House Study Bill 187 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON APPROPRIATIONS BILL BY CHAIRPERSON GRASSLEY) A BILL FOR An Act relating to state revenue and finance by limiting the 1 total amount of certain tax expenditures that may be claimed 2 in a fiscal year, providing for transfers to the taxpayers 3 trust fund, and eliminating the refundability of Iowa tax 4 credits, and including effective date and applicability 5 provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 2629YC (7) 87 mm/sc/rj

H.F. _____ DIVISION I 1 TAX EXPENDITURE LIMITATION 2 Section 1. Section 8.57E, subsection 2, Code 2017, is 3 amended to read as follows: 4 2. a. Moneys in the taxpayers trust fund shall only be used 5 pursuant to appropriations or transfers made by the general 6 assembly for tax relief. 7 b. During each fiscal year beginning on or after July 1, 8 2014, in which the balance of the taxpayers trust fund equals 9 or exceeds thirty million dollars , exclusive of the balance 10 of the tax expenditure limitation account in subsection 2A , 11 there is transferred from the taxpayers trust fund to the 12 Iowa taxpayers trust fund tax credit fund created in section 13 422.11E , the entire balance of the taxpayers trust fund , except 14 the balance of the tax expenditure limitation account in 15 subsection 2A, to be used for the Iowa taxpayers trust fund tax 16 credit in accordance with section 422.11E, subsection 5 . 17 Sec. 2. Section 8.57E, Code 2017, is amended by adding the 18 following new subsection: 19 NEW SUBSECTION . 2A. A tax expenditure limitation account 20 shall be created as a separate account in the taxpayers trust 21 fund that shall consist of transfers made pursuant to section 22 421C.6, and moneys in the account shall not be commingled with 23 other moneys within the taxpayers trust fund. Interest or 24 earnings on moneys deposited in the account shall be credited 25 to the account. 26 Sec. 3. Section 8.57E, subsection 4, Code 2017, is amended 27 to read as follows: 28 4. Notwithstanding section 12C.7, subsection 2 , interest or 29 earnings on moneys deposited in the taxpayers trust fund shall 30 be credited to the fund and, if applicable, to the appropriate 31 account within the fund . 32 Sec. 4. NEW SECTION . 421C.1 Tax expenditure defined. 33 Any reference to “tax expenditure” in this chapter includes 34 all of the following: 35 -1- LSB 2629YC (7) 87 mm/sc/rj 1/ 23

H.F. _____ 1. Withholding tax credits. 1 a. The accelerated career education program job credit 2 allowed under section 260G.4A. 3 b. The new jobs credit from withholding allowed under 4 section 15A.7, or section 15E.197, Code 2014, or section 5 260E.5. 6 c. The targeted jobs withholding tax credit allowed under 7 chapter 403.19A. 8 2. Tax credits. 9 a. The agricultural assets transfer tax credit allowed under 10 sections 16.80 and 422.11M, and section 422.33, subsection 21. 11 b. The custom farming contract tax credit allowed under 12 sections 16.81 and 422.11M, and section 422.33, subsection 21. 13 c. The farm to food donation tax credit allowed under 14 chapter 190B, section 422.11R, and section 422.33, subsection 15 30. 16 d. The charitable conservation contribution tax credit 17 allowed under section 422.11W and section 422.33, subsection 18 25. 19 e. The school tuition organization tax credit allowed under 20 section 422.11S and section 422.33, subsection 28. 21 f. The tuition and textbook tax credit allowed under section 22 422.12, subsection 2, paragraph “b” . 23 g. The volunteer fire fighter and emergency medical services 24 personnel tax credit allowed under section 422.12, subsection 25 2, paragraph “c” . 26 h. The reserve peace officer tax credit allowed under 27 section 422.12, subsection 2, paragraph “d” . 28 i. The adoption tax credit allowed under section 422.12A. 29 j. The child and dependent care tax credit allowed under 30 section 422.12C. 31 k. The early childhood development tax credit allowed under 32 section 422.12C. 33 l. The earned income tax credit allowed under section 34 422.12B. 35 -2- LSB 2629YC (7) 87 mm/sc/rj 2/ 23

