Senate File 468 - Introduced SENATE FILE 468 BY CHELGREN A BILL FOR An Act relating to the individual and corporate income taxes by 1 reducing individual and corporate tax rates and eliminating 2 a deduction for federal income taxes paid, and including 3 retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2000XS (3) 86 mm/sc

S.F. 468 Section 1. Section 422.4, subsection 16, Code 2015, is 1 amended to read as follows: 2 16. The words “taxable income” mean the net income as 3 defined in section 422.7 minus the deductions allowed by 4 section 422.9 , in the case of individuals; in the case of 5 estates or trusts, the words “taxable income” mean the taxable 6 income (without a deduction for personal exemption) as computed 7 for federal income tax purposes under the Internal Revenue 8 Code, but with the adjustments specified in section 422.7 plus 9 the Iowa income tax deducted in computing the federal taxable 10 income and minus federal income taxes as provided in section 11 422.9 , if available . 12 Sec. 2. Section 422.5, subsection 1, paragraphs a, b, c, d, 13 e, f, g, h, and i, Code 2015, are amended to read as follows: 14 a. On all taxable income from zero through one thousand 15 dollars, thirty-six twenty-four hundredths of one percent. 16 b. On all taxable income exceeding one thousand dollars but 17 not exceeding two thousand dollars, seventy-two forty-eight 18 hundredths of one percent. 19 c. On all taxable income exceeding two thousand dollars but 20 not exceeding four thousand dollars, two one and forty-three 21 sixty-two hundredths percent. 22 d. On all taxable income exceeding four thousand dollars but 23 not exceeding nine thousand dollars, four and one-half three 24 percent. 25 e. On all taxable income exceeding nine thousand dollars 26 but not exceeding fifteen thousand dollars, six four and twelve 27 eight hundredths percent. 28 f. On all taxable income exceeding fifteen thousand dollars 29 but not exceeding twenty thousand dollars, six four and 30 forty-eight thirty-two hundredths percent. 31 g. On all taxable income exceeding twenty thousand dollars 32 but not exceeding thirty thousand dollars, six four and 33 eight-tenths fifty-three hundredths percent. 34 h. On all taxable income exceeding thirty thousand dollars 35 -1- LSB 2000XS (3) 86 mm/sc 1/ 4

S.F. 468 but not exceeding forty-five thousand dollars, seven five and 1 ninety-two twenty-eight hundredths percent. 2 i. On all taxable income exceeding forty-five thousand 3 dollars, eight five and ninety-eight ninety-nine hundredths 4 percent. 5 Sec. 3. Section 422.9, subsection 1, Code 2015, is amended 6 to read as follows: 7 1. An optional standard deduction, after deduction of 8 federal income tax , if available , equal to one thousand 9 two hundred thirty dollars for a married person who files 10 separately or a single person or equal to three thousand 11 thirty dollars for a husband and wife who file a joint return, 12 a surviving spouse, or a head of household. The optional 13 standard deduction shall not exceed the amount remaining after 14 deduction of the federal income tax , if available . The amount 15 of federal income tax deducted shall be computed as provided 16 in subsection 2 , paragraph “b” . 17 Sec. 4. Section 422.9, subsection 2, paragraph b, Code 2015, 18 is amended to read as follows: 19 b. Add the amount of federal income taxes paid or accrued, 20 as the case may be, during the tax year beginning on or after 21 January 1, 2015, but before January 1, 2016, to the extent 22 payment is for a tax year beginning prior to January 1, 2015, 23 and subtract any federal income tax refunds received during 24 the tax year beginning on or after January 1, 2015, but before 25 January 1, 2016, to the extent the federal income tax was 26 deducted for a tax year beginning prior to January 1, 2015 . 27 Where married persons, who have filed a joint federal income 28 tax return, file separately, such total shall be divided 29 between them according to the portion of the total paid or 30 accrued, as the case may be, by each. Federal income taxes 31 paid for a tax year in which an Iowa return was not required 32 to be filed shall not be added and federal income tax refunds 33 received from a tax year in which an Iowa return was not 34 required to be filed shall not be subtracted. 35 -2- LSB 2000XS (3) 86 mm/sc 2/ 4

S.F. 468 Sec. 5. Section 422.33, subsection 1, paragraphs a, b, c, 1 and d, Code 2015, are amended to read as follows: 2 a. On the first twenty-five thousand dollars of taxable 3 income, or any part thereof, the rate of six three percent. 4 b. On taxable income between twenty-five thousand dollars 5 and one hundred thousand dollars or any part thereof, the rate 6 of eight four percent. 7 c. On taxable income between one hundred thousand dollars 8 and two hundred fifty thousand dollars or any part thereof, the 9 rate of ten five percent. 10 d. On taxable income of two hundred fifty thousand dollars 11 or more, the rate of twelve six percent. 12 Sec. 6. Section 422.35, subsection 4, Code 2015, is amended 13 to read as follows: 14 4. Subtract fifty percent of the federal income taxes paid 15 or accrued, as the case may be, during the tax year beginning 16 on or after January 1, 2015, but before January 1, 2016, to the 17 extent payment is for a tax year beginning prior to January 1, 18 2015 , adjusted by any federal income tax refunds during the tax 19 year beginning on or after January 1, 2015, but before January 20 1, 2016, to the extent the federal income tax was deducted for 21 a tax year beginning prior to January 1, 2015 ; and add the Iowa 22 income tax deducted in computing said taxable income. 23 Sec. 7. Section 422.35, subsection 11, paragraph g, Code 24 2015, is amended to read as follows: 25 g. The deductions described in paragraphs “a” through “f” 26 of this subsection are allowed subject to the requirement that 27 a corporation affected by the allocation provisions of section 28 422.33 shall be permitted to deduct only that portion of the 29 deductions for net operating loss , and federal income taxes if 30 applicable, that is fairly and equitably allocable to Iowa, 31 under rules prescribed by the director. 32 Sec. 8. RETROACTIVE APPLICABILITY. This Act applies 33 retroactively to January 1, 2015, for tax years beginning on 34 or after that date. 35 -3- LSB 2000XS (3) 86 mm/sc 3/ 4

S.F. 468 EXPLANATION 1 The inclusion of this explanation does not constitute agreement with 2 the explanation’s substance by the members of the general assembly. 3 This bill relates to the individual and corporate income 4 taxes. 5 The bill eliminates, for the individual and corporate income 6 tax, the deduction for federal income taxes paid and the 7 inclusion of federal income tax refunds received except for a 8 one-year phaseout in 2015, for taxes paid and refunds received 9 in that year that relate to a prior tax year. 10 The bill reduces by approximately 33 percent each of the nine 11 tax rates under the individual income tax. The current rates 12 range from a low of 0.36 percent to a high of 8.98 percent. The 13 new rates will range from a low of 0.24 percent to a high of 14 5.99 percent. 15 The bill reduces by approximately 50 percent each of the four 16 tax rates under the corporate income tax. The current rates 17 range from a low of 6 percent to a high of 12 percent. The new 18 rates will range from a low of 3 percent to a high of 6 percent. 19 The bill applies retroactively to tax years beginning on or 20 after January 1, 2015. 21 -4- LSB 2000XS (3) 86 mm/sc 4/ 4