House File 597 - Introduced HOUSE FILE 597 BY KAUFMANN , HEATON , McKEAN , BLOOMINGDALE , HINSON , ZUMBACH , GUSTAFSON , BAXTER , R. TAYLOR , WILLS , JONES , KOESTER , and LUNDGREN A BILL FOR An Act relating to water quality by increasing the sales and 1 use tax rates, amending the natural resources and outdoor 2 recreation trust fund and establishing transfers to the 3 fund, reducing the individual income tax rates, creating a 4 water service excise tax and related sales tax exemption and 5 establishing transfers of the excise tax revenues, amending 6 the wastewater treatment financial assistance program, 7 making appropriations, and including effective date and 8 other applicability provisions. 9 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 10 TLSB 2350YH (6) 87 mm/rj/sc

H.F. 597 DIVISION I 1 SALES AND USE TAXES AND THE NATURAL RESOURCES AND OUTDOOR 2 RECREATION TRUST FUND 3 Section 1. Section 423.2, subsection 1, unnumbered 4 paragraph 1, Code 2017, is amended to read as follows: 5 There is imposed a tax of six percent at the rate specified 6 in subsection 14 upon the sales price of all sales of tangible 7 personal property, consisting of goods, wares, or merchandise, 8 sold at retail in the state to consumers or users except as 9 otherwise provided in this subchapter . 10 Sec. 2. Section 423.2, subsections 2 and 3, Code 2017, are 11 amended to read as follows: 12 2. A tax of six percent at the rate specified in subsection 13 14 is imposed upon the sales price of the sale or furnishing 14 of gas, electricity, water, heat, pay television service, and 15 communication service, including the sales price from such 16 sales by any municipal corporation or joint water utility 17 furnishing gas, electricity, water, heat, pay television 18 service, and communication service to the public in its 19 proprietary capacity, except as otherwise provided in this 20 subchapter , when sold at retail in the state to consumers or 21 users. 22 3. A tax of six percent at the rate specified in subsection 23 14 is imposed upon the sales price of all sales of tickets 24 or admissions to places of amusement, fairs, and athletic 25 events except those of elementary and secondary educational 26 institutions. A tax of six percent at the rate specified in 27 subsection 14 is imposed on the sales price of an entry fee or 28 like charge imposed solely for the privilege of participating 29 in an activity at a place of amusement, fair, or athletic event 30 unless the sales price of tickets or admissions charges for 31 observing the same activity are taxable under this subchapter . 32 A tax of six percent at the rate specified in subsection 14 33 is imposed upon that part of private club membership fees or 34 charges paid for the privilege of participating in any athletic 35 -1- LSB 2350YH (6) 87 mm/rj/sc 1/ 21

H.F. 597 sports provided club members. 1 Sec. 3. Section 423.2, subsection 4, paragraph a, Code 2017, 2 is amended to read as follows: 3 a. A tax of six percent at the rate specified in subsection 4 14 is imposed upon the sales price derived from the operation 5 of all forms of amusement devices and games of skill, games of 6 chance, raffles, and bingo games as defined in chapter 99B , and 7 card game tournaments conducted under section 99B.27 , that are 8 operated or conducted within the state, the tax to be collected 9 from the operator in the same manner as for the collection of 10 taxes upon the sales price of tickets or admission as provided 11 in this section . Nothing in this subsection shall legalize any 12 games of skill or chance or slot-operated devices which are now 13 prohibited by law. 14 Sec. 4. Section 423.2, subsection 5, Code 2017, is amended 15 to read as follows: 16 5. There is imposed a tax of six percent at the rate 17 specified in subsection 14 upon the sales price from the 18 furnishing of services as defined in section 423.1 . 19 Sec. 5. Section 423.2, subsection 7, paragraph a, 20 unnumbered paragraph 1, Code 2017, is amended to read as 21 follows: 22 A tax of six percent at the rate specified in subsection 14 23 is imposed upon the sales price from the sales, furnishing, or 24 service of solid waste collection and disposal service. 25 Sec. 6. Section 423.2, subsection 8, paragraph a, Code 2017, 26 is amended to read as follows: 27 a. A tax of six percent at the rate specified in subsection 28 14 is imposed on the sales price from sales of bundled 29 transactions. For the purposes of this subsection , a “bundled 30 transaction” is the retail sale of two or more distinct and 31 identifiable products, except real property and services to 32 real property, which are sold for one nonitemized price. A 33 “bundled transaction” does not include the sale of any products 34 in which the sales price varies, or is negotiable, based on 35 -2- LSB 2350YH (6) 87 mm/rj/sc 2/ 21

