of being separated from the computer, machinery, or equipment. 35 -6- LSB 1285HV (2) 85 mm/sc 6/ 19

H.F. 634 (ii) The tangible personal property performs the same or 1 similar function as the component it replaced. 2 (iii) The tangible personal property restores the computer, 3 machinery, or equipment to its original operating condition, or 4 upgrades or improves the efficiency of the computer, machinery, 5 or equipment. 6 (b) “Replacement part” does not include a consumable 7 supply or a jig, die, tool, or other device that is used in 8 conjunction with machinery or equipment and that is specially 9 designed for use in manufacturing specific products and that 10 may be used interchangeably and intermittently on a particular 11 machine or piece of equipment. 12 Sec. 18. Section 423.3, Code 2013, is amended by adding the 13 following new subsection: 14 NEW SUBSECTION . 99. The sales price from services furnished 15 by forestry consultants and forestry vendors engaged in 16 forestry practices on private or public land. 17 DIVISION III 18 IOWA FUND OF FUNDS 19 Sec. 19. Section 15E.62, Code 2013, is amended by adding the 20 following new subsections: 21 NEW SUBSECTION . 03. “Creditor” means a person, including 22 an assignee of or successor to such person, who extends credit 23 or makes a loan to the Iowa fund of funds or to a designated 24 investor, and includes any person who refinances such credit 25 or loan. 26 NEW SUBSECTION . 04. “Fund documents” means all agreements 27 relating to matters under the purview of this division VII 28 entered into prior to the effective date of this division of 29 this Act between or among the state, the Iowa fund of funds, a 30 fund allocation manager or similar manager, the Iowa capital 31 investment corporation, the board, a creditor, a designated 32 investor, and a private seed or venture capital partnership, 33 and includes other documents having the same force and effect 34 between or among such parties, as any of the foregoing may be 35 -7- LSB 1285HV (2) 85 mm/sc 7/ 19

H.F. 634 amended, modified, restated, or replaced from time to time. 1 Sec. 20. Section 15E.65, subsection 2, paragraph h, Code 2 2013, is amended to read as follows: 3 h. Fifty years after the organization of the Iowa fund 4 of funds As soon as practicable after the effective date 5 of this division of this Act , the Iowa capital investment 6 corporation , in conjunction with the department of revenue, 7 the board, and the attorney general, shall wind up the Iowa 8 fund of funds pursuant to section 15E.72 and shall cause the 9 Iowa fund of funds to be liquidated with all of its assets 10 distributed to its owners in accordance with the provisions of 11 its organizational documents and in accordance with the fund 12 documents . In liquidating such assets, the capital investment 13 corporation, the department of revenue, the board, and the 14 attorney general shall act with prudence and caution in order 15 to minimize costs and fees and to preserve investment assets to 16 the extent reasonably possible. 17 Sec. 21. NEW SECTION . 15E.72 Program wind-up and future 18 repeal. 19 1. Findings. The general assembly finds that the Iowa fund 20 of funds program established pursuant to this division has 21 not fulfilled the purposes described in section 15E.61 to the 22 extent necessary to justify the fifty-year timeframe for the 23 program that was originally envisioned in this division VII and 24 that an early and orderly wind-up of the program is desirable. 25 2. Organization of additional funds prohibited. 26 Notwithstanding section 15E.65, an Iowa fund of funds shall not 27 be organized on or after the effective date of this division 28 of this Act. 29 3. New investments by the fund of funds prohibited. 30 Notwithstanding section 15E.65, the Iowa fund of funds shall 31 not make new investments in private seed and venture capital 32 partnerships or entities on or after the effective date of this 33 division of this Act except as required by the fund documents. 34 4. New investments by designated investors prohibited. 35 -8- LSB 1285HV (2) 85 mm/sc 8/ 19

