H.F. 611 Section 1. Section 422.4, subsection 1, Code 2015, is 1 amended to read as follows: 2 1. a. “Annual inflation factor” means an index, expressed 3 as a percentage, determined by the department by October 15 of 4 the calendar year preceding the calendar year for which the 5 factor is determined, which reflects the purchasing power of 6 the dollar as a result of inflation during the fiscal year 7 ending in the calendar year preceding the calendar year for 8 which the factor is determined. In determining the annual 9 inflation factor, the department shall use the annual percent 10 change, but not less than zero percent, in the gross domestic 11 product price deflator computed for the second quarter of the 12 calendar year by the bureau of economic analysis of the United 13 States department of commerce and shall add all of that percent 14 change to one hundred percent. The annual inflation factor and 15 the cumulative inflation factor shall each be expressed as a 16 percentage rounded to the nearest one-tenth of one percent. 17 The annual inflation factor shall not be less than one hundred 18 percent. 19 b. “Cumulative inflation factor” means the product of the 20 annual inflation factor for the 1988 2015 calendar year and 21 all annual inflation factors for subsequent calendar years 22 as determined pursuant to this subsection . The cumulative 23 inflation factor applies to all tax years beginning on or after 24 January 1 of the calendar year for which the latest annual 25 inflation factor has been determined. 26 c. The annual inflation factor for the 1988 2015 calendar 27 year is one hundred percent. 28 Sec. 2. Section 422.5, subsection 1, Code 2015, is amended 29 to read as follows: 30 1. A tax is imposed upon every resident and nonresident 31 of the state which tax shall be levied, collected, and paid 32 annually upon and with respect to the entire taxable income as 33 defined in this division at rates as follows: 34 a. On all taxable income from zero through one thousand five 35 -1- LSB 1924YH (7) 86 mm/sc 1/ 7

H.F. 611 hundred thirty-nine dollars, thirty-six thirty-five hundredths 1 of one percent. 2 b. On all taxable income exceeding one thousand five hundred 3 thirty-nine dollars but not exceeding two three thousand 4 seventy-eight dollars, seventy-two hundredths seven-tenths of 5 one percent. 6 c. On all taxable income exceeding two three thousand 7 seventy-eight dollars but not exceeding four six thousand one 8 hundred fifty-six dollars, two and forty-three thirty-six 9 hundredths percent. 10 d. On all taxable income exceeding four six thousand one 11 hundred fifty-six dollars but not exceeding nine thirteen 12 thousand eight hundred fifty-one dollars, four and one-half 13 thirty-seven hundredths percent. 14 e. On all taxable income exceeding nine thirteen thousand 15 eight hundred fifty-one dollars but not exceeding fifteen 16 twenty-three thousand eighty-five dollars, six five and twelve 17 ninety-four hundredths percent. 18 f. On all taxable income exceeding fifteen twenty-three 19 thousand eighty-five dollars but not exceeding twenty thirty 20 thousand seven hundred eighty dollars, six and forty-eight 21 twenty-nine hundredths percent. 22 g. On all taxable income exceeding twenty thirty thousand 23 seven hundred eighty dollars but not exceeding thirty forty-six 24 thousand one hundred seventy dollars, six and eight-tenths 25 six-tenths percent. 26 h. On all taxable income exceeding thirty forty-six thousand 27 one hundred seventy dollars but not exceeding forty-five 28 sixty-nine thousand two hundred fifty-five dollars, seven and 29 ninety-two sixty-eight hundredths percent. 30 i. On all taxable income exceeding forty-five sixty-nine 31 thousand two hundred fifty-five dollars but not exceeding one 32 hundred thousand dollars , eight and ninety-eight seventy-one 33 hundredths percent. 34 j. On all taxable income exceeding one hundred thousand 35 -2- LSB 1924YH (7) 86 mm/sc 2/ 7