H.F. 597 the selection by the purchaser of the products included in the 1 transaction. 2 Sec. 7. Section 423.2, subsection 9, Code 2017, is amended 3 to read as follows: 4 9. A tax of six percent at the rate specified in 5 subsection 14 is imposed upon the sales price from any mobile 6 telecommunications service, including all paging services, 7 that this state is allowed to tax pursuant to the provisions 8 of the federal Mobile Telecommunications Sourcing Act, Pub. 9 L. No. 106-252, 4 U.S.C. §116 et seq. For purposes of this 10 subsection , taxes on mobile telecommunications service, as 11 defined under the federal Mobile Telecommunications Sourcing 12 Act that are deemed to be provided by the customer’s home 13 service provider, shall be paid to the taxing jurisdiction 14 whose territorial limits encompass the customer’s place of 15 primary use, regardless of where the mobile telecommunications 16 service originates, terminates, or passes through and 17 shall in all other respects be taxed in conformity with 18 the federal Mobile Telecommunications Sourcing Act. All 19 other provisions of the federal Mobile Telecommunications 20 Sourcing Act are adopted by the state of Iowa and incorporated 21 into this subsection by reference. With respect to mobile 22 telecommunications service under the federal Mobile 23 Telecommunications Sourcing Act, the director shall, if 24 requested, enter into agreements consistent with the provisions 25 of the federal Act. 26 Sec. 8. Section 423.2, subsection 11, paragraph b, 27 subparagraph (2), Code 2017, is amended to read as follows: 28 (2) Transfer from the remaining revenues the amounts 29 required under Article VII, section 10, of the Constitution 30 of the State of Iowa to the natural resources and outdoor 31 recreation trust fund created in section 461.31 , if applicable . 32 Sec. 9. Section 423.2, subsection 14, Code 2017, is amended 33 by striking the subsection and inserting in lieu thereof the 34 following: 35 -3- LSB 2350YH (6) 87 mm/rj/sc 3/ 21

H.F. 597 14. a. For the period beginning January 1, 2018, and ending 1 December 31, 2018, the sales tax rate is six and one-eighth 2 percent. 3 b. For the period beginning January 1, 2019, and ending 4 December 31, 2019, the sales tax rate is six and one-fourth 5 percent. 6 c. For the period beginning January 1, 2020, and ending 7 December 31, 2029, the sales tax rate is six and three-eighths 8 percent. 9 d. Beginning January 1, 2030, the sales tax rate is five and 10 three-eighths percent. 11 Sec. 10. Section 423.5, subsection 1, unnumbered paragraph 12 1, Code 2017, is amended to read as follows: 13 Except as provided in paragraph “c” , an excise tax at the 14 rate of six percent specified in subsection 5 of the purchase 15 price or installed purchase price is imposed on the following: 16 Sec. 11. Section 423.5, subsection 5, Code 2017, is amended 17 by striking the subsection and inserting in lieu thereof the 18 following: 19 5. a. For the period beginning January 1, 2018, and ending 20 December 31, 2018, the use tax rate is six and one-eighth 21 percent. 22 b. For the period beginning January 1, 2019, and ending 23 December 31, 2019, the use tax rate is six and one-fourth 24 percent. 25 c. For the period beginning January 1, 2020, and ending 26 December 31, 2029, the use tax rate is six and three-eighths 27 percent. 28 d. Beginning January 1, 2030, the use tax rate is five and 29 three-eighths percent. 30 Sec. 12. Section 423.43, subsection 1, paragraph b, Code 31 2017, is amended to read as follows: 32 b. Subsequent to the deposit into the general fund of the 33 state and after the transfer of such pursuant to paragraph “a” , 34 the department shall do the following in the order prescribed: 35 -4- LSB 2350YH (6) 87 mm/rj/sc 4/ 21

