Senate Study Bill 3107 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF REVENUE BILL) A BILL FOR An Act relating to administration of the tax and related 1 laws by the department of revenue, including updating 2 Code references to the Internal Revenue Code, decoupling 3 from certain federal bonus depreciation provisions and the 4 expensing of certain depreciable business assets, requiring 5 background checks for job applicants and persons performing 6 work for the department of revenue, and including effective 7 date and retroactive applicability provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 TLSB 5269XD (8) 86 mm/sc

S.F. _____ H.F. _____ DIVISION I 1 INTERNAL REVENUE CODE REFERENCES 2 Section 1. Section 15.335, subsection 7, paragraph b, Code 3 2016, is amended to read as follows: 4 b. For purposes of this section , “Internal Revenue Code” 5 means the Internal Revenue Code in effect on January 1, 2015 6 2016 . 7 Sec. 2. Section 422.3, subsection 5, Code 2016, is amended 8 to read as follows: 9 5. “Internal Revenue Code” means the Internal Revenue Code 10 of 1954, prior to the date of its redesignation as the Internal 11 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 12 the Internal Revenue Code of 1986 as amended to and including 13 January 1, 2015 2016 . 14 Sec. 3. Section 422.9, subsection 2, paragraph i, Code 2016, 15 is amended to read as follows: 16 i. The deduction for state sales and use taxes is allowable 17 only if the taxpayer elected to deduct the state sales and use 18 taxes in lieu of state income taxes under section 164 of the 19 Internal Revenue Code. A deduction for state sales and use 20 taxes is not allowed if the taxpayer has taken the deduction 21 for state income taxes or claimed the standard deduction under 22 section 63 of the Internal Revenue Code. This paragraph 23 applies to taxable years beginning after December 31, 2003, and 24 before January 1, 2008, and to taxable years beginning after 25 December 31, 2009, and before January 1, 2015 , and to taxable 26 years beginning after December 31, 2015 . 27 Sec. 4. Section 422.10, subsection 3, paragraph b, Code 28 2016, is amended to read as follows: 29 b. For purposes of this section , “Internal Revenue Code” 30 means the Internal Revenue Code in effect on January 1, 2015 31 2016 . 32 Sec. 5. Section 422.32, subsection 1, paragraph h, Code 33 2016, is amended to read as follows: 34 h. “Internal Revenue Code” means the Internal Revenue Code 35 -1- LSB 5269XD (8) 86 mm/sc 1/ 8

S.F. _____ H.F. _____ of 1954, prior to the date of its redesignation as the Internal 1 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 2 the Internal Revenue Code of 1986 as amended to and including 3 January 1, 2015 2016 . 4 Sec. 6. Section 422.33, subsection 5, paragraph e, 5 subparagraph (2), Code 2016, is amended to read as follows: 6 (2) For purposes of this subsection , “Internal Revenue Code” 7 means the Internal Revenue Code in effect on January 1, 2015 8 2016 . 9 Sec. 7. EFFECTIVE UPON ENACTMENT. This division of this 10 Act, being deemed of immediate importance, takes effect upon 11 enactment. 12 Sec. 8. RETROACTIVE APPLICABILITY. The sections of this 13 division of this Act amending sections 15.335, 422.10, and 14 422.33 apply retroactively to January 1, 2015, for tax years 15 beginning on or after that date. 16 Sec. 9. RETROACTIVE APPLICABILITY. The sections of this 17 division of this Act amending sections 422.3, 422.9, and 422.32 18 apply retroactively to January 1, 2016, for tax years beginning 19 on or after that date. 20 DIVISION II 21 BONUS DEPRECIATION 22 Sec. 10. Section 422.7, subsection 39A, unnumbered 23 paragraph 1, Code 2016, is amended to read as follows: 24 The additional first-year depreciation allowance authorized 25 in section 168(k) of the Internal Revenue Code, as enacted by 26 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 27 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 28 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 29 114-113, §143, does not apply in computing net income for 30 state tax purposes. If the taxpayer has taken the additional 31 first-year depreciation allowance for purposes of computing 32 federal adjusted gross income, then the taxpayer shall make the 33 following adjustments to federal adjusted gross income when 34 computing net income for state tax purposes: 35 -2- LSB 5269XD (8) 86 mm/sc 2/ 8

