S.F. 470 Section 1. Section 422.5, subsection 1, Code 2015, is 1 amended to read as follows: 2 1. A tax is imposed upon every resident and nonresident 3 of the state which tax shall be levied, collected, and paid 4 annually upon and with respect to the entire taxable income as 5 defined in this division at rates as follows: 6 a. On all taxable income from zero through one thousand 7 dollars, thirty-six hundredths of one percent. 8 b. On all taxable income exceeding one thousand dollars but 9 not exceeding two thousand dollars, seventy-two hundredths of 10 one percent. 11 c. On all taxable income exceeding two thousand dollars 12 but not exceeding four thousand dollars, two and forty-three 13 hundredths percent. 14 d. On all taxable income exceeding four thousand dollars but 15 not exceeding nine thousand dollars, four and one-half percent. 16 e. On all taxable income exceeding nine thousand dollars 17 but not exceeding fifteen thousand dollars , six and twelve 18 hundredths five percent. 19 f. On all taxable income exceeding fifteen thousand dollars 20 but not exceeding twenty thousand dollars, six and forty-eight 21 hundredths percent. 22 g. On all taxable income exceeding twenty thousand dollars 23 but not exceeding thirty thousand dollars, six and eight-tenths 24 percent. 25 h. On all taxable income exceeding thirty thousand dollars 26 but not exceeding forty-five thousand dollars, seven and 27 ninety-two hundredths percent. 28 i. On all taxable income exceeding forty-five thousand 29 dollars, eight and ninety-eight hundredths percent. 30 j. f. (1) The tax imposed upon the taxable income of a 31 nonresident shall be computed by reducing the amount determined 32 pursuant to paragraphs “a” through “i” “e” by the amounts of 33 nonrefundable credits under this division and by multiplying 34 this resulting amount by a fraction of which the nonresident’s 35 -1- LSB 1983XS (2) 86 mm/sc 1/ 6

S.F. 470 net income allocated to Iowa, as determined in section 1 422.8, subsection 2 , paragraph “a” , is the numerator and the 2 nonresident’s total net income computed under section 422.7 is 3 the denominator. This provision also applies to individuals 4 who are residents of Iowa for less than the entire tax year. 5 (2) (a) The tax imposed upon the taxable income of a 6 resident shareholder in an S corporation or of an estate 7 or trust with a situs in Iowa that is a shareholder in an S 8 corporation, which S corporation has in effect for the tax 9 year an election under subchapter S of the Internal Revenue 10 Code and carries on business within and without the state, 11 may be computed by reducing the amount determined pursuant to 12 paragraphs “a” through “i” “e” by the amounts of nonrefundable 13 credits under this division and by multiplying this resulting 14 amount by a fraction of which the resident’s or estate’s 15 or trust’s net income allocated to Iowa, as determined in 16 section 422.8, subsection 2 , paragraph “b” , is the numerator 17 and the resident’s or estate’s or trust’s total net income 18 computed under section 422.7 is the denominator. If a resident 19 shareholder, or an estate or trust with a situs in Iowa 20 that is a shareholder, has elected to take advantage of this 21 subparagraph (2), and for the next tax year elects not to take 22 advantage of this subparagraph, the resident or estate or 23 trust shareholder shall not reelect to take advantage of this 24 subparagraph for the three tax years immediately following the 25 first tax year for which the shareholder elected not to take 26 advantage of this subparagraph, unless the director consents to 27 the reelection. This subparagraph also applies to individuals 28 who are residents of Iowa for less than the entire tax year. 29 (b) This subparagraph (2) shall not affect the amount of 30 the taxpayer’s checkoffs under this division , the credits from 31 tax provided under this division , and the allocation of these 32 credits between spouses if the taxpayers filed separate returns 33 or separately on combined returns. 34 Sec. 2. Section 422.5, subsection 2, paragraph a, Code 2015, 35 -2- LSB 1983XS (2) 86 mm/sc 2/ 6

S.F. 470 is amended to read as follows: 1 a. There is imposed upon every resident and nonresident 2 of this state, including estates and trusts, the greater of 3 the tax determined in subsection 1 , paragraphs “a” through “j” 4 “f” , or the state alternative minimum tax equal to seventy-five 5 percent of the maximum state individual income tax rate for the 6 tax year, rounded to the nearest one-tenth of one percent, of 7 the state alternative minimum taxable income of the taxpayer as 8 computed under this subsection . 9 Sec. 3. Section 422.5, subsection 6, Code 2015, is amended 10 to read as follows: 11 6. Upon determination of the latest cumulative inflation 12 factor, the director shall multiply each dollar amount set 13 forth in subsection 1 , paragraphs “a” through “i” “e” by this 14 cumulative inflation factor, shall round off the resulting 15 product to the nearest one dollar, and shall incorporate the 16 result into the income tax forms and instructions for each tax 17 year. 18 Sec. 4. Section 422.8, subsection 2, paragraph a, Code 2015, 19 is amended to read as follows: 20 a. Nonresident’s net income allocated to Iowa is the net 21 income, or portion of net income, which is derived from a 22 business, trade, profession, or occupation carried on within 23 this state or income from any property, trust, estate, or 24 other source within Iowa. However, income derived from a 25 business, trade, profession, or occupation carried on within 26 this state and income from any property, trust, estate, or 27 other source within Iowa shall not include distributions from 28 pensions, including defined benefit or defined contribution 29 plans, annuities, individual retirement accounts, and deferred 30 compensation plans or any earnings attributable thereto so long 31 as the distribution is directly related to an individual’s 32 documented retirement and received while the individual is a 33 nonresident of this state. If a business, trade, profession, 34 or occupation is carried on partly within and partly without 35 -3- LSB 1983XS (2) 86 mm/sc 3/ 6

