House File 2489 - Introduced HOUSE FILE 2489 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HSB 671) A BILL FOR An Act relating to state and local revenue and finance by 1 modifying the income taxes, the sales and use taxes and 2 local option sales tax, the hotel and motel excise tax, the 3 automobile rental excise tax, the Iowa educational savings 4 plan trust, and the disabilities expenses savings plan 5 trust, making penalties applicable, and including immediate 6 effective date and retroactive and other applicability 7 provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 TLSB 5613HV (5) 87 mm/jh

H.F. 2489 DIVISION I 1 INCOME TAX CHANGES BEGINNING IN TAX YEAR 2018 2 Section 1. Section 422.7, Code 2018, is amended by adding 3 the following new subsections: 4 NEW SUBSECTION . 51. a. Notwithstanding any other provision 5 of law to the contrary, the increased expensing allowance under 6 section 179 of the Internal Revenue Code, as amended by Pub. 7 L. No. 115-97, §13101, applies in computing net income for 8 state tax purposes for tax years beginning on or after January 9 1, 2018, subject to the limitations in this subsection. 10 b. If the taxpayer has taken the increased expensing 11 allowance under section 179 of the Internal Revenue Code, 12 as amended by Pub. L. No. 115-97, §13101, for purposes of 13 computing federal adjusted gross income for tax years beginning 14 on or after January 1, 2018, then the taxpayer shall make the 15 following adjustments to federal adjusted gross income when 16 computing net income for state tax purposes for the same tax 17 year: 18 (1) Add the total amount of expense deduction taken on 19 section 179 property allowable for federal tax purposes under 20 section 179 of the Internal Revenue Code, as amended by Pub. 21 L. No. 115-97, §13101. 22 (2) (a) For tax years beginning on or after January 1, 23 2018, but before January 1, 2020, subtract the amount of 24 expense deduction on section 179 property allowable for federal 25 tax purposes under section 179 of the Internal Revenue Code, 26 as amended by Pub. L. No. 115-97, §13101, not to exceed one 27 hundred thousand dollars. The subtraction in this subparagraph 28 division shall be reduced, but not below zero, by the amount by 29 which the total cost of section 179 property placed in service 30 by the taxpayer during the tax year exceeds four hundred 31 thousand dollars. 32 (b) For tax years beginning on or after January 1, 2020, 33 subtract the amount of expense deduction on section 179 34 property allowable for federal tax purposes under section 179 35 -1- LSB 5613HV (5) 87 mm/jh 1/ 96

H.F. 2489 of the Internal Revenue Code, as amended by Pub. L. No. 115-97, 1 §13101, not to exceed two hundred fifty thousand dollars. The 2 subtraction in this subparagraph division shall be reduced, 3 but not below zero, by the amount by which the total cost of 4 section 179 property placed in service by the taxpayer during 5 the tax year exceeds one million dollars. 6 (3) Any other adjustments to gains or losses necessary to 7 reflect adjustments made in subparagraphs (1) and (2). 8 c. The director shall adopt rules pursuant to chapter 17A 9 to administer this subsection. 10 NEW SUBSECTION . 52. a. For tax years beginning on or 11 after January 1, 2018, a taxpayer may elect to take advantage 12 of this subsection in lieu of subsection 51, but only if the 13 taxpayer’s total expensing allowance deduction for federal tax 14 purposes under section 179 of the Internal Revenue Code, as 15 amended by Pub. L. No. 115-97, §13101, that is allocated to 16 the taxpayer from one or more partnerships, S corporations, or 17 limited liability companies electing to have the income taxed 18 directly to the individual exceeds one hundred thousand dollars 19 for a tax year beginning on or after January 1, 2018, but 20 before January 1, 2020, or exceeds two hundred fifty thousand 21 dollars for a tax year beginning on or after January 1, 2020, 22 and would, except as provided in this subsection, be limited 23 for purposes of computing net income for state tax purposes 24 pursuant to subsection 51. 25 b. A taxpayer who elects to take advantage of this 26 subsection shall make the following adjustments to federal 27 adjusted gross income when computing net income for state tax 28 purposes: 29 (1) Add the total amount of section 179 expense 30 deduction allocated to the taxpayer from all partnerships, S 31 corporations, or limited liability companies electing to have 32 the income taxed directly to the individual, to the extent the 33 allocated amount was allowed as a deduction to the taxpayer 34 for federal tax purposes for the tax year under section 179 of 35 -2- LSB 5613HV (5) 87 mm/jh 2/ 96

