House Study Bill 644 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF REVENUE BILL) A BILL FOR An Act relating to taxation by updating the Code references 1 to the Internal Revenue Code, providing for the repeal of 2 the generation skipping transfer tax and Iowa estate tax, 3 and including effective date and retroactive applicability 4 provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5297XD (12) 85 mm/sc

S.F. _____ H.F. _____ DIVISION I 1 INTERNAL REVENUE CODE REFERENCES 2 Section 1. Section 15.335, subsection 7, paragraph b, Code 3 2014, is amended to read as follows: 4 b. For purposes of this section , “Internal Revenue Code” 5 means the Internal Revenue Code in effect on January 1, 2013, 6 and as amended by the American Taxpayer Relief Act of 2012 , 7 Pub. L. No. 112-240 2014 . 8 Sec. 2. Section 422.3, subsection 5, Code 2014, is amended 9 to read as follows: 10 5. “Internal Revenue Code” means the Internal Revenue Code 11 of 1954, prior to the date of its redesignation as the Internal 12 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 13 the Internal Revenue Code of 1986 as amended to and including 14 January 1, 2013, and as amended by the American Taxpayer Relief 15 Act of 2012 , Pub. L. No. 112-240 2014 . 16 Sec. 3. Section 422.10, subsection 3, paragraph b, Code 17 2014, is amended to read as follows: 18 b. For purposes of this section , “Internal Revenue Code” 19 means the Internal Revenue Code in effect on January 1, 2013, 20 and as amended by the American Taxpayer Relief Act of 2012 , 21 Pub. L. No. 112-240 2014 . 22 Sec. 4. Section 422.32, subsection 1, paragraph g, Code 23 2014, is amended to read as follows: 24 g. “Internal Revenue Code” means the Internal Revenue Code 25 of 1954, prior to the date of its redesignation as the Internal 26 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 27 the Internal Revenue Code of 1986 as amended to and including 28 January 1, 2013, and as amended by the American Taxpayer Relief 29 Act of 2012 , Pub. L. No. 112-240 2014 . 30 Sec. 5. Section 422.33, subsection 5, paragraph e, 31 subparagraph (2), Code 2014, is amended to read as follows: 32 (2) For purposes of this subsection , “Internal Revenue Code” 33 means the Internal Revenue Code in effect on January 1, 2013, 34 and as amended by the American Taxpayer Relief Act of 2012, 35 -1- LSB 5297XD (12) 85 mm/sc 1/ 9

S.F. _____ H.F. _____ Pub. L. No. 112-240 2014 . 1 Sec. 6. EFFECTIVE UPON ENACTMENT. This division of this 2 Act, being deemed of immediate importance, takes effect upon 3 enactment. 4 Sec. 7. RETROACTIVE APPLICABILITY. This division of this 5 Act applies retroactively to January 1, 2013, for tax years 6 beginning on or after that date. 7 DIVISION II 8 REPEAL OF GENERATION SKIPPING TRANSFER TAX AND IOWA ESTATE TAX 9 Sec. 8. Section 12.71, subsection 8, Code 2014, is amended 10 to read as follows: 11 8. Bonds issued under the provisions of this section are 12 declared to be issued for a general public and governmental 13 purpose and all bonds issued under this section shall be exempt 14 from taxation by the state of Iowa and the interest on the 15 bonds shall be exempt from the state income tax and the state 16 inheritance and estate tax. 17 Sec. 9. Section 12.80, subsection 3, Code 2014, is amended 18 to read as follows: 19 3. Bonds issued under this section are declared to be issued 20 for an essential public and governmental purpose and all bonds 21 issued under this section shall be exempt from taxation by the 22 state of Iowa and the interest on the bonds shall be exempt 23 from the state income tax and the state inheritance and estate 24 tax. 25 Sec. 10. Section 12.81, subsection 8, Code 2014, is amended 26 to read as follows: 27 8. Bonds issued under the provisions of this section are 28 declared to be issued for a general public and governmental 29 purpose and all bonds issued under this section shall be exempt 30 from taxation by the state of Iowa and the interest on the 31 bonds shall be exempt from the state income tax and the state 32 inheritance and estate tax. 33 Sec. 11. Section 12.87, subsection 8, Code 2014, is amended 34 to read as follows: 35 -2- LSB 5297XD (12) 85 mm/sc 2/ 9

