Senate Study Bill 1255 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM) A BILL FOR An Act relating to revenue and taxation by increasing the sales 1 and use tax rates, establishing transfers to the natural 2 resources and outdoor recreation trust fund, modifying 3 the requirement to file a state individual income tax 4 return, reducing individual income tax rates, and including 5 effective date and applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 2543XC (2) 85 mm/sc

S.F. _____ DIVISION I 1 INDIVIDUAL INCOME TAXES 2 Section 1. Section 422.5, subsection 1, paragraphs a 3 through c, Code 2013, are amended by striking the paragraphs. 4 Sec. 2. Section 422.5, subsection 1, paragraph d, Code 2013, 5 is amended to read as follows: 6 d. On all taxable income exceeding four thousand dollars 7 but not exceeding nine thousand dollars, four and one-half 8 twenty-eight hundredths percent. 9 Sec. 3. Section 422.5, subsection 3, Code 2013, is amended 10 to read as follows: 11 3. a. The tax shall not be imposed on a resident or 12 nonresident whose net income, as defined in section 422.7 , is 13 thirteen sixteen thousand five hundred dollars or less in the 14 case of married persons filing jointly or filing separately on 15 a combined return, heads of household, and surviving spouses 16 or nine eleven thousand dollars or less in the case of all 17 other persons; but in the event that the payment of tax under 18 this division would reduce the net income to less than thirteen 19 sixteen thousand five hundred dollars or nine eleven thousand 20 dollars as applicable, then the tax shall be reduced to that 21 amount which would result in allowing the taxpayer to retain a 22 net income of thirteen sixteen thousand five hundred dollars 23 or nine eleven thousand dollars as applicable. The preceding 24 sentence does not apply to estates or trusts. For the purpose 25 of this subsection , the entire net income, including any part 26 of the net income not allocated to Iowa, shall be taken into 27 account. For purposes of this subsection , net income includes 28 all amounts of pensions or other retirement income received 29 from any source which is not taxable under this division as 30 a result of the government pension exclusions in section 31 422.7 , or any other state law. If the combined net income 32 of a husband and wife exceeds thirteen sixteen thousand five 33 hundred dollars, neither of them shall receive the benefit 34 of this subsection , and it is immaterial whether they file a 35 -1- LSB 2543XC (2) 85 mm/sc 1/ 8

S.F. _____ joint return or separate returns. However, if a husband and 1 wife file separate returns and have a combined net income of 2 thirteen sixteen thousand five hundred dollars or less, neither 3 spouse shall receive the benefit of this paragraph, if one 4 spouse has a net operating loss and elects to carry back or 5 carry forward the loss as provided in section 422.9, subsection 6 3 . A person who is claimed as a dependent by another person 7 as defined in section 422.12 shall not receive the benefit of 8 this subsection if the person claiming the dependent has net 9 income exceeding thirteen sixteen thousand five hundred dollars 10 or nine eleven thousand dollars , as applicable , or the person 11 claiming the dependent and the person’s spouse have combined 12 net income exceeding thirteen sixteen thousand five hundred 13 dollars or nine eleven thousand dollars , as applicable. 14 b. In lieu of the computation in subsection 1 or 2, or in 15 paragraph “a” of this subsection , if the married persons’, 16 filing jointly or filing separately on a combined return, 17 head of household’s, or surviving spouse’s net income exceeds 18 thirteen sixteen thousand five hundred dollars, the regular tax 19 imposed under this division shall be the lesser of the maximum 20 state individual income tax rate times the portion of the net 21 income in excess of thirteen sixteen thousand five hundred 22 dollars or the regular tax liability computed without regard 23 to this sentence. Taxpayers electing to file separately shall 24 compute the alternate tax described in this paragraph using the 25 total net income of the husband and wife. The alternate tax 26 described in this paragraph does not apply if one spouse elects 27 to carry back or carry forward the loss as provided in section 28 422.9, subsection 3 . 29 Sec. 4. Section 422.13, subsection 1, paragraph a, Code 30 2013, is amended to read as follows: 31 a. The individual has net income of more than nine eleven 32 thousand dollars for the tax year from sources taxable under 33 this division . 34 Sec. 5. EFFECTIVE DATE. This division of this Act takes 35 -2- LSB 2543XC (2) 85 mm/sc 2/ 8