H.F. 2489 the Internal Revenue Code, as amended by Pub. L. No. 115-97, 1 §13101. 2 (2) From the amount added in subparagraph (1), do the 3 following: 4 (a) For tax years beginning on or after January 1, 2018, 5 but before January 1, 2020, subtract the first one hundred 6 thousand dollars of expensing allowance deduction on section 7 179 property. 8 (b) For tax years beginning on or after January 1, 2020, 9 subtract the first two hundred fifty thousand dollars of 10 expensing allowance deduction on section 179 property. 11 (3) The remaining amount, equal to the difference between 12 the amount added in subparagraph (1), and the amount subtracted 13 in subparagraph (2), may be deducted by the taxpayer but such 14 deduction shall be amortized equally over five tax years 15 beginning in the following tax year. 16 (4) Any other adjustments to gains or losses necessary to 17 reflect adjustments made in subparagraphs (1) through (3). 18 c. A taxpayer who elects to take advantage of this 19 subsection shall not take the increased expensing allowance 20 under section 179 of the Internal Revenue Code, as amended by 21 Pub. L. No. 115-97, §13101, for any section 179 property placed 22 in service by the taxpayer in computing adjusted gross income 23 for state tax purposes. If the taxpayer has taken any such 24 deduction for purposes of computing federal adjusted gross 25 income, the taxpayer shall make the following adjustments to 26 federal adjusted gross income when computing net income for 27 state tax purposes: 28 (1) Add the total amount of expense deduction for federal 29 tax purposes taken on section 179 property placed in service by 30 the taxpayer under section 179 of the Internal Revenue Code, as 31 amended by Pub. L. No. 115-97, §13101. 32 (2) Subtract the amount of depreciation allowable on such 33 property under the modified accelerated cost recovery system 34 described in section 168 of the Internal Revenue Code, without 35 -3- LSB 5613HV (5) 87 mm/jh 3/ 96

H.F. 2489 regard to section 168(k) of the Internal Revenue Code. The 1 taxpayer shall continue to take depreciation on the applicable 2 property in future tax years to the extent allowed under the 3 modified accelerated cost recovery system described in section 4 168 of the Internal Revenue Code, without regard to section 5 168(k) of the Internal Revenue Code. 6 (3) Any other adjustments to gains or losses necessary to 7 reflect the adjustments made in subparagraphs (1) and (2). 8 d. The election made under this subsection is for one tax 9 year and the taxpayer may elect or not elect to take advantage 10 of this subsection in any subsequent tax year. However, not 11 electing to take advantage of this subsection in a subsequent 12 tax year shall not affect the taxpayer’s ability to claim the 13 tax deduction under paragraph “b” , subparagraph (3), that 14 originated from a previous tax year. 15 e. The director shall adopt rules pursuant to chapter 17A 16 to administer this subsection. 17 Sec. 2. Section 422.9, subsection 2, paragraph h, Code 2018, 18 is amended to read as follows: 19 h. For purposes of calculating the deductions in this 20 subsection that are authorized under the Internal Revenue Code, 21 and to the extent that any of such deductions is determined by 22 an individual’s federal adjusted gross income, the individual’s 23 federal adjusted gross income is computed in accordance with 24 section 422.7, subsections 39, 39A, 39B, 51, 52, and 53 . 25 Sec. 3. TAX-FREE IRA DISTRIBUTIONS TO CERTAIN PUBLIC 26 CHARITIES FOR INDIVIDUALS SEVENTY AND ONE-HALF YEARS OF AGE 27 OR OLDER. Notwithstanding any other provision of law to the 28 contrary, for tax years beginning during the 2018 calendar 29 year, the exclusion from federal adjusted gross income for 30 certain qualified charitable distributions from an individual 31 retirement plan provided in section 408(d)(8) of the Internal 32 Revenue Code, as amended by Pub. L. No. 114-113, division Q, 33 §112, applies in computing net income for state tax purposes. 34 Sec. 4. STATE SALES AND USE TAX DEDUCTION. 35 -4- LSB 5613HV (5) 87 mm/jh 4/ 96

