House File 608 - Introduced HOUSE FILE 608 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HSB 121) A BILL FOR An Act relating to the technical administration of the tax 1 laws by the department of revenue, including administration 2 of the research activities credit, income taxes, and the 3 flood mitigation program, and including effective date and 4 retroactive applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2476HV (1) 87 mm/rj

H.F. 608 Section 1. Section 15.335, subsection 7, paragraph b, Code 1 2017, is amended to read as follows: 2 b. For purposes of this section , “Internal Revenue Code” 3 means the Internal Revenue Code of 1954, prior to the date of 4 its redesignation as the Internal Revenue Code of 1986 by the 5 Tax Reform Act of 1986, or means the Internal Revenue Code of 6 1986 as amended and in effect on January 1, 2015 2016 . This 7 definition shall not be construed to include any amendment to 8 the Internal Revenue Code enacted after the date specified 9 in the preceding sentence, including any amendment with 10 retroactive applicability or effectiveness. 11 Sec. 2. Section 418.15, subsection 1, paragraph a, Code 12 2017, is amended to read as follows: 13 a. A governmental entity shall not receive remittances of 14 sales tax revenue under this chapter after twenty years from 15 the date the governmental entity’s project was approved by the 16 board or after expiration of the additional period of years if 17 approved under paragraph “b” unless the remittance amount is 18 calculated under section 418.11 based on sales subject to the 19 tax under section 432.2 423.2 occurring before the expiration 20 of the twenty-year period or expiration of the additional 21 period of years if approved under paragraph “b” . 22 Sec. 3. Section 422.3, subsection 5, Code 2017, is amended 23 to read as follows: 24 5. “Internal Revenue Code” means the Internal Revenue Code 25 of 1954, prior to the date of its redesignation as the Internal 26 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 27 the Internal Revenue Code of 1986 as amended to and including 28 and in effect on January 1, 2015. This definition shall not be 29 construed to include any amendment to the Internal Revenue Code 30 enacted after the date specified in the preceding sentence, 31 including any amendment with retroactive applicability or 32 effectiveness. 33 Sec. 4. Section 422.5, subsection 2, paragraph a, Code 2017, 34 is amended to read as follows: 35 -1- LSB 2476HV (1) 87 mm/rj 1/ 7

H.F. 608 a. There is imposed upon every resident and nonresident of 1 this state, including estates and trusts, the greater of the 2 tax determined in subsection 1 , paragraphs “a” through “j” , or 3 the state alternative minimum tax equal to seventy-five percent 4 of the maximum state individual income tax rate for the tax 5 year, rounded to the nearest one-tenth of one percent, of times 6 the state alternative minimum taxable income of the taxpayer as 7 computed under this subsection . 8 Sec. 5. Section 422.10, subsection 3, paragraph b, Code 9 2017, is amended to read as follows: 10 b. For purposes of this section , “Internal Revenue Code” 11 means the Internal Revenue Code of 1954, prior to the date of 12 its redesignation as the Internal Revenue Code of 1986 by the 13 Tax Reform Act of 1986, or means the Internal Revenue Code of 14 1986 as amended and in effect on January 1, 2015 2016 . This 15 definition shall not be construed to include any amendment to 16 the Internal Revenue Code enacted after the date specified 17 in the preceding sentence, including any amendment with 18 retroactive applicability or effectiveness. 19 Sec. 6. Section 422.11L, subsection 6, Code 2017, is amended 20 to read as follows: 21 6. For purposes of this section, “Internal Revenue Code” 22 means the Internal Revenue Code of 1954, prior to the date of 23 its redesignation as the Internal Revenue Code of 1986 by the 24 Tax Reform Act of 1986, or means the Internal Revenue Code of 25 1986 as amended to and including and in effect on January 1, 26 2016. This definition shall not be construed to include any 27 amendment to the Internal Revenue Code enacted after the date 28 specified in the preceding sentence, including any amendment 29 with retroactive applicability or effectiveness. 30 Sec. 7. Section 422.13, subsection 1, paragraph d, Code 31 2017, is amended to read as follows: 32 d. The total net income, as determined under section 422.5, 33 subsection 3 or 3B , of a resident or nonresident of this state 34 is more than the appropriate dollar amount listed in section 35 -2- LSB 2476HV (1) 87 mm/rj 2/ 7

