Senate File 443 - Introduced SENATE FILE 443 BY FEENSTRA , ANDERSON , ERNST , CHELGREN , BERTRAND , SORENSON , WHITVER , CHAPMAN , HOUSER , SMITH , KAPUCIAN , JOHNSON , BOETTGER , SINCLAIR , BEHN , ROZENBOOM , SCHNEIDER , ZUMBACH , DIX , GUTH , GREINER , BREITBACH , ZAUN , and SEGEBART A BILL FOR An Act relating to the individual income tax by providing for 1 reduced tax rates, creating an alternative individual income 2 tax imposed at the election of the taxpayer, and including 3 effective date and retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1818XS (7) 85 mm/sc

S.F. 443 DIVISION I 1 INDIVIDUAL INCOME TAX RATE REDUCTION 2 Section 1. Section 422.5, subsection 1, paragraphs a 3 through i, Code 2013, are amended to read as follows: 4 a. On all taxable income from zero through one thousand 5 dollars, thirty-six thirty-four hundredths of one percent. 6 b. On all taxable income exceeding one thousand dollars but 7 not exceeding two thousand dollars, seventy-two sixty-eight 8 hundredths of one percent. 9 c. On all taxable income exceeding two thousand dollars 10 but not exceeding four thousand dollars, two and forty-three 11 thirty-one hundredths percent. 12 d. On all taxable income exceeding four thousand dollars 13 but not exceeding nine thousand dollars, four and one-half 14 twenty-eight hundredths percent. 15 e. On all taxable income exceeding nine thousand dollars but 16 not exceeding fifteen thousand dollars, six and twelve five and 17 eighty-one hundredths percent. 18 f. On all taxable income exceeding fifteen thousand dollars 19 but not exceeding twenty thousand dollars, six and forty-eight 20 sixteen hundredths percent. 21 g. On all taxable income exceeding twenty thousand dollars 22 but not exceeding thirty thousand dollars, six and eight-tenths 23 forty-six hundredths percent. 24 h. On all taxable income exceeding thirty thousand dollars 25 but not exceeding forty-five thousand dollars, seven and 26 ninety-two fifty-two hundredths percent. 27 i. On all taxable income exceeding forty-five thousand 28 dollars, eight and ninety-eight fifty-three hundredths percent. 29 Sec. 2. EFFECTIVE UPON ENACTMENT. This division of this 30 Act, being deemed of immediate importance, takes effect upon 31 enactment. 32 Sec. 3. RETROACTIVE APPLICABILITY. This division of this 33 Act applies retroactively to January 1, 2013, for tax years 34 beginning on or after that date. 35 -1- LSB 1818XS (7) 85 mm/sc 1/ 22

S.F. 443 DIVISION II 1 ALTERNATIVE PERSONAL NET INCOME TAX 2 Sec. 4. Section 2.48, subsection 3, paragraph e, 3 subparagraph (2), Code 2013, is amended to read as follows: 4 (2) The claim of right tax credit credits under section 5 sections 422.5 and 422.5A . 6 Sec. 5. Section 68A.102, subsection 21, Code 2013, is 7 amended to read as follows: 8 21. “State income tax liability” means the state individual 9 income tax imposed under section 422.5 or 422.5A, as 10 applicable , less the amounts of nonrefundable credits allowed 11 under chapter 422, division II . 12 Sec. 6. Section 257.21, unnumbered paragraph 2, Code 2013, 13 is amended to read as follows: 14 The instructional support income surtax shall be imposed on 15 the state individual income tax for the calendar year during 16 which the school’s budget year begins, or for a taxpayer’s 17 fiscal year ending during the second half of that calendar year 18 and after the date the board adopts a resolution to participate 19 in the program or the first half of the succeeding calendar 20 year, and shall be imposed on all individuals residing in the 21 school district on the last day of the applicable tax year. As 22 used in this section , “state individual income tax” means the 23 taxes computed under section 422.5 or 422.5A, as applicable , 24 less the amounts of nonrefundable credits allowed under chapter 25 422, division II . 26 Sec. 7. Section 422.4, subsection 1, paragraphs b and c, 27 Code 2013, are amended to read as follows: 28 b. (1) “Cumulative With respect to section 422.5, 29 “cumulative inflation factor” means the product of the annual 30 inflation factor for the 1988 calendar year and all annual 31 inflation factors for subsequent calendar years as determined 32 pursuant to this subsection . The cumulative inflation factor 33 applies to all tax years beginning on or after January 1 of the 34 calendar year for which the latest annual inflation factor has 35 -2- LSB 1818XS (7) 85 mm/sc 2/ 22