H.F. 2489 Notwithstanding any other provision of law to the contrary, for 1 tax years beginning during the 2018 calendar year, a taxpayer 2 who elects to itemize deductions for state tax purposes under 3 section 422.9, subsection 2, is allowed to take the deduction 4 for state sales and use tax in lieu of the deduction for state 5 and local income taxes under section 164(b)(5) of the Internal 6 Revenue Code, as amended by Pub. L. No. 114-113, division Q, 7 §106, in computing taxable income for state tax purposes, but 8 only if the taxpayer elected to deduct state sales and use 9 taxes in lieu of state and local income taxes for federal tax 10 purposes for the same tax year. 11 Sec. 5. EARNED INCOME TAX CREDIT FOR 2018. 12 Notwithstanding the definition of “Internal Revenue Code” 13 in section 422.3, for tax years beginning during the 2018 14 calendar year, any reference to the term “Internal Revenue 15 Code” in section 422.12B shall mean the Internal Revenue Code 16 of 1954, prior to the date of its redesignation as the Internal 17 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 18 the Internal Revenue Code of 1986 as amended and in effect on 19 January 1, 2016, but shall not be construed to include any 20 amendment to the Internal Revenue Code enacted after January 1, 21 2016, including any amendment with retroactive applicability 22 or effectiveness. 23 Sec. 6. ACCOUNTING METHOD AND OTHER MISCELLANEOUS 24 COUPLING PROVISIONS FOR TAX YEAR 2018. Notwithstanding any 25 other provision of law to the contrary, amendments to the 26 Internal Revenue Code enacted in Pub. L. No. 115-97, §13102, 27 §13221, §13504, §13541, §13543, §13611, and §13613, apply in 28 calculating federal adjusted gross income or federal taxable 29 income, as applicable, for state tax purposes for purposes of 30 chapter 422 for tax years beginning during the 2018 calendar 31 year to the extent those amendments affect the calculation of 32 federal adjusted gross income or federal taxable income, as 33 applicable, for federal tax purposes for tax years beginning 34 during the 2018 calendar year. 35 -5- LSB 5613HV (5) 87 mm/jh 5/ 96

H.F. 2489 Sec. 7. TEACHER EXPENSE DEDUCTION. Notwithstanding any 1 other provision of law to the contrary, for tax years beginning 2 during the 2018 calendar year, a taxpayer is allowed to take 3 the deduction for certain expenses of elementary and secondary 4 school teachers allowed under section 62(a)(2)(D) of the 5 Internal Revenue Code, as amended by Pub. L. No. 114-113, 6 division Q, §104, in computing net income for state tax 7 purposes. 8 Sec. 8. EFFECTIVE DATE. This division of this Act, being 9 deemed of immediate importance, takes effect upon enactment. 10 Sec. 9. RETROACTIVE APPLICABILITY. 11 1. Except as provided in subsection 2, this division of this 12 Act applies retroactively to January 1, 2018, for tax years 13 beginning on or after that date, but before January 1, 2019. 14 2. The sections of this division of this Act enacting 15 section 422.7, subsections 51 and 52, and amending section 16 422.9, subsection 2, paragraph “h”, apply retroactively to 17 January 1, 2018, for tax years beginning on or after that date. 18 DIVISION II 19 INDIVIDUAL INCOME TAX CHANGES BEGINNING IN TAX YEAR 2019 20 Sec. 10. Section 422.4, subsection 2, paragraph b, Code 21 2018, is amended to read as follows: 22 b. “Cumulative standard deduction factor” means the product 23 of the annual standard deduction factor for the 1989 2020 24 calendar year and all annual standard deduction factors for 25 subsequent calendar years as determined pursuant to this 26 subsection . The cumulative standard deduction factor applies 27 to all tax years beginning on or after January 1 of the 28 calendar year for which the latest annual standard deduction 29 factor has been determined. 30 Sec. 11. Section 422.4, Code 2018, is amended by adding the 31 following new subsection: 32 NEW SUBSECTION . 9A. “Internal Revenue Code” means the 33 Internal Revenue Code of 1954, prior to the date of its 34 redesignation as the Internal Revenue Code of 1986 by the Tax 35 -6- LSB 5613HV (5) 87 mm/jh 6/ 96

