House Study Bill 160 - 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 of the department of revenue, including 2 administration of income taxes, sales and use taxes, and 3 the wireless surcharge for enhanced 911 emergency telephone 4 systems, and including effective date and retroactive 5 applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 1277XD (10) 85 mm/sc

S.F. _____ H.F. _____ DIVISION I 1 INCOME AND FRANCHISE TAXES 2 Section 1. Section 422.7, subsection 2, Code 2013, is 3 amended to read as follows: 4 2. Add interest and dividends from foreign securities and 5 from securities of state and other political subdivisions 6 exempt from federal income tax under the Internal Revenue 7 Code , except for those securities the interest and dividends 8 from which are exempt from taxation by the state of Iowa as 9 otherwise provided by law, including: 10 a. Vision Iowa program bonds pursuant to section 12.71, 11 subsection 8 . 12 b. School infrastructure program bonds pursuant to section 13 12.81, subsection 8. 14 c. Iowa jobs program revenue bonds pursuant to section 15 12.87, subsection 8. 16 d. Iowa utility board and Iowa consumer advocate building 17 project bonds pursuant to section 12.91, subsection 9. 18 e. Iowa water pollution control works and drinking 19 facilities financing program bonds pursuant to section 16.131, 20 subsection 5. 21 f. Iowa prison infrastructure revenue bonds pursuant to 22 section 12.80, subsection 3, and section 16.177, subsection 8. 23 g. Quad cities interstate metropolitan authority bonds 24 pursuant to section 28A.24. 25 h. Iowa finance authority E911 program bonds pursuant to 26 section 34A.20, subsection 6. 27 i. Alcoholic beverage control bonds pursuant to section 28 123.159, Code 2011. 29 j. Soil and water conservation subdistrict bonds pursuant 30 to section 161A.22. 31 k. Agricultural development authority beginning farmer loan 32 program bonds pursuant to section 175.17, subsection 10. 33 l. Community college residence hall and dormitory bonds 34 pursuant to section 260C.61. 35 -1- LSB 1277XD (10) 85 mm/sc 1/ 11

S.F. _____ H.F. _____ m. Community college bond program bonds pursuant to section 1 260C.71, subsection 6. 2 n. Higher education loan authority bonds pursuant to section 3 261A.27. 4 o. State board of regents bonds pursuant to sections 262.41, 5 262.51, 262.60, 262A.8, and 263A.6. 6 p. Interstate bridges bonds pursuant to section 313A.36. 7 q. Aviation authority bonds pursuant to section 330A.16. 8 r. County health center bonds pursuant to section 331.441, 9 subsection 2, paragraph “c” , subparagraph (7). 10 s. Rural water district bonds pursuant to section 357A.15. 11 t. Urban renewal bonds pursuant to section 403.9, subsection 12 2. 13 u. Municipal housing project bonds pursuant to section 14 403A.12. 15 v. Comprehensive petroleum underground storage tank fund 16 bonds pursuant to section 455G.6, subsection 14. 17 w. Honey creek premier destination park bonds pursuant to 18 section 463C.12, subsection 8. 19 Sec. 2. Section 422.7, subsections 19 and 48, Code 2013, are 20 amended by striking the subsections. 21 Sec. 3. Section 422.9, subsections 6 and 7, Code 2013, are 22 amended by striking the subsections. 23 Sec. 4. Section 422.20, subsection 3, paragraph a, Code 24 2013, is amended to read as follows: 25 a. Unless otherwise expressly permitted by section 8A.504 , 26 section 8G.4 , section 11.41, section 96.11, subsection 6 , 27 section 421.17, subsections 22 , 23 , and 26 , subsection 27 , 28 paragraph “k” , and subsection 31 , section 252B.9 , section 29 321.40, subsection 6 , sections 321.120 , 421.19 , 421.28 , 422.72 , 30 and 452A.63 , and this section , or another provision of law, 31 a tax return, return information, or investigative or audit 32 information shall not be divulged to any person or entity, 33 other than the taxpayer, the department, or internal revenue 34 service for use in a matter unrelated to tax administration. 35 -2- LSB 1277XD (10) 85 mm/sc 2/ 11