S.F. 443 been determined. 1 (2) With respect to section 422.5, the annual inflation 2 factor for the 1988 calendar year is one hundred percent. 3 c. (1) With respect to section 422.5A, “cumulative 4 inflation factor” means the product of the annual inflation 5 factor for the 2014 calendar year and all annual inflation 6 factors for subsequent calendar years as determined pursuant to 7 this subsection. The cumulative inflation factor applies to 8 all tax years beginning on or after January 1 of the calendar 9 year for which the latest annual inflation factor has been 10 determined. 11 (2) The With respect to section 422.5A, the annual inflation 12 factor for the 1988 2014 calendar year is one hundred percent. 13 Sec. 8. Section 422.4, subsection 2, paragraph b, Code 2013, 14 is amended to read as follows: 15 b. “Cumulative With respect to section 422.9, “cumulative 16 standard deduction factor” means the product of the annual 17 standard deduction factor for the 1989 calendar year and all 18 annual standard deduction factors for subsequent calendar years 19 as determined pursuant to this subsection . The cumulative 20 standard deduction factor applies to all tax years beginning 21 on or after January 1 of the calendar year for which the latest 22 annual standard deduction factor has been determined. 23 Sec. 9. Section 422.4, subsection 2, Code 2013, is amended 24 by adding the following new paragraph: 25 NEW PARAGRAPH . c. With respect to section 422.9A, 26 “cumulative standard deduction factor” means the product of the 27 annual standard deduction factor for the 2015 calendar year and 28 all standard deduction factors for subsequent calendar years 29 as determined pursuant to this subsection. The cumulative 30 standard deduction factor applies to all tax years beginning 31 on or after January 1 of the calendar year for which the latest 32 annual standard deduction factor has been determined. 33 Sec. 10. Section 422.4, subsection 16, Code 2013, is amended 34 to read as follows: 35 -3- LSB 1818XS (7) 85 mm/sc 3/ 22

S.F. 443 16. a. The With respect to a taxpayer computing tax under 1 section 422.5, the words “taxable income” mean the net income 2 as defined in section 422.7 minus the deductions allowed by 3 section 422.9 , in the case of individuals; in the case of 4 estates or trusts, the words “taxable income” mean the taxable 5 income (without a deduction for personal exemption) as computed 6 for federal income tax purposes under the Internal Revenue 7 Code, but with the adjustments specified in section 422.7 plus 8 the Iowa income tax deducted in computing the federal taxable 9 income and minus federal income taxes as provided in section 10 422.9 . 11 b. With respect to a taxpayer computing tax under section 12 422.5A, the words “taxable income” mean the net income as 13 defined in section 422.7 minus the deductions allowed by 14 section 422.9A, in the case of individuals; in the case of 15 estates or trusts, the words “taxable income” mean the taxable 16 income (without a deduction for personal exemption) as computed 17 for federal income tax purposes under the Internal Revenue 18 Code, but with the adjustments specified in section 422.7 plus 19 the Iowa income tax deducted in computing the federal taxable 20 income. 21 Sec. 11. NEW SECTION . 422.4A Alternative personal net 22 income tax —— election. 23 In lieu of the personal net income tax imposed under this 24 division in section 422.5, a taxpayer may elect to be subject 25 to an alternative personal net income tax for tax years 26 beginning on or after January 1, 2014. Such election must be 27 made not later than the due date for filing the return for a 28 taxable year, including extensions thereof, under rules to be 29 prescribed by the director. The provisions of sections 422.5A 30 and 422.9A apply to the alternative method to compute the 31 personal net income tax in lieu of sections 422.5 and 422.9. 32 An election by a married individual shall not be effective 33 unless such election is made by both spouses. 34 Sec. 12. Section 422.5, subsection 1, unnumbered paragraph 35 -4- LSB 1818XS (7) 85 mm/sc 4/ 22