H.F. 597 (1) Transfer the revenues collected under chapter 423B , the 1 department shall transfer one-sixth . 2 (2) (a) Transfer the applicable percentage as specified 3 in subparagraph division (b) of such remaining revenues to the 4 secure an advanced vision for education fund created in section 5 423F.2 . 6 (b) (i) For the period beginning January 1, 2018, and 7 ending December 31, 2018, the applicable percentage is sixteen 8 and three thousand two hundred sixty-five ten-thousandths 9 percent. 10 (ii) For the period beginning January 1, 2019, and ending 11 December 31, 2019, the applicable percentage is sixteen 12 percent. 13 (iii) For the period beginning January 1, 2020, and ending 14 December 31, 2029, the applicable percentage is fifteen and six 15 thousand eight hundred sixty-three ten-thousandths percent. 16 (c) This paragraph subparagraph (2) is repealed December 17 31, 2029. 18 Sec. 13. PURPOSE. The purpose of this division of this Act 19 is to provide for the implementation of Article VII, section 20 10, of the Constitution of the State of Iowa by fully funding 21 the natural resources and outdoor recreation trust fund as 22 created in section 461.31, pursuant to Article VII, section 10, 23 of the Constitution of the State of Iowa. 24 Sec. 14. EFFECTIVE DATE. This division of this Act takes 25 effect January 1, 2018. 26 DIVISION II 27 INDIVIDUAL INCOME TAXES 28 Sec. 15. Section 422.5, subsection 1, Code 2017, is amended 29 by adding the following new paragraph: 30 NEW PARAGRAPH . 0j. (1) For each tax year beginning in the 31 period beginning January 1, 2018, and ending December 31, 2029, 32 the department of revenue shall determine the amount of sales 33 and use tax revenues generated for the fiscal year ending June 34 30 during the applicable tax year from the increases in the 35 -5- LSB 2350YH (6) 87 mm/rj/sc 5/ 21

H.F. 597 sales and use tax rates enacted in this Act, and shall certify 1 such amount to the governor and general assembly. 2 (2) For each tax year beginning in the period beginning 3 January 1, 2018, and ending December 31, 2029, the rates of 4 tax in paragraphs “a” through “i” shall be reduced as provided 5 in subparagraph (3) by an amount that will in the aggregate 6 reduce the individual income tax revenues for the applicable 7 tax year by the dollar amount certified by the department of 8 revenue pursuant to subparagraph (1) for the relevant fiscal 9 year ending June 30 during the applicable tax year. 10 (3) (a) The rate reduction for a tax year shall be 11 accomplished by applying the applicable dollar amount to a 12 reduction in the rate imposed in paragraph “a” , but not below 13 zero. 14 (b) If such rate reduction in subparagraph division (a) does 15 not accomplish the full rate decrease required by subparagraph 16 (2), the remaining applicable dollar amount shall be applied to 17 a reduction in the rate imposed in paragraph “b” , but not below 18 zero. 19 (c) If such rate reduction in subparagraph divisions (a) 20 and (b) do not accomplish the full rate decrease required by 21 subparagraph (2), the remaining applicable dollar amount shall 22 be applied to a reduction in the rate imposed in paragraph “c” , 23 but not below zero. 24 (d) If such rate reduction in subparagraph divisions 25 (a) through (c) do not accomplish the full rate decrease 26 required by subparagraph (2), the remaining applicable dollar 27 amount shall be applied to a reduction in the rate imposed in 28 paragraph “d” , but not below zero. 29 (e) If such rate reduction in subparagraph divisions 30 (a) through (d) do not accomplish the full rate decrease 31 required by subparagraph (2), the remaining applicable dollar 32 amount shall be applied to a reduction in the rate imposed in 33 paragraph “e” , but not below zero. 34 (f) If such rate reduction in subparagraph divisions 35 -6- LSB 2350YH (6) 87 mm/rj/sc 6/ 21