H.F. _____ m. The geothermal heat pump tax credit allowed under section 1 422.11I. 2 n. The geothermal tax credit allowed under section 422.10A. 3 o. The solar energy system tax credit allowed under section 4 422.11L, section 422.33, subsection 29, section 422.60, 5 subsection 12, and section 533.329, subsection 2, paragraph 6 “l” . 7 p. The wind energy production tax credit and the renewable 8 energy production tax credit allowed under chapters 476B and 9 476C, section 422.llJ, section 422.33, subsection 16, section 10 422.60, subsection 7, section 432.12E, and section 437A.17B. 11 q. The biodiesel blended fuel tax credit allowed under 12 section 422.11P and section 422.33, subsection 11C. 13 r. The E-15 plus gasoline promotion tax credit allowed under 14 section 422.11Y and section 422.33, subsection 11D. 15 s. The E-85 gasoline promotion tax credit allowed under 16 section 422.11O and section 422.33, subsection 11B. 17 t. The ethanol promotion tax credit allowed under section 18 422.11N and section 422.33, subsection 11A. 19 u. The renewable chemical production tax credit allowed 20 under sections 15.319 and 422.10B, and section 422.33, 21 subsection 22. 22 v. The endow Iowa tax credit allowed under sections 15E.305 23 and 422.11H, section 422.33, subsection 14, section 422.60, 24 subsection 6, section 432.12D, and section 533.329, subsection 25 2, paragraph “h” . 26 w. The investment tax credit allowed under section 15.333, 27 15E.196, Code 2014, section 15E.193B, subsection 6, Code 2014, 28 section 422.11F, subsection 2, section 422.33, subsection 12, 29 paragraph “b” , section 422.60, subsection 5, paragraph “b” , and 30 section 533.329, subsection 2, paragraph “e” . 31 x. The insurance premiums tax credit allowed under section 32 15.333A, section 15E.196, Code 2014, section 15E.193B, Code 33 2014, and section 432.12C, subsection 2. 34 y. The new jobs tax credit allowed under section 422.11A, 35 -3- LSB 2629YC (7) 87 mm/sc/rj 3/ 23

H.F. _____ and section 422.33, subsection 6. 1 z. The innovation fund investment tax credit allowed under 2 sections 15E.52 and 422.11Z, section 422.33, subsection 13, 3 section 422.60, subsection 11, section 432.12M, and section 4 533.329, subsection 2, paragraph “j” . 5 aa. The Iowa fund of funds tax credit allowed under sections 6 15E.66 and 422.11Q, section 422.33, subsection 20, section 7 422.60, subsection 9, section 432.12I, and section 533.329, 8 subsection 2, paragraph “g” . 9 ab. The venture capital fund investment tax credit allowed 10 under section 15E.51, Code 2009, section 422.11G, Code 2009, 11 section 422.33, subsection 13, Code Supplement 2009, section 12 422.60, subsection 6, Code Supplement 2009, section 432.12B, 13 Code 2009, and section 533.329, subsection 2, paragraph “i” , 14 Code Supplement 2009. 15 ac. The workforce housing investment tax credit allowed 16 under section 15.355, subsection 3, section 422.11C, section 17 422.33, subsection 15, section 422.60, subsection 13, section 18 432.12G, and section 533.239, subsection 2, paragraph “k” . 19 ad. The research activities credit and supplemental research 20 activities credit allowed under section 15E.196, Code 2014, 21 sections 15.335 and 422.10, and section 422.33, subsection 5. 22 ae. The assistive device tax credit allowed under section 23 422.33, subsection 9. 24 af. The corporate tax credit for certain sales taxes paid by 25 third-party developers allowed under section 15.331C, section 26 422.33, subsection 19, section 422.60, subsection 8, section 27 432.12H, and section 533.329, subsection 2, paragraph “d” . 28 ag. The historic preservation and cultural and entertainment 29 district tax credit allowed under chapter 404A, section 30 422.11D, section 422.33, subsection 10, section 422.60, 31 subsection 4, and section 432.12A. 32 ah. The redevelopment tax credit allowed under chapter 33 15, subchapter II, part 9, section 422.11V, section 422.33, 34 subsection 26, section 422.60, subsection 10, section 432.12L, 35 -4- LSB 2629YC (7) 87 mm/sc/rj 4/ 23