H.F. 634 a. Except as provided in paragraph “b” , and notwithstanding 1 any other provision in this division VII, a designated investor 2 shall not invest in the Iowa fund of funds on or after the 3 effective date of this division of this Act. 4 b. Notwithstanding the prohibition in paragraph “a” , a 5 designated investor may invest in the Iowa fund of funds on or 6 after the effective date of this division of this Act to the 7 extent such investment is required by the fund documents. In 8 addition, the director of revenue, with the approval of the 9 attorney general, may authorize additional investment in the 10 Iowa fund of funds but only if such an investment is necessary 11 to preserve fund assets, repay creditors, pay taxes, or 12 otherwise effectuate an orderly wind-up of the program pursuant 13 to this section. 14 5. Issuance, verification, and redemption of new certificates 15 prohibited. 16 a. Except as provided in paragraph “b” , and notwithstanding 17 any other provision in this division VII, the board shall not 18 issue, verify, or redeem a certificate or a related tax credit 19 on or after the effective date of this division of this Act. 20 b. Notwithstanding the prohibition in paragraph “a” , the 21 board may issue, redeem, or verify a certificate or a related 22 tax credit under any of the following conditions: 23 (1) The board is required to do so under the terms of the 24 fund documents. 25 (2) The issuance, redemption, or verification is deemed 26 necessary by the director of revenue and the attorney general 27 in order to arrange new financing terms with a creditor. 28 (3) The issuance, redemption, or verification is deemed 29 necessary by the director of revenue and the attorney general 30 to preserve fund assets, repay creditors, or otherwise 31 effectuate an orderly wind-up of the program pursuant to this 32 section. 33 6. New fund allocation managers prohibited. 34 a. Notwithstanding any other provision in this division 35 -9- LSB 1285HV (2) 85 mm/sc 9/ 19

H.F. 634 VII, the Iowa capital investment corporation shall not have 1 authority to solicit, select, terminate, or change a fund 2 allocation manager or similar manager on or after the effective 3 date of this division of this Act. 4 b. On or after the effective date of this division of this 5 Act, all decisions pertaining to relationships with a fund 6 allocation manager or similar manager selected prior to the 7 effective date of this division of this Act shall be made 8 by the director of revenue with the approval of the attorney 9 general. This subsection shall not be construed to impair the 10 terms of the fund documents. 11 7. Pledging of certificates prohibited. 12 a. Except as provided in paragraph “b” , and notwithstanding 13 any other provision of law to the contrary, a certificate and a 14 related tax credit or verified tax credit issued by the board 15 shall not be pledged by a designated investor as security for 16 a loan on or after the effective date of this division of this 17 Act. 18 b. Notwithstanding the prohibition in paragraph “a” , a 19 certificate and related tax credit or verified tax credit 20 issued by the board may be pledged by a designated investor as 21 security for a loan to the extent such pledge is required by 22 the fund documents. In addition, the board, with the approval 23 of the director of revenue and the attorney general, may 24 authorize a certificate and related tax credit to be pledged 25 as security for a loan or an extension of credit, but only 26 if such a pledge is necessary to arrange new financing terms 27 with a creditor or to repay creditors for moneys loaned to a 28 designated investor. 29 8. Rural and small business loan guarantees prohibited. 30 Notwithstanding any other provision in this division VII 31 to the contrary, the Iowa capital investment corporation 32 shall not make rural and small business loan guarantees or 33 otherwise administer a program to provide loan guarantees and 34 other related credit enhancements on loans to rural and small 35 -10- LSB 1285HV (2) 85 mm/sc 10/ 19

H.F. 634 business borrowers within the state of Iowa on or after the 1 effective date of this division of this Act. 2 9. Iowa capital investment corporation purposes amended. 3 Notwithstanding section 15E.64, on or after the effective date 4 of this division of this Act, the purposes of the Iowa capital 5 investment corporation shall be to comply with its obligations 6 under the fund documents and to assist the board, the director 7 of revenue, and the attorney general in effectuating the 8 orderly wind-up of the Iowa fund of funds. In effectuating 9 such a wind-up, the Iowa capital investment corporation shall 10 comply with all reasonable requests by the board, the director 11 of revenue, the attorney general, or the auditor of state. 12 10. Use of revolving fund prohibited. 13 a. Notwithstanding section 15E.65, subsection 2, paragraph 14 “a” , on or after the effective date of this division of this 15 Act, all investment returns received by the Iowa capital 16 investment corporation that are in excess of those payable to 17 designated investors shall be deposited in the general fund of 18 the state. 19 b. This subsection shall not be construed to impair the 20 terms of the fund documents. It is the intent of the general 21 assembly that this subsection only applies in the event that 22 there are investment returns in excess of those necessary to 23 repay creditors and designated investors under the terms of the 24 fund documents. 25 11. Preservation of existing rights. This section is not 26 intended to and shall not limit, modify, or otherwise adversely 27 affect the fund documents, including any certificate or related 28 tax credit issued before the effective date of this division 29 of this Act. 30 12. Future repeal. This division VII is repealed upon the 31 occurrence of one of the following, whichever is earlier: 32 a. The expiration or termination of all fund documents. The 33 director of revenue shall notify the Iowa Code editor upon the 34 occurrence of this condition. 35 -11- LSB 1285HV (2) 85 mm/sc 11/ 19

