Senate Study Bill 3217 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM) A BILL FOR An Act relating to state taxation and related budgetary 1 matters, including state sales and use taxes, the natural 2 resources and outdoor recreation trust fund, and the state 3 individual income tax, and including effective date and 4 applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 6185XC (2) 85 mm/sc

S.F. _____ DIVISION I 1 SALES AND USE TAXES AND THE NATURAL RESOURCES AND OUTDOOR 2 RECREATION TRUST FUND 3 Section 1. Section 423.2, subsection 1, unnumbered 4 paragraph 1, Code 2014, is amended to read as follows: 5 There is imposed a tax of six percent at the rate specified 6 in subsection 13 upon the sales price of all sales of tangible 7 personal property, consisting of goods, wares, or merchandise, 8 sold at retail in the state to consumers or users except as 9 otherwise provided in this subchapter . 10 Sec. 2. Section 423.2, subsections 2 and 3, Code 2014, are 11 amended to read as follows: 12 2. A tax of six percent at the rate specified in subsection 13 13 is imposed upon the sales price of the sale or furnishing 14 of gas, electricity, water, heat, pay television service, and 15 communication service, including the sales price from such 16 sales by any municipal corporation or joint water utility 17 furnishing gas, electricity, water, heat, pay television 18 service, and communication service to the public in its 19 proprietary capacity, except as otherwise provided in this 20 subchapter , when sold at retail in the state to consumers or 21 users. 22 3. A tax of six percent at the rate specified in subsection 23 13 is imposed upon the sales price of all sales of tickets 24 or admissions to places of amusement, fairs, and athletic 25 events except those of elementary and secondary educational 26 institutions. A tax of six percent at the rate specified in 27 subsection 13 is imposed on the sales price of an entry fee or 28 like charge imposed solely for the privilege of participating 29 in an activity at a place of amusement, fair, or athletic event 30 unless the sales price of tickets or admissions charges for 31 observing the same activity are taxable under this subchapter . 32 A tax of six percent at the rate specified in subsection 13 33 is imposed upon that part of private club membership fees or 34 charges paid for the privilege of participating in any athletic 35 -1- LSB 6185XC (2) 85 mm/sc 1/ 9

S.F. _____ sports provided club members. 1 Sec. 3. Section 423.2, subsection 4, paragraph a, Code 2014, 2 is amended to read as follows: 3 a. A tax of six percent at the rate specified in subsection 4 13 is imposed upon the sales price derived from the operation 5 of all forms of amusement devices and games of skill, games of 6 chance, raffles, and bingo games as defined in chapter 99B , and 7 card game tournaments conducted under section 99B.7B , that are 8 operated or conducted within the state, the tax to be collected 9 from the operator in the same manner as for the collection of 10 taxes upon the sales price of tickets or admission as provided 11 in this section . Nothing in this subsection shall legalize any 12 games of skill or chance or slot-operated devices which are now 13 prohibited by law. 14 Sec. 4. Section 423.2, subsection 5, Code 2014, is amended 15 to read as follows: 16 5. There is imposed a tax of six percent at the rate 17 specified in subsection 13 upon the sales price from the 18 furnishing of services as defined in section 423.1 . 19 Sec. 5. Section 423.2, subsection 7, paragraph a, 20 unnumbered paragraph 1, Code 2014, is amended to read as 21 follows: 22 A tax of six percent at the rate specified in subsection 13 23 is imposed upon the sales price from the sales, furnishing, or 24 service of solid waste collection and disposal service. 25 Sec. 6. Section 423.2, subsection 8, paragraph a, Code 2014, 26 is amended to read as follows: 27 a. A tax of six percent at the rate specified in subsection 28 13 is imposed on the sales price from sales of bundled 29 transactions. For the purposes of this subsection , a “bundled 30 transaction” is the retail sale of two or more distinct and 31 identifiable products, except real property and services to 32 real property, which are sold for one nonitemized price. A 33 “bundled transaction” does not include the sale of any products 34 in which the sales price varies, or is negotiable, based on 35 -2- LSB 6185XC (2) 85 mm/sc 2/ 9