H.F. 597 (a) through (e) do not accomplish the full rate decrease 1 required by subparagraph (2), the remaining applicable dollar 2 amount shall be applied to a reduction in the rate imposed in 3 paragraph “f” , but not below zero. 4 (g) If such rate reduction in subparagraph divisions 5 (a) through (f) do not accomplish the full rate decrease 6 required by subparagraph (2), the remaining applicable dollar 7 amount shall be applied to a reduction in the rate imposed in 8 paragraph “g” , but not below zero. 9 (h) If such rate reduction in subparagraph divisions 10 (a) through (g) do not accomplish the full rate decrease 11 required by subparagraph (2), the remaining applicable dollar 12 amount shall be applied to a reduction in the rate imposed in 13 paragraph “h” , but not below zero. 14 (i) If such rate reduction in subparagraph divisions 15 (a) through (h) do not accomplish the full rate decrease 16 required by subparagraph (2), the remaining applicable dollar 17 amount shall be applied to a reduction in the rate imposed in 18 paragraph “i” , but not below zero. 19 (4) The rates of tax for paragraphs “a” through “i” , as 20 determined under this paragraph “0j” for tax years beginning 21 on or after January 1, 2018, but before January 1, 2029, shall 22 only apply to the tax year for which they are calculated. The 23 rates of tax for paragraphs “a” through “i” , as determined under 24 this paragraph “0j” for the tax year beginning January 1, 2029, 25 shall apply to all tax years beginning on or after January 1, 26 2029. 27 Sec. 16. Section 422.5, subsection 1, paragraph j, Code 28 2017, is amended to read as follows: 29 j. (1) The tax imposed upon the taxable income of a 30 nonresident shall be computed by reducing the amount determined 31 pursuant to paragraphs “a” through “i” “0j” by the amounts of 32 nonrefundable credits under this division and by multiplying 33 this resulting amount by a fraction of which the nonresident’s 34 net income allocated to Iowa, as determined in section 35 -7- LSB 2350YH (6) 87 mm/rj/sc 7/ 21

H.F. 597 422.8, subsection 2 , paragraph “a” , is the numerator and the 1 nonresident’s total net income computed under section 422.7 is 2 the denominator. This provision also applies to individuals 3 who are residents of Iowa for less than the entire tax year. 4 (2) (a) The tax imposed upon the taxable income of a 5 resident shareholder in an S corporation or of an estate 6 or trust with a situs in Iowa that is a shareholder in an S 7 corporation, which S corporation has in effect for the tax 8 year an election under subchapter S of the Internal Revenue 9 Code and carries on business within and without the state, 10 may be computed by reducing the amount determined pursuant to 11 paragraphs “a” through “i” “0j” by the amounts of nonrefundable 12 credits under this division and by multiplying this resulting 13 amount by a fraction of which the resident’s or estate’s 14 or trust’s net income allocated to Iowa, as determined in 15 section 422.8, subsection 2 , paragraph “b” , is the numerator 16 and the resident’s or estate’s or trust’s total net income 17 computed under section 422.7 is the denominator. If a resident 18 shareholder, or an estate or trust with a situs in Iowa 19 that is a shareholder, has elected to take advantage of this 20 subparagraph (2), and for the next tax year elects not to take 21 advantage of this subparagraph, the resident or estate or 22 trust shareholder shall not reelect to take advantage of this 23 subparagraph for the three tax years immediately following the 24 first tax year for which the shareholder elected not to take 25 advantage of this subparagraph, unless the director consents to 26 the reelection. This subparagraph also applies to individuals 27 who are residents of Iowa for less than the entire tax year. 28 (b) This subparagraph (2) shall not affect the amount of 29 the taxpayer’s checkoffs under this division , the credits from 30 tax provided under this division , and the allocation of these 31 credits between spouses if the taxpayers filed separate returns 32 or separately on combined returns. 33 Sec. 17. EFFECTIVE DATE. This division of this Act takes 34 effect January 1, 2018. 35 -8- LSB 2350YH (6) 87 mm/rj/sc 8/ 21

H.F. 597 Sec. 18. APPLICABILITY. This division of this Act applies 1 to tax years beginning on or after January 1, 2018. 2 DIVISION III 3 WATER QUALITY AND WATER SERVICE EXCISE TAX 4 Sec. 19. Section 16.134, Code 2017, is amended to read as 5 follows: 6 16.134 Wastewater and drinking water treatment financial 7 assistance program. 8 1. The Iowa finance authority shall establish and 9 administer a wastewater and drinking water treatment financial 10 assistance program. The purpose of the program shall be to 11 provide financial assistance to enhance water quality. The 12 program shall be administered in accordance with rules adopted 13 by the authority pursuant to chapter 17A . For purposes of 14 this section , “program” means the wastewater and drinking water 15 treatment financial assistance program and “committee” means the 16 water quality financing review committee created in subsection 17 10 . 18 2. A wastewater and drinking water treatment financial 19 assistance fund is created and shall consist of appropriations 20 made to the fund and transfers of interest, earnings, and 21 moneys from other funds as provided by law. Moneys transferred 22 to the fund pursuant to section 423G.6 are appropriated to the 23 authority for purposes of the program. Moneys in the fund are 24 not subject to section 8.33 . Notwithstanding section 12C.7, 25 subsection 2 , interest or earnings on moneys in the fund shall 26 be credited to the fund. 27 3. Financial assistance under the program shall be used 28 to install or upgrade wastewater treatment facilities and 29 systems and drinking water treatment facilities and systems, 30 including source water protection projects , and for engineering 31 or technical assistance for facility planning and design. 32 4. The authority committee shall distribute approve 33 financial assistance in from the fund in accordance with the 34 following: 35 -9- LSB 2350YH (6) 87 mm/rj/sc 9/ 21