H.F. _____ and section 533.329, subsection 2, paragraph “i” . 1 ai. The investment tax credit allowed under section 15E.43, 2 section 422.11F, subsection 1, section 422.33, subsection 12, 3 section 422.60, subsection 5, paragraph “a” , section 432.12C, 4 subsection 1, and section 533.329, subsection 2, paragraph “f” . 5 3. Sales and use tax refunds. 6 a. The high quality jobs program sales and use tax refund 7 allowed under section 15.331A. 8 b. The enterprise zone program sales and use tax refund 9 allowed under section 15E.196, Code 2014, and section 15.331A. 10 c. The enterprise zone program eligible housing business 11 sales and use tax refund allowed under section 15E.193B, 12 subsection 6, Code 2014. 13 d. The workforce housing tax incentive program sales and use 14 tax refund allowed under section 15.355, subsection 2. 15 e. The wind energy production tax credit and the renewable 16 energy production tax credit sales and use tax refunds allowed 17 under chapters 476B and 476C, and section 423.4, subsection 4. 18 Sec. 5. NEW SECTION . 421C.2 Tax expenditure limitation and 19 disallowance —— when considered claimed —— tax expenditure claim 20 tracking. 21 1. Tax expenditure limitation. Notwithstanding any other 22 provision of law to the contrary, all of the following shall 23 apply to tax expenditures claimed during fiscal years beginning 24 on or after July 1, 2017: 25 a. The aggregate amount of tax expenditures claimed during 26 the fiscal year beginning July 1, 2017, and ending June 30, 27 2018, shall not exceed four hundred million dollars. 28 b. The aggregate amount of tax expenditures claimed during 29 the fiscal year beginning July 1, 2018, and ending June 30, 30 2019, shall not exceed three hundred ninety million dollars. 31 c. The aggregate amount of tax expenditures claimed during 32 the fiscal year beginning July 1, 2019, and ending June 30, 33 2020, shall not exceed three hundred eighty million dollars. 34 d. The aggregate amount of tax expenditures claimed during 35 -5- LSB 2629YC (7) 87 mm/sc/rj 5/ 23

H.F. _____ each fiscal year beginning on or after July 1, 2020, shall not 1 exceed three hundred seventy million dollars. 2 2. Excess tax expenditure claims disallowed. 3 a. Notwithstanding any other provision of law to the 4 contrary, if in any fiscal year the maximum aggregate limit 5 for tax expenditure claims described in subsection 1 for that 6 fiscal year is reached, any tax expenditure considered to be 7 claimed in that fiscal year but after the date the limit is 8 reached shall be disallowed. 9 b. If in any fiscal year the maximum aggregate limit for 10 tax expenditure claims described in subsection 1 for that 11 fiscal year is exceeded, all tax expenditures considered to 12 be claimed on the date the maximum aggregate limit for tax 13 expenditure claims described in subsection 1 is exceeded shall 14 be reduced in a prorated fashion, if necessary, until the 15 maximum aggregate limit for the fiscal year is reached. 16 3. When tax expenditure considered received. The department 17 of revenue shall consider tax expenditure claims in the order 18 they are received by the department. For purposes of this 19 chapter, a tax expenditure claim shall be considered received 20 by the department when the final, completed withholding return, 21 tax return, or sales and use tax refund claim form on which the 22 tax expenditure is reported is received by the department. 23 4. When tax expenditure considered claimed. 24 a. For purposes of this chapter, a tax expenditure shall 25 only be considered claimed to the extent the claim would reduce 26 tax liability or be issued as a refund. 27 b. For purposes of this chapter, a tax expenditure shall be 28 considered claimed on the date it is accepted by the department 29 of revenue. For purposes of this chapter, a tax expenditure 30 claim shall be considered accepted by the department when the 31 department determines that the final, completed withholding 32 return, tax return, or sales and use tax refund claim form 33 on which the tax expenditure is reported is complete and 34 capable of being processed by the department, and if the tax 35 -6- LSB 2629YC (7) 87 mm/sc/rj 6/ 23

H.F. _____ expenditure appears valid on its face. 1 c. Notwithstanding paragraph “b” , if for a fiscal year the 2 maximum aggregate limit for tax expenditure claims described 3 in subsection 1 is reached, any tax expenditure reported 4 on a withholding return, tax return, or sales and use tax 5 refund claim form that was due during that fiscal year, 6 including extensions if applicable, but that is received by the 7 department of revenue in a subsequent fiscal year, shall be 8 considered claimed in the fiscal year in which the return or 9 form was due, but after the date the maximum aggregate limit 10 had been reached, and shall be disallowed. 11 d. If a tax expenditure is considered by the department 12 of revenue to be claimed for purposes of this chapter, and 13 the taxpayer later files an amendment withholding return, tax 14 return, or sales and use tax refund claim form that increases 15 the amount of that tax expenditure, the tax expenditure 16 reported on the amended return or form shall be considered a 17 new tax expenditure claim made on the date it is accepted by 18 the department to the extent it exceeds the amount of the tax 19 expenditure reported on the previous return or form. However, 20 if the original tax expenditure claim was disallowed pursuant 21 to this section, the entire tax expenditure claim reported on 22 the amended return or form shall be disallowed. If the tax 23 expenditure amount reported on the amended return or form is 24 less than the tax expenditure amount reported on the previous 25 return or form, the total amount of tax expenditure claims 26 considered to be made in a previous fiscal year for purposes of 27 this chapter shall not decrease. 28 e. If after acceptance of a tax expenditure claim such 29 claim is later increased or decreased following an audit or 30 other similar review of the tax expenditure claim by the 31 department of revenue, that tax expenditure claim increase or 32 decrease shall not cause the total amount of tax expenditure 33 claims considered to be made in a fiscal year, as calculated 34 by the department for purposes of this chapter, to increase or 35 -7- LSB 2629YC (7) 87 mm/sc/rj 7/ 23