S.F. _____ the selection by the purchaser of the products included in the 1 transaction. 2 Sec. 7. Section 423.2, subsection 9, Code 2014, is amended 3 to read as follows: 4 9. A tax of six percent at the rate specified in 5 subsection 13 is imposed upon the sales price from any mobile 6 telecommunications service, including all paging services, 7 that this state is allowed to tax pursuant to the provisions 8 of the federal Mobile Telecommunications Sourcing Act, Pub. 9 L. No. 106-252, 4 U.S.C. § 116 et seq. For purposes of this 10 subsection , taxes on mobile telecommunications service, as 11 defined under the federal Mobile Telecommunications Sourcing 12 Act that are deemed to be provided by the customer’s home 13 service provider, shall be paid to the taxing jurisdiction 14 whose territorial limits encompass the customer’s place of 15 primary use, regardless of where the mobile telecommunications 16 service originates, terminates, or passes through and 17 shall in all other respects be taxed in conformity with 18 the federal Mobile Telecommunications Sourcing Act. All 19 other provisions of the federal Mobile Telecommunications 20 Sourcing Act are adopted by the state of Iowa and incorporated 21 into this subsection by reference. With respect to mobile 22 telecommunications service under the federal Mobile 23 Telecommunications Sourcing Act, the director shall, if 24 requested, enter into agreements consistent with the provisions 25 of the federal Act. 26 Sec. 8. Section 423.2, subsection 11, paragraph b, 27 subparagraph (2), Code 2014, is amended to read as follows: 28 (2) Transfer from the remaining revenues the amounts 29 required under Article VII, section 10, of the Constitution 30 of the State of Iowa to the natural resources and outdoor 31 recreation trust fund created in section 461.31 , if applicable . 32 Sec. 9. Section 423.2, subsection 13, Code 2014, is amended 33 by striking the subsection and inserting in lieu thereof the 34 following: 35 -3- LSB 6185XC (2) 85 mm/sc 3/ 9

S.F. _____ 13. a. For the period beginning January 1, 2016, and ending 1 December 31, 2016, the sales tax rate is six and one-eighth 2 percent. 3 b. For the period beginning January 1, 2017, and ending 4 December 31, 2017, the sales tax rate is six and two-eighths 5 percent. 6 c. For the period beginning January 1, 2018, and ending 7 December 31, 2029, the sales tax rate is six and three-eighths 8 percent. 9 d. Beginning January 1, 2030, the sales tax rate is five and 10 three-eighths percent. 11 Sec. 10. Section 423.5, subsection 1, unnumbered paragraph 12 1, Code 2014, is amended to read as follows: 13 Except as provided in paragraph “c” , an excise tax at the 14 rate of six percent specified in subsection 5 of the purchase 15 price or installed purchase price is imposed on the following: 16 Sec. 11. Section 423.5, subsection 5, Code 2014, is amended 17 by striking the subsection and inserting in lieu thereof the 18 following: 19 5. a. For the period beginning January 1, 2016, and ending 20 December 31, 2016, the use tax rate is six and one-eighth 21 percent. 22 b. For the period beginning January 1, 2017, and ending 23 December 31, 2017, the use tax rate is six and two-eighths 24 percent. 25 c. For the period beginning January 1, 2018, and ending 26 December 31, 2029, the use tax rate is six and three-eighths 27 percent. 28 d. Beginning January 1, 2030, the use tax rate is five and 29 three-eighths percent. 30 Sec. 12. Section 423.43, subsection 1, paragraph b, Code 31 2014, is amended to read as follows: 32 b. Subsequent to the deposit into the general fund of the 33 state and after the transfer of such pursuant to paragraph “a” , 34 the department shall do the following in the order prescribed: 35 -4- LSB 6185XC (2) 85 mm/sc 4/ 9

