HSB 233 (LSB 2489YC (2) 85)

HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS)

A BILL FOR

An Act relating to the corporate income tax by creating an alternative base income tax and an alternative unrelated business income tax imposed at the election of the taxpayer and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.21, subsection 1, Code 2013, is amended to read as follows:
   1.  Returns shall be in the form the director prescribes, and shall be filed with the department on or before the last day of the fourth month after the expiration of the tax year. However, cooperative associations as defined in section 6072(d) of the Internal Revenue Code shall file their returns on or before the fifteenth day of the ninth month following the close of the taxable year and nonprofit corporations subject to the unrelated business income tax imposed by section 422.33, subsection 1A,
 
or section 422.33A, subsection 3A, shall file their returns on or before the fifteenth day of the fifth month following the close of the taxable year. If, under the Internal Revenue Code, a corporation is required to file a return covering a tax period of less than twelve months, the state return shall be for the same period and is due forty-five days after the due date of the federal tax return, excluding any extension of time to file. In case of sickness, absence, or other disability, or if good cause exists, the director may allow further time for filing returns. The director shall cause to be prepared blank forms for the returns and shall cause them to be distributed throughout the state and to be furnished upon application, but failure to receive or secure the form does not relieve the taxpayer from the obligation of making a return that is required. The department may as far as consistent with the Code draft income tax forms to conform to the income tax forms of the internal revenue department of the United States government. Each return by a taxpayer upon whom a tax is imposed by section 422.5 shall show the county of the residence of the taxpayer.
    Sec. 2.  NEW SECTION.  422.33A  Corporate tax imposed —— alternative base income tax.
   1.  For purposes of this section:
   a.  “Base income” means the taxable income before the net operating loss deduction, as properly computed for federal income tax purposes under the Internal Revenue Code, less interest and dividends from federal securities.
   b.  The word “manufacture” shall include the extraction and recovery of natural resources and all processes of fabricating and curing.
   c.  The word “sale” shall include exchange.
   d.  “Tangible personal property” means corporeal personal property, such as machinery, tools, implements, goods, wares, and merchandise. “Tangible personal property” does not mean money deposits in banks, shares of stock, bonds, notes, credits, or evidence of an interest in property and evidences of debt.
   2.  Notwithstanding any other provision of law, a corporation may, in lieu of the taxes imposed under section 422.33, elect to be subject to state income tax as imposed and computed pursuant to subsections 3 and 4. Such election must be made not later than the due date for filing the return for a taxable year, including extensions thereof, and under rules to be prescribed by the director. An election by a member of an affiliated group filing a consolidated return pursuant to section 422.37 shall not be effective unless such election is made by all members of the affiliated group.
   3.  A tax is imposed annually upon each corporation doing business in this state, or deriving income from sources within this state, and making an election under subsection 2, which tax shall be levied, collected, and paid annually in an amount equal to the base income of the corporation times six percent.
   4.  There is imposed upon each corporation exempt from the general business tax on corporations by section 422.34, subsection 2, and making an election under subsection 2 of this section, a tax in an amount equal to the state’s apportioned share computed in accordance with subsections 5 and 6 of the unrelated business income computed in accordance with the Internal Revenue Code, less interest and dividends from federal securities, times six percent.