H.F. 634 b. December 31, 2027. 1 Sec. 22. EFFECTIVE UPON ENACTMENT. This division of this 2 Act, being deemed of immediate importance, takes effect upon 3 enactment. 4 DIVISION IV 5 REPLACEMENT TAXES 6 Sec. 23. Section 437A.15, subsection 7, paragraph b, Code 7 2013, is amended to read as follows: 8 b. The task force shall study the effects of the replacement 9 tax on local taxing authorities, local taxing districts, 10 consumers, and taxpayers through January 1, 2013 2016 . If the 11 task force recommends modifications to the replacement tax that 12 will further the purposes of tax neutrality for local taxing 13 authorities, local taxing districts, taxpayers, and consumers, 14 consistent with the stated purposes of this chapter , the 15 department of management shall transmit those recommendations 16 to the general assembly. 17 DIVISION V 18 STUDY REPORT 19 Sec. 24. ADMINISTRATIVE APPEALS PROCESS FOR TAX MATTERS 20 AND NEW TAX APPEAL BOARD —— REPORT. The department of 21 revenue, in consultation with the department of management 22 and other interested stakeholders, shall study the 23 independence, effectiveness, and fairness of the state’s 24 current administrative appeals processes for tax matters and 25 shall make recommendations for changes, if necessary, and 26 shall additionally study the desirability, practicality, and 27 feasibility of replacing components of these processes with 28 a new consolidated and independent administrative appeals 29 board for tax matters within the executive branch to resolve 30 disputes between the department of revenue and taxpayers. The 31 department of revenue shall prepare and file a report detailing 32 its findings and recommendations with the chairpersons and 33 ranking members of the ways and means committees of the senate 34 and the house of representatives and with the legislative 35 -12- LSB 1285HV (2) 85 mm/sc 12/ 19

H.F. 634 services agency by January 8, 2014. This section of this Act 1 shall not be construed to provide the department of revenue 2 with the power or authority to eliminate or in any way modify 3 the property assessment appeals board created pursuant to 4 section 421.1A. 5 DIVISION VI 6 SECURE AN ADVANCED VISION FOR EDUCATION FUND 7 Sec. 25. Section 423F.2, subsection 1, paragraph b, Code 8 2013, is amended to read as follows: 9 b. The increase in the state sales, services, and use taxes 10 under chapter 423, subchapters II and III , from five percent 11 to six percent shall replace the repeal of the county’s local 12 sales and services tax for school infrastructure purposes. The 13 distribution of moneys in the secure an advanced vision for 14 education fund and the use of the moneys for infrastructure 15 purposes or property tax relief shall be as provided in this 16 chapter . However, the formula for the distribution of the 17 moneys in the fund shall be based upon amounts that would have 18 been received if the local sales and services taxes under 19 former chapter 423E, Code and Code Supplement 2007, continued 20 in existence. 21 Sec. 26. Section 423F.2, subsection 3, Code 2013, is amended 22 to read as follows: 23 3. The moneys available in a fiscal year in the secure an 24 advanced vision for education fund shall be distributed by the 25 department of revenue to each school district in an amount 26 equal to the amount the school district would have received 27 pursuant to the formula in section 423E.4 as if the local sales 28 and services tax for school infrastructure purposes was imposed 29 on a per pupil basis calculated using each school district’s 30 budget enrollment, as defined in section 257.6, for that fiscal 31 year . Moneys in a fiscal year that are in excess of that needed 32 to provide each school district with its formula amount Prior 33 to distribution of moneys in the secure an advanced vision for 34 education fund to school districts, two and one-tenths percent 35 -13- LSB 1285HV (2) 85 mm/sc 13/ 19

H.F. 634 of the moneys available in a fiscal year shall be distributed 1 and credited to the property tax equity and relief fund created 2 in section 257.16A . 3 Sec. 27. APPLICABILITY. This division of this Act applies 4 to fiscal years beginning on or after July 1, 2014. 5 EXPLANATION 6 This bill relates to the policy administration of the 7 tax and related laws of the department of revenue, including 8 the administration of income taxes, sales and use taxes, the 9 orderly wind-up and eventual repeal of the Iowa fund of funds 10 program, a study report related to the current administrative 11 appeals process for tax matters and the possible creation of 12 a new tax appeal board. 13 DIVISION I —— INCOME TAXES. The division amends the 14 allocation of income provisions in Code sections 422.5 and 15 422.8 to provide that an estate or trust with a situs in Iowa 16 that is a shareholder in an S corporation is eligible to claim 17 the S corporation apportionment credit. 18 The division amends the income tax return filing 19 requirements for partnerships in Code section 422.15. Under 20 current law, partnerships are required to file an Iowa return 21 if they have a place of business in the state. The division 22 provides that partnerships are required to file an Iowa return 23 if they are doing business in the state, or are deriving income 24 from sources within this state. “Income from sources within 25 this state” means income from real, tangible, or intangible 26 property located or having a situs in this state. 27 The division repeals the assistive device tax credit 28 available for the corporate income tax in Code section 422.33 29 and repeals the disaster recovery housing project tax credit 30 for the individual and corporate income tax in Code sections 31 16.211 and 16.212, and makes various conforming amendments to 32 remove references to these credits throughout the Code. 33 The division takes effect upon enactment and the provisions 34 amending Code sections 422.5, 422.8, and 422.15 apply 35 -14- LSB 1285HV (2) 85 mm/sc 14/ 19