H.F. 597 a. The goal of the program shall be to base awards on the 1 impact of the grant combined with other sources of financing to 2 ensure that sewer rates do not exceed one and one-half percent 3 of a community’s median household income. 4 b. a. Communities shall be eligible for financial 5 assistance by qualifying as Priority shall be given to 6 projects in which a disadvantaged community and is seeking 7 financial assistance for the installation or upgrade of 8 wastewater treatment facilities due to regulatory activity 9 by the department of natural resources or drinking water 10 treatment facilities . For purposes of this section , the term 11 “disadvantaged community” means the same as defined by the 12 department. 13 c. b. Priority shall be given to projects in which the 14 meeting criteria established in section 455B.199B in which the 15 applicant seeks financial assistance is to be used to obtain 16 with financing under the water pollution control works and 17 drinking water facilities financing program pursuant to section 18 16.131 or other federal , or state , or private financing. 19 d. c. Priority shall also be given to projects whose 20 completion will provide significant improvement to water 21 quality in the relevant watershed. 22 e. d. Priority shall also be given to communities that 23 employ an alternative wastewater treatment technology pursuant 24 to section 455B.199C . 25 f. e. Priority shall be also given to those communities 26 where sewer or water rates are the highest as a percentage of 27 that community’s median household income. 28 f. Priority shall be given to communities that employ 29 technology to address the latest version of the Iowa nutrient 30 reduction strategy initially presented in November 2012 by the 31 department of agriculture and land stewardship, the department 32 of natural resources, and Iowa state university of science and 33 technology. 34 g. Financial assistance in the form of grants shall be 35 -10- LSB 2350YH (6) 87 mm/rj/sc 10/ 21

H.F. 597 issued on an annual basis. 1 h. An applicant shall not receive a grant that exceeds five 2 hundred thousand dollars. 3 5. A utility management organization formed under chapter 4 28E or operated by a rural water system organized under chapter 5 357A or chapter 504 shall be considered eligible for financial 6 assistance under the program. 7 5. 6. The authority in cooperation with the department 8 of natural resources shall share provide information and 9 resources to the committee when the committee is determining 10 the qualifications of a community for financial assistance from 11 the fund. 12 6. 7. The authority shall enter into agreements with 13 financial assistance recipients and distribute moneys under the 14 program pursuant to financial assistance determinations made 15 by the committee. The authority may use an amount of not more 16 than four one percent of any moneys appropriated for deposit in 17 the fund for administration purposes. 18 8. By October 1 of each year, the authority shall submit 19 a report to the governor and the general assembly itemizing 20 expenditures under the program during the previous fiscal year. 21 9. a. Beginning September 1, 2026, and every ten years 22 thereafter, a program review committee is established for 23 purposes of reviewing the wastewater and drinking water 24 treatment financial assistance program. By December 1 of 25 the same year, the review committee shall file a report 26 with the governor and the general assembly that reviews the 27 effectiveness of the program during the prior ten fiscal years. 28 b. The program review committee shall consist of the 29 following members: 30 (1) The governor or the governor’s designee. 31 (2) The secretary of agriculture or the secretary’s 32 designee. 33 (3) The executive director of the authority or the executive 34 director’s designee. 35 -11- LSB 2350YH (6) 87 mm/rj/sc 11/ 21