H.F. 2489 Reform Act of 1986, or means the Internal Revenue Code of 1986 1 as amended and in effect on January 1, 2018. This definition 2 shall not be construed to include any amendment to the 3 Internal Revenue Code enacted after the date specified in the 4 preceding sentence, including any amendment with retroactive 5 applicability or effectiveness. 6 Sec. 12. Section 422.4, subsection 16, Code 2018, is amended 7 to read as follows: 8 16. The words “taxable income” mean the net income as 9 defined in section 422.7 minus the deductions allowed by 10 section 422.9 , in the case of individuals; in the case of 11 estates or trusts, the words “taxable income” mean the taxable 12 income (without a deduction for personal exemption) as 13 computed for federal income tax purposes under the Internal 14 Revenue Code, but with the following adjustments specified in 15 section 422.7 plus the Iowa income tax deducted in computing 16 the federal taxable income and minus federal income taxes as 17 provided in section 422.9 . : 18 a. Add back the personal exemption deduction taken in 19 computing federal taxable income. 20 b. Make the adjustments specified in section 422.7. 21 c. Add back Iowa income tax deducted in computing federal 22 taxable income. 23 d. Subtract federal income taxes as provided in section 24 422.9. 25 e. Add back seventy-five percent of the qualified business 26 income deduction under section 199A of the Internal Revenue 27 Code, as amended by Pub. L. No. 115-141, division T, §101, 28 taken in calculating federal taxable income. 29 Sec. 13. Section 422.5, subsection 1, Code 2018, is amended 30 to read as follows: 31 1. a. A tax is imposed upon every resident and nonresident 32 of the state which tax shall be levied, collected, and paid 33 annually upon and with respect to the entire taxable income 34 as defined in this division at rates as follows: provided in 35 -7- LSB 5613HV (5) 87 mm/jh 7/ 96

H.F. 2489 section 422.5A. 1 a. On all taxable income from zero through one thousand 2 dollars, thirty-six hundredths of one percent. 3 b. On all taxable income exceeding one thousand dollars but 4 not exceeding two thousand dollars, seventy-two hundredths of 5 one percent. 6 c. On all taxable income exceeding two thousand dollars 7 but not exceeding four thousand dollars, two and forty-three 8 hundredths percent. 9 d. On all taxable income exceeding four thousand dollars but 10 not exceeding nine thousand dollars, four and one-half percent. 11 e. On all taxable income exceeding nine thousand dollars 12 but not exceeding fifteen thousand dollars, six and twelve 13 hundredths percent. 14 f. On all taxable income exceeding fifteen thousand dollars 15 but not exceeding twenty thousand dollars, six and forty-eight 16 hundredths percent. 17 g. On all taxable income exceeding twenty thousand dollars 18 but not exceeding thirty thousand dollars, six and eight-tenths 19 percent. 20 h. On all taxable income exceeding thirty thousand dollars 21 but not exceeding forty-five thousand dollars, seven and 22 ninety-two hundredths percent. 23 i. On all taxable income exceeding forty-five thousand 24 dollars, eight and ninety-eight hundredths percent. 25 j. b. (1) The tax imposed upon the taxable income of a 26 nonresident shall be computed by reducing the amount determined 27 pursuant to paragraphs “a” through “i” paragraph “a” by the 28 amounts of nonrefundable credits under this division and by 29 multiplying this resulting amount by a fraction of which the 30 nonresident’s net income allocated to Iowa, as determined in 31 section 422.8, subsection 2 , paragraph “a” , is the numerator and 32 the nonresident’s total net income computed under section 422.7 33 is the denominator. This provision also applies to individuals 34 who are residents of Iowa for less than the entire tax year. 35 -8- LSB 5613HV (5) 87 mm/jh 8/ 96

H.F. 2489 (2) (a) The tax imposed upon the taxable income of a 1 resident shareholder in an S corporation or of an estate 2 or trust with a situs in Iowa that is a shareholder in an S 3 corporation, which S corporation has in effect for the tax 4 year an election under subchapter S of the Internal Revenue 5 Code and carries on business within and without the state, 6 may be computed by reducing the amount determined pursuant 7 to paragraphs “a” through “i” paragraph “a” by the amounts of 8 nonrefundable credits under this division and by multiplying 9 this resulting amount by a fraction of which the resident’s 10 or estate’s or trust’s net income allocated to Iowa, as 11 determined in section 422.8, subsection 2 , paragraph “b” , is 12 the numerator and the resident’s or estate’s or trust’s total 13 net income computed under section 422.7 is the denominator. If 14 a resident shareholder, or an estate or trust with a situs in 15 Iowa that is a shareholder, has elected to take advantage of 16 this subparagraph (2), and for the next tax year elects not to 17 take advantage of this subparagraph, the resident or estate or 18 trust shareholder shall not reelect to take advantage of this 19 subparagraph for the three tax years immediately following the 20 first tax year for which the shareholder elected not to take 21 advantage of this subparagraph, unless the director consents to 22 the reelection. This subparagraph also applies to individuals 23 who are residents of Iowa for less than the entire tax year. 24 (b) This subparagraph (2) shall not affect the amount of 25 the taxpayer’s checkoffs under this division , the credits from 26 tax provided under this division , and the allocation of these 27 credits between spouses if the taxpayers filed separate returns 28 or separately on combined returns. 29 Sec. 14. Section 422.5, subsection 2, paragraph a, Code 30 2018, is amended to read as follows: 31 a. There is imposed upon every resident and nonresident of 32 this state, including estates and trusts, the greater of the 33 tax determined in subsection 1 , paragraphs “a” through “j” , or 34 the state alternative minimum tax equal to seventy-five percent 35 -9- LSB 5613HV (5) 87 mm/jh 9/ 96