   5.  If the trade or business of the corporation is carried on entirely within the state, the tax shall be imposed on the entire base income, but if the trade or business is carried on partly within and partly without the state or if income is derived from sources partly within and partly without the state, or if income is derived from trade or business and sources, all of which are not entirely in the state, the tax shall be imposed only on the portion of the base income reasonably attributable to the trade or business or sources within the state, with the base income attributable to the state to be determined as follows:
   a.  Nonbusiness interest, dividends, rents and royalties, less related expenses, shall be allocated within and without the state in the following manner:
   (1)  Nonbusiness interest, dividends, and royalties from patents and copyrights shall be allocable to this state if the taxpayer’s commercial domicile is in this state.
   (2)  Nonbusiness rents and royalties received from real property located in this state are allocable to this state.
   (3)  Nonbusiness rents and royalties received from tangible personal property are allocable to this state to the extent that the property is utilized in this state; or in their entirety if the taxpayer’s commercial domicile is in this state and the taxpayer is not taxable in the state in which the property is utilized. The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payor obtained possession.
   (4)  Nonbusiness capital gains and losses from the sale or other disposition of assets shall be allocated as follows:
   (a)  Gains and losses from the sale or other disposition of real property located in this state are allocable to this state.
   (b)  Gains and losses from the sale or other disposition of tangible personal property are allocable to this state if the property had a situs in this state at the time of the sale or disposition or if the taxpayer’s commercial domicile is in this state and the taxpayer is not taxable in the state in which the property had a situs.
   (c)  Gains and losses from the sale or disposition of intangible personal property are allocable to this state if the taxpayer’s commercial domicile is in this state.
   b.  Base nonbusiness income of the above class having been separately allocated and deducted as above provided, the remaining base business income of the taxpayer shall be allocated and apportioned as follows:
   (1)  Business interest, dividends, rents, and royalties shall be reasonably apportioned within and without the state under rules adopted by the director.
   (2)  Capital gains and losses from the sale or other disposition of assets shall be apportioned to the state based upon the business activity ratio applicable to the year the gain or loss is determined if the corporation determines Iowa taxable income by a sales, gross receipts, or other business activity ratio. If the corporation has only allocable income, capital gains and losses from the sale or other disposition of assets shall be allocated in accordance with paragraph “a”, subparagraph (4).
   (3)  Where income is derived from business other than the manufacture or sale of tangible personal property, the income shall be specifically allocated or equitably apportioned within and without the state under rules of the director.

   (4)  Where income is derived from the manufacture or sale of tangible personal property, the part attributable to business within the state shall be in that proportion which the gross sales made within the state bear to the total gross sales.
   (5)  Where income consists of more than one class of income as provided in subparagraphs (1) to (4) of this paragraph, it shall be reasonably apportioned by the business activity ratio provided in rules adopted by the director.
   (6)  The gross sales of the corporation within the state shall be taken to be the gross sales from goods delivered or shipped to a purchaser within the state regardless of the F.O.B. point or other conditions of the sale, excluding deliveries for transportation out of the state.
   6.  If any taxpayer believes that the method of allocation and apportionment hereinbefore prescribed, as administered by the director and applied to the taxpayer’s business, has operated or will so operate as to subject the taxpayer to taxation on a greater portion of the taxpayer’s base income than is reasonably attributable to business or sources within the state, the taxpayer shall be entitled to file with the director a statement of the taxpayer’s objections and of such alternative method of allocation and apportionment as the taxpayer believes to be proper under the circumstances with such detail and proof and within such time as the director may reasonably prescribe; and if the director shall conclude that the method of allocation and apportionment theretofore employed is in fact inapplicable and inequitable, the director shall redetermine the taxable income by such other method of allocation and apportionment as seems best calculated to assign to the state for taxation the portion of the income reasonably attributable to business and sources within the state, not exceeding, however, the amount which would be arrived at by application of the statutory rules for apportionment.
   7.  Notwithstanding any other provision of law, a corporation making an election under subsection 2 shall not be allowed any nonrefundable or refundable credit otherwise allowable under this division for the tax year for which the election is made, except for the credit for estimated tax paid under section 422.91.
    Sec. 3.  Section 422.34A, subsection 8, Code 2013, is amended to read as follows:
   8.  Utilizing a distribution facility within this state, owning or leasing property at a distribution facility within this state that is used at or distributed from the distribution facility, or selling property shipped or distributed from a distribution facility. For purposes of this subsection, “distribution facility” means an establishment where shipments of tangible personal property are processed for delivery to customers. “Distribution facility” does not include an establishment where retail sales of tangible personal property or returns of such property are undertaken with respect to retail customers on more than twelve days a year except for a distribution facility which processes customer sales orders by mail, telephone, or electronic means, if the distribution facility also processes shipments of tangible personal property to customers provided that not more than ten percent of the dollar amount of goods are delivered and shipped so as to be included in the gross sales of the corporation within this state as provided in section 422.33, subsection 2, paragraph “b”, subparagraph (6), or section 422.33A, subsection 5, paragraph “b”, subparagraph (6), if applicable.
    Sec. 4.  Section 422.36, subsection 6, Code 2013, is amended to read as follows:
   6.  A foreign corporation is not required to file a return if its only activities in Iowa are the storage of goods for a period of sixty consecutive days or less in a warehouse for hire located in this state whereby the foreign corporation transports or causes a carrier to transport such goods to that warehouse and provided that none of the goods are delivered or shipped so as to be included in the gross sales of the corporation within this state as provided in section 422.33, subsection 2, paragraph “b”, subparagraph (6), or section 422.33A, subsection 5, paragraph “b”, subparagraph (6), if applicable.
    Sec. 5.  Section 422.37, subsection 2, Code 2013, is amended to read as follows:
   2.  All members of the affiliated group shall join in the filing of an Iowa consolidated return to the extent they are subject to the tax imposed by section 422.33
 
