H.F. 2319 Section 1. Section 422.21, Code 2016, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 8. a. In order to raise awareness of 3 liabilities for use taxes levied on purchases made outside the 4 state for use in the state, and to increase compliance with 5 such provisions of law, the department shall provide space 6 on the individual income tax form for tax years beginning on 7 or after January 1, 2016, wherein the taxpayer may report 8 and remit use tax owed by the taxpayer under chapter 423, 9 subchapter III, for the period of time covered by the income 10 tax return. 11 b. The department, when conducting an audit or examination 12 of a taxpayer’s return, shall not audit or examine the use tax 13 portion of the return. 14 c. The department shall include the following information 15 with the individual income tax form instructions for tax years 16 beginning on or after January 1, 2016: 17 (1) An explanation of the obligation to pay use tax on 18 purchases made outside the state, including purchases from mail 19 order, the internet, or other sellers that do not collect sales 20 or use tax. 21 (2) A method to help a taxpayer determine the amount of use 22 tax the taxpayer owes. The method may include a table that 23 provides the average amounts of use tax payable by taxpayers in 24 various income ranges. 25 Sec. 2. Section 423.34, Code 2016, is amended to read as 26 follows: 27 423.34 Liability of user. 28 1. Any person who uses any property or services enumerated 29 in section 423.2 upon which the use tax has not been paid, 30 either to the county treasurer or to a retailer or direct to 31 the department as required by this subchapter , shall be liable 32 for the payment of tax , and . 33 2. Any person liable under subsection 1 shall on or before 34 the last day of the month next succeeding each quarterly period 35 -1- LSB 5380YH (3) 86 mm/sc 1/ 4

H.F. 2319 pay the use tax upon all property or services used by the 1 person during the preceding quarterly period in the manner and 2 accompanied by such returns as the director shall prescribe. 3 All of the provisions of sections 423.32 and 423.33 with 4 reference to the returns and payments shall be applicable to 5 the returns and payments required by this section subsection . 6 3. a. Notwithstanding subsection 2, use tax amounts 7 reported and remitted with an income tax return pursuant to 8 section 422.21, subsection 8, shall be applied to the earliest 9 use tax owed by the taxpayer for the period of time covered 10 by the applicable income tax return, and such payment and 11 reporting shall be considered timely. Penalties or interest 12 shall not be imposed with respect to such amounts, and interest 13 shall not accrue on refunds authorized from such amounts. 14 b. This subsection shall not apply to the following: 15 (1) A person who holds a direct pay tax permit authorized 16 under section 423.36 for any period of time covered by the 17 applicable income tax return. 18 (2) Any use tax amounts reported and remitted with an income 19 tax return if the department gives notice to the taxpayer on or 20 before the date the applicable income tax return is filed or 21 use tax is paid, whichever is later, that the department has 22 determined the taxpayer’s use tax liability pursuant to section 23 423.37 for any portion of the period of time covered by the 24 applicable income tax return, or that the department will audit 25 or examine the taxpayer’s use tax liability or use tax returns 26 for any portion of the period of time covered by the applicable 27 income tax return. 28 Sec. 3. RETROACTIVE APPLICABILITY. The following provision 29 or provisions of this Act apply retroactively to January 1, 30 2016, for tax years beginning on or after that date: 31 1. The section of this Act amending section 422.21. 32 Sec. 4. RETROACTIVE APPLICABILITY. The following provision 33 or provisions of this Act apply retroactively to January 1, 34 2016, for uses of property or services on or after that date: 35 -2- LSB 5380YH (3) 86 mm/sc 2/ 4

H.F. 2319 1. The section of this Act amending section 423.34. 1 EXPLANATION 2 The inclusion of this explanation does not constitute agreement with 3 the explanation’s substance by the members of the general assembly. 4 This bill directs the department of revenue (department) 5 to provide space on the individual income tax form to allow a 6 taxpayer to report and remit use tax liability for the period 7 of time covered by the income tax return. The bill provides 8 that the department, when conducting an audit or examination of 9 the taxpayer’s income tax return, shall not audit or examine 10 the use tax portion of the return. 11 The bill also directs the department to include in the income 12 tax form instructions an explanation of the obligation to pay 13 use tax and a method to help determine the use tax liability, 14 which method may include a table providing the average amount 15 of use tax payable by range of income. The changes to the 16 income tax form and instructions apply retroactively to tax 17 years beginning in 2016. 18 The bill also amends the use tax liability provisions in Code 19 section 423.34, which under current law requires any person who 20 uses property or services for which the use tax has not been 21 paid to pay the use tax and file use tax returns within certain 22 time frames. Failure to do so can result in the imposition of 23 penalties and interest. 24 The bill provides that use tax reported and remitted on a 25 taxpayer’s income tax return will be applied to the earliest 26 use tax owed for the applicable period of time covered by 27 the return, and will be considered timely reported and paid. 28 No penalty or interest will be imposed with respect to such 29 amounts, and interest will not accrue on refunds authorized 30 from such amounts. 31 These penalty and interest exceptions do not apply under two 32 circumstances. First, they do not apply to a taxpayer who has 33 a direct pay tax permit issued by the department for any period 34 of time covered by the applicable income tax return. A direct 35 -3- LSB 5380YH (3) 86 mm/sc 3/ 4

H.F. 2319 pay tax permit authorizes a taxpayer to remit sales and use 1 tax owed directly to the department instead of the tax being 2 collected and paid by the seller. 3 Second, they do not apply to use tax amounts remitted with 4 an income tax return if the department previously determined 5 the taxpayer’s use tax liability or notified the taxpayer that 6 it would audit or examine such use tax liability or use tax 7 returns for any period of time covered by the applicable income 8 tax return. 9 The amendments to the use tax liability provisions in Code 10 section 423.34 apply retroactively to January 1, 2016, for uses 11 of property and services on or after that date. 12 -4- LSB 5380YH (3) 86 mm/sc 4/ 4