H.F. 2489 of the maximum state individual income tax rate for the tax 1 year, rounded to the nearest one-tenth of one percent, times 2 the state alternative minimum taxable income of the taxpayer as 3 computed under this subsection . 4 Sec. 15. NEW SECTION . 422.5A Tax rates. 5 The tax imposed in section 422.5 shall be calculated at 6 the following rates for tax years beginning in the following 7 calendar years: 8 2019 2020 and 9 subsequent 10 calendar years 11 1. On all taxable income from 12 0 through $1,000: 0.34% 0.32% 13 2. On all taxable income 14 exceeding $1,000 but not exceeding 15 $2,000: 0.68% 0.65% 16 3. On all taxable income 17 exceeding $2,000 but not exceeding 18 $4,000: 2.31% 2.20% 19 4. On all taxable income 20 exceeding $4,000 but not exceeding 21 $9,000: 4.28% 4.10% 22 5. On all taxable income 23 exceeding $9,000 but not exceeding 24 $15,000: 5.94% 5.60% 25 6. On all taxable income 26 exceeding $15,000 but not exceeding 27 $20,000: 6.29% 6.10% 28 7. On all taxable income 29 exceeding $20,000 but not exceeding 30 $30,000: 6.60% 6.58% 31 8. On all taxable income 32 exceeding $30,000 but not exceeding 33 $45,000: 7.84% 7.82% 34 9. On all taxable income 35 -10- LSB 5613HV (5) 87 mm/jh 10/ 96

H.F. 2489 exceeding $45,000: 8.89% 8.89% 1 Sec. 16. Section 422.5, subsection 6, Code 2018, is amended 2 to read as follows: 3 6. Upon determination of the latest cumulative inflation 4 factor, the director shall multiply each dollar amount set 5 forth in subsection 1 , paragraphs “a” through “i” section 6 422.5A by this cumulative inflation factor, shall round 7 off the resulting product to the nearest one dollar, and 8 shall incorporate the result into the income tax forms and 9 instructions for each tax year. 10 Sec. 17. Section 422.7, subsection 39A, unnumbered 11 paragraph 1, Code 2018, is amended to read as follows: 12 The additional first-year depreciation allowance authorized 13 in section 168(k) of the Internal Revenue Code, as enacted by 14 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 15 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 16 112-240, §331, and Pub. L. No. 113-295, §125, Pub. L. No. 17 114-113, division Q, §143, and Pub. L. No. 115-97, §13201, does 18 not apply in computing net income for state tax purposes. If 19 the taxpayer has taken the additional first-year depreciation 20 allowance for purposes of computing federal adjusted gross 21 income, then the taxpayer shall make the following adjustments 22 to federal adjusted gross income when computing net income for 23 state tax purposes: 24 Sec. 18. Section 422.7, Code 2018, is amended by adding the 25 following new subsection: 26 NEW SUBSECTION . 59. a. The rules for nonrecognition 27 of gain or loss from exchanges of real property held for 28 productive use or investment and not held primarily for sale, 29 as provided in section 1031 of the Internal Revenue Code, apply 30 for state income tax purposes with regard to exchanges of real 31 property. 32 b. (1) The rules for nonrecognition of gain or loss 33 from exchanges of property other than real property held for 34 productive use or investment as provided in section 1031 of the 35 -11- LSB 5613HV (5) 87 mm/jh 11/ 96