S.F. _____ effect January 1, 2014. 1 Sec. 6. APPLICABILITY. This division of this Act applies to 2 tax years beginning on or after January 1, 2014. 3 DIVISION II 4 SALES AND USE TAX AND NATURAL RESOURCES AND OUTDOOR RECREATION 5 TRUST FUND 6 Sec. 7. Section 423.2, subsection 1, unnumbered paragraph 7 1, Code 2013, is amended to read as follows: 8 There is imposed a tax of six and three-eighths percent upon 9 the sales price of all sales of tangible personal property, 10 consisting of goods, wares, or merchandise, sold at retail in 11 the state to consumers or users except as otherwise provided 12 in this subchapter . 13 Sec. 8. Section 423.2, subsections 2 and 3, Code 2013, are 14 amended to read as follows: 15 2. A tax of six and three-eighths percent is imposed upon 16 the sales price of the sale or furnishing of gas, electricity, 17 water, heat, pay television service, and communication service, 18 including the sales price from such sales by any municipal 19 corporation or joint water utility furnishing gas, electricity, 20 water, heat, pay television service, and communication service 21 to the public in its proprietary capacity, except as otherwise 22 provided in this subchapter , when sold at retail in the state 23 to consumers or users. 24 3. A tax of six and three-eighths percent is imposed upon 25 the sales price of all sales of tickets or admissions to places 26 of amusement, fairs, and athletic events except those of 27 elementary and secondary educational institutions. A tax of 28 six and three-eighths percent is imposed on the sales price of 29 an entry fee or like charge imposed solely for the privilege of 30 participating in an activity at a place of amusement, fair, or 31 athletic event unless the sales price of tickets or admissions 32 charges for observing the same activity are taxable under this 33 subchapter . A tax of six and three-eighths percent is imposed 34 upon that part of private club membership fees or charges paid 35 -3- LSB 2543XC (2) 85 mm/sc 3/ 8

S.F. _____ for the privilege of participating in any athletic sports 1 provided club members. 2 Sec. 9. Section 423.2, subsection 4, paragraph a, Code 2013, 3 is amended to read as follows: 4 a. A tax of six and three-eighths percent is imposed upon 5 the sales price derived from the operation of all forms of 6 amusement devices and games of skill, games of chance, raffles, 7 and bingo games as defined in chapter 99B , and card game 8 tournaments conducted under section 99B.7B , that are operated 9 or conducted within the state, the tax to be collected from 10 the operator in the same manner as for the collection of taxes 11 upon the sales price of tickets or admission as provided in 12 this section . Nothing in this subsection shall legalize any 13 games of skill or chance or slot-operated devices which are now 14 prohibited by law. 15 Sec. 10. Section 423.2, subsection 5, Code 2013, is amended 16 to read as follows: 17 5. There is imposed a tax of six and three-eighths percent 18 upon the sales price from the furnishing of services as defined 19 in section 423.1 . 20 Sec. 11. Section 423.2, subsection 7, paragraph a, 21 unnumbered paragraph 1, Code 2013, is amended to read as 22 follows: 23 A tax of six and three-eighths percent is imposed upon the 24 sales price from the sales, furnishing, or service of solid 25 waste collection and disposal service. 26 Sec. 12. Section 423.2, subsection 8, paragraph a, Code 27 2013, is amended to read as follows: 28 a. A tax of six and three-eighths percent is imposed on 29 the sales price from sales of bundled transactions. For the 30 purposes of this subsection , a “bundled transaction” is the 31 retail sale of two or more distinct and identifiable products, 32 except real property and services to real property, which 33 are sold for one nonitemized price. A “bundled transaction” 34 does not include the sale of any products in which the sales 35 -4- LSB 2543XC (2) 85 mm/sc 4/ 8

S.F. _____ price varies, or is negotiable, based on the selection by the 1 purchaser of the products included in the transaction. 2 Sec. 13. Section 423.2, subsection 9, Code 2013, is amended 3 to read as follows: 4 9. A tax of six and three-eighths percent is imposed upon 5 the sales price from any mobile telecommunications service, 6 including all paging services, that this state is allowed 7 to tax pursuant to the provisions of the federal Mobile 8 Telecommunications Sourcing Act, Pub. L. No. 106-252, 4 U.S.C. 9 § 116 et seq. For purposes of this subsection , taxes on mobile 10 telecommunications service, as defined under the federal Mobile 11 Telecommunications Sourcing Act that are deemed to be provided 12 by the customer’s home service provider, shall be paid to 13 the taxing jurisdiction whose territorial limits encompass 14 the customer’s place of primary use, regardless of where the 15 mobile telecommunications service originates, terminates, 16 or passes through and shall in all other respects be taxed 17 in conformity with the federal Mobile Telecommunications 18 Sourcing Act. All other provisions of the federal Mobile 19 Telecommunications Sourcing Act are adopted by the state of 20 Iowa and incorporated into this subsection by reference. With 21 respect to mobile telecommunications service under the federal 22 Mobile Telecommunications Sourcing Act, the director shall, if 23 requested, enter into agreements consistent with the provisions 24 of the federal Act. 25 Sec. 14. Section 423.2, subsection 11, paragraph b, 26 subparagraph (2), Code 2013, is amended to read as follows: 27 (2) Transfer from the remaining revenues the amounts 28 required under Article VII, section 10, of the Constitution 29 of the State of Iowa to the natural resources and outdoor 30 recreation trust fund created in section 461.31 , if applicable . 31 Sec. 15. Section 423.2, subsection 13, Code 2013, is amended 32 to read as follows: 33 13. The sales tax rate of six and three-eighths percent is 34 reduced to five and three-eighths percent on January 1, 2030. 35 -5- LSB 2543XC (2) 85 mm/sc 5/ 8