H.F. _____ decrease. 1 f. For purposes of this chapter, a tax credit allowed a 2 partnership, limited liability company, S corporation, estate, 3 trust, or other entity electing to have the income taxed 4 directly to the individual shall be considered to be claimed 5 when the department of revenue determines that the individual’s 6 final, completed tax return on which the tax credit is reported 7 is complete and capable of being processed by the department, 8 and if the tax credit appears valid on its face. 9 5. Tax expenditure claim tracking. The department of 10 revenue shall develop a system to track the amount of tax 11 expenditures claimed during each fiscal year and for each day 12 of the fiscal year, and shall make that information available 13 on an internet site accessible by the public. The internet 14 site shall be updated as often as practicable as new data 15 becomes available. 16 Sec. 6. NEW SECTION . 421C.3 Withholding tax credits —— 17 treatment of disallowed claims —— notification by department of 18 revenue. 19 1. Applicability. Notwithstanding any other provision of 20 law to the contrary, this section shall apply to withholding 21 tax credits listed in section 421C.1, subsection 1, that are 22 disallowed pursuant to section 421C.2, if the withholding 23 tax credit claim is otherwise determined to be valid by the 24 department of revenue. 25 2. Disallowed claims. The amount of a withholding tax 26 credit claim disallowed pursuant to section 421C.2 may be 27 carried forward one fiscal year and credited to the withholding 28 tax liability for the following fiscal year, but such 29 carryforward amount shall be amortized and claimed equally over 30 the number of withholding returns the taxpayer will be required 31 to file during the following fiscal year. Carryforward claims 32 provided in this subsection shall be subject to the maximum 33 aggregate limit in section 421C.2 in the next fiscal year and 34 if disallowed pursuant to that section in the next fiscal year 35 -8- LSB 2629YC (7) 87 mm/sc/rj 8/ 23

H.F. _____ shall not be eligible for carryforward to another fiscal year. 1 3. Notification by department of revenue. If in any 2 applicable fiscal year the maximum aggregate limit for tax 3 expenditure claims described in section 421C.2, subsection 4 1, is reached, the department of revenue shall, as soon as 5 practicable, notify the economic development authority and each 6 employer, community college, and pilot project city that is a 7 party to a withholding tax credit agreement that the maximum 8 aggregate limit has been reached, the date such limit was 9 reached, and that any withholding tax credit claims made after 10 that date in the fiscal year will be disallowed. 11 Sec. 7. NEW SECTION . 421C.4 Tax credits —— treatment of 12 disallowed claims. 13 1. Applicability. Notwithstanding any other provision of 14 law to the contrary, this section shall apply to tax credits 15 listed in section 421C.1, subsection 2, that are disallowed 16 pursuant to section 421C.2, if the tax credit claim is 17 otherwise determined to be valid by the department of revenue. 18 2. Disallowed claims —— nonrefundable tax credits. 19 a. If, but for the disallowance of the tax credit claim, the 20 tax credit would have been nonrefundable to the taxpayer in the 21 tax year for which it is disallowed, whether by operation of 22 law or pursuant to an election by the taxpayer, the disallowed 23 tax credit amount shall be considered eligible for carryforward 24 to a future tax year, but the remaining number of tax years for 25 which the tax credit may be carried forward, if any remain, 26 shall be reduced by one tax year. If the tax year for which the 27 tax credit is disallowed was the final tax year to which the 28 tax credit could be credited, the disallowed tax credit shall 29 not be eligible for carryforward to a future tax year. 30 b. Notwithstanding paragraph “a” , if a nonrefundable tax 31 credit listed in section 421C.1, subsection 2, paragraph “f” , 32 “g” , or “h” , is disallowed pursuant to section 421C.2, the 33 amount disallowed may be carried forward one tax year and shown 34 on the final, completed return credited to the tax liability 35 -9- LSB 2629YC (7) 87 mm/sc/rj 9/ 23