H.F. 2489 Internal Revenue Code, as amended up to and including December 1 21, 2017, apply for state income tax purposes, notwithstanding 2 any other provision of law to the contrary. If the taxpayer’s 3 federal adjusted gross income includes gain or loss from 4 property, other than real property described in paragraph “a” , 5 and the taxpayer elects to have this paragraph apply, the 6 following adjustments shall be made: 7 (a) (i) Subtract the total amount of gain related to the 8 sale or exchange of the property as properly reported for 9 federal tax purposes under the Internal Revenue Code. 10 (ii) Add back any gain related to the sale or exchange 11 of the property to the extent such gain does not qualify for 12 deferral under section 1031 of the Internal Revenue Code, as 13 amended up to and including December 21, 2017, which gain 14 shall be calculated using the taxpayer’s adjusted basis in the 15 property for state tax purposes. 16 (b) (i) Add the total amount of loss related to the sale or 17 exchange of the property as properly reported for federal tax 18 purposes under the Internal Revenue Code. 19 (ii) Subtract any loss related to the sale or exchange 20 of the property to the extent such loss does not qualify for 21 deferral under section 1031 of the Internal Revenue Code, as 22 amended up to and including December 21, 2017, which loss 23 shall be calculated using the taxpayer’s adjusted basis in the 24 property for state tax purposes. 25 (c) Any other adjustments to gains, losses, deductions, or 26 tax basis for the property given up or received in the sale or 27 exchange pursuant to rules adopted by the director. 28 (2) The director shall adopt rules pursuant to chapter 17A 29 to administer this paragraph. 30 Sec. 19. Section 422.8, subsection 2, paragraph a, Code 31 2018, is amended to read as follows: 32 a. Nonresident’s net income allocated to Iowa is the net 33 income, or portion of net income, which is derived from a 34 business, trade, profession, or occupation carried on within 35 -12- LSB 5613HV (5) 87 mm/jh 12/ 96

H.F. 2489 this state or income from any property, trust, estate, or 1 other source within Iowa. However, income derived from a 2 business, trade, profession, or occupation carried on within 3 this state and income from any property, trust, estate, or 4 other source within Iowa shall not include distributions from 5 pensions, including defined benefit or defined contribution 6 plans, annuities, individual retirement accounts, and deferred 7 compensation plans or any earnings attributable thereto so long 8 as the distribution is directly related to an individual’s 9 documented retirement and received while the individual is a 10 nonresident of this state. If a business, trade, profession, 11 or occupation is carried on partly within and partly without 12 the state, only the portion of the net income which is fairly 13 and equitably attributable to that part of the business, 14 trade, profession, or occupation carried on within the state 15 is allocated to Iowa for purposes of section 422.5, subsection 16 1 , paragraph “j” “b” , and section 422.13 and income from any 17 property, trust, estate, or other source partly within and 18 partly without the state is allocated to Iowa in the same 19 manner, except that annuities, interest on bank deposits and 20 interest-bearing obligations, and dividends are allocated 21 to Iowa only to the extent to which they are derived from a 22 business, trade, profession, or occupation carried on within 23 the state. Net income described in section 29C.24, subsection 24 3 , paragraph “a” , subparagraph (3), and paragraph “b” , 25 subparagraph (2), shall not be allocated and apportioned to the 26 state, as provided in section 29C.24 . 27 Sec. 20. Section 422.9, unnumbered paragraph 1, Code 2018, 28 is amended to read as follows: 29 In computing taxable income of individuals, there shall be 30 deducted from net income the larger of the following amounts : 31 computed under subsection 1 or 2, plus the amount computed 32 under subsection 2A. 33 Sec. 21. Section 422.9, subsection 1, Code 2018, is amended 34 to read as follows: 35 -13- LSB 5613HV (5) 87 mm/jh 13/ 96