S.F. _____ (1) Transfer the revenues collected under chapter 423B , the 1 department shall transfer one-sixth . 2 (2) (a) Transfer the applicable percentage as specified 3 in subparagraph division (b) of such remaining revenues to the 4 secure an advanced vision for education fund created in section 5 423F.2 . 6 (b) (i) For the period beginning January 1, 2016, and 7 ending December 31, 2016, the applicable percentage is sixteen 8 and three thousand two hundred sixty-five ten-thousandths 9 percent. 10 (ii) For the period beginning January 1, 2017, and ending 11 December 31, 2017, the applicable percentage is sixteen 12 percent. 13 (iii) For the period beginning January 1, 2018, and ending 14 December 31, 2029, the applicable percentage is fifteen and six 15 thousand eight hundred sixty-three ten-thousandths percent. 16 (c) This paragraph subparagraph (2) is repealed December 17 31, 2029. 18 Sec. 13. PURPOSE. The purpose of this division of this Act 19 is to provide for the implementation of Article VII, section 20 10, of the Constitution of the State of Iowa by fully funding 21 the natural resources and outdoor recreation trust fund as 22 created in section 461.31, pursuant to Article VII, section 10, 23 of the Constitution of the State of Iowa. 24 Sec. 14. EFFECTIVE DATE. This division of this Act takes 25 effect January 1, 2016. 26 DIVISION II 27 INDIVIDUAL INCOME TAX 28 Sec. 15. Section 422.5, subsection 3, Code 2014, is amended 29 to read as follows: 30 3. a. (1) The tax shall not be imposed on a resident or 31 nonresident whose net income, as defined in section 422.7 , 32 is thirteen thousand five hundred dollars or less equal 33 to or less than the appropriate dollar amount specified in 34 subparagraph (2) in the case of married persons filing jointly 35 -5- LSB 6185XC (2) 85 mm/sc 5/ 9

S.F. _____ or filing separately on a combined return, heads of household, 1 and surviving spouses or nine thousand dollars or less equal 2 to or less than the appropriate dollar amount specified in 3 subparagraph (3) in the case of all other persons; but in the 4 event that the payment of tax under this division would reduce 5 the net income to less than thirteen thousand five hundred 6 dollars or nine thousand dollars the appropriate dollar amount 7 specified in subparagraph (2) or (3), as applicable, then 8 the tax shall be reduced to that amount which would result 9 in allowing the taxpayer to retain a net income of thirteen 10 thousand five hundred dollars or nine thousand dollars equal 11 to the appropriate dollar amount specified in subparagraph (2) 12 or (3), as applicable. The preceding sentence does not apply 13 to estates or trusts. For the purpose of this subsection , the 14 entire net income, including any part of the net income not 15 allocated to Iowa, shall be taken into account. For purposes 16 of this subsection , net income includes all amounts of pensions 17 or other retirement income received from any source which is 18 not taxable under this division as a result of the government 19 pension exclusions in section 422.7 , or any other state law. 20 If the combined net income of a husband and wife exceeds 21 thirteen thousand five hundred dollars the appropriate dollar 22 amount specified in subparagraph (2) , neither of them shall 23 receive the benefit of this subsection , and it is immaterial 24 whether they file a joint return or separate returns. However, 25 if a husband and wife file separate returns and have a combined 26 net income of thirteen thousand five hundred dollars equal 27 to or less than the appropriate dollar amount specified in 28 subparagraph (2) , neither spouse shall receive the benefit of 29 this paragraph, if one spouse has a net operating loss and 30 elects to carry back or carry forward the loss as provided 31 in section 422.9, subsection 3 . A person who is claimed as 32 a dependent by another person as defined in section 422.12 33 shall not receive the benefit of this subsection if the person 34 claiming the dependent has net income exceeding thirteen 35 -6- LSB 6185XC (2) 85 mm/sc 6/ 9

S.F. _____ thousand five hundred dollars or nine thousand dollars the 1 appropriate dollar amount specified in subparagraph (2) or (3), 2 as applicable or the person claiming the dependent and the 3 person’s spouse have combined net income exceeding thirteen 4 thousand five hundred dollars or nine thousand dollars the 5 appropriate dollar amount specified in subparagraph (2) or (3), 6 as applicable. 7 (2) (a) For tax years beginning on or after January 8 1, 2016, but before January 1, 2017, the dollar amount is 9 twenty-four thousand seven hundred fifty dollars. 10 (b) For tax years beginning on or after January 1, 2017, but 11 before January 1, 2018, the dollar amount is thirty thousand 12 two hundred fifty dollars. 13 (c) For tax years beginning on or after January 1, 2018, the 14 dollar amount is thirty-five thousand two hundred dollars. 15 3. (a) For tax years beginning on or after January 1, 16 2016, but before January 1, 2017, the dollar amount is twenty 17 thousand two hundred fifty dollars. 18 (b) For tax years beginning on or after January 1, 2017, 19 but before January 1, 2018, the dollar amount is twenty-five 20 thousand seven hundred fifty dollars. 21 (c) For tax years beginning on or after January 1, 2018, the 22 dollar amount is thirty thousand seven hundred dollars. 23 b. In lieu of the computation in subsection 1 or 2, or in 24 paragraph “a” of this subsection , if the married persons’, 25 filing jointly or filing separately on a combined return, 26 head of household’s, or surviving spouse’s net income exceeds 27 thirteen thousand five hundred dollars the appropriate dollar 28 amount specified in paragraph “a” , subparagraph (2) , the 29 regular tax imposed under this division shall be the lesser of 30 the maximum state individual income tax rate times the portion 31 of the net income in excess of thirteen thousand five hundred 32 dollars the appropriate dollar amount specified in paragraph 33 “a” , subparagraph (2), or the regular tax liability computed 34 without regard to this sentence. Taxpayers electing to file 35 -7- LSB 6185XC (2) 85 mm/sc 7/ 9