S.F. _____ H.F. _____ 8. Any bonds issued and sold under the provisions of this 1 section are declared to be issued and sold for an essential 2 public and governmental purpose, and all bonds issued and sold 3 under this section except as otherwise provided in any trust 4 indentures, resolutions, or other instruments authorizing their 5 issuance shall be exempt from taxation by the state of Iowa and 6 the interest on the bonds shall be exempt from the state income 7 tax and the state inheritance and estate tax. 8 Sec. 12. Section 12.91, subsection 9, Code 2014, is amended 9 to read as follows: 10 9. Bonds issued under the provisions of this section are 11 declared to be issued for a general public and governmental 12 purpose and all bonds issued under this section shall be exempt 13 from taxation by the state of Iowa and the interest on the 14 bonds shall be exempt from the state income tax and the state 15 inheritance and estate tax. 16 Sec. 13. Section 16.177, subsection 8, Code 2014, is amended 17 to read as follows: 18 8. Bonds issued under this section are declared to be issued 19 for an essential public and governmental purpose and all bonds 20 issued under this section shall be exempt from taxation by the 21 state of Iowa and the interest on the bonds shall be exempt 22 from the state income tax and the state inheritance and estate 23 tax. 24 Sec. 14. Section 321.47, subsection 2, Code 2014, is amended 25 to read as follows: 26 2. The persons entitled under the laws of descent and 27 distribution of an intestate’s property to the possession 28 and ownership of a vehicle owned in whole or in part by a 29 decedent, upon filing an affidavit stating the name and date of 30 death of the decedent, the right to possession and ownership 31 of the persons filing the affidavit, and that there has been 32 no administration of the decedent’s estate, which instrument 33 shall also contain an agreement to indemnify creditors of 34 the decedent who would be entitled to levy execution upon 35 -3- LSB 5297XD (12) 85 mm/sc 3/ 9

S.F. _____ H.F. _____ the motor vehicle to the extent of the value of the motor 1 vehicle, are entitled upon fulfilling the other requirements of 2 this chapter , to the issuance of a registration card for the 3 interest of the decedent in the vehicle and a certificate of 4 title to it. If a decedent dies testate, and either the will is 5 not probated or is admitted to probate without administration, 6 the persons entitled to the possession and ownership of a 7 vehicle owned in whole or in part by the decedent may file 8 an affidavit and, upon fulfilling the other requirements of 9 this chapter , are entitled to the issuance of a registration 10 card for the interest of the decedent in the vehicle and a 11 certificate of title to the vehicle. The affidavit shall 12 contain the same information and indemnity agreement as is 13 required in cases of intestacy pursuant to this section . A 14 requirement of chapter 450 or 451 shall not be considered 15 satisfied by the filing of the affidavit provided for in this 16 section . If, from the records in the office of the county 17 treasurer, there appear to be any liens on the vehicle, the 18 certificate of title shall contain a statement of the liens 19 unless the application is accompanied by proper evidence of 20 their satisfaction or extinction. Evidence of extinction 21 may consist of, but is not limited to, an affidavit of the 22 applicant stating that a security interest was foreclosed as 23 provided in chapter 554, article 9, part 6 . The department 24 shall waive the certificate of title fee and surcharge required 25 under sections 321.20 , 321.20A , 321.23 , 321.46 , 321.52 , and 26 321.52A if the person entitled to possession and ownership of 27 a vehicle, as provided in this subsection , is the surviving 28 spouse of a decedent. 29 Sec. 15. Section 421.60, subsection 2, paragraph c, 30 subparagraph (1), Code 2014, is amended to read as follows: 31 (1) If the notice of assessment or denial of a claim for 32 refund relates to a tax return filed pursuant to section 422.14 33 or chapter 450 , 450A , or 451 , by the taxpayer which designates 34 an individual as an authorized representative of the taxpayer 35 -4- LSB 5297XD (12) 85 mm/sc 4/ 9