H.F. _____ for the following tax year. 1 c. A carryforward claim provided in this subsection shall 2 be subject to the maximum aggregate limit described in section 3 421C.2, subsection 1, in the next fiscal year. 4 3. Disallowed claims —— refundable tax credits. If, but 5 for the disallowance of the tax credit claim, the tax credit 6 would have been refundable to the taxpayer in the tax year 7 for which it is disallowed, whether by operation of law or 8 pursuant to an election by the taxpayer, the disallowed tax 9 credit amount may be carried forward one tax year and shown on 10 the final, completed return credited to the tax liability for 11 the following tax year, and any credit in excess of the tax 12 liability for that tax year shall be refunded. A carryforward 13 claim provided in this subsection shall be subject to the 14 maximum aggregate limit described in section 421C.2, subsection 15 1, in the next fiscal year and if disallowed pursuant to that 16 section in the next fiscal year shall not be eligible for 17 carryforward to another tax year. 18 Sec. 8. NEW SECTION . 421C.5 Sales and use tax refunds —— 19 treatment of disallowed claims. 20 1. Applicability. Notwithstanding any other provision of 21 law to the contrary, this section shall apply to sales and use 22 tax refunds listed in section 421C.1, subsection 3, that are 23 disallowed pursuant to section 421C.2, if the sales and use 24 tax refund claim is otherwise determined to be valid by the 25 department of revenue. 26 2. Disallowed claims. If a sales and use tax refund is 27 disallowed pursuant to section 421C.2, the amount disallowed 28 may be carried forward one fiscal year. The carryforward claim 29 shall be amortized equally over the succeeding fiscal year, 30 and the department of revenue shall issue one warrant at the 31 end of each fiscal quarter on September 30, December 31, March 32 31, and June 30. Each warrant shall be considered a separate 33 tax expenditure claim during that fiscal year for purposes of 34 section 421C.2 and shall be subject to the maximum aggregate 35 -10- LSB 2629YC (7) 87 mm/sc/rj 10/ 23

H.F. _____ limit described in that section and if disallowed pursuant to 1 that section shall not be eligible for carryforward to another 2 fiscal year. 3 Sec. 9. NEW SECTION . 421C.6 Transfers to the taxpayers 4 trust fund. 5 1. During the fiscal year beginning July 1, 2018, and ending 6 June 30, 2019, there is transferred from the general fund of 7 the state to the tax expenditure limitation account in the 8 taxpayers trust fund created in section 8.57E, an amount equal 9 to the difference between four hundred twenty-six million nine 10 hundred seven thousand one hundred fifty-one dollars and the 11 total tax expenditures claimed in the fiscal year beginning 12 July 1, 2017, and ending June 30, 2018, as determined by the 13 department of revenue under section 421C.2, up to the maximum 14 aggregate limit for tax expenditure claims. 15 2. During the fiscal year beginning July 1, 2019, and ending 16 June 30, 2020, there is transferred from the general fund of 17 the state to the tax expenditure limitation account in the 18 taxpayers trust fund created in section 8.57E, an amount equal 19 to the difference between four hundred thirty-four million 20 three hundred forty-five thousand one hundred forty-two dollars 21 and the total tax expenditures claimed in the fiscal year 22 beginning July 1, 2018, and ending June 30, 2019, as determined 23 by the department of revenue under section 421C.2, up to the 24 maximum aggregate limit for tax expenditure claims. 25 3. During the fiscal year beginning July 1, 2020, and ending 26 June 30, 2021, there is transferred from the general fund of 27 the state to the tax expenditure limitation account in the 28 taxpayers trust fund created in section 8.57E, an amount equal 29 to the difference between four hundred twenty-four million 30 three hundred fifty thousand three hundred ninety-eight dollars 31 and the total tax expenditures claimed in the fiscal year 32 beginning July 1, 2019, and ending June 30, 2020, as determined 33 by the department of revenue under section 421C.2, up to the 34 maximum aggregate limit for tax expenditure claims. 35 -11- LSB 2629YC (7) 87 mm/sc/rj 11/ 23

H.F. _____ 4. During the fiscal year beginning July 1, 2021, and ending 1 June 30, 2022, there is transferred from the general fund of 2 the state to the tax expenditure limitation account in the 3 taxpayers trust fund created in section 8.57E, an amount equal 4 to the difference between four hundred thirty-seven million 5 thirty-six thousand nine hundred four dollars and the total tax 6 expenditures claimed in the fiscal year beginning July 1, 2020, 7 and ending June 30, 2021, as determined by the department of 8 revenue under section 421C.2, up to the maximum aggregate limit 9 for tax expenditure claims. 10 DIVISION II 11 TAX CREDIT REFUNDABILITY ELIMINATION 12 Sec. 10. Section 15.293A, subsection 1, paragraph c, Code 13 2017, is amended by striking the paragraph and inserting in 14 lieu thereof the following: 15 c. Any tax credit in excess of the taxpayer’s tax liability 16 for the tax year is not refundable but the excess for the tax 17 year may be credited to the tax liability for the following 18 five years or until depleted, whichever is earlier. A tax 19 credit shall not be carried back to a tax year prior to the tax 20 year in which the taxpayer first receives the tax credit. 21 Sec. 11. Section 15.319, subsection 5, Code 2017, is amended 22 by striking the subsection and inserting in lieu thereof the 23 following: 24 5. Any credit in excess of the tax liability is not 25 refundable but the excess for the tax year may be credited to 26 the tax liability for the following tax year. 27 Sec. 12. Section 15.331C, subsection 1, Code 2017, is 28 amended to read as follows: 29 1. An eligible business may claim a corporate tax credit 30 in an amount equal to the sales and use taxes paid by a 31 third-party developer under chapter 423 for gas, electricity, 32 water, or sewer utility services, goods, wares, or merchandise, 33 or on services rendered, furnished, or performed to or for a 34 contractor or subcontractor and used in the fulfillment of a 35 -12- LSB 2629YC (7) 87 mm/sc/rj 12/ 23