S.F. 443 1, Code 2013, is amended to read as follows: 1 A tax is imposed upon every resident and nonresident of 2 the state not making an election under section 422.4A, which 3 tax shall be levied, collected, and paid annually upon and 4 with respect to the entire taxable income as defined in this 5 division at rates as follows: 6 Sec. 13. NEW SECTION . 422.5A Tax imposed —— exclusions. 7 1. A tax is imposed upon every resident and nonresident 8 of the state making an election under section 422.4A, which 9 tax shall be levied, collected, and paid annually upon and 10 with respect to the entire taxable income as defined in this 11 division at rates as follows: 12 For tax years beginning in the calendar year: 13 2014 2015 and 14 subsequent 15 calendar 16 years 17 a. On all taxable income from zero 18 through eight thousand dollars . . . . . . . . . . . . . . . . 1.9% 1.9% 19 b. On all taxable income exceeding 20 eight thousand dollars but not exceeding 21 one hundred thousand dollars . . . . . . . . . . . . . . . . . . 5.2% 4.8% 22 c. On all taxable income exceeding 23 one hundred thousand dollars . . . . . . . . . . . . . . . . . . 6.3% 6.0% 24 d. (1) The tax imposed upon the taxable income of a 25 nonresident shall be computed by reducing the amount determined 26 pursuant to paragraphs “a” through “c” by the amounts of 27 nonrefundable credits under this division and by multiplying 28 this resulting amount by a fraction of which the nonresident’s 29 net income allocated to Iowa, as determined in section 30 422.8, subsection 2, paragraph “a” , is the numerator and the 31 nonresident’s total net income computed under section 422.7 is 32 the denominator. This provision also applies to individuals 33 who are residents of Iowa for less than the entire tax year. 34 (2) (a) The tax imposed upon the taxable income of a 35 -5- LSB 1818XS (7) 85 mm/sc 5/ 22

S.F. 443 resident shareholder in an S corporation which has in effect 1 for the tax year an election under subchapter S of the Internal 2 Revenue Code and carries on business within and without 3 the state may be computed by reducing the amount determined 4 pursuant to paragraphs “a” through “c” by the amounts of 5 nonrefundable credits under this division and by multiplying 6 this resulting amount by a fraction of which the resident’s 7 net income allocated to Iowa, as determined in section 8 422.8, subsection 2, paragraph “b” , is the numerator and the 9 resident’s total net income computed under section 422.7 is the 10 denominator. If a resident shareholder has elected to take 11 advantage of this subparagraph (2), and for the next tax year 12 elects not to take advantage of this subparagraph, the resident 13 shareholder shall not reelect to take advantage of this 14 subparagraph for the three tax years immediately following the 15 first tax year for which the shareholder elected not to take 16 advantage of this subparagraph, unless the director consents to 17 the reelection. This subparagraph also applies to individuals 18 who are residents of Iowa for less than the entire tax year. 19 (b) This subparagraph (2) shall not affect the amount of 20 the taxpayer’s checkoffs under this division, the credits from 21 tax provided under this division, and the allocation of these 22 credits between spouses if the taxpayers filed separate returns 23 or separately on combined returns. 24 2. a. The tax shall not be imposed on a resident or 25 nonresident whose net income, as defined in section 422.7, is 26 fifteen thousand dollars or less in the case of married persons 27 filing jointly or filing separately on a combined return, heads 28 of household, and surviving spouses or eleven thousand dollars 29 or less in the case of all other persons; but in the event that 30 the payment of tax under this division would reduce the net 31 income to less than fifteen thousand dollars or eleven thousand 32 dollars as applicable, then the tax shall be reduced to that 33 amount which would result in allowing the taxpayer to retain 34 a net income of fifteen thousand dollars or eleven thousand 35 -6- LSB 1818XS (7) 85 mm/sc 6/ 22

