House File 2097 - Introduced HOUSE FILE 2097 BY JACOBY and KEARNS A BILL FOR An Act relating to the taxation under the state corporate 1 income tax, franchise tax, and insurance companies tax 2 of compensation paid by a publicly held corporation to 3 its chief executive officer, and including applicability 4 provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5425YH (5) 87 mm/jh
H.F. 2097 Section 1. Section 422.35, Code 2018, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 14. a. For purposes of this subsection, 3 “compensation” means the total amount allowable under section 4 162(a)(1) of the Internal Revenue Code as salary or other 5 compensation for personal services actually rendered, 6 determined without regard to sections 162(m) or 280G of the 7 Internal Revenue Code. 8 b. If the taxpayer is a publicly held corporation as defined 9 in section 162(m)(2) of the Internal Revenue Code, the taxpayer 10 shall do all of the following: 11 (1) Add, to the extent allowed as a deduction in computing 12 federal taxable income, the amount paid or accrued during the 13 tax year as compensation of the chief executive officer of the 14 taxpayer, or the individual acting in such capacity. 15 (2) Add the amount paid or accrued during the tax year as 16 compensation of the chief executive officer of the taxpayer, or 17 the individual acting in such capacity. 18 Sec. 2. NEW SECTION . 432.11 Tax on chief executive officer 19 compensation of publicly held corporations. 20 1. For purposes of this section: 21 a. “Compensation” means the same as defined in section 22 422.35, subsection 14. 23 b. “Federal income tax year” means, with respect to an 24 insurance company or association, the calendar year, or the 25 fiscal year ending during such calendar year, upon the basis of 26 which the insurance company’s or association’s federal income 27 tax is computed. 28 2. Every insurance company or association of whatever kind 29 or character that is subject to the tax on gross premiums 30 imposed in this chapter and that is a publicly held corporation 31 as defined in section 162(m)(2) of the federal Internal Revenue 32 Code shall pay to the director of the department of revenue, or 33 to a depository designated by the director, as a tax, an amount 34 equal to one percent of the amount paid or accrued, as the case 35 -1- LSB 5425YH (5) 87 mm/jh 1/ 4
H.F. 2097 may be, during a federal income tax year as compensation of 1 the chief executive officer, or the individual acting in such 2 capacity. 3 3. If the taxable income of the insurance company or 4 association for federal income tax purposes is derived from its 5 business carried on entirely within this state, the tax in this 6 section shall be imposed on the entire compensation, but if the 7 business is carried on partly within and partly without the 8 state, the portion of compensation reasonably attributable to 9 the business within the state shall be specifically allocated 10 or equitably apportioned within and without the state under 11 rules of the director of the department of revenue. 12 4. The tax imposed in this section shall be paid on or 13 before the due date under the federal Internal Revenue Code 14 for paying the federal income tax of the insurance company or 15 association for the applicable federal income tax year that is 16 the subject of the tax in this section, as provided by rules 17 adopted by the commissioner. The commissioner, in consultation 18 with the director of the department of revenue, shall create 19 and make available forms to be used in paying the tax imposed 20 in this section. 21 5. The commissioner may suspend or revoke the license of a 22 company or association that fails to pay its tax on or before 23 the due date. 24 Sec. 3. APPLICABILITY. This Act applies to tax years 25 beginning on or after January 1, 2019. 26 EXPLANATION 27 The inclusion of this explanation does not constitute agreement with 28 the explanation’s substance by the members of the general assembly. 29 This bill relates to the taxation of compensation paid to 30 chief executive officers of publicly traded corporations under 31 the Iowa corporate income tax, franchise tax, and insurance 32 premiums tax. The bill defines “compensation” to be the total 33 amount allowable as a business expense deduction under the 34 Internal Revenue Code (IRC) for salary and compensation for 35 -2- LSB 5425YH (5) 87 mm/jh 2/ 4
H.F. 2097 personal services actually rendered, determined without regard 1 to the deduction limitations in the IRC for certain excessive 2 employee compensation or excess parachute payments. 3 For purposes of calculating net income of a publicly held 4 corporation under the Iowa corporate income tax, and under 5 the franchise tax imposed on financial institutions, the bill 6 disallows a deduction for amounts paid or accrued during a tax 7 year as compensation of the chief executive officer, or the 8 individual acting in such capacity. The bill additionally 9 requires the publicly held corporation to add to net income the 10 amounts paid or accrued during the tax year as compensation of 11 the chief executive officer, or the individual acting in such 12 capacity. 13 Insurance companies and associations doing business in 14 Iowa are not subject to the Iowa corporate income tax or 15 the franchise tax, but are instead generally subject to a 1 16 percent gross premiums tax related to business done in Iowa 17 on a calendar year basis. The bill provides that any such 18 insurance company or association subject to the Iowa insurance 19 premiums tax that is a publicly held corporation shall also 20 be subject to a tax equal to 1 percent of the amount paid or 21 accrued during each federal income tax year as compensation of 22 the chief executive officer, or the individual acting in such 23 capacity. “Federal income tax year” is defined in the bill to 24 be the calendar year or fiscal year upon which an insurance 25 company or association computes its federal income tax. If 26 the entire federal taxable income of the insurance company or 27 association is derived in Iowa, then the tax is imposed on the 28 entire amount of the compensation, but if business is conducted 29 inside and outside of Iowa, only a portion of the compensation 30 is taxable in Iowa pursuant to allocation and apportionment 31 rules required to be adopted by the director of revenue. 32 The tax is due on or before the due date under the IRC for 33 paying the federal income tax of the insurance company or 34 association for the applicable federal income tax year that 35 -3- LSB 5425YH (5) 87 mm/jh 3/ 4
H.F. 2097 is the subject of the compensation tax. The bill allows the 1 commissioner of insurance to suspend or revoke the license of 2 any insurance company or association that fails to pay the 3 compensation tax on or before the due date. 4 The bill applies to tax years beginning on or after January 5 1, 2019. 6 -4- LSB 5425YH (5) 87 mm/jh 4/ 4