H.F. 597 (4) The director of the department of natural resources or 1 the director’s designee. 2 (5) Four members of the general assembly, with two from the 3 senate and two from the house of representatives and not more 4 than one member from each chamber being from the same political 5 party. The two senators shall be designated one member each 6 by the president of the senate, after consultation with the 7 majority leader of the senate, and by the minority leader of 8 the senate. The two representatives shall be designated one 9 member each by the speaker of the house of representatives, 10 after consultation with the majority leader of the house of 11 representatives, and by the minority leader of the house of 12 representatives. 13 c. Staffing services shall be provided by the authority. 14 10. a. A water quality financing review committee is 15 created consisting of the secretary of agriculture or the 16 secretary’s designee, the executive director of the authority 17 or the executive director’s designee, and the director of the 18 department of natural resources or the director’s designee. 19 b. The committee shall review and approve or deny 20 applications for financial assistance under the wastewater 21 and drinking water treatment financial assistance program 22 established pursuant to this section. 23 Sec. 20. Section 423.3, Code 2017, is amended by adding the 24 following new subsection: 25 NEW SUBSECTION . 103. a. The sales price from the sale or 26 furnishing by a water utility of a water service in the state 27 to consumers or users. 28 b. For purposes of this subsection: 29 (1) “Water service” means the delivery of water by piped 30 distribution system. 31 (2) “Water utility” means a public utility as defined in 32 section 476.1 that furnishes water by piped distribution system 33 to the public for compensation. 34 Sec. 21. NEW SECTION . 423G.1 Short title. 35 -12- LSB 2350YH (6) 87 mm/rj/sc 12/ 21

H.F. 597 This chapter may be cited as the “Water Service Tax Act” . 1 Sec. 22. NEW SECTION . 423G.2 Definitions. 2 1. All words and phrases used in this chapter and defined in 3 section 423.1 have the same meaning given them by section 423.1 4 for purposes of this chapter. 5 2. As used in this chapter, “water service” and “water 6 utility” mean the same as defined in section 423.3, subsection 7 103. 8 Sec. 23. NEW SECTION . 423G.3 Water service tax. 9 An excise tax at the rate of six percent is imposed on the 10 sales price from the sale or furnishing by a water utility of a 11 water service in the state to consumers or users. 12 Sec. 24. NEW SECTION . 423G.4 Exemptions. 13 The sales price from transactions exempt from state sales 14 tax under section 423.3, except section 423.3, subsection 103, 15 is also exempt from the tax imposed by this chapter. 16 Sec. 25. NEW SECTION . 423G.5 Administration by director. 17 1. The director of revenue shall administer the water 18 service tax as nearly as possible in conjunction with the 19 administration of the state sales and use tax law, except that 20 portion of the law that implements the streamlined sales and 21 use tax agreement. The director shall provide appropriate 22 forms, or provide on the regular state tax forms, for reporting 23 water service tax liability. 24 2. The director may require all persons who are engaged 25 in the business of deriving any sales price or purchase 26 price subject to tax under this chapter to register with 27 the department. The director may also require a tax permit 28 applicable only to this chapter for any retailer not 29 collecting, or any user not paying, taxes under chapter 423. 30 3. Section 422.25, subsection 4, sections 422.30, 422.67, 31 and 422.68, section 422.69, subsection 1, sections 422.70, 32 422.71, 422.72, 422.74, and 422.75, section 423.14, subsection 33 1, and sections 423.23, 423.24, 423.25, 423.31 through 34 423.35, 423.37 through 423.42, and 423.47, consistent with the 35 -13- LSB 2350YH (6) 87 mm/rj/sc 13/ 21