S.F. 443 dollars as applicable. The preceding sentence does not apply 1 to estates or trusts. For the purpose of this subsection, the 2 entire net income, including any part of the net income not 3 allocated to Iowa, shall be taken into account. For purposes 4 of this subsection, net income includes all amounts of pensions 5 or other retirement income received from any source which is 6 not taxable under this division as a result of the government 7 pension exclusions in section 422.7, or any other state law. 8 If the combined net income of a married couple exceeds fifteen 9 thousand dollars, neither of them shall receive the benefit 10 of this subsection, and it is immaterial whether they file a 11 joint return or separate returns. However, if a married couple 12 file separate returns and have a combined net income of fifteen 13 thousand dollars or less, neither spouse shall receive the 14 benefit of this paragraph if one spouse has a net operating 15 loss and elects to carry back or carry forward the loss as 16 provided in section 422.9A, subsection 2. A person who is 17 claimed as a dependent by another person as defined in section 18 422.12 shall not receive the benefit of this subsection if the 19 person claiming the dependent has net income exceeding fifteen 20 thousand dollars or eleven thousand dollars as applicable or 21 the person claiming the dependent and the person’s spouse have 22 combined net income exceeding fifteen thousand dollars or 23 eleven thousand dollars as applicable. 24 b. In lieu of the computation in subsection 1, or in 25 paragraph “a” of this subsection, if the married persons’, 26 filing jointly or filing separately on a combined return, 27 head of household’s, or surviving spouse’s net income exceeds 28 fifteen thousand dollars, the regular tax imposed under this 29 division shall be the lesser of the maximum state individual 30 income tax rate times the portion of the net income in excess 31 of fifteen thousand dollars or the regular tax liability 32 computed without regard to this sentence. Taxpayers electing 33 to file separately shall compute the alternate tax described 34 in this paragraph using the total net income of both spouses. 35 -7- LSB 1818XS (7) 85 mm/sc 7/ 22

S.F. 443 The alternate tax described in this paragraph “b” does not apply 1 if one spouse elects to carry back or carry forward the loss as 2 provided in section 422.9A, subsection 2. 3 3. a. The tax shall not be imposed on a resident or 4 nonresident who is at least sixty-five years old on December 5 31 of the tax year and whose net income, as defined in section 6 422.7, is thirty-two thousand dollars or less in the case 7 of married persons filing jointly or filing separately on a 8 combined return, heads of household, and surviving spouses or 9 twenty-four thousand dollars or less in the case of all other 10 persons; but in the event that the payment of tax under this 11 division would reduce the net income to less than thirty-two 12 thousand dollars or twenty-four thousand dollars as applicable, 13 then the tax shall be reduced to that amount which would result 14 in allowing the taxpayer to retain a net income of thirty-two 15 thousand dollars or twenty-four thousand dollars as applicable. 16 The preceding sentence does not apply to estates or trusts. 17 For the purpose of this subsection, the entire net income, 18 including any part of the net income not allocated to Iowa, 19 shall be taken into account. For purposes of this subsection, 20 net income includes all amounts of pensions or other retirement 21 income received from any source which is not taxable under this 22 division as a result of the government pension exclusions in 23 section 422.7, or any other state law. If the combined net 24 income of a married couple exceeds thirty-two thousand dollars, 25 neither of them shall receive the benefit of this subsection, 26 and it is immaterial whether they file a joint return or 27 separate returns. However, if a married couple file separate 28 returns and have a combined net income of thirty-two thousand 29 dollars or less, neither spouse shall receive the benefit of 30 this paragraph, if one spouse has a net operating loss and 31 elects to carry back or carry forward the loss as provided 32 in section 422.9A, subsection 2. A person who is claimed as 33 a dependent by another person as defined in section 422.12 34 shall not receive the benefit of this subsection if the person 35 -8- LSB 1818XS (7) 85 mm/sc 8/ 22

S.F. 443 claiming the dependent has net income exceeding thirty-two 1 thousand dollars or twenty-four thousand dollars as applicable 2 or the person claiming the dependent and the person’s spouse 3 have combined net income exceeding thirty-two thousand dollars 4 or twenty-four thousand dollars as applicable. 5 b. In lieu of the computation in subsection 1 or subsection 6 2, paragraph “a” or “b” , if the married persons’, filing jointly 7 or filing separately on a combined return, head of household’s, 8 or surviving spouse’s net income exceeds thirty-two thousand 9 dollars, the regular tax imposed under this division shall be 10 the lesser of the maximum state individual income tax rate 11 times the portion of the net income in excess of thirty-two 12 thousand dollars or the regular tax liability computed without 13 regard to this sentence. Taxpayers electing to file separately 14 shall compute the alternate tax described in this paragraph 15 “b” using the total net income of the married couple. The 16 alternate tax described in this paragraph does not apply if 17 one spouse elects to carry back or carry forward the loss as 18 provided in section 422.9A, subsection 2. 19 c. This subsection applies even though one spouse has not 20 attained the age of sixty-five, if the other spouse is at least 21 sixty-five at the end of the tax year. 22 4. The tax herein levied shall be computed and collected as 23 hereinafter provided. 24 5. The provisions of this division shall apply to all 25 salaries received by federal officials or employees of the 26 United States government as provided for herein. 27 6. Upon determination of the latest cumulative inflation 28 factor, the director shall multiply each dollar amount set 29 forth in subsection 1, paragraphs “a” through “c” , by this 30 cumulative inflation factor, shall round off the resulting 31 product to the nearest one dollar, and shall incorporate the 32 result into the income tax forms and instructions for each tax 33 year. 34 7. The state income tax of a taxpayer whose net income 35 -9- LSB 1818XS (7) 85 mm/sc 9/ 22

