House Study Bill 535 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS) A BILL FOR An Act temporarily updating the Code references to the Internal 1 Revenue Code and decoupling from certain federal bonus 2 depreciation provisions, and including effective date and 3 retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5654YC (5) 86 mm/sc

H.F. _____ Section 1. INTERNAL REVENUE CODE REFERENCES FOR 1 2015. Notwithstanding the definition of “Internal Revenue 2 Code” in section 15.335, subsection 7, section 422.3, 3 subsection 5, section 422.10, subsection 3, section 422.32, 4 subsection 1, and section 422.33, subsection 5, Code 2016, 5 the following shall apply for the period beginning January 1, 6 2015, and ending December 31, 2015, and for tax years beginning 7 during the 2015 calendar year: 8 1. The definition of “Internal Revenue Code” for purposes 9 of section 15.335, subsection 7, section 422.10, subsection 3, 10 and section 422.33, subsection 5, Code 2016, and for purposes 11 of references in the 2016 Iowa Code and 2016 Iowa Acts to the 12 definition of “Internal Revenue Code” in those sections, shall 13 mean the Internal Revenue Code in effect on January 1, 2016. 14 2. The definition of “Internal Revenue Code” for purposes 15 of sections 422.3 and 422.32, Code 2016, and for purposes of 16 references in the 2016 Iowa Code and 2016 Iowa Acts to the 17 definition of “Internal Revenue Code” in those sections, shall 18 mean the Internal Revenue Code of 1954, prior to the date of 19 its redesignation as the Internal Revenue Code of 1986 by the 20 Tax Reform Act of 1986, or means the Internal Revenue Code of 21 1986 as amended to and including January 1, 2016. 22 Sec. 2. DEDUCTION FOR STATE SALES AND USE TAX FOR 23 2015. Notwithstanding section 422.9, subsection 2, paragraph 24 “i”, Code 2016, the deduction for state sales and use taxes is 25 allowable under section 422.9 for tax years beginning during 26 the 2015 calendar year, but only if the taxpayer elected to 27 deduct the state sales and use taxes in lieu of state income 28 taxes under section 164 of the Internal Revenue Code. The 29 deduction for state sales and use taxes is not allowed if the 30 taxpayer has taken the deduction for state income taxes or 31 claimed the standard deduction under section 63 of the Internal 32 Revenue Code. 33 Sec. 3. BONUS DEPRECIATION FOR 2015. Notwithstanding 34 section 1 of this Act, or any other provision of law to the 35 -1- LSB 5654YC (5) 86 mm/sc 1/ 3

H.F. _____ contrary, the additional first-year depreciation allowance 1 authorized in section 168(k) of the Internal Revenue Code, 2 as enacted by Pub. L. No. 114-113, §143, does not apply in 3 computing net income for state tax purposes for tax years 4 ending on or after January 1, 2015, but before January 1, 5 2016. If the taxpayer has taken the additional first-year 6 depreciation allowance for purposes of computing federal 7 adjusted gross income or federal taxable income, as the case 8 may be, then the taxpayer, when computing net income for 9 purposes of the individual income tax under section 422.7 or 10 the corporation income tax or franchise tax under section 11 422.35, shall make the adjustments described in section 422.7, 12 subsection 39A, paragraphs “a” through “c”, Code 2016, or 13 described in section 422.35, subsection 19A, paragraphs “a” 14 through “c”, Code 2016, as applicable. 15 Sec. 4. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 16 immediate importance, takes effect upon enactment. 17 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies 18 retroactively to January 1, 2015. 19 EXPLANATION 20 The inclusion of this explanation does not constitute agreement with 21 the explanation’s substance by the members of the general assembly. 22 This bill updates for 2015 the Iowa Code references to the 23 Internal Revenue Code to make federal income tax revisions 24 enacted by Congress in 2015 applicable for a certain period of 25 time, to allow the deduction for state sales and use tax, and 26 to decouple with certain bonus depreciation provisions. 27 INTERNAL REVENUE CODE REFERENCES. The bill provides that 28 notwithstanding several Code provisions as specified in the 29 bill, the definitions of “Internal Revenue Code” in those Code 30 provisions and, by internal reference, in other sections of the 31 Iowa Code and Iowa Acts shall mean the Internal Revenue Code 32 in effect on, or as amended to and including, January 1, 2016. 33 This definition change applies only to the period beginning 34 January 1, 2015, and ending December 31, 2015, and for tax 35 -2- LSB 5654YC (5) 86 mm/sc 2/ 3

H.F. _____ years beginning during the 2015 calendar year. 1 The affected Code provisions include Code sections 422.3 2 and 422.32, general definition sections in the chapter of the 3 Code that governs corporate and individual income tax and the 4 franchise tax, and Code sections 15.335, 422.10, and 422.33, 5 which contain references to the Internal Revenue Code for the 6 state research activities credit for individuals, corporations, 7 and corporations in economic development areas. 8 Code section 422.9 provides individuals a deduction from 9 net income for state sales and use taxes if the individual 10 chose to deduct sales and use tax in lieu of state income taxes 11 or the standard deduction for federal income tax purposes. 12 This deduction was set to expire under both federal and Iowa 13 law for tax years beginning on or after January 1, 2015. The 14 federal Protecting Americans from Tax Hikes Act of 2015 made 15 the federal deduction permanent. The bill allows the Iowa 16 deduction for tax years beginning during the 2015 calendar 17 year. 18 BONUS DEPRECIATION. The bill decouples, for Iowa income tax 19 purposes for tax years ending on or after January 1, 2015, but 20 before January 1, 2016, from the federal additional first-year 21 depreciation allowance in section 168(k) of the Internal 22 Revenue Code (bonus depreciation) which was modified and 23 extended through 2019 by the federal Protecting Americans from 24 Tax Hikes Act of 2015. Taxpayers who claim bonus depreciation 25 for federal tax purposes are, for the applicable tax year, 26 required to add such depreciation amounts back to Iowa net 27 income, but are then allowed under existing state law to deduct 28 the amount of depreciation that would otherwise be allowable 29 under federal law, without regard to the bonus depreciation 30 allowance. 31 The bill takes effect upon enactment and applies 32 retroactively to January 1, 2015. 33 -3- LSB 5654YC (5) 86 mm/sc 3/ 3