H.F. 2489 1. An optional standard deduction, after deduction of 1 federal income tax, equal to one three thousand two hundred 2 thirty dollars for a married person who files separately or 3 a single person or equal to three seven thousand thirty five 4 hundred dollars for a husband and wife who file a joint return, 5 a surviving spouse, or a head of household. The optional 6 standard deduction shall not exceed the amount remaining after 7 deduction of the federal income tax. The amount of federal 8 income tax deducted shall be computed as provided in subsection 9 2, paragraph “b” . 10 Sec. 22. Section 422.9, Code 2018, is amended by adding the 11 following new subsection: 12 NEW SUBSECTION . 2A. a. Twenty-five percent of the amount 13 deductible by the taxpayer for federal income tax purposes 14 under section 199A of the Internal Revenue Code, as amended by 15 Pub. L. No. 115-141, division T, §101. 16 b. Notwithstanding paragraph “a” , and section 422.4, 17 subsection 16, paragraph “e” , for an entity electing or required 18 to file a composite return under section 422.13, subsection 5, 19 the deduction allowed under this subsection for purposes of 20 the composite return shall be an amount equal to twenty-five 21 percent of the deduction that would be allowable for federal 22 income tax purposes under section 199A of the Internal Revenue 23 Code, as amended by Pub. L. No. 115-141, division T, §101 by an 24 individual taxpayer reporting the same items of income and loss 25 that are included in the composite return. 26 Sec. 23. Section 422.9, subsection 2, paragraph i, Code 27 2018, is amended to read as follows: 28 i. The deduction for state sales and use taxes is allowable 29 only if the taxpayer elected to deduct the state sales and use 30 taxes in lieu of state income taxes under section 164 of the 31 Internal Revenue Code. A deduction for state sales and use 32 taxes is not allowed if the taxpayer has taken the deduction 33 for state income taxes or claimed the standard deduction under 34 section 63 of the Internal Revenue Code. This paragraph 35 -14- LSB 5613HV (5) 87 mm/jh 14/ 96

H.F. 2489 applies to taxable years beginning after December 31, 2003, and 1 before January 1, 2008, and to taxable years beginning after 2 December 31, 2009, and before January 1, 2015 December 31, 3 2018 . 4 Sec. 24. Section 422.9, subsection 2, Code 2018, is amended 5 by adding the following new paragraph: 6 NEW PARAGRAPH . l. The limitation on the deduction of 7 certain taxes in section 164(b)(6) of the Internal Revenue 8 Code does not apply in computing taxable income for state tax 9 purposes. A taxpayer is allowed to deduct taxes in computing 10 taxable income as otherwise provided in this subsection without 11 regard to section 164(b)(6), as enacted by Pub. L. No. 115-97, 12 §11042. 13 Sec. 25. Section 422.9, subsection 3, paragraph d, Code 14 2018, is amended to read as follows: 15 d. Notwithstanding paragraph “a” , for a taxpayer who is 16 engaged in the trade or business of farming as defined in 17 section 263A(e)(4) of the Internal Revenue Code and has a loss 18 from farming as defined in section 172(b)(1)(F) 172(b)(1)(B) of 19 the Internal Revenue Code including modifications prescribed by 20 rule by the director, the Iowa loss from the trade or business 21 of farming is a net operating loss which may be carried back 22 five taxable years prior to the taxable year of the loss. 23 Sec. 26. Section 422.9, subsection 5, Code 2018, is amended 24 to read as follows: 25 5. A taxpayer affected by section 422.8 shall , if the 26 optional standard deduction is not used, be permitted to deduct 27 only such portion of the total referred to in subsection 28 subsections 2 above and 2A as is fairly and equitably allocable 29 to Iowa under the rules prescribed by the director. 30 Sec. 27. Section 422.9, subsections 6 and 7, Code 2018, are 31 amended by striking the subsections. 32 Sec. 28. Section 422.11B, Code 2018, is amended to read as 33 follows: 34 422.11B Minimum tax credit. 35 -15- LSB 5613HV (5) 87 mm/jh 15/ 96

H.F. 2489 1. a. There is allowed as a credit against the tax 1 determined in section 422.5, subsection 1 , paragraphs “a” 2 through “j” for a tax year an amount equal to the minimum tax 3 credit for that tax year. 4 b. The minimum tax credit for a tax year is the excess, 5 if any, of the net minimum tax imposed for all prior tax 6 years beginning on or after January 1, 1987, over the amount 7 allowable as a credit under this section for those prior tax 8 years. 9 2. a. The allowable credit under subsection 1 for a tax 10 year shall not exceed the excess, if any, of the tax determined 11 in section 422.5, subsection 1 , paragraphs “a” through “j” over 12 the state alternative minimum tax as determined in section 13 422.5, subsection 2. 14 b. The net minimum tax for a tax year is the excess, if any, 15 of the tax determined in section 422.5, subsection 2 , for the 16 tax year over the tax determined in section 422.5, subsection 17 1 , paragraphs “a” through “j” for the tax year. 18 Sec. 29. Section 422.21, subsection 5, Code 2018, is amended 19 to read as follows: 20 5. a. The director shall determine for the 1989 and each 21 subsequent calendar year the annual and cumulative inflation 22 factors for each calendar year to be applied to tax years 23 beginning on or after January 1 of that calendar year. The 24 director shall compute the new dollar amounts as specified to 25 be adjusted in section 422.5 by the latest cumulative inflation 26 factor and round off the result to the nearest one dollar. 27 The annual and cumulative inflation factors determined by the 28 director are not rules as defined in section 17A.2, subsection 29 11 . 30 b. The director shall determine for the 1990 2020 31 calendar year and each subsequent calendar year the annual 32 and cumulative standard deduction factors to be applied to 33 tax years beginning on or after January 1 of that calendar 34 year. The director shall compute the new dollar amounts of 35 -16- LSB 5613HV (5) 87 mm/jh 16/ 96