S.F. _____ H.F. _____ with respect to that return, or if a power of attorney has been 1 filed with the department by the taxpayer which designates an 2 individual as an authorized representative of the taxpayer with 3 respect to any tax that is included in the notice of assessment 4 or denial of a claim for refund, a copy of the notice together 5 with any additional information required to be sent to the 6 taxpayer shall be sent to the authorized representative as 7 well. 8 Sec. 16. Section 450.7, subsection 2, unnumbered paragraph 9 1, Code 2014, is amended to read as follows: 10 Notice of the lien is not required to be recorded. The 11 rights of the state under the lien have priority over all 12 subsequent mortgages, purchases, or judgment creditors; and a 13 conveyance after the decedent’s death of the property subject 14 to a lien does not discharge the property except as otherwise 15 provided in this chapter . However, if additional tax is 16 determined to be owing under this chapter or chapter 451 after 17 the lien has been released under paragraph “a” or “b” , the lien 18 does not have priority over subsequent mortgages, purchases, 19 or judgment creditors unless notice of the lien is recorded in 20 the office of the recorder of the county where the estate is 21 probated, or where the property is located if the estate has 22 not been administered. The department of revenue may release 23 the lien by filing in the office of the clerk of the court in 24 the county where the property is located, the decedent owner 25 died, or the estate is pending or was administered, one of the 26 following: 27 Sec. 17. Section 450.68, subsection 1, paragraph b, Code 28 2014, is amended to read as follows: 29 b. Federal tax returns, copies of returns, return 30 information as defined in section 6103(b) of the Internal 31 Revenue Code, and state inheritance tax returns, which are 32 required to be filed with the department for the enforcement 33 of the inheritance and estate tax laws of this state, shall be 34 deemed and held as confidential by the department. However, 35 -5- LSB 5297XD (12) 85 mm/sc 5/ 9

S.F. _____ H.F. _____ such returns or return information may be disclosed by the 1 director to officers or employees of other state agencies, 2 subject to the same confidentiality restrictions imposed on the 3 officers and employees of the department. 4 Sec. 18. Section 455G.6, subsection 14, Code 2014, is 5 amended to read as follows: 6 14. Bonds issued under the provisions of this section are 7 declared to be issued for an essential public and governmental 8 purpose and all bonds issued under this subchapter shall be 9 exempt from taxation by the state of Iowa and the interest on 10 the bonds shall be exempt from the state income tax and the 11 state inheritance and estate tax. 12 Sec. 19. Section 463C.12, subsection 8, Code 2014, is 13 amended to read as follows: 14 8. Tax-exempt bonds issued by the authority in connection 15 with the program, which are exempt from taxation for federal 16 tax purposes, are also exempt from taxation by the state of 17 Iowa and the interest on these bonds is exempt from state 18 income taxes and state inheritance and estate taxes. 19 Sec. 20. Section 524.1406, subsection 3, paragraph a, Code 20 2014, is amended to read as follows: 21 a. Notwithstanding any contrary provision in chapter 22 490, division XIII , in determining the fair value of the 23 shareholder’s shares of a bank organized under this chapter 24 or a bank holding company as defined in section 524.1801 in a 25 transaction or event in which the shareholder is entitled to 26 appraisal rights, due consideration shall be given to valuation 27 factors recognized for federal and state estate tax purposes, 28 including discounts for minority interests and discounts 29 for lack of marketability. However, any payment made to 30 shareholders under section 490.1324 shall be in an amount not 31 less than the stockholders’ equity in the bank disclosed in its 32 last statement of condition filed under section 524.220 or the 33 total equity capital of the bank holding company disclosed in 34 the most recent report filed by the bank holding company with 35 -6- LSB 5297XD (12) 85 mm/sc 6/ 9

S.F. _____ H.F. _____ the board of governors of the federal reserve system, divided 1 by the number of shares outstanding. 2 Sec. 21. Section 633.3, subsections 4 and 8, Code 2014, are 3 amended to read as follows: 4 4. Charges —— includes costs of administration, funeral 5 expenses, cost of monument, and federal and state estate taxes. 6 8. Costs of administration —— includes court costs, 7 fiduciary’s fees, attorney fees, all appraisers’ fees, premiums 8 on corporate surety bonds, statutory allowance for support 9 of surviving spouse and children, cost of continuation of 10 abstracts of title, recording fees, transfer fees, transfer 11 taxes, agents’ fees allowed by order of court, interest 12 expense, including but not limited to interest payable on 13 extension of federal and state estate tax, and all other fees 14 and expenses allowed by order of court in connection with 15 the administration of the estate. Court costs shall include 16 expenses of selling property. 17 Sec. 22. Section 633.436, subsection 1, unnumbered 18 paragraph 1, Code 2014, is amended to read as follows: 19 Except as provided in sections 633.211 and 633.212 , shares 20 of the distributees shall abate, for the payment of debts and 21 charges, federal and state estate taxes, legacies, the shares 22 of children born or adopted after the making of a will, or the 23 share of the surviving spouse who elects to take against the 24 will, without any preference or priority as between real and 25 personal property, in the following order: 26 Sec. 23. Section 633.449, Code 2014, is amended to read as 27 follows: 28 633.449 Payment of federal estate taxes. 29 All federal estate taxes, distinguished from state 30 inheritance and estate taxes, owing by the estate of a decedent 31 shall be paid from the property of the estate, unless the will 32 of the decedent, or other trust instrument, provides expressly 33 to the contrary. 34 Sec. 24. Section 633A.4703, unnumbered paragraph 1, Code 35 -7- LSB 5297XD (12) 85 mm/sc 7/ 9