S.F. 443 includes the gain or loss from the forfeiture of an installment 1 real estate contract, the transfer of real or personal 2 property securing a debt to a creditor in cancellation of that 3 debt, or from the sale or exchange of property as a result 4 of actual notice of foreclosure where the fair market value 5 of the taxpayer’s assets exceeds the taxpayer’s liabilities 6 immediately before such forfeiture, transfer, or sale or 7 exchange shall not be greater than such excess, including any 8 asset transferred within one hundred twenty days prior to such 9 forfeiture, transfer, or sale or exchange. For purposes of 10 this subsection, in the case of married taxpayers, except in 11 the case of spouses who live apart at all times during the 12 tax year, the assets and liabilities of both spouses shall 13 be considered in determining if the fair market value of the 14 taxpayer’s assets exceed the taxpayer’s liabilities. 15 8. In addition to the other taxes imposed by this section, 16 a tax is imposed on the amount of a lump sum distribution 17 for which the taxpayer has elected under section 402(e) of 18 the Internal Revenue Code to be separately taxed for federal 19 income tax purposes for the tax year. The rate of tax is equal 20 to twenty-five percent of the separate federal tax imposed 21 on the amount of the lump sum distribution. A nonresident 22 is liable for this tax only on that portion of the lump sum 23 distribution allocable to Iowa. The total amount of the lump 24 sum distribution subject to separate federal tax shall be 25 included in net income for purposes of determining eligibility 26 under subsections 2 and 3, as applicable. 27 9. In the case of income derived from the sale or exchange 28 of livestock which qualifies under section 451(e) of the 29 Internal Revenue Code because of drought, the taxpayer may 30 elect to include the income in the taxpayer’s net income in 31 the tax year following the year of the sale or exchange in 32 accordance with rules prescribed by the director. 33 10. If an individual’s federal income tax was forgiven for 34 a tax year under section 692 of the Internal Revenue Code, 35 -10- LSB 1818XS (7) 85 mm/sc 10/ 22

S.F. 443 because the individual was killed while serving in an area 1 designated by the president of the United States or the United 2 States Congress as a combat zone, the individual was missing in 3 action and presumed dead, or the individual was killed outside 4 the United States in a terroristic or military action while the 5 individual was a military or civilian employee of the United 6 States, the individual’s Iowa income tax is also forgiven for 7 the same tax year. 8 11. If a taxpayer repays in the current tax year certain 9 amounts of income that were subject to tax under this division 10 in a prior year and a tax benefit would be allowed under 11 similar circumstances under section 1341 of the Internal 12 Revenue Code, a tax benefit shall be allowed on the Iowa 13 return. The tax benefit shall be the reduced tax for the 14 current tax year due to the deduction for the repaid income 15 or the reduction in tax for the prior year or years due to 16 exclusion of the repaid income. The reduction in tax shall 17 qualify as a refundable tax credit on the return for the 18 current year pursuant to rules prescribed by the director. 19 Sec. 14. Section 422.6, unnumbered paragraph 1, Code 2013, 20 is amended to read as follows: 21 The tax imposed by section 422.5 or 422.5A, as applicable, 22 less the amounts of nonrefundable credits allowed under this 23 division apply to and are a charge against estates and trusts 24 with respect to their taxable income, and the rates are the 25 same as those applicable to individuals. The fiduciary shall 26 make the return of income for the estate or trust for which 27 the fiduciary acts, whether the income is taxable to the 28 estate or trust or to the beneficiaries. However, for tax 29 years ending after August 5, 1997, if the trust is a qualified 30 preneed funeral trust as set forth in section 685 of the 31 Internal Revenue Code and the trustee has elected the special 32 tax treatment under section 685 of the Internal Revenue Code, 33 neither the trust nor the beneficiary is subject to Iowa income 34 tax on income accruing to the trust. 35 -11- LSB 1818XS (7) 85 mm/sc 11/ 22