S.F. _____ Sec. 16. Section 423.5, unnumbered paragraph 1, Code 2013, 1 is amended to read as follows: 2 Except as provided in subsection 3 , an excise tax at the 3 rate of six and three-eighths percent of the purchase price or 4 installed purchase price is imposed on the following: 5 Sec. 17. Section 423.5, subsection 9, Code 2013, is amended 6 to read as follows: 7 9. The use tax rate of six and three-eighths percent is 8 reduced to five and three-eighths percent on January 1, 2030. 9 Sec. 18. PURPOSE. The purpose of this Act is to provide 10 for the implementation of Article VII, section 10, of the 11 Constitution of the State of Iowa by fully funding the natural 12 resources and outdoor recreation trust fund as created in 13 section 461.31, pursuant to Article VII, section 10, of the 14 Constitution of the State of Iowa. 15 Sec. 19. EFFECTIVE DATE. This division of this Act takes 16 effect July 1, 2014. 17 EXPLANATION 18 This bill increases the sales and use tax rates, establishes 19 transfers to the natural resources and outdoor recreation trust 20 fund, modifies the requirement to file a state individual 21 income tax return, and reduces individual income tax rates. 22 Division I of the bill relates to individual income taxes. 23 The division eliminates the bottom three individual income 24 tax brackets, which are those with rates of 0.36 percent, 25 0.72 percent, and 2.43 percent. The tax rate in the fourth 26 tax bracket is reduced from 4.5 percent to 4.28 percent. The 27 remaining five tax brackets, those with rates of 6.12 percent, 28 6.48 percent, 6.80 percent, 7.92 percent, and 8.98 percent, 29 remain unchanged. 30 The division amends the net income threshold at which an 31 individual income tax return is required to be filed. Under 32 current law, a resident or nonresident who is younger than 65 33 will not be subject to the individual income tax and will not 34 be required to file a state individual income tax return if the 35 -6- LSB 2543XC (2) 85 mm/sc 6/ 8

S.F. _____ person’s net income is $13,500 or less in the case of married 1 taxpayers, heads of household, and surviving spouses, or $9,000 2 or less in the case of all other persons. The bill increases 3 these amounts to $16,500 and $11,000, respectively. 4 The division takes effect January 1, 2014, and applies to tax 5 years beginning on or after that date. 6 Division II relates to the sales tax imposed on the sale of 7 tangible personal property and the furnishing of enumerated 8 services and to an amendment to the Constitution of the State 9 of Iowa ratified on November 2, 2010, dedicating a portion of 10 state revenue for purposes of benefiting natural resources, 11 outdoor recreation, and soil conservation (Article VII, 12 section 10). The amendment authorizes the general assembly to 13 implement its provisions. 14 The constitutional amendment creates a natural resources and 15 outdoor recreation trust fund (trust fund) within the state 16 treasury. The trust fund and allocations from the fund are 17 codified in Code chapter 461. Moneys in the trust fund cannot 18 be used for any purpose other than protecting and enhancing 19 water quality and natural areas in this state including 20 parks, trails, and fish and wildlife habitat, and conserving 21 agricultural soils in this state. No revenue is credited to 22 the trust fund until the sales tax rate is increased. Whenever 23 the rate is increased, the amount generated by the increase is 24 credited to the fund, but the amount credited cannot exceed the 25 amount that a rate of 3/8 of 1 percent would generate. 26 Currently, the tax on sales and services in Iowa is imposed 27 at the rate of 6 percent. The division provides for an 28 increase in the rate to 6 and 3/8 percent, and the transfer of 29 these moneys into the trust fund. In 2012, the 84th General 30 Assembly enacted SF 2329 (2012 Iowa Acts, chapter 1098) which 31 provided for the transfer of sales tax revenues deposited into 32 the general fund of the state (general fund) into the trust 33 fund when applicable. The division provides for the same tax 34 rate increase to the use tax. 35 -7- LSB 2543XC (2) 85 mm/sc 7/ 8