S.F. _____ H.F. _____ Sec. 5. Section 422.35, subsection 2, Code 2013, is amended 1 to read as follows: 2 2. Add interest and dividends from foreign securities, from 3 securities of state and other political subdivisions, and from 4 regulated investment companies exempt from federal income tax 5 under the Internal Revenue Code , except for those securities 6 the interest and dividends from which are exempt from taxation 7 by the state of Iowa as otherwise provided by law, including 8 those set forth in section 422.7, subsection 2 . 9 Sec. 6. Section 422.35, subsection 13, Code 2013, is amended 10 by striking the subsection. 11 Sec. 7. Section 422.61, subsection 3, paragraph b, Code 12 2013, is amended to read as follows: 13 b. Notwithstanding sections 262.41 and 262.51 section 14 422.35, subsection 2 , or any other provisions of law, income 15 from obligations of the state and its political subdivisions 16 and franchise taxes paid or accrued under this division 17 during the taxable year shall be added. Income from sales 18 of obligations of the state and its political subdivisions 19 and interest and dividend income from these obligations are 20 exempt from the taxes imposed by this division only if the law 21 authorizing the obligations specifically exempts the income 22 from the sale and interest and dividend income from the state 23 franchise tax. 24 Sec. 8. Section 422.72, subsection 3, paragraph a, Code 25 2013, is amended to read as follows: 26 a. Unless otherwise expressly permitted by section 8A.504 , 27 section 8G.4 , section 11.41, section 96.11, subsection 6 , 28 section 421.17, subsections 22, 23, and 26 , subsection 27 , 29 paragraph “k” , and subsection 31 , section 252B.9 , section 30 321.40, subsection 6 , sections 321.120 , 421.19 , 421.28 , 422.20 , 31 and 452A.63 , and this section , or another provision of law, 32 a tax return, return information, or investigative or audit 33 information shall not be divulged to any person or entity, 34 other than the taxpayer, the department, or internal revenue 35 -3- LSB 1277XD (10) 85 mm/sc 3/ 11

S.F. _____ H.F. _____ service for use in a matter unrelated to tax administration. 1 Sec. 9. EFFECTIVE UPON ENACTMENT. The following provision 2 or provisions of this division of this Act, being deemed of 3 immediate importance, take effect upon enactment: 4 1. The section of this division of this Act amending section 5 422.9. 6 2. The section of this division of this Act amending section 7 422.20. 8 3. The section of this division of this Act amending section 9 422.72. 10 DIVISION II 11 SALES AND USE TAXES 12 Sec. 10. Section 423.1, subsection 39, paragraphs b and c, 13 Code 2013, are amended to read as follows: 14 b. The property is transferred to the user of the service 15 in connection with the performance of the service in a form 16 or quantity capable of a fixed or definite price value , or 17 the property is entirely consumed in connection with the 18 performance of an auto body repair service purchased by the 19 ultimate user . 20 c. The sale is evidenced by a separate charge for the 21 identifiable piece of property unless the property is entirely 22 consumed in connection with the performance of an auto body 23 repair service purchased by the ultimate user . 24 Sec. 11. Section 423.2, subsection 11, paragraph b, 25 subparagraph (5), Code 2013, is amended to read as follows: 26 (5) Subject to the limitation on the calculation and 27 deposit of sales tax increment revenues in section 418.12 , 28 beginning the first day of the quarter following adoption 29 of the resolution pursuant to section 418.4, subsection 3 , 30 paragraph “d” , transfer to the account created in the sales tax 31 increment fund for each governmental entity approved to use 32 sales tax increment revenues under chapter 418 , that portion 33 of the increase in sales tax revenue, determined in section 34 418.11, subsection 2 , paragraph “d” , in the applicable area of 35 -4- LSB 1277XD (10) 85 mm/sc 4/ 11