H.F. 597 provisions of this chapter, shall apply with respect to the tax 1 authorized under this chapter, in the same manner and with the 2 same effect as if the excise taxes on the sale or furnishing of 3 a water service were retail sales taxes within the meaning of 4 those statutes. Notwithstanding this subsection, the director 5 shall provide for quarterly filing of returns and for other 6 than quarterly filing of returns both as prescribed in section 7 423.31. All taxes collected under this chapter by a retailer 8 or any user are deemed to be held in trust for the state of 9 Iowa. 10 Sec. 26. NEW SECTION . 423G.6 Deposit of revenues. 11 1. All moneys received and all refunds shall be deposited in 12 or withdrawn from the general fund of the state. 13 2. Subsequent to the deposit in the general fund of the 14 state, the department shall first transfer one-sixth of the 15 revenues collected under 423G.3 to the secure an advanced 16 vision for education fund created in section 423F.2, and then 17 from the remaining revenues shall transfer the following 18 amounts to the wastewater and drinking water treatment 19 financial assistance fund created in section 16.134: 20 a. For revenues collected on or after January 1, 2018, but 21 before January 1, 2019, one-sixth of the revenues. 22 b. For revenues collected on or after January 1, 2019, but 23 before January 1, 2020, one-third of the revenues. 24 c. For revenues collected on or after January 1, 2020, but 25 before January 1, 2021, one-half of the revenues. 26 d. For revenues collected on or after January 1, 2021, but 27 before January 1, 2022, two-thirds of the revenues. 28 e. For revenues collected on or after January 1, 2022, but 29 before January 1, 2023, five-sixths of the revenues. 30 f. For revenues collected on or after January 1, 2023, one 31 hundred percent of the revenues. 32 Sec. 27. NEW SECTION . 423G.7 Future repeal. 33 This chapter is repealed January 1, 3031. 34 Sec. 28. EFFECTIVE DATE. This division of this Act takes 35 -14- LSB 2350YH (6) 87 mm/rj/sc 14/ 21

H.F. 597 effect January 1, 2018. 1 DIVISION IV 2 NATURAL RESOURCES AND OUTDOOR RECREATION 3 Sec. 29. Section 461.2, Code 2017, is amended by adding the 4 following new subsection: 5 NEW SUBSECTION . 3A. “Iowa nutrient reduction strategy” 6 means the latest version of the Iowa nutrient reduction 7 strategy initially presented in November 2012 by the department 8 of agriculture and land stewardship, the department of natural 9 resources, and Iowa state university of science and technology. 10 Sec. 30. Section 461.11, Code 2017, is amended by adding the 11 following new subsections: 12 NEW SUBSECTION . 3. When collaborating in making funding 13 decisions for a subsequent fiscal year, the heads of the 14 departments receiving trust fund moneys shall give a preference 15 to supporting those initiatives which are research-based water 16 quality initiatives that at least meet the state water quality 17 objective provided in section 461.31, subsection 1A. 18 NEW SUBSECTION . 4. When collaborating in making funding 19 decisions for a subsequent fiscal year, the heads of the 20 departments receiving trust fund moneys shall determine the 21 amount of trust fund moneys required to be expended to support 22 research-based water quality initiatives in order to at least 23 meet the state water quality objective provided in section 24 461.31, subsection 1A. 25 Sec. 31. Section 461.21, Code 2017, is amended by adding the 26 following new subsection: 27 NEW SUBSECTION . 1A. The auditor of state shall notify 28 the heads of the departments receiving trust fund moneys 29 whether the amount of trust fund moneys expended to support 30 research-based water quality initiatives under this chapter for 31 the fiscal year subject to the audit has at least met the state 32 water quality objective provided in section 461.31, subsection 33 1A. If the amount of trust fund moneys expended to support 34 research-based water quality initiatives does not at least 35 -15- LSB 2350YH (6) 87 mm/rj/sc 15/ 21

H.F. 597 meet that state water quality objective, the auditor of state 1 shall notify the heads of the departments of the percentage 2 shortfall. 3 Sec. 32. Section 461.22, Code 2017, is amended by adding the 4 following new subsection: 5 NEW SUBSECTION . 1A. The expenditures used to support 6 initiatives which are research-based water quality initiatives 7 that at least meet the state water quality objective provided 8 in section 461.31, subsection 1A. 9 Sec. 33. Section 461.31, Code 2017, is amended by adding the 10 following new subsection: 11 NEW SUBSECTION . 1A. a. For each fiscal year, at least 12 sixty percent of the trust fund moneys credited to the trust 13 fund shall be expended exclusively to support research-based 14 water quality initiatives under this chapter. A research-based 15 water quality initiative, includes but is not limited to a 16 practice described in the Iowa nutrient reduction strategy. 17 In addition, a research-based water quality initiative must 18 satisfy all the following: 19 (1) Have a life expectancy of more than twenty-four months. 20 (2) Provide for multiple natural resource benefits. 21 b. If the auditor of state notifies the heads of the 22 departments receiving trust fund moneys of a percentage 23 shortfall as provided in section 461.21, the percentage of 24 trust fund moneys to support research-based water quality 25 initiatives shall be adjusted for the fiscal year following the 26 fiscal year that the auditor provides the notification. The 27 amount of the adjustment shall be an amount necessary to reach 28 the sixty percent required to meet the water quality objective 29 as described in paragraph “a” plus a percentage shortfall for 30 each prior fiscal year that has not been previously added to 31 the sixty percent. 32 Sec. 34. Section 461.31, subsection 2, paragraph d, Code 33 2017, is amended to read as follows: 34 d. Trust fund moneys shall only be used to support voluntary 35 -16- LSB 2350YH (6) 87 mm/rj/sc 16/ 21