S.F. _____ H.F. _____ 2014, is amended to read as follows: 1 Except as otherwise provided by the governing instrument, 2 where necessary to abate shares of the beneficiaries of a trust 3 for the payment of debts and charges, federal and state estate 4 taxes, bequests, the share of the surviving spouse who takes 5 an elective share, and the shares of children born or adopted 6 after the execution of the trust, abatement shall occur in the 7 following order: 8 Sec. 25. REPEAL. Chapters 450A and 451, Code 2014, are 9 repealed. 10 EXPLANATION 11 The inclusion of this explanation does not constitute agreement with 12 the explanation’s substance by the members of the general assembly. 13 This bill updates the Iowa Code references to the Internal 14 Revenue Code to make federal income tax revisions enacted by 15 Congress in 2013 applicable for Iowa income tax purposes, and 16 repeals the generation skipping transfer tax and the Iowa 17 estate tax. 18 DIVISION I —— INTERNAL REVENUE CODE REFERENCES. The 19 division amends Code sections 422.3 and 422.32, general 20 definition sections in the chapter of the Code that governs 21 corporate and individual income tax and the franchise tax 22 on financial institutions, to update the references to the 23 Internal Revenue Code. 24 The division amends Code sections 15.335, 422.10, and 422.33 25 to update the references to the Internal Revenue Code for the 26 state research activities credit for individuals, corporations, 27 and corporations in economic development areas to include the 28 federal changes to the research activities credit and the 29 alternative simplified research activities credit. 30 Division I takes effect upon enactment and applies 31 retroactively to January 1, 2013, for tax years beginning on 32 or after that date. 33 DIVISION II —— REPEAL OF GENERATION SKIPPING TRANSFER TAX 34 AND IOWA ESTATE TAX. The division repeals the generation 35 -8- LSB 5297XD (12) 85 mm/sc 8/ 9

S.F. _____ H.F. _____ skipping transfer tax and Iowa estate tax. Iowa once had an 1 estate tax equal to the federal estate tax credit for state 2 inheritance and estate taxes paid. This type of tax was 3 referred to as a “pick-up tax” because it levied an amount 4 of tax equal to the credit against federal estate taxes, 5 thereby allowing the state to collect estate tax revenue 6 without increasing the total amount of tax due from the estate. 7 Similarly, Iowa has a generation skipping transfer tax based on 8 the same concept and equal to the federal generation skipping 9 transfer tax credit for state generation skipping transfer tax 10 paid. 11 In 2001, Congress enacted the Economic Growth and Tax Relief 12 Reconciliation Act which temporarily phased out these two 13 federal tax credits and replaced them with reduced federal 14 estate tax rates and an increased exemption level for estates. 15 These federal tax credits were fully phased out in 2005. 16 Therefore, Iowa has not collected any estate tax or generation 17 skipping transfer tax for estates of decedents dying, nor for 18 generation skipping transfers occurring, after December 31, 19 2004. 20 Iowa’s estate tax was repealed in 2008 and then reenacted 21 in 2010, but its implementation was contingent on the 22 reimplementation of the federal tax credits. However, in 23 2013 Congress enacted the American Taxpayer Relief Act which 24 permanently eliminated the federal estate tax and generation 25 skipping transfer tax credits. 26 The division also makes conforming changes to remove 27 references in the Iowa Code to the Iowa estate tax and to Code 28 chapters 450A and 451. 29 -9- LSB 5297XD (12) 85 mm/sc 9/ 9