H.F. 2489 the standard deductions specified in section 422.9, subsection 1 1 , by the latest cumulative standard deduction factor and 2 round off the result to the nearest ten dollars. The annual 3 and cumulative standard deduction factors determined by the 4 director are not rules as defined in section 17A.2, subsection 5 11 . 6 Sec. 30. EFFECTIVE DATE. This division of this Act takes 7 effect January 1, 2019. 8 Sec. 31. APPLICABILITY. This division of this Act applies 9 to tax years beginning on or after January 1, 2019. 10 DIVISION III 11 CHANGES TO IOWA EDUCATIONAL SAVINGS PLAN TRUST AND IOWA ABLE 12 SAVINGS PLAN TRUST 13 Sec. 32. Section 12D.1, Code 2018, is amended to read as 14 follows: 15 12D.1 Purpose and definitions. 16 1. The general assembly finds that the general welfare and 17 well-being of the state are directly related to educational 18 levels and skills of the citizens of the state, and that a 19 vital and valid public purpose is served by the creation and 20 implementation of programs which encourage and make possible 21 the attainment of higher formal education by the greatest 22 number of citizens of the state. The state has limited 23 resources to provide additional programs for higher education 24 funding and the continued operation and maintenance of the 25 state’s public institutions of higher education and the general 26 welfare of the citizens of the state will be enhanced by 27 establishing a program which allows citizens of the state to 28 invest money in a public trust for future application to the 29 payment of higher education costs qualified education expenses . 30 The creation of the means of encouragement for citizens to 31 invest in such a program represents the carrying out of a 32 vital and valid public purpose. In order to make available 33 to the citizens of the state an opportunity to fund future 34 higher formal education needs, it is necessary that a public 35 -17- LSB 5613HV (5) 87 mm/jh 17/ 96

H.F. 2489 trust be established in which moneys may be invested for future 1 educational use. 2 2. As used in this chapter , unless the context otherwise 3 requires: 4 a. “Account balance limit” means the maximum allowable 5 aggregate balance of accounts established for the same 6 beneficiary. Account earnings, if any, are included in the 7 account balance limit. 8 b. “Administrative fund” means the administrative fund 9 established under section 12D.4 . 10 c. “Beneficiary” means the individual designated by a 11 participation agreement to benefit from advance payments of 12 higher education costs qualified education expenses on behalf 13 of the beneficiary. 14 d. “Benefits” means the payment of higher education costs 15 qualified education expenses on behalf of a beneficiary by the 16 trust during the beneficiary’s attendance at an institution of 17 higher education a qualified educational institution . 18 e. “Higher education costs” means the same as “qualified 19 higher education expenses” as defined in section 529(e)(3) of 20 the Internal Revenue Code . 21 f. e. “Institution of higher education” means an institution 22 described in section 481 of the federal Higher Education Act of 23 1965, 20 U.S.C. §1088, which is eligible to participate in the 24 United States department of education’s student aid programs. 25 g. f. “Internal Revenue Code” means the same as defined 26 in section 12I.1 . 27 h. g. “Iowa educational savings plan trust” or “trust” means 28 the trust created under section 12D.2 . 29 i. h. “Participant” means an individual, individual’s legal 30 representative, trust, estate, or an organization described 31 in section 501(c)(3) of the Internal Revenue Code and exempt 32 from taxation under section 501(a) of the Internal Revenue 33 Code, that has entered into a participation agreement under 34 this chapter for the advance payment of higher education costs 35 -18- LSB 5613HV (5) 87 mm/jh 18/ 96