H.F. 608 422.5, subsection 3 or 3B , upon which tax is not imposed. 1 Sec. 8. Section 422.32, subsection 1, paragraph h, Code 2 2017, is amended to read as follows: 3 h. “Internal Revenue Code” means the Internal Revenue Code 4 of 1954, prior to the date of its redesignation as the Internal 5 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 6 the Internal Revenue Code of 1986 as amended to and including 7 and in effect on January 1, 2015. This definition shall not be 8 construed to include any amendment to the Internal Revenue Code 9 enacted after the date specified in the preceding sentence, 10 including any amendment with retroactive applicability or 11 effectiveness. 12 Sec. 9. Section 422.33, subsection 2, paragraph a, 13 subparagraph (1), subparagraph division (c), Code 2017, is 14 amended to read as follows: 15 (c) Nonbusiness rents and royalties received from tangible 16 personal property are allocable to this state to the extent 17 that the property is utilized in this state; or in their 18 entirety if the taxpayer’s commercial domicile is in this state 19 and the taxpayer is not taxable in the state in which the 20 property is utilized. The extent of utilization of tangible 21 personal property in a state is determined by multiplying the 22 rents and royalties by a fraction, the numerator of which is 23 the number of days of physical location of the property in the 24 state during the rental or royalty period in the taxable year 25 and the denominator of which is the number of days of physical 26 location of the property everywhere during all rental or 27 royalty periods in the taxable year. If the physical location 28 of the property during the rental or royalty period is unknown , 29 or unascertainable by the taxpayer , tangible personal property 30 is utilized in the state in which the property was located at 31 the time the rental or royalty payor obtained possession. 32 Sec. 10. Section 422.33, subsection 5, paragraph e, 33 subparagraph (2), Code 2017, is amended to read as follows: 34 (2) For purposes of this subsection , “Internal Revenue 35 -3- LSB 2476HV (1) 87 mm/rj 3/ 7

H.F. 608 Code” means the Internal Revenue Code of 1954, prior to the 1 date of its redesignation as the Internal Revenue Code of 1986 2 by the Tax Reform Act of 1986, or means the Internal Revenue 3 Code of 1986 as amended and in effect on January 1, 2015 4 2016 . This definition shall not be construed to include any 5 amendment to the Internal Revenue Code enacted after the date 6 specified in the preceding sentence, including any amendment 7 with retroactive applicability or effectiveness. 8 Sec. 11. 2016 Iowa Acts, chapter 1007, section 3, subsection 9 1, is amended to read as follows: 10 1. Notwithstanding section 1 of this Act, or any other 11 provision of law to the contrary, the additional first-year 12 depreciation allowance authorized in section 168(k) of the 13 Internal Revenue Code, as enacted by Pub. L. No. 114-113, §143, 14 does not apply in computing net income for state tax purposes 15 for tax years ending on or after January 1, 2015 , but before 16 January 1, 2016 . If the taxpayer has taken the additional 17 first-year depreciation allowance for purposes of computing 18 federal adjusted gross income or federal taxable income, as 19 the case may be, then the taxpayer, when computing net income 20 for purposes of the individual income tax under section 422.7 21 or the corporation income tax or franchise tax under section 22 422.35 , shall make the adjustments described in section 422.7, 23 subsection 39A , paragraphs “a” through “c”, Code 2016, or 24 described in section 422.35, subsection 19A , paragraphs “a” 25 through “c”, Code 2016, as applicable. 26 Sec. 12. EFFECTIVE UPON ENACTMENT. The following 27 provision or provisions of this Act, being deemed of immediate 28 importance, take effect upon enactment: 29 1. The section of this Act amending 2016 Iowa Acts, chapter 30 1007, section 3, subsection 1. 31 2. The provisions amending the date reference from “January 32 1, 2015” to “January 1, 2016” in the sections of this Act 33 amending section 15.335, subsection 7, paragraph “b”, section 34 422.10, subsection 3, paragraph “b”, and section 422.33, 35 -4- LSB 2476HV (1) 87 mm/rj 4/ 7

