Senate Study Bill 1268 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM) A BILL FOR An Act amending the deduction from the individual income 1 tax, corporate income tax, and franchise tax of wages 2 paid relating to the employment of an individual with a 3 disability, and including effective date and retroactive and 4 other applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2440XC (6) 86 mm/sc

S.F. _____ Section 1. Section 422.7, subsection 12, paragraph a, 1 unnumbered paragraph 1, Code 2015, is amended to read as 2 follows: 3 If the adjusted gross income includes income or loss from 4 a small business operated by the taxpayer, an additional 5 deduction shall be allowed in computing the income or loss from 6 the small business if the small business hired for employment 7 in the state during its annual accounting period ending with or 8 during the taxpayer’s tax year any of the following: 9 Sec. 2. Section 422.7, subsection 12, paragraph c, Code 10 2015, is amended to read as follows: 11 c. For purposes of this subsection : 12 (1) “Physical , “physical or mental impairment” means any 13 physiological disorder or condition, cosmetic disfigurement, or 14 anatomical loss affecting one or more of the body systems or 15 any mental or psychological disorder, including intellectual 16 disability, organic brain syndrome, emotional or mental 17 illness, and specific learning disabilities. 18 (2) (a) “Small business” means a profit or nonprofit 19 business, including but not limited to an individual, 20 partnership, corporation, joint venture, association, or 21 cooperative, to which the following apply: 22 (i) It is not an affiliate or subsidiary of a business 23 dominant in its field of operation. 24 (ii) It has twenty or fewer full-time equivalent positions 25 and not more than the equivalent of three million dollars in 26 annual gross revenues as computed for the preceding fiscal year 27 or as the average of the three preceding fiscal years. 28 (iii) It does not include the practice of a profession. 29 (b) “Small business” includes an employee-owned business 30 which has been an employee-owned business for less than three 31 years or which meets the conditions of subparagraph division 32 (a), subparagraph subdivisions (i) through (iii). 33 (c) For purposes of this definition, “dominant in its field 34 of operation” means having more than twenty full-time equivalent 35 -1- LSB 2440XC (6) 86 mm/sc 1/ 4

S.F. _____ positions and more than three million dollars in annual gross 1 revenues, and “affiliate or subsidiary of a business dominant 2 in its field of operation” means a business which is at least 3 twenty percent owned by a business dominant in its field of 4 operation, or by partners, officers, directors, majority 5 stockholders, or their equivalents, of a business dominant in 6 that field of operation. 7 Sec. 3. Section 422.7, subsection 12, Code 2015, is amended 8 by adding the following new paragraph: 9 NEW PARAGRAPH . d. The department shall develop and 10 distribute information concerning the deduction available for 11 businesses employing persons described in this subsection. 12 Sec. 4. Section 422.7, subsection 12A, Code 2015, is amended 13 by striking the subsection. 14 Sec. 5. Section 422.35, subsection 6, paragraph a, 15 unnumbered paragraph 1, Code 2015, is amended to read as 16 follows: 17 If the taxpayer is a small business corporation, subtract 18 an amount equal to sixty-five percent of the wages paid to 19 individuals, but not to exceed twenty thousand dollars per 20 individual, named in subparagraphs (1), (2), and (3) who were 21 hired for the first time by the taxpayer during the tax year 22 for work done in this state: 23 Sec. 6. Section 422.35, subsection 6, paragraph c, Code 24 2015, is amended to read as follows: 25 c. For purposes of this subsection : 26 (1) “Physical , “physical or mental impairment” means any 27 physiological disorder or condition, cosmetic disfigurement, or 28 anatomical loss affecting one or more of the body systems or 29 any mental or psychological disorder, including intellectual 30 disability, organic brain syndrome, emotional or mental 31 illness, and specific learning disabilities. 32 (2) (a) “Small business” means a profit or nonprofit 33 business, including but not limited to an individual, 34 partnership, corporation, joint venture, association, or 35 -2- LSB 2440XC (6) 86 mm/sc 2/ 4

S.F. _____ cooperative, to which the following apply: 1 (i) It is not an affiliate or subsidiary of a business 2 dominant in its field of operation. 3 (ii) It has either twenty or fewer full-time equivalent 4 positions or not more than the equivalent of three million 5 dollars in annual gross revenues as computed for the preceding 6 fiscal year or as the average of the three preceding fiscal 7 years. 8 (iii) It does not include the practice of a profession. 9 (b) “Small business” includes an employee-owned business 10 which has been an employee-owned business for less than three 11 years or which meets the conditions of subparagraph division 12 (a), subparagraph subdivisions (i) through (iii). 13 (c) For purposes of this definition, “dominant in its field 14 of operation” means having more than twenty full-time equivalent 15 positions and more than three million dollars in annual gross 16 revenues, and “affiliate or subsidiary of a business dominant 17 in its field of operation” means a business which is at least 18 twenty percent owned by a business dominant in its field of 19 operation, or by partners, officers, directors, majority 20 stockholders, or their equivalents, of a business dominant in 21 that field of operation. 22 Sec. 7. Section 422.35, subsection 6, Code 2015, is amended 23 by adding the following new paragraph: 24 NEW PARAGRAPH . d. The department shall develop and 25 distribute information concerning the deduction available for 26 businesses employing persons described in this subsection. 27 Sec. 8. Section 422.35, subsection 6A, Code 2015, is amended 28 by striking the subsection. 29 Sec. 9. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 30 immediate importance, takes effect upon enactment. 31 Sec. 10. APPLICABILITY. This Act applies to individuals 32 hired on or after the effective date of this Act. 33 Sec. 11. RETROACTIVE APPLICABILITY. This Act applies 34 retroactively to January 1, 2015, for tax years beginning on 35 -3- LSB 2440XC (6) 86 mm/sc 3/ 4

S.F. _____ or after that date. 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 modifies the criteria for claiming the deduction 5 from the individual income tax, corporate income tax, and 6 franchise tax of wages paid relating to the employment of an 7 individual with a disability. 8 Under current law, a small business may claim a deduction 9 equal to 65 percent of the wages paid to an individual with a 10 disability that was hired during the year. “Small business” 11 is defined as a business that has 20 or fewer full-time 12 equivalent employees and not more than $3 million in annual 13 gross revenues, that is not affiliated with a business 14 dominant in its field of operation, and that does not involve 15 the practice of a profession. The bill removes this small 16 business restriction to provide that any business may claim the 17 deduction. 18 Also under current law, the department of revenue 19 (department) is required to develop and distribute information 20 concerning a similar deduction for wages paid to an individual 21 who is a felon, on parole, on probation, or in a work release 22 program. The bill provides that the department is also 23 required to develop and distribute information concerning the 24 deduction for wages paid to an individual with a disability. 25 The bill takes effect upon enactment and applies to 26 individuals hired on or after that date. The bill applies 27 retroactively to January 1, 2015, for tax years beginning on 28 or after that date. 29 -4- LSB 2440XC (6) 86 mm/sc 4/ 4