H.F. 634 retroactively to January 1, 2013, for tax years beginning on 1 or after that date. 2 DIVISION II —— SALES AND USE TAXES. The division amends Code 3 section 421.16, which relates to the imposition of personal 4 liability against officers of corporations or associations, 5 members or managers of limited liability companies, or partners 6 of partnerships, for certain taxes if the individual has 7 control or supervision of or the authority for remitting the 8 taxes and a substantial equitable interest in the ownership of 9 the business. The division provides that personal liability 10 can also be asserted against these individuals for repayment 11 of a sales and use tax refund received by a business under Code 12 section 15.331A, which repayment can occur when a business 13 fails to meet its contractual obligations under the economic 14 development authority’s enterprise zone program or high quality 15 jobs program. 16 The division exempts from the state sales and use tax private 17 security and detective services furnished by a peace officer 18 with the knowledge and consent of the chief executive officer 19 of the peace officer’s law enforcement agency. 20 The division makes several amendments to the sales tax 21 exemption in Code section 423.3(47) for the purchase or rental 22 of certain items used in processing by a manufacturer. First, 23 the sales tax exemption is amended to include consumable 24 supplies. “Consumable supplies” is defined as tangible 25 personal property that is consumed or expended during the 26 manufacture of other tangible personal property, and includes 27 but is not limited to oils, greases, hydraulic fluids, 28 coolants, and lubricants. 29 Second, the sales tax exemption adds the language of the 30 definition of “manufacturer” in Code section 428.20, and 31 strikes the reference to that Code section. The definition of 32 “manufacturer” is further amended to provide that it shall not 33 be construed to require that a person be primarily engaged in 34 an activity listed in the definition in order to qualify as a 35 -15- LSB 1285HV (2) 85 mm/sc 15/ 19

H.F. 634 manufacturer for purposes of the sales tax exemption. 1 Finally, “replacement part” is defined for purposes of the 2 sales tax exemption to mean tangible personal property that 3 is not a consumable supply, not a jig, die, tool, or other 4 device that is used in conjunction with machinery or equipment, 5 and that is specially designed for use in manufacturing 6 specific products and that may be used interchangeably and 7 intermittently on a particular machine or piece of equipment, 8 and which further meets the conditions of being property that 9 replaces a separate component of a computer, machinery, or 10 equipment, performs the same function as that component, and 11 restores or improves the computer, machinery, or equipment. 12 The division amends the definitions of “agricultural 13 production” and “agricultural products” for purposes of Code 14 chapter 423 to include production from silvicultural activities 15 and products of silviculture. Both definitions are applicable 16 to several sales tax exemptions in current Code section 423.3. 17 The division exempts from the sales and use tax services 18 furnished by forestry consultants and forestry vendors engaged 19 in forestry practices on private or public land. 20 DIVISION III —— IOWA FUND OF FUNDS. The division provides 21 for an orderly wind-up and eventual repeal of the Iowa fund 22 of funds program in accordance with the provisions of its 23 organizational documents and with the terms of the fund 24 documents. “Fund documents” is defined as all the agreements 25 entered into prior to the effective date of the division 26 between or among the state, the Iowa fund of funds, a fund 27 allocation manager or similar manager, the Iowa capital 28 investment corporation, the board, a creditor (as defined in 29 the division), a designated investor, and a private seed or 30 venture capital partnership, and includes other documents 31 having the same force and effect between or among such parties 32 as any of the foregoing may be amended, modified, restated, or 33 replaced from time to time. The division creates a new Code 34 section 15E.72 that will govern the wind-up and repeal. 35 -16- LSB 1285HV (2) 85 mm/sc 16/ 19