S.F. _____ H.F. _____ the governmental entity, that remains after the transfer other 1 transfers required under subparagraph (3) of this paragraph 2 “b” . 3 Sec. 12. Section 423.3, subsection 18, paragraph c, Code 4 2013, is amended to read as follows: 5 c. Rehabilitation facilities that provide accredited 6 rehabilitation services to persons with disabilities which are 7 accredited by the commission on accreditation of rehabilitation 8 facilities or the accreditation council for services for 9 persons with an intellectual disability and other persons with 10 developmental disabilities council on quality and leadership 11 and adult day care services approved for reimbursement by the 12 state department of human services. 13 Sec. 13. Section 423.3, subsection 44, Code 2013, is amended 14 by striking the subsection. 15 Sec. 14. Section 423.3, subsection 58, Code 2013, is amended 16 to read as follows: 17 58. The sales price from the sale of items purchased with 18 coupons , food stamps, electronic benefits transfer cards, 19 or other methods of payment authorized by the United States 20 department of agriculture, and issued under the federal Food 21 Stamp Act of 1977, 7 U.S.C. § 2011 et seq. or under the federal 22 supplemental nutritional assistance program established in 7 23 U.S.C. § 2013. 24 Sec. 15. Section 423.3, Code 2013, is amended by adding the 25 following new subsection: 26 NEW SUBSECTION . 99. a. The sales price from the sale of 27 chemicals, solvents, sorbents, reagents, or other tangible 28 personal property used in providing a vehicle repair service 29 subject to section 423.2, subsection 6, if all of the following 30 conditions are met: 31 (1) The chemicals, solvents, sorbents, reagents, or other 32 tangible personal property are directly and primarily used in 33 providing the vehicle repair service. 34 (2) The chemicals, solvents, sorbents, reagents, or other 35 -5- LSB 1277XD (10) 85 mm/sc 5/ 11

S.F. _____ H.F. _____ tangible personal property are consumed or dissipated in 1 providing the vehicle repair service. 2 (3) The chemicals, solvents, sorbents, reagents, or other 3 tangible personal property will come into physical contact with 4 the vehicle upon which the vehicle repair service is performed. 5 b. The exemption under this subsection does not apply 6 to tangible personal property that can be used to provide 7 multiple vehicle repair services, including but not limited to 8 machinery, tools, and equipment. 9 DIVISION III 10 MISCELLANEOUS 11 Sec. 16. Section 34A.7B, subsection 11, Code 2013, is 12 amended to read as follows: 13 11. The audit , and appeal , collection, and enforcement 14 procedures and other pertinent provisions applicable to the 15 sales and use tax imposed under chapter 423 shall apply to 16 prepaid wireless E911 surcharges. 17 Sec. 17. Section 421.7, subsection 5, Code 2013, is amended 18 to read as follows: 19 5. As used in subsection 3 2 , the term “prime rate” means 20 the prime rate charged by banks on short-term business loans, 21 as determined by the board of governors of the federal reserve 22 system and published in the federal reserve bulletin. 23 Sec. 18. Section 421.17, subsection 10, unnumbered 24 paragraph 1, Code 2013, is amended to read as follows: 25 To require any board of review at any time after its 26 adjournment to reconvene and to make such orders as the 27 director shall determine are just and necessary; to direct 28 and order any board of review to raise or lower the valuation 29 of the property, real or personal, in any township, city, 30 or taxing district, to order and direct any board of review 31 to raise or lower the valuation of any class or classes 32 of property in any township, city, or taxing district, and 33 generally to make any order or direction to any board of review 34 as to the valuation of any property, or any class of property, 35 -6- LSB 1277XD (10) 85 mm/sc 6/ 11