H.F. _____ written contract relating to the construction or equipping of 1 a facility of the eligible business. Taxes attributable to 2 intangible property and furniture and furnishings shall not 3 be included, but taxes attributable to racks, shelving, and 4 conveyor equipment to be used in a warehouse or distribution 5 center shall be included. Any credit in excess of the tax 6 liability for the tax year is not refundable but the excess 7 for the tax year may be credited to the tax liability for the 8 following seven years or until depleted, whichever occurs 9 earlier. An eligible business may elect to receive a refund of 10 all or a portion of an unused tax credit. 11 Sec. 13. Section 15.335, subsection 8, Code 2017, is amended 12 by striking the subsection and inserting in lieu thereof the 13 following: 14 8. Any credit in excess of the tax liability is not 15 refundable but the excess for the tax year may be credited to 16 the tax liability for the following tax year. 17 Sec. 14. Section 15E.43, subsection 1, paragraph d, Code 18 2017, is amended by striking the paragraph and inserting in 19 lieu thereof the following: 20 d. Any tax credit in excess of the taxpayer’s tax liability 21 for the tax year is not refundable but the excess for the tax 22 year may be credited to the tax liability for the following 23 three years or until depleted, whichever is earlier. A tax 24 credit shall not be carried back to a tax year prior to the tax 25 year in which the taxpayer redeems the tax credit. 26 Sec. 15. Section 404A.2, subsection 4, Code 2017, is amended 27 to read as follows: 28 4. For a tax credit claimed by an eligible taxpayer or 29 a transferee for qualified rehabilitation projects with 30 agreements entered into on or after July 1, 2014, any Any 31 credit in excess of the taxpayer’s tax liability for the tax 32 year may be refunded or, at the taxpayer’s election, is not 33 refundable but the excess for the tax year may be credited to 34 the taxpayer’s tax liability for the following five years or 35 -13- LSB 2629YC (7) 87 mm/sc/rj 13/ 23

H.F. _____ until depleted, whichever is earlier. A tax credit shall not 1 be carried back to a tax year prior to the tax year in which the 2 taxpayer redeems the tax credit. As used in this subsection, 3 “taxpayer” includes an eligible taxpayer or a person transferred 4 a tax credit certificate pursuant to subsection 3 . 5 Sec. 16. Section 422.10, subsection 4, Code 2017, is amended 6 by striking the subsection and inserting in lieu thereof the 7 following: 8 4. Any credit in excess of the tax liability is not 9 refundable but the excess for the tax year may be credited to 10 the tax liability for the following tax year. 11 Sec. 17. Section 422.11N, subsection 8, Code 2017, is 12 amended by striking the subsection and inserting in lieu 13 thereof the following: 14 8. Any credit in excess of the tax liability is not 15 refundable but the excess for the tax year may be credited to 16 the tax liability for the following tax year. 17 Sec. 18. Section 422.11O, subsection 6, Code 2017, is 18 amended by striking the subsection and inserting in lieu 19 thereof the following: 20 6. Any credit in excess of the tax liability is not 21 refundable but the excess for the tax year may be credited to 22 the tax liability for the following tax year. 23 Sec. 19. Section 422.11P, subsection 6, Code 2017, is 24 amended by striking the subsection and inserting in lieu 25 thereof the following: 26 6. Any credit in excess of the tax liability is not 27 refundable but the excess for the tax year may be credited to 28 the tax liability for the following tax year. 29 Sec. 20. Section 422.11Y, subsection 7, Code 2017, is 30 amended by striking the subsection and inserting in lieu 31 thereof the following: 32 7. Any credit in excess of the tax liability is not 33 refundable but the excess for the tax year may be credited to 34 the tax liability for the following tax year. 35 -14- LSB 2629YC (7) 87 mm/sc/rj 14/ 23