H.F. 597 initiatives and shall not be used for regulatory efforts, 1 enforcement actions, or litigation. Trust fund moneys shall 2 not be used as part of an activity that involves condemning 3 property or otherwise exercising the power of eminent domain. 4 Sec. 35. Section 461.32, subsection 3, Code 2017, is amended 5 to read as follows: 6 3. The department of natural resources shall to every extent 7 possible consider its comprehensive plan provided in section 8 456A.31 when making funding decisions. 9 EXPLANATION 10 The inclusion of this explanation does not constitute agreement with 11 the explanation’s substance by the members of the general assembly. 12 This bill relates to water quality by increasing the 13 sales and use tax rates, amending the natural resources and 14 outdoor recreation trust fund, reducing individual income tax 15 rates, creating a water service excise tax and related sales 16 tax exemption, amending the wastewater treatment financial 17 assistance program, and making appropriations. 18 DIVISION I —— SALES AND USE TAXES. Division I of the bill 19 relates to state sales and use taxes and to an amendment to 20 the Iowa Constitution ratified on November 2, 2010, which 21 created a natural resources and outdoor recreation trust fund 22 (fund) and dedicated a portion of state revenues to the fund 23 for the purposes of protecting and enhancing water quality and 24 natural areas in the state including parks, trails, and fish 25 and wildlife habitat, and conserving agricultural soils in 26 the state (Article VII, section 10). The fund is codified in 27 Code section 461.31. Pursuant to the amendment, the amount 28 credited to the fund will be equal to the amount generated 29 by an increase in the state sales tax rate occurring after 30 the effective date of the constitutional amendment, but shall 31 not exceed the amount that a state sales tax rate of 0.375 32 percent would generate. The state sales tax rate has not 33 been increased since the effective date of the constitutional 34 amendment, so no amounts have been credited to the fund. The 35 -17- LSB 2350YH (6) 87 mm/rj/sc 17/ 21

H.F. 597 division increases the sales tax rate and the use tax rate 1 from 6 percent to 6.125 percent on January 1, 2018, from 6.125 2 percent to 6.25 percent on January 1, 2019, and from 6.25 3 percent to 6.375 percent on January 1, 2020. The division 4 also amends the transfer of use tax revenues to the secure 5 an advanced vision for education fund (SAVE) in Code section 6 423F.2 to ensure that SAVE receives approximately the same 7 proportion of the total use tax revenue as it did prior to the 8 use tax rate increases provided in the division. 9 The division takes effect January 1, 2018. 10 DIVISION II —— INDIVIDUAL INCOME TAXES. Division II relates 11 to the individual income tax. The division requires the 12 department of revenue (department) to calculate the amount 13 of sales and use tax revenue generated for each fiscal year 14 from the increases in the sales and use tax rates provided in 15 division I of the bill, and certify each fiscal year the amount 16 to the governor and general assembly (certified amount). 17 For each tax year beginning in the 12-year period of January 18 1, 2018, through December 31, 2029, the division reduces the 19 nine statutory individual income tax rates by an amount that 20 will in the aggregate result in a reduction in individual 21 income tax revenues equal to the certified amount for the 22 fiscal year ending June 30 during the applicable tax year. The 23 required rate reduction is accomplished by reducing the income 24 tax rates successively, starting with the lowest rate. Each 25 tax rate shall be reduced to zero before any remaining required 26 rate reduction is applied to the next successive tax rate. The 27 tax rate reductions shall only apply to the tax year for which 28 they are calculated, and future tax year tax rate reductions 29 are applied to the statutory tax rates. However, the tax rates 30 determined for the tax year beginning January 1, 2029, shall 31 become permanent and apply to all tax years beginning on or 32 after that date. 33 The division takes effect January 1, 2018, and applies to tax 34 years beginning on or after that date. 35 -18- LSB 2350YH (6) 87 mm/rj/sc 18/ 21