S.F. _____ H.F. _____ in any township, city, county, or taxing district, which in 1 the judgment of the director may seem just and necessary, to 2 the end that all property shall be valued and assessed in the 3 manner and according to the real intent of the law. For the 4 purpose of this paragraph subsection the words “taxing district” 5 include drainage districts and levee districts. 6 Sec. 19. Section 421.17, subsection 10, paragraph b, Code 7 2013, is amended to read as follows: 8 b. The director may order made effective reassessments or 9 revaluations in any taxing district for any taxing year or 10 years and the director may in any year order uniform increases 11 or decreases in valuation of all property or upon any class 12 of property within any taxing district or any area within 13 such taxing district, such orders to be effective in the year 14 specified by the director. For the purpose of this paragraph 15 the words “taxing district” include drainage districts and levee 16 districts. 17 Sec. 20. Section 421.17, subsection 27, paragraph e, Code 18 2013, is amended to read as follows: 19 e. All state agencies and local government agencies shall 20 be given access, at the discretion of the director, to the 21 centralized computer data bank and, notwithstanding any other 22 provision of law to the contrary, may deny, revoke, or suspend 23 any license or deny any renewal authorized by the laws of 24 this state to any person who has defaulted on an obligation 25 owed to or collected by the state. The confidentiality 26 provisions of sections 422.20 and 422.72 do not apply to tax 27 information contained in the centralized computer data bank. 28 State agencies and local government agencies shall endeavor to 29 obtain from all applicants the applicant’s social security or 30 federal tax identification number, or , if the applicant has 31 neither, the applicant’s state driver’s license number from all 32 applicants . 33 Sec. 21. Section 432.12C, subsection 2, Code 2013, is 34 amended to read as follows: 35 -7- LSB 1277XD (10) 85 mm/sc 7/ 11

S.F. _____ H.F. _____ 2. The taxes imposed under this division chapter shall 1 be reduced by investment tax credits authorized pursuant to 2 sections 15.333A and 15E.193B, subsection 6 . 3 Sec. 22. Section 453A.45, subsection 5, paragraph b, Code 4 2013, is amended to read as follows: 5 b. The report shall be made on forms provided by the 6 director or the . The director may require by rule that the 7 report be filed by electronic transmission. 8 Sec. 23. Section 453A.47, Code 2013, is amended to read as 9 follows: 10 453A.47 Refunds, credits. 11 Where tobacco products upon which the tax imposed by this 12 division has been reported and paid , are shipped or transported 13 by the distributor to consumers , to be consumed without the 14 state , or to retailers or subjobbers without the state , to 15 be sold by those retailers , or subjobbers without the state , 16 or are returned to the manufacturer by the distributor or 17 destroyed by the distributor, refund of such tax or credit 18 may be made to the distributor in accordance with regulations 19 prescribed by the director. Any overpayment of the tax imposed 20 under section 453A.43 may be made to the taxpayer in accordance 21 with regulations prescribed by the director. The director 22 shall cause any such refund of tax to be paid out of the general 23 revenue fund of the state , and so much of said fund as may be 24 necessary is hereby appropriated for that purpose. 25 Sec. 24. Section 453A.47A, subsection 7, paragraph b, Code 26 2013, is amended to read as follows: 27 b. If any permit is granted during the month of October, 28 November, or December, the fee shall be three-fourths of the 29 above maximum schedule; if granted during the month of January, 30 February, or March, one-half of the maximum schedule , ; and if 31 granted during the month of April, May, or June, one-fourth of 32 the maximum schedule. 33 Sec. 25. EFFECTIVE UPON ENACTMENT. The following provision 34 or provisions of this division of this Act, being deemed of 35 -8- LSB 1277XD (10) 85 mm/sc 8/ 11