H.F. 611 dollars but not exceeding two hundred fifty thousand dollars, 1 eight and eight-tenths percent. 2 k. On all taxable income exceeding two hundred fifty 3 thousand dollars, eight and eighty-nine hundredths percent. 4 j. l. (1) The tax imposed upon the taxable income of a 5 nonresident shall be computed by reducing the amount determined 6 pursuant to paragraphs “a” through “i” “k” by the amounts of 7 nonrefundable credits under this division and by multiplying 8 this resulting amount by a fraction of which the nonresident’s 9 net income allocated to Iowa, as determined in section 10 422.8, subsection 2 , paragraph “a” , is the numerator and the 11 nonresident’s total net income computed under section 422.7 is 12 the denominator. This provision also applies to individuals 13 who are residents of Iowa for less than the entire tax year. 14 (2) (a) The tax imposed upon the taxable income of a 15 resident shareholder in an S corporation or of an estate 16 or trust with a situs in Iowa that is a shareholder in an S 17 corporation, which S corporation has in effect for the tax 18 year an election under subchapter S of the Internal Revenue 19 Code and carries on business within and without the state, 20 may be computed by reducing the amount determined pursuant to 21 paragraphs “a” through “i” “k” by the amounts of nonrefundable 22 credits under this division and by multiplying this resulting 23 amount by a fraction of which the resident’s or estate’s 24 or trust’s net income allocated to Iowa, as determined in 25 section 422.8, subsection 2 , paragraph “b” , is the numerator 26 and the resident’s or estate’s or trust’s total net income 27 computed under section 422.7 is the denominator. If a resident 28 shareholder, or an estate or trust with a situs in Iowa 29 that is a shareholder, has elected to take advantage of this 30 subparagraph (2), and for the next tax year elects not to take 31 advantage of this subparagraph, the resident or estate or 32 trust shareholder shall not reelect to take advantage of this 33 subparagraph for the three tax years immediately following the 34 first tax year for which the shareholder elected not to take 35 -3- LSB 1924YH (7) 86 mm/sc 3/ 7

H.F. 611 advantage of this subparagraph, unless the director consents to 1 the reelection. This subparagraph also applies to individuals 2 who are residents of Iowa for less than the entire tax year. 3 (b) This subparagraph (2) shall not affect the amount of 4 the taxpayer’s checkoffs under this division , the credits from 5 tax provided under this division , and the allocation of these 6 credits between spouses if the taxpayers filed separate returns 7 or separately on combined returns. 8 Sec. 3. Section 422.5, subsection 2, paragraph a, Code 2015, 9 is amended to read as follows: 10 a. There is imposed upon every resident and nonresident 11 of this state, including estates and trusts, the greater of 12 the tax determined in subsection 1 , paragraphs “a” through “j” 13 “l” , or the state alternative minimum tax equal to seventy-five 14 percent of the maximum state individual income tax rate for the 15 tax year, rounded to the nearest one-tenth of one percent, of 16 the state alternative minimum taxable income of the taxpayer as 17 computed under this subsection . 18 Sec. 4. Section 422.5, subsection 6, Code 2015, is amended 19 to read as follows: 20 6. Upon determination of the latest cumulative inflation 21 factor, the director shall multiply each dollar amount set 22 forth in subsection 1 , paragraphs “a” through “i” “k” by this 23 cumulative inflation factor, shall round off the resulting 24 product to the nearest one dollar, and shall incorporate the 25 result into the income tax forms and instructions for each tax 26 year. 27 Sec. 5. Section 422.8, subsection 2, paragraph a, Code 2015, 28 is amended to read as follows: 29 a. Nonresident’s net income allocated to Iowa is the net 30 income, or portion of net income, which is derived from a 31 business, trade, profession, or occupation carried on within 32 this state or income from any property, trust, estate, or 33 other source within Iowa. However, income derived from a 34 business, trade, profession, or occupation carried on within 35 -4- LSB 1924YH (7) 86 mm/sc 4/ 7