S.F. _____ H.F. _____ Sec. 11. Section 422.35, subsection 19A, unnumbered 1 paragraph 1, Code 2016, is amended to read as follows: 2 The additional first-year depreciation allowance authorized 3 in section 168(k) of the Internal Revenue Code, as enacted by 4 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 5 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 6 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 7 114-113, §143, does not apply in computing net income for 8 state tax purposes. If the taxpayer has taken the additional 9 first-year depreciation allowance for purposes of computing 10 federal taxable income, then the taxpayer shall make the 11 following adjustments to federal taxable income when computing 12 net income for state tax purposes: 13 Sec. 12. EFFECTIVE UPON ENACTMENT. This division of this 14 Act, being deemed of immediate importance, takes effect upon 15 enactment. 16 Sec. 13. RETROACTIVE APPLICABILITY. This division of this 17 Act applies retroactively to January 1, 2016, for tax years 18 ending on or after that date. 19 DIVISION III 20 SECTION 179 EXPENSING 21 Sec. 14. Section 422.7, Code 2016, is amended by adding the 22 following new subsection: 23 NEW SUBSECTION . 53A. Notwithstanding the method for 24 computing the increased expensing allowance under section 179 25 of the Internal Revenue Code, as defined in section 422.3, 26 the method to be used in computing such increased expensing 27 allowance for tax years beginning on or after January 1, 2016, 28 shall be the method under section 179 of the Internal Revenue 29 Code, as amended to and including January 1, 2015. A taxpayer 30 affected by this subsection shall make adjustments to adjusted 31 gross income pursuant to rules adopted by the director. 32 Sec. 15. Section 422.35, Code 2016, is amended by adding the 33 following new subsection: 34 NEW SUBSECTION . 24A. Notwithstanding the method for 35 -3- LSB 5269XD (8) 86 mm/sc 3/ 8

S.F. _____ H.F. _____ computing the increased expensing allowance under section 179 1 of the Internal Revenue Code, as defined in section 422.32, 2 the method to be used in computing such increased expensing 3 allowance for tax years beginning on or after January 1, 2016, 4 shall be the method under section 179 of the Internal Revenue 5 Code, as amended to and including January 1, 2015. A taxpayer 6 affected by this subsection shall make adjustments to taxable 7 income pursuant to rules adopted by the director. 8 Sec. 16. Section 422.5, subsection 2, paragraph b, 9 subparagraph (1), Code 2016, is amended to read as follows: 10 (1) Add items of tax preference included in federal 11 alternative minimum taxable income under section 57, except 12 subsections (a)(1), (a)(2), and (a)(5), of the Internal Revenue 13 Code, make the adjustments included in federal alternative 14 minimum taxable income under section 56, except subsections 15 (a)(4), (b)(1)(C)(iii), and (d), of the Internal Revenue Code, 16 and add losses as required by section 58 of the Internal 17 Revenue Code. To the extent that any preference or adjustment 18 is determined by an individual’s federal adjusted gross income, 19 the individual’s federal adjusted gross income is computed in 20 accordance with section 422.7, subsections 39, 39A, 39B, and 21 53 , and 53A . In the case of an estate or trust, the items of 22 tax preference, adjustments, and losses shall be apportioned 23 between the estate or trust and the beneficiaries in accordance 24 with rules prescribed by the director. 25 Sec. 17. Section 422.9, subsection 2, paragraph h, Code 26 2016, is amended to read as follows: 27 h. For purposes of calculating the deductions in this 28 subsection that are authorized under the Internal Revenue Code, 29 and to the extent that any of such deductions is determined by 30 an individual’s federal adjusted gross income, the individual’s 31 federal adjusted gross income is computed in accordance with 32 section 422.7, subsections 39, 39A, 39B, and 53 , and 53A . 33 Sec. 18. EFFECTIVE UPON ENACTMENT. This division of this 34 Act, being deemed of immediate importance, takes effect upon 35 -4- LSB 5269XD (8) 86 mm/sc 4/ 8

S.F. _____ H.F. _____ enactment. 1 Sec. 19. RETROACTIVE APPLICABILITY. This division of this 2 Act applies retroactively to January 1, 2016, for tax years 3 beginning on or after that date. 4 DIVISION IV 5 BACKGROUND CHECKS 6 Sec. 20. NEW SECTION . 421.48 Background checks. 7 An applicant for employment with the department of revenue 8 shall be subject to a national criminal history check through 9 the federal bureau of investigation. A contractor, vendor, 10 employee, or any other individual performing work for the 11 department of revenue, shall be subject to a national criminal 12 history check through the federal bureau of investigation 13 at least once every ten years. The department of revenue 14 shall request the national criminal history check and shall 15 provide the individual’s fingerprints to the department 16 of public safety for submission through the state criminal 17 history repository to the federal bureau of investigation. 18 The individual shall authorize release of the results of the 19 national criminal history check to the department of revenue. 20 The department of revenue shall pay the actual cost of the 21 fingerprinting and national criminal history check, if any. 22 The results of a criminal history check conducted pursuant to 23 this section shall not be considered a public record under 24 chapter 22. 25 Sec. 21. EFFECTIVE UPON ENACTMENT. This division of this 26 Act, being deemed of immediate importance, takes effect upon 27 enactment. 28 EXPLANATION 29 The inclusion of this explanation does not constitute agreement with 30 the explanation’s substance by the members of the general assembly. 31 This bill updates the Iowa Code references to the Internal 32 Revenue Code to make federal income tax revisions enacted 33 by Congress in 2015 applicable for Iowa income tax purposes 34 beginning in 2015 and 2016, decouples with certain bonus 35 -5- LSB 5269XD (8) 86 mm/sc 5/ 8