H.F. 608 subsection 5, paragraph “e”, subparagraph (2), relating to the 1 definition of “Internal Revenue Code” for purposes of the Iowa 2 research activities credits. 3 Sec. 13. RETROACTIVE APPLICABILITY. The following 4 provision or provisions of this division of this Act apply 5 retroactively to January 1, 2015: 6 1. The section of this division of this Act amending 2016 7 Iowa Acts, chapter 1007, section 3, subsection 1. 8 Sec. 14. RETROACTIVE APPLICABILITY. The following 9 provision or provisions of this Act apply retroactively to 10 January 1, 2016, for tax years beginning on or after that date: 11 1. The provisions amending the date reference from “January 12 1, 2015” to “January 1, 2016” in the sections of this Act 13 amending section 15.335, subsection 7, paragraph “b”, section 14 422.10, subsection 3, paragraph “b”, and section 422.33, 15 subsection 5, paragraph “e”, subparagraph (2), relating to the 16 definition of “Internal Revenue Code” for purposes of the Iowa 17 research activities credits. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill relates to the technical administration of the tax 22 laws by the department of revenue, including the administration 23 of the research activities credit, income taxes, and the flood 24 mitigation program. 25 Under current law, for purposes of the state research 26 activities credit for individuals (Code section 422.10), 27 corporations (Code section 422.33(5), and corporations 28 participating in certain economic development programs (Code 29 section 15.335), references to the Internal Revenue Code (IRC) 30 are to the IRC in effect on January 1, 2015. The bill changes 31 the date reference in these provisions to January 1, 2016, thus 32 making federal changes, if any, enacted during 2015 to the IRC 33 provisions referenced in those Code sections governing the 34 state research activities credits applicable for purposes of 35 -5- LSB 2476HV (1) 87 mm/rj 5/ 7

H.F. 608 the state credits. These provisions take effect upon enactment 1 and apply retroactively to January 1, 2016, for tax years 2 beginning on or after that date. 3 The bill also amends all the definitions of IRC in Code 4 chapter 422 (individual income, corporate, and franchise 5 taxes), and the definition of IRC in Code section 15.335 (state 6 research activities credit for corporations participating 7 in certain economic development programs) so that the 8 language in those definitions is the same, excluding the 9 IRC date references, and further adds language to specify 10 that the definitions shall not be construed to include any 11 amendment to the IRC enacted after the date specified in that 12 particular definition, including any amendment with retroactive 13 applicability or effectiveness. 14 The bill amends Code section 418.15(1)(a), relating to the 15 remittance of state sales tax revenues to local governments 16 under the flood mitigation program, to properly cite to the 17 state sales tax imposed under Code section 423.2. 18 The bill strikes a comma and adds a comma in Code section 19 422.33(2)(a)(1)(c), relating to the allocation between states 20 of certain nonbusiness rents and royalties under the corporate 21 income tax, to specify that when that provision references the 22 location of certain property being unknown, it is referring to 23 the taxpayer’s knowledge of the property’s location. 24 The bill amends 2016 Iowa Acts, chapter 1007, section 25 3, subsection 1, relating to the disallowance of bonus 26 depreciation under section 168(k) of the IRC for the 2015 tax 27 year, to specify that the disallowance applies to tax years 28 ending on or after January 1, 2015, not those ending on or 29 after that date but before January 1, 2016. This provision 30 takes effect upon enactment and applies retroactively to 31 January 1, 2015. 32 The bill amends Code section 422.5(2)(a), relating to the 33 calculation of the individual alternative minimum tax, to 34 specify that the tax calculation is accomplished by multiplying 35 -6- LSB 2476HV (1) 87 mm/rj 6/ 7

H.F. 608 the applicable tax rate times the state alternative minimum 1 taxable income of the taxpayer. 2 The bill strikes a reference to “nonresident” in Code 3 section 422.13(1)(d), relating to the requirement to file 4 an income tax return if a taxpayer’s total income exceeds 5 the applicable dollar threshold set forth in Code section 6 422.5, because pursuant to Code section 422.13(1)(b), a 7 nonresident is only required to file an income tax return if 8 the nonresident’s income allocated to Iowa is $1,000 or more 9 and if the nonresident’s total income exceeds the applicable 10 dollar threshold set forth in Code section 422.5. 11 -7- LSB 2476HV (1) 87 mm/rj 7/ 7