H.F. 611 this state and income from any property, trust, estate, or 1 other source within Iowa shall not include distributions from 2 pensions, including defined benefit or defined contribution 3 plans, annuities, individual retirement accounts, and deferred 4 compensation plans or any earnings attributable thereto so long 5 as the distribution is directly related to an individual’s 6 documented retirement and received while the individual is a 7 nonresident of this state. If a business, trade, profession, 8 or occupation is carried on partly within and partly without 9 the state, only the portion of the net income which is fairly 10 and equitably attributable to that part of the business, 11 trade, profession, or occupation carried on within the state 12 is allocated to Iowa for purposes of section 422.5, subsection 13 1 , paragraph “j” “l” , and section 422.13 and income from any 14 property, trust, estate, or other source partly within and 15 partly without the state is allocated to Iowa in the same 16 manner, except that annuities, interest on bank deposits and 17 interest-bearing obligations, and dividends are allocated 18 to Iowa only to the extent to which they are derived from a 19 business, trade, profession, or occupation carried on within 20 the state. 21 Sec. 6. Section 422.11B, Code 2015, is amended to read as 22 follows: 23 422.11B Minimum tax credit. 24 1. a. There is allowed as a credit against the tax 25 determined in section 422.5, subsection 1 , paragraphs “a” 26 through “j” “l” for a tax year an amount equal to the minimum 27 tax credit for that tax year. 28 b. The minimum tax credit for a tax year is the excess, 29 if any, of the net minimum tax imposed for all prior tax 30 years beginning on or after January 1, 1987, over the amount 31 allowable as a credit under this section for those prior tax 32 years. 33 2. a. The allowable credit under subsection 1 for a tax 34 year shall not exceed the excess, if any, of the tax determined 35 -5- LSB 1924YH (7) 86 mm/sc 5/ 7

H.F. 611 in section 422.5, subsection 1 , paragraphs “a” through “j” “l” 1 over the state alternative minimum tax as determined in section 2 422.5, subsection 2 . 3 b. The net minimum tax for a tax year is the excess, if any, 4 of the tax determined in section 422.5, subsection 2 , for the 5 tax year over the tax determined in section 422.5, subsection 6 1 , paragraphs “a” through “j” “l” for the tax year. 7 Sec. 7. Section 425.23, subsection 4, paragraph b, Code 8 2015, is amended to read as follows: 9 b. The annual adjustment factor for the 1998 base year 10 is one hundred percent. For each subsequent base year, the 11 annual adjustment factor equals the annual inflation factor for 12 the calendar year, in which the base year begins, as computed 13 in section 422.4 for purposes of the individual income tax , 14 without regard to subsection 1, paragraph “c” , of that section . 15 Sec. 8. RETROACTIVE APPLICABILITY. This Act applies 16 retroactively to January 1, 2015, for tax years beginning on 17 or after that date. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill amends the individual income tax brackets and tax 22 rates. Under current law for tax year 2015, the individual 23 income tax is computed using nine progressive tax brackets 24 and tax rates ranging from a low of 0.36 percent on the first 25 $1,539 of taxable income to a high of 8.98 percent on all 26 taxable income in excess of $69,255. The taxable income 27 amounts in each of these nine tax brackets are adjusted for 28 inflation each year by the department of revenue under current 29 law, and the bill updates those taxable income amounts to 30 reflect the amounts set for the 2015 tax year. 31 The bill adds two new tax brackets and tax rates for taxable 32 income greater than $100,000 but less than $250,000, and for 33 taxable income in excess of $250,000. The tax rates for the 34 two new tax brackets are set at rates that are approximately 35 -6- LSB 1924YH (7) 86 mm/sc 6/ 7

H.F. 611 2 percent and 1 percent, respectively, lower than the current 1 top tax rate of 8.98 percent. The bill also reduces each of the 2 existing nine tax rates by approximately 3 percent. The new 3 tax brackets and tax rates are as follows: 4 1. From $0 to $1,539, 0.35 percent. 5 2. From $1,540 to $3,078, 0.70 percent. 6 3. From $3,079 to $6,156, 2.36 percent. 7 4. From $6,157 to $13,851, 4.37 percent. 8 5. From $13,852 to $23,085, 5.94 percent. 9 6. From $23,086 to $30,780, 6.29 percent. 10 7. From $30,781 to $46,170, 6.60 percent. 11 8. From $46,171 to $69,255, 7.68 percent. 12 9. From $69,256 to $100,000, 8.71 percent. 13 10. From $100,001 to $250,000, 8.80 percent. 14 11. From $250,001 and over, 8.89 percent. 15 The bill makes several conforming amendments to update 16 references to the tax brackets and tax rates in other parts of 17 the Code. 18 The bill applies retroactively to tax years beginning on or 19 after January 1, 2015. 20 -7- LSB 1924YH (7) 86 mm/sc 7/ 7