S.F. _____ separately shall compute the alternate tax described in this 1 paragraph using the total net income of the husband and wife. 2 The alternate tax described in this paragraph does not apply 3 if one spouse elects to carry back or carry forward the loss as 4 provided in section 422.9, subsection 3 . 5 Sec. 16. EFFECTIVE DATE. This division of this Act takes 6 effect January 1, 2016. 7 Sec. 17. APPLICABILITY. This division of this Act applies 8 to tax years beginning on or after January 1, 2016. 9 EXPLANATION 10 The inclusion of this explanation does not constitute agreement with 11 the explanation’s substance by the members of the general assembly. 12 This bill relates to the state sales and use taxes, the 13 natural resources and outdoor recreation trust fund, and the 14 state individual income tax. 15 DIVISION I —— SALES AND USE TAXES. Division I relates 16 to state sales and use taxes and to an amendment to the Iowa 17 Constitution ratified on November 2, 2010, which created a 18 natural resources and outdoor recreation trust fund (fund) 19 and dedicated a portion of state revenues to the fund for 20 the purposes of protecting and enhancing water quality and 21 natural areas in the state including parks, trails, and fish 22 and wildlife habitat, and conserving agricultural soils in 23 the state (Article VII, section 10). The fund is codified in 24 Code section 461.31. Pursuant to the amendment, the amount 25 credited to the fund will be equal to the amount generated 26 by an increase in the state sales tax rate occurring after 27 the effective date of the constitutional amendment, but shall 28 not exceed the amount that a state sales tax rate of 0.375 29 percent would generate. The state sales tax rate has not 30 been increased since the effective date of the constitutional 31 amendment, so no amounts have been credited to the fund. The 32 division increases the sales tax rate and the use tax rate 33 from 6 percent to 6.125 percent on January 1, 2016, from 6.125 34 percent to 6.25 percent on January 1, 2017, and from 6.25 35 -8- LSB 6185XC (2) 85 mm/sc 8/ 9

S.F. _____ percent to 6.375 percent on January 1, 2018. The division 1 also amends the transfer of use tax revenues to the secure 2 an advanced vision for education fund (SAVE) in Code section 3 423F.2 to ensure that SAVE receives approximately the same 4 proportion of the total use tax revenue as it did prior to the 5 use tax rate increases provided in the division. 6 The division takes effect January 1, 2016. 7 DIVISION II —— INDIVIDUAL INCOME TAXES. Division II 8 relates to the individual income tax. The division increases 9 the amount of net income at which the individual income tax 10 will not be imposed on a taxpayer who is under 65 years of 11 age. Under current law, the individual income tax is not 12 imposed if net income does not exceed $13,500 in the case of 13 married persons filing a joint or separate return, a head of 14 household, or a surviving spouse, or $9,000 in the case of 15 all other taxpayers. The division increases those amounts to 16 $24,750 or $20,250, respectively, for tax year 2016; $30,250 17 or $25,750, respectively, for tax year 2017; and $35,200 or 18 $30,700, respectively, for tax year 2018, and for each tax year 19 thereafter. 20 The division makes a conforming amendment to the calculation 21 of the alternate tax in Code section 422.5(3)(b) for married 22 persons filing a joint or separate return. 23 The division takes effect January 1, 2016, and applies to tax 24 years beginning on or after that date. 25 -9- LSB 6185XC (2) 85 mm/sc 9/ 9