S.F. _____ H.F. _____ immediate importance, take effect upon enactment: 1 1. The section of this division of this Act amending section 2 34A.7B. 3 Sec. 26. RETROACTIVE APPLICABILITY. The following 4 provision or provisions of this Act apply retroactively to 5 January 1, 2013: 6 1. The section of this Act amending section 34A.7B. 7 EXPLANATION 8 This bill relates to the technical administration of the tax 9 and related laws of the department of revenue. 10 Division I relates to income and franchise taxes. 11 Under current law, the interest and dividends of specified 12 obligations of Iowa and its political subdivisions are exempted 13 from the individual and corporate income tax. However, 14 most of these exemptions are not specifically addressed in 15 Code sections 422.7, 422.35, or 422.61, which concern the 16 computation of net income for purposes of the individual and 17 corporate income tax, and the franchise tax, respectively. The 18 division amends these Code sections to add a nonexhaustive list 19 of the securities the interest and dividends from which are 20 currently exempt from the individual and corporate income tax 21 under Iowa law. 22 The division strikes Code section 422.9, subsections 6 and 23 7, which are provisions relating to the treatment of a federal 24 rate reduction tax credit which only affected the 2001 and 2002 25 tax years. This section of the division takes effect upon 26 enactment. 27 The division amends Code section 422.20, relating to the 28 confidentiality of individual income tax return information, 29 and Code section 422.72, relating to tax administration, 30 generally, by adding a reference to the auditor of state’s 31 power to access certain confidential information in fulfillment 32 of the auditor’s duties, and referencing any other provision of 33 law that permits certain disclosures. These sections of the 34 division take effect upon enactment. 35 -9- LSB 1277XD (10) 85 mm/sc 9/ 11

S.F. _____ H.F. _____ Division II relates to sales and use taxes. 1 The division strikes language relating to auto body repair 2 services from the definition of “property purchased for resale 3 in connection with the performance of a service” that was 4 added during the 2012 legislative session. Under current 5 law, property purchased for resale in connection with the 6 performance of a service is exempt from the sales and use 7 tax. Property falls within the applicable definition, and 8 therefore meets the requirements of this exemption, if it is 9 entirely consumed in connection with the performance of an 10 auto body repair service purchased by the ultimate user, and 11 if both parties intend that a sale of the property will occur. 12 The division strikes this language from the definition and 13 instead creates a separate sales and use tax exemption for the 14 sales price of chemicals, solvents, sorbents, reagents, or 15 other tangible personal property, used in providing a taxable 16 vehicle repair service, so long as the property is directly and 17 primarily used, and consumed or dissipated, in providing the 18 vehicle repair service, and comes into physical contact with 19 the vehicle upon which the vehicle repair service is performed. 20 The exemption does not apply to tangible personal property 21 that can be used to provide multiple vehicle repair services, 22 including but not limited to machinery, tools, and equipment. 23 The division strikes a sales and use tax exemption for wine 24 shipped from outside Iowa. The exemption was stricken from 25 Code section 123.187 in 2010. 26 The division amends the sales and use tax exemption for items 27 purchased with food stamps to reflect the current name of the 28 program and the payment methods used to provide assistance. 29 The division amends Code section 423.3 to change a reference 30 to the accreditation council for services for persons with an 31 intellectual disability and other persons with developmental 32 disabilities to the council on quality and leadership to 33 reflect the council’s current name. 34 The division amends Code section 423.2, subsection 11, 35 -10- LSB 1277XD (10) 85 mm/sc 10/ 11

S.F. _____ H.F. _____ paragraph “b”, to strike an incorrect internal reference in 1 the prescribed order in which sales tax revenues are to be 2 transferred to various funds. 3 Division III makes changes to miscellaneous tax provisions. 4 The division amends Code section 34A.7B to apply the 5 collection, enforcement, and other pertinent provisions of 6 Code chapter 423 to the prepaid wireless E911 surcharge, in 7 addition to the audit and appeal provisions of Code chapter 423 8 currently applied to the prepaid wireless E911 surcharge. This 9 section of the division takes effect upon enactment and applies 10 retroactively to January 1, 2013. 11 The division amends Code section 421.17, relating to the 12 information obtained from applicants for licenses from state or 13 local agencies, to specify that the agencies shall endeavor to 14 obtain the applicant’s social security number or federal tax 15 identification number or, if the applicant has neither, the 16 applicant’s state driver’s license number. 17 Finally, the division makes several nonsubstantive 18 grammatical, technical, and internal reference changes to Code 19 sections 421.7, 421.17(10), 432.12C, 453A.45, 453A.47, and 20 453A.47A. 21 -11- LSB 1277XD (10) 85 mm/sc 11/ 11