S.F. _____ H.F. _____ depreciation provisions and section 179 expensing provisions, 1 and requires background checks for certain people performing 2 work for the department of revenue. 3 DIVISION I —— INTERNAL REVENUE CODE REFERENCES. The 4 division amends Code sections 422.3 and 422.32, general 5 definition sections in the chapter of the Code that governs 6 corporate and individual income tax and the franchise tax 7 on financial institutions, to update the references to the 8 Internal Revenue Code. These provisions apply retroactively to 9 January 1, 2016, for tax years beginning on or after that date. 10 The division amends Code sections 15.335, 422.10, and 422.33 11 to update the references to the Internal Revenue Code for the 12 state research activities credit for individuals, corporations, 13 and corporations in economic development areas to include the 14 federal changes to the research activities credit and the 15 alternative simplified research activities credit. These 16 provisions apply retroactively to January 1, 2015, for tax 17 years beginning on or after that date. 18 Code section 422.9 provides individuals a deduction from 19 net income for state sales and use taxes if the individual 20 chose to deduct sales and use tax in lieu of state income taxes 21 or the standard deduction for federal income tax purposes. 22 This deduction was set to expire under both federal and Iowa 23 law for tax years beginning on or after January 1, 2015. The 24 federal Protecting Americans from Tax Hikes Act of 2015 made 25 the federal deduction permanent. This division allows the Iowa 26 deduction, and makes it permanent, for tax years beginning 27 on or after January 1, 2016. Division I takes effect upon 28 enactment. 29 DIVISION II —— BONUS DEPRECIATION. The division decouples, 30 for Iowa income tax purposes, from the federal additional 31 first-year depreciation allowance in section 168(k) of the 32 Internal Revenue Code (bonus depreciation) which was modified 33 and extended through 2019 by the federal Protecting Americans 34 from Tax Hikes Act of 2015. Taxpayers who claim bonus 35 -6- LSB 5269XD (8) 86 mm/sc 6/ 8

S.F. _____ H.F. _____ depreciation for federal tax purposes are required to add 1 such depreciation amounts back to Iowa net income, but are 2 then allowed under existing state law to deduct the amount of 3 depreciation that would otherwise be allowable under federal 4 law, without regard to the bonus depreciation allowance. 5 Division II takes effect upon enactment and applies 6 retroactively to January 1, 2016, for tax years ending on or 7 after that date. 8 DIVISION III —— SECTION 179 EXPENSING. The division 9 decouples, for Iowa income tax purposes, from the expensing 10 of certain depreciable business assets in section 179 of the 11 Internal Revenue Code which was modified and made permanent by 12 the federal Protecting Americans from Tax Hikes Act of 2015. 13 For tax years beginning on or after January 1, 2016, taxpayers 14 are required to compute their section 179 increased expensing 15 allowance according to the method prescribed under section 179 16 of the Internal Revenue Code in effect on January 1, 2015, 17 which provides a $25,000 limitation on expensing for taxable 18 years beginning after 2014. 19 Under current law, individual taxpayers were required, when 20 calculating alternative minimum tax under Code section 422.5(2) 21 and itemized deductions under Code section 422.9(2) for tax 22 year 2009, to recompute their federal adjusted gross income 23 to take into account the fact that Iowa decoupled from the 24 2009 federal changes to the section 179 increased expensing 25 allowance. The bill provides that taxpayers must make those 26 same adjustments to federal adjusted gross income for tax 27 years beginning on after January 1, 2016, to account for the 28 fact that Iowa has decoupled from changes to the section 179 29 increased expensing allowance as described above. 30 Division III takes effect upon enactment and applies 31 retroactively to January 1, 2016, for tax years beginning on 32 or after that date. 33 DIVISION IV —— BACKGROUND CHECKS. The division requires 34 an applicant for employment with the department of revenue 35 -7- LSB 5269XD (8) 86 mm/sc 7/ 8

S.F. _____ H.F. _____ (department) at the time of application, or a contractor, 1 vendor, employee, or any other individual performing work for 2 the department to be subject to a national criminal history 3 check through the federal bureau of investigation (FBI) at 4 least once every 10 years. The bill directs the department to 5 provide fingerprints to the department of public safety for 6 submission through the state criminal history repository to 7 the FBI, and requires individuals to authorize release of the 8 results to the department. The department is required to pay 9 the actual costs of the fingerprinting and the criminal history 10 check. The bill provides that the results of a criminal 11 history check are not considered a public record under Code 12 chapter 22 (open records). Division IV takes effect upon 13 enactment. 14 -8- LSB 5269XD (8) 86 mm/sc 8/ 8