or 422.33A.
    Sec. 6.  Section 422.85, Code 2013, is amended to read as follows:
   422.85  Imposition of estimated tax.
   A taxpayer subject to the tax imposed by sections 422.33, 422.33A, and 422.60 shall make payments of estimated tax for the taxable year if the amount of tax payable, less credits, can reasonably be expected to be more than one thousand dollars for the taxable year. For purposes of this division, “estimated tax” means the amount which the taxpayer estimates to be the tax due and payable under division III or V of this chapter for the taxable year.
    Sec. 7.  Section 441.21, subsection 11, Code 2013, is amended to read as follows:
   11.  Beginning with valuations established on or after January 1, 1995, as used in this section, “residential property” includes all land and buildings of multiple housing cooperatives organized under chapter 499A and includes land and buildings used primarily for human habitation which land and buildings are owned and operated by organizations that have received tax-exempt status under section 501(c)(3) of the Internal Revenue Code and rental income from the property is not taxed as unrelated business income under section 422.33, subsection 1A, or section 422.33A, subsection 4.
    Sec. 8.  EFFECTIVE UPON ENACTMENT.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 9.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2013, for tax years beginning on or after that date.
EXPLANATION
   This bill relates to the corporate income tax by creating an alternative base income tax and an alternative unrelated business income tax imposed at the election of the taxpayer. In lieu of the regular corporate income tax and unrelated business income tax computed and imposed under Code section 422.33, a corporation may elect to be subject to an alternative base income tax and an alternative unrelated business income tax as provided in the bill. An election must be made not later than the due date for filing the return for a taxable year, including extensions, and under rules prescribed by the director. If the corporation is a member of an affiliated group filing a consolidated return, the election must be made by every member of the affiliated group in order to be effective.
   The base income tax of a corporation making an election shall be an amount of tax equal to the corporation’s base income times six percent. “Base income” is defined as the corporation’s taxable income before the net operating loss deduction as properly computed for federal income tax purposes, less interest and dividends from federal securities.
   The unrelated business income tax of an exempt corporation subject to the tax on unrelated business income and making an election shall be an amount equal to the corporation’s unrelated business income computed in accordance with the Internal Revenue Code, less interest and dividends from federal securities, times six percent.
   Under the bill, both base income and unrelated business income are allocated and apportioned to Iowa in the same manner as net income and unrelated business income under the regular corporate income tax in Code section 422.33.
   A corporation making an election is not allowed any nonrefundable or refundable tax credit for the tax year for which the election is made, except the credit for estimated tax paid under Code section 422.91.
   The bill makes conforming amendments to include references to new Code section 422.33A in those Code sections that reference the tax imposed under Code section 422.33.
   The bill takes effect upon enactment and applies retroactively to January 1, 2013, for tax years beginning on or after that date.