S.F. 443 Sec. 15. Section 422.7, subsection 21, unnumbered paragraph 1 2, Code 2013, is amended to read as follows: 2 However, to the extent otherwise allowed, the deduction 3 provided in this subsection is not allowed for purposes 4 of computation of a net operating loss in section 422.9, 5 subsection 3 , or section 422.9A, subsection 2, and in computing 6 the income for the taxable year or years for which a net 7 operating loss is deducted. 8 Sec. 16. Section 422.8, subsection 2, paragraph a, Code 9 2013, is amended to read as follows: 10 a. Nonresident’s net income allocated to Iowa is the net 11 income, or portion of net income, which is derived from a 12 business, trade, profession, or occupation carried on within 13 this state or income from any property, trust, estate, or 14 other source within Iowa. However, income derived from a 15 business, trade, profession, or occupation carried on within 16 this state and income from any property, trust, estate, or 17 other source within Iowa shall not include distributions from 18 pensions, including defined benefit or defined contribution 19 plans, annuities, individual retirement accounts, and deferred 20 compensation plans or any earnings attributable thereto so long 21 as the distribution is directly related to an individual’s 22 documented retirement and received while the individual is a 23 nonresident of this state. If a business, trade, profession, 24 or occupation is carried on partly within and partly without 25 the state, only the portion of the net income which is fairly 26 and equitably attributable to that part of the business, trade, 27 profession, or occupation carried on within the state is 28 allocated to Iowa for purposes of section 422.5, subsection 1 , 29 paragraph “j” , or section 422.5A, subsection 1, paragraph “d” , 30 as applicable, and section 422.13 and income from any property, 31 trust, estate, or other source partly within and partly without 32 the state is allocated to Iowa in the same manner, except that 33 annuities, interest on bank deposits and interest-bearing 34 obligations, and dividends are allocated to Iowa only to the 35 -12- LSB 1818XS (7) 85 mm/sc 12/ 22

S.F. 443 extent to which they are derived from a business, trade, 1 profession, or occupation carried on within the state. 2 Sec. 17. Section 422.8, subsection 4, Code 2013, is amended 3 to read as follows: 4 4. The amount of minimum tax paid to another state or 5 foreign country by a resident taxpayer of this state from 6 preference items derived from sources outside of Iowa shall 7 be allowed as a credit against the tax computed under this 8 division for taxpayers not electing the alternative method 9 under section 422.4A, except that the credit shall not exceed 10 what the amount of state alternative minimum tax would have 11 been on the same preference items which were taxed by the 12 other state or foreign country. The limitation on this credit 13 shall be computed according to the following formula: The 14 total of preference items earned outside of Iowa and taxed 15 by another state or foreign country shall be divided by the 16 total of preference items of the resident taxpayer of Iowa. In 17 computing this quotient, those items excludable under section 18 422.5, subsection 2 , paragraph “b” , subparagraph (1), shall 19 not be used in computing the preference items. This quotient 20 multiplied times the net state alternative minimum tax as 21 determined in section 422.5, subsection 2 , on the total of 22 preference items as if entirely earned in Iowa shall be the 23 maximum tax credit against the Iowa alternative minimum tax. 24 However, the maximum tax credit will not be allowed to the 25 extent that the minimum tax imposed by the other state or 26 foreign country is less than the maximum tax credit computed 27 above. 28 Sec. 18. NEW SECTION . 422.9A Deductions from net income. 29 1. In computing taxable income of individuals, there shall 30 be deducted from net income the sum of the following: 31 a. A basic standard deduction equal to three thousand 32 dollars for a married individual who files separately or a 33 single individual or equal to six thousand dollars for a 34 married couple who file a joint return, a surviving spouse, or 35 -13- LSB 1818XS (7) 85 mm/sc 13/ 22