S.F. 470 the state, only the portion of the net income which is fairly 1 and equitably attributable to that part of the business, 2 trade, profession, or occupation carried on within the state 3 is allocated to Iowa for purposes of section 422.5, subsection 4 1 , paragraph “j” “f” , and section 422.13 and income from any 5 property, trust, estate, or other source partly within and 6 partly without the state is allocated to Iowa in the same 7 manner, except that annuities, interest on bank deposits and 8 interest-bearing obligations, and dividends are allocated 9 to Iowa only to the extent to which they are derived from a 10 business, trade, profession, or occupation carried on within 11 the state. 12 Sec. 5. Section 422.11B, Code 2015, is amended to read as 13 follows: 14 422.11B Minimum tax credit. 15 1. a. There is allowed as a credit against the tax 16 determined in section 422.5, subsection 1 , paragraphs “a” 17 through “j” “f” for a tax year an amount equal to the minimum 18 tax credit for that tax year. 19 b. The minimum tax credit for a tax year is the excess, 20 if any, of the net minimum tax imposed for all prior tax 21 years beginning on or after January 1, 1987, over the amount 22 allowable as a credit under this section for those prior tax 23 years. 24 2. a. The allowable credit under subsection 1 for a tax 25 year shall not exceed the excess, if any, of the tax determined 26 in section 422.5, subsection 1 , paragraphs “a” through “j” “f” 27 over the state alternative minimum tax as determined in section 28 422.5, subsection 2 . 29 b. The net minimum tax for a tax year is the excess, if any, 30 of the tax determined in section 422.5, subsection 2 , for the 31 tax year over the tax determined in section 422.5, subsection 32 1 , paragraphs “a” through “j” “f” for the tax year. 33 Sec. 6. Section 422.33, subsection 1, Code 2015, is amended 34 by striking the subsection and inserting in lieu thereof the 35 -4- LSB 1983XS (2) 86 mm/sc 4/ 6

S.F. 470 following: 1 1. a. A tax is imposed annually upon each corporation doing 2 business in this state, or deriving income from sources within 3 this state, at the rate of five percent of the taxable income 4 received by the corporation during the income year. 5 b. For purposes of this section, “taxable income” means the 6 net income as calculated in section 422.35 and determined to 7 be reasonably attributable to Iowa pursuant to subsections 2 8 and 3. 9 Sec. 7. Section 422.33, subsection 1A, Code 2015, is amended 10 to read as follows: 11 1A. There is imposed upon each corporation exempt from 12 the general business tax on corporations by section 422.34, 13 subsection 2 , a tax at the rates rate specified in subsection 1 14 upon the state’s apportioned share computed in accordance with 15 subsections 2 and 3 of the unrelated business income computed 16 in accordance with the Internal Revenue Code and with the 17 adjustments set forth in section 422.35 . 18 Sec. 8. Section 422.33, subsection 4, paragraph a, Code 19 2015, is amended to read as follows: 20 a. In addition to all taxes imposed under this division , 21 there is imposed upon each corporation doing business within 22 the state the greater of the tax determined in subsection 1 , 23 paragraphs “a” through “d” or the state alternative minimum tax 24 equal to sixty percent of the maximum state corporate income 25 tax rate, rounded to the nearest one-tenth of one percent, of 26 the state alternative minimum taxable income of the taxpayer 27 computed under this subsection . 28 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies 29 retroactively to January 1, 2015, for tax years beginning on 30 or after that date. 31 EXPLANATION 32 The inclusion of this explanation does not constitute agreement with 33 the explanation’s substance by the members of the general assembly. 34 This bill relates to the tax brackets and tax rates imposed 35 -5- LSB 1983XS (2) 86 mm/sc 5/ 6

S.F. 470 on individuals and corporations under the individual and 1 corporate income taxes. 2 INDIVIDUAL INCOME TAX. Currently, the individual income tax 3 is imposed in a progressive manner using nine income brackets 4 with increasing rates ranging from a low of 0.36 percent on the 5 first $1,539 of taxable income to a high of 8.98 percent on 6 all taxable income in excess of $69,255. The taxable income 7 amounts in each bracket are indexed for inflation each year by 8 the department of revenue. The bill eliminates the top four 9 tax brackets and tax rates and lowers the rate in the fifth tax 10 bracket from 6.12 percent to 5 percent. As a result, the new 11 tax rates and tax brackets (2015 amounts) are as follows: 12 1. From $0 to $1,539, 0.36 percent. 13 2. From $1,540 to $3,078, 0.72 percent. 14 3. From $3,079 to $6,156, 2.43 percent. 15 4. From $6,157 to $13,851, 4.5 percent. 16 5. From $13,852 and over, 5 percent. 17 CORPORATE INCOME TAX. Currently, the corporate income tax 18 is imposed in a progressive manner using four income brackets 19 with increasing rates ranging from a low of 6 percent on the 20 first $25,000 of taxable income to a high of 12 percent on 21 taxable income of $250,000 or more. The bill eliminates this 22 tiered bracket and rate structure and imposes the tax at a rate 23 of 5 percent on the corporation’s taxable income. 24 The bill applies retroactively to tax years beginning on or 25 after January 1, 2015. 26 -6- LSB 1983XS (2) 86 mm/sc 6/ 6