H.F. _____ Sec. 21. Section 422.12A, subsection 3, Code 2017, is 1 amended by striking the subsection and inserting in lieu 2 thereof the following: 3 3. Any credit in excess of the tax liability is not 4 refundable but the excess for the tax year may be credited to 5 the tax liability for the following tax year. 6 Sec. 22. Section 422.12B, subsection 1, paragraph b, Code 7 2017, is amended by striking the paragraph and inserting in 8 lieu thereof the following: 9 b. Any credit in excess of the tax liability is not 10 refundable but the excess for the tax year may be credited to 11 the tax liability for the following tax year. 12 Sec. 23. Section 422.12C, subsection 3, Code 2017, is 13 amended by striking the subsection and inserting in lieu 14 thereof the following: 15 3. Any credit in excess of the tax liability is not 16 refundable but the excess for the tax year may be credited to 17 the tax liability for the following tax year. 18 Sec. 24. Section 422.33, subsection 5, paragraph f, Code 19 2017, is amended by striking the paragraph and inserting in 20 lieu thereof the following: 21 f. Any credit in excess of the tax liability is not 22 refundable but the excess for the tax year may be credited to 23 the tax liability for the following tax year. 24 Sec. 25. Section 422.33, subsection 9, paragraph a, Code 25 2017, is amended to read as follows: 26 a. The taxes imposed under this division shall be reduced by 27 an assistive device tax credit. A small business purchasing, 28 renting, or modifying an assistive device or making workplace 29 modifications for an individual with a disability who is 30 employed or will be employed by the small business is eligible, 31 subject to availability of credits, to receive this assistive 32 device tax credit which is equal to fifty percent of the 33 first five thousand dollars paid during the tax year for the 34 purchase, rental, or modification of the assistive device 35 -15- LSB 2629YC (7) 87 mm/sc/rj 15/ 23

H.F. _____ or for making the workplace modifications. Any credit in 1 excess of the tax liability shall be refunded with interest 2 computed under section 422.25 . In lieu of claiming a refund, 3 a taxpayer may elect to have the overpayment shown on the 4 taxpayer’s final, completed return is not refundable but the 5 excess for the tax year may be credited to the tax liability 6 for the following tax year. If the small business elects to 7 take the assistive device tax credit, the small business shall 8 not deduct for Iowa tax purposes any amount of the cost of an 9 assistive device or workplace modifications which is deductible 10 for federal income tax purposes. 11 Sec. 26. Section 422.33, subsection 11A, paragraph b, Code 12 2017, is amended by striking the paragraph and inserting in 13 lieu thereof the following: 14 b. Any ethanol promotion tax credit which is in excess of 15 the taxpayer’s tax liability is not refundable but the excess 16 for the tax year may be credited to the tax liability for the 17 following tax year in the same manner as provided in section 18 422.11N. 19 Sec. 27. Section 422.33, subsection 11B, paragraph b, Code 20 2017, is amended by striking the paragraph and inserting in 21 lieu thereof the following: 22 b. Any E-85 gasoline promotion tax credit which is in excess 23 of the taxpayer’s tax liability is not refundable but the 24 excess for the tax year may be credited to the tax liability 25 for the following tax year in the same manner as provided in 26 section 422.11O. 27 Sec. 28. Section 422.33, subsection 11C, paragraph b, Code 28 2017, is amended by striking the paragraph and inserting in 29 lieu thereof the following: 30 b. Any biodiesel blended fuel tax credit which is in excess 31 of the taxpayer’s tax liability is not refundable but the 32 excess for the tax year may be credited to the tax liability 33 for the following tax year in the same manner as provided in 34 section 422.11P. 35 -16- LSB 2629YC (7) 87 mm/sc/rj 16/ 23

H.F. _____ Sec. 29. Section 422.33, subsection 11D, paragraph b, Code 1 2017, is amended by striking the paragraph and inserting in 2 lieu thereof the following: 3 b. Any E-15 plus gasoline promotion tax credit which is 4 in excess of the taxpayer’s tax liability is not refundable 5 but the excess for the tax year may be credited to the tax 6 liability for the following tax year in the same manner as 7 provided in section 422.11Y. 8 Sec. 30. EFFECTIVE DATE. This division of this Act takes 9 effect January 1, 2018. 10 Sec. 31. APPLICABILITY. This division of this Act applies 11 to tax years beginning on or after January 1, 2018. 12 EXPLANATION 13 The inclusion of this explanation does not constitute agreement with 14 the explanation’s substance by the members of the general assembly. 15 This bill relates to state revenue and finance by limiting 16 the total amount of certain tax expenditures that may be 17 claimed in a fiscal year, providing for transfers to the 18 taxpayers trust fund, and eliminating the refundability of Iowa 19 tax credits. 20 DIVISION I —— TAX EXPENDITURE LIMITATION. Division I 21 limits the total amount of certain tax expenditures that may 22 be claimed in a fiscal year and provides for transfers to the 23 taxpayers trust fund. 24 For purposes of the bill, “tax expenditure” means all of 25 the following: the accelerated career education program 26 withholding tax credit, the new jobs tax credit from 27 withholding available under the industrial new jobs training 28 program, the targeted jobs withholding tax credit, the 29 agricultural assets transfer tax credit, the custom farming 30 contract tax credit, the farm to food donation tax credit, the 31 charitable conservation contribution tax credit, the school 32 tuition organization tax credit, the tuition and textbook 33 tax credit, the volunteer fire fighter and emergency medical 34 services personnel tax credit, the reserve peace officer tax 35 -17- LSB 2629YC (7) 87 mm/sc/rj 17/ 23