S.F. 443 a head of household. 1 b. An additional standard deduction equal to two thousand 2 dollars for each dependent. For purposes of this subsection, 3 “dependent” has the same meaning as provided by the Internal 4 Revenue Code. 5 c. An additional standard deduction equal to one thousand 6 dollars for an individual who has attained the age of 7 sixty-five years before the close of the tax year or on the 8 first day following the end of the tax year. 9 d. An additional standard deduction equal to one thousand 10 dollars for an individual who is blind, as that term is 11 described in section 422.12, subsection 2, at the close of the 12 tax year. 13 2. If, after applying all of the adjustments provided 14 for in section 422.7, the allocation provisions of section 15 422.8, and the deductions allowable in this section subject to 16 the modifications provided in section 172(d) of the Internal 17 Revenue Code, the taxable income results in a net operating 18 loss, the net operating loss shall be deducted as follows: 19 a. The Iowa net operating loss shall be carried back three 20 taxable years for an individual taxpayer with a casualty 21 or theft property loss or for a net operating loss in a 22 presidentially declared disaster area incurred by a taxpayer 23 engaged in a small business or in the trade or business of 24 farming. For all other Iowa net operating losses, the net 25 operating loss shall be carried back two taxable years or to 26 the taxable year in which the taxpayer first earned income in 27 Iowa, whichever year is the later. 28 b. The Iowa net operating loss remaining after being carried 29 back as required in paragraph “a” or “d” or if not required to 30 be carried back shall be carried forward twenty taxable years. 31 c. If the election under section 172(b)(3) of the Internal 32 Revenue Code is made, the Iowa net operating loss shall be 33 carried forward twenty taxable years. 34 d. Notwithstanding paragraph “a” , for a taxpayer who is 35 -14- LSB 1818XS (7) 85 mm/sc 14/ 22

S.F. 443 engaged in the trade or business of farming as defined in 1 section 263A(e)(4) of the Internal Revenue Code and has a loss 2 from farming as defined in section 172(b)(1)(F) of the Internal 3 Revenue Code including modifications prescribed by rule by the 4 director, the Iowa loss from the trade or business of farming 5 is a net operating loss which may be carried back five taxable 6 years prior to the taxable year of the loss. 7 Sec. 19. Section 422.10, subsection 4, Code 2013, is amended 8 to read as follows: 9 4. Any credit in excess of the tax liability imposed by 10 section 422.5 or 422.5A, as applicable, less the amounts of 11 nonrefundable credits allowed under this division for the 12 taxable year shall be refunded with interest computed under 13 section 422.25 . In lieu of claiming a refund, a taxpayer 14 may elect to have the overpayment shown on the taxpayer’s 15 final, completed return credited to the tax liability for the 16 following taxable year. 17 Sec. 20. Section 422.12, subsection 2, paragraph a, Code 18 2013, is amended to read as follows: 19 a. (1) A For a taxpayer computing tax under section 422.5, 20 a personal exemption credit in the following amounts: 21 (1) (a) For an estate or trust, a single individual, or a 22 married person filing a separate return, forty dollars. 23 (2) (b) For a head of household, or a husband and wife 24 married couple filing a joint return, eighty dollars. 25 (3) (c) For each dependent, an additional forty dollars. 26 (4) (d) For a single individual, husband, wife married 27 couple , or head of household, an additional exemption of twenty 28 dollars for each of said individuals who has attained the age 29 of sixty-five years before the close of the tax year or on the 30 first day following the end of the tax year. 31 (5) (e) For a single individual, husband, wife married 32 couple , or head of household, an additional exemption of twenty 33 dollars for each of said individuals who is blind at the 34 close of the tax year. For the purposes of this subparagraph 35 -15- LSB 1818XS (7) 85 mm/sc 15/ 22

S.F. 443 division , an individual is blind only if the individual’s 1 central visual acuity does not exceed twenty-two hundredths in 2 the better eye with correcting lenses, or if the individual’s 3 visual acuity is greater than twenty-two hundredths but is 4 accompanied by a limitation in the fields of vision such that 5 the widest diameter of the visual field subtends an angle no 6 greater than twenty degrees. 7 (2) For a taxpayer computing tax under section 422.5A, a 8 personal exemption credit in the following amounts: 9 (a) For an estate or trust, a single individual, or a 10 married person filing a separate return, sixty dollars. 11 (b) For a head of household, or a married couple filing a 12 joint return, one hundred twenty dollars. 13 (c) For each dependent, an additional sixty dollars. 14 Sec. 21. Section 422.13, subsection 2, Code 2013, is amended 15 to read as follows: 16 2. Notwithstanding any other provision in this section , 17 a resident of this state is not required to make and file a 18 return if the person’s net income is equal to or less than the 19 appropriate dollar amount listed in section 422.5, subsection 20 3 or 3B, or section 422.5A, subsection 2 or 3, as applicable , 21 upon which tax is not imposed. A nonresident of this state 22 is not required to make and file a return if the person’s 23 total net income in section 422.5, subsection 1 , paragraph 24 “j” , is equal to or less than the appropriate dollar amount 25 provided in section 422.5, subsection 3 or 3B , upon which 26 tax is not imposed , or if the person’s total net income in 27 section 422.5A, subsection 1, paragraph “d” , is equal to or 28 less than the appropriate dollar amount provided in section 29 422.5A, subsection 2 or 3, upon which tax is not imposed, as 30 applicable . For purposes of this subsection , the amount of a 31 lump sum distribution subject to separate federal tax shall 32 be included in net income for purposes of determining if a 33 resident is required to file a return and the portion of the 34 lump sum distribution that is allocable to Iowa is included in 35 -16- LSB 1818XS (7) 85 mm/sc 16/ 22