H.F. 634 The division prohibits a new Iowa fund of funds from being 1 organized and prohibits any new investments from being made by 2 the existing Iowa fund of funds in private seed and venture 3 capital partnerships or entities except as required by the 4 fund documents. The division prohibits a new investment by 5 a designated investor in the Iowa fund of funds unless it is 6 required by the fund documents or the director of revenue and 7 attorney general determine such an investment is necessary to 8 preserve fund assets, repay creditors, pay taxes, or otherwise 9 effectuate an orderly wind-up of the program. The division 10 prohibits the Iowa capital investment board from issuing, 11 redeeming, or verifying a certificate or related tax credit, 12 including a verified tax credit, unless the board is required 13 to do so under the terms of the fund documents, unless it is 14 deemed necessary by the director of revenue and the attorney 15 general in order to arrange new financing with a creditor, or 16 unless it is deemed necessary by the director of revenue and 17 the attorney general to preserve fund assets, repay creditors, 18 or otherwise effectuate an orderly wind-up of the program. 19 The division prohibits the Iowa capital investment 20 corporation from soliciting, selecting, terminating, or 21 changing a fund allocation manager or similar manager. All 22 decisions pertaining to relationships with a fund allocation 23 manager will now be made by the director of revenue with the 24 approval of the attorney general. 25 The division prohibits a certificate and related tax credit 26 from being pledged as security for a loan or an extension of 27 credit unless such a pledge is required by the fund documents 28 or unless the director of revenue and the attorney general 29 authorize such a pledge to be made because it is necessary to 30 arrange new financing terms with a creditor or repay creditors 31 for moneys loaned to a designated investor. 32 The division prohibits the Iowa capital investment 33 corporation from making rural and small business loan 34 guarantees or from otherwise administering a program to provide 35 -17- LSB 1285HV (2) 85 mm/sc 17/ 19

H.F. 634 such loan guarantees or related credit enhancements on loans to 1 rural and small business borrowers. 2 The division amends the purposes of the Iowa capital 3 investment corporation to provide that its purpose shall be 4 to comply with its obligations under the fund documents and 5 to assist the Iowa capital investment board, the director of 6 revenue, and the attorney general in effectuating an orderly 7 wind-up of the Iowa fund of funds and in doing so shall comply 8 with all reasonable requests of these entities or the auditor 9 of state. 10 The division prohibits the Iowa capital investment 11 corporation from depositing returns in excess of those payable 12 to designated investors in a revolving fund and instead 13 mandates that those amounts be deposited in the general fund of 14 the state. This requirement shall not be construed to impair 15 the terms of the fund documents. 16 The division provides that new Code section 15E.72 is not 17 intended to and shall not limit, modify, or otherwise adversely 18 affect the fund documents, including certificates and related 19 tax credits issued before the effective date of the division. 20 Finally, the division provides that the Iowa fund of funds is 21 repealed upon the earlier of December 31, 2027, or the date all 22 fund documents expire. 23 The division takes effect upon enactment. 24 DIVISION IV —— REPLACEMENT TAXES. The division extends 25 through January 1, 2016, the replacement tax task force which 26 expired on January 1, 2013. 27 DIVISION V —— STUDY REPORT. The division establishes a 28 report to be prepared and filed by the department of revenue. 29 The department of revenue, in consultation with the department 30 of management and other interested stakeholders, shall study 31 the current administrative appeals processes for tax matters 32 and make recommendations for changes if necessary, and also 33 study the possibility of creating a new consolidated tax 34 appeal board. The report detailing any recommended changes 35 -18- LSB 1285HV (2) 85 mm/sc 18/ 19

H.F. 634 or findings shall be filed with the chairperson and ranking 1 members of the ways and means committees of the senate and the 2 house of representatives and with the legislative services 3 agency by January 8, 2014. The division provides that the 4 study report shall not be construed to provide the department 5 of revenue with the power or authority to eliminate or in any 6 way modify the property assessment appeals board. 7 DIVISION VI —— SECURE AN ADVANCED VISION FOR EDUCATION FUND. 8 The division modifies provisions relating to the allocation 9 and distribution of moneys from the secure an advanced vision 10 for education fund to provide that moneys shall be distributed 11 to school districts on a per pupil basis, calculated using 12 each school district’s budget enrollment for the fiscal year. 13 The division also provides that prior to the distribution 14 of moneys, 2.1 percent of the moneys available shall be 15 distributed and credited to the property tax equity and relief 16 fund. The division applies to fiscal years beginning on or 17 after July 1, 2014. 18 -19- LSB 1285HV (2) 85 mm/sc 19/ 19