S.F. 443 total net income for purposes of determining if a nonresident 1 is required to make and file a return. 2 Sec. 22. Section 422.16, subsection 8, Code 2013, is amended 3 to read as follows: 4 8. An employer or withholding agent shall be liable for 5 the payment of the tax required to be deducted and withheld 6 or the amount actually deducted, whichever is greater, under 7 subsections 1 and 12 of this section ; and any amount deducted 8 and withheld as tax under subsections 1 and 12 of this section 9 during any calendar year upon the wages of any employee, 10 nonresident, or other person shall be allowed as a credit to 11 the employee, nonresident, or other person against the tax 12 imposed by section 422.5 or 422.5A, as applicable , irrespective 13 of whether or not such tax has been, or will be, paid over by 14 the employer or withholding agent to the department as provided 15 by this chapter . 16 Sec. 23. Section 422.21, subsections 1 and 5, Code 2013, are 17 amended to read as follows: 18 1. Returns shall be in the form the director prescribes, 19 and shall be filed with the department on or before the last 20 day of the fourth month after the expiration of the tax year. 21 However, cooperative associations as defined in section 6072(d) 22 of the Internal Revenue Code shall file their returns on or 23 before the fifteenth day of the ninth month following the 24 close of the taxable year and nonprofit corporations subject 25 to the unrelated business income tax imposed by section 26 422.33, subsection 1A , shall file their returns on or before 27 the fifteenth day of the fifth month following the close of 28 the taxable year. If, under the Internal Revenue Code, a 29 corporation is required to file a return covering a tax period 30 of less than twelve months, the state return shall be for the 31 same period and is due forty-five days after the due date of 32 the federal tax return, excluding any extension of time to 33 file. In case of sickness, absence, or other disability, or 34 if good cause exists, the director may allow further time for 35 -17- LSB 1818XS (7) 85 mm/sc 17/ 22

S.F. 443 filing returns. The director shall cause to be prepared blank 1 forms for the returns and shall cause them to be distributed 2 throughout the state and to be furnished upon application, 3 but failure to receive or secure the form does not relieve 4 the taxpayer from the obligation of making a return that is 5 required. The department may as far as consistent with the 6 Code draft income tax forms to conform to the income tax 7 forms of the internal revenue department of the United States 8 government. Each return by a taxpayer upon whom a tax is 9 imposed by section 422.5 or 422.5A shall show the county of the 10 residence of the taxpayer. 11 5. The director shall determine for the 1989 and each 12 subsequent calendar year the annual and cumulative inflation 13 factors for each calendar year to be applied to tax years 14 beginning on or after January 1 of that calendar year. The 15 director shall compute the new dollar amounts as specified 16 to be adjusted in section 422.5 and 422.5A by the latest 17 cumulative inflation factor and round off the result to the 18 nearest one dollar. The annual and cumulative inflation 19 factors determined by the director are not rules as defined in 20 section 17A.2, subsection 11 . The director shall determine for 21 the 1990 calendar year and each subsequent calendar year the 22 annual and cumulative standard deduction factors to be applied 23 to tax years beginning on or after January 1 of that calendar 24 year. The director shall compute the new dollar amounts of 25 the standard deductions specified in section 422.9, subsection 26 1 , and 422.9A, subsection 1, by the latest cumulative standard 27 deduction factor and round off the result to the nearest ten 28 dollars. The annual and cumulative standard deduction factors 29 determined by the director are not rules as defined in section 30 17A.2, subsection 11 . 31 Sec. 24. Section 422D.2, Code 2013, is amended to read as 32 follows: 33 422D.2 Local income surtax. 34 A county may impose by ordinance a local income surtax as 35 -18- LSB 1818XS (7) 85 mm/sc 18/ 22