H.F. _____ credit, the adoption tax credit, the child and dependent care 1 tax credit, the early childhood development tax credit, the 2 earned income tax credit, the geothermal heat pump tax credit, 3 the geothermal tax credit, the solar energy system tax credit, 4 the wind energy production tax credit, the renewable energy 5 production tax credit, the biodiesel blended fuel tax credit, 6 the E-15 plus gasoline promotion tax credit, the E-85 gasoline 7 promotion tax credit, the ethanol promotion tax credit, the 8 renewable chemical production tax credit, the endow Iowa tax 9 credit, the investment tax credit available under the high 10 quality jobs program and enterprise zone program, the insurance 11 premiums tax credit available under the high quality jobs 12 program and enterprise zone program, the new jobs tax credit 13 available under the industrial new jobs training program, the 14 innovation fund investment tax credit, the Iowa fund of funds 15 tax credit, the venture capital fund investment tax credit, the 16 investment tax credit available under the workforce housing 17 tax incentive program, the research activities tax credit, 18 the supplemental research activities tax credit available 19 under the high quality jobs program and the enterprise zone 20 program, the assistive device tax credit, the corporate tax 21 credit for certain sales tax paid by third-party developers 22 available under the high quality jobs program, the historic 23 preservation and cultural and entertainment district tax 24 credit, the redevelopment tax credit, the tax credit for 25 investments in a qualifying business, the high quality jobs 26 program sales and use tax refund, the enterprise zone program 27 sales and use tax refund, the enterprise zone program eligible 28 housing business sales and use tax refund, the sales and use 29 tax refund available under the workforce housing tax incentive 30 program, the sales and use tax refund available under the wind 31 energy production tax credit, and the sales and use tax refund 32 available under the renewable energy production tax credit. 33 The bill limits the maximum aggregate amount of tax 34 expenditures that may be claimed in fiscal years beginning 35 -18- LSB 2629YC (7) 87 mm/sc/rj 18/ 23

H.F. _____ on or after July 1, 2017 (tax expenditure limit). The bill 1 provides that the maximum aggregate amount of tax expenditures 2 that may be claimed for FY 2017-2018, FY 2018-2019, and FY 3 2019-2020 is $400 million, $390 million, and $380 million, 4 respectively. For each fiscal year beginning on or after July 5 1, 2020, the maximum aggregate amount of tax expenditures 6 that may be claimed in a fiscal year is $370 million. Any 7 tax expenditure claim considered to be made in a fiscal year 8 but after the date the applicable tax expenditure limit is 9 reached is disallowed. In addition, all tax expenditure claims 10 considered to be made on the date the tax expenditure limit 11 is exceeded for a fiscal year shall be reduced in a prorated 12 fashion, if necessary, until the tax expenditure limit is 13 reached. 14 The bill provides that a tax expenditure shall be considered 15 claimed to the extent the claim reduces tax liability or 16 is issued as a refund, and that tax expenditure claims are 17 considered to be made on the date the claim is accepted by 18 the department of revenue (department). Tax expenditure 19 claims must be accepted in the order they are received by 20 the department. A tax expenditure claim shall be considered 21 accepted by the department when the department determines that 22 the final, completed withholding return, tax return, or sales 23 and use tax refund claim form on which the tax expenditure is 24 reported is complete and capable of being processed by the 25 department and if the tax expenditure claim appears valid 26 on its face, with one exception. If for a fiscal year the 27 tax expenditure limit is reached and a tax expenditure claim 28 is made on a return or form that was due during that fiscal 29 year, including extensions, but is actually filed late and 30 received by the department in the following fiscal year, the 31 tax expenditure claim shall be considered made in the previous 32 fiscal year but after the date the tax expenditure limit had 33 been reached, and shall be disallowed. 34 If a tax expenditure is accepted and considered claimed by 35 -19- LSB 2629YC (7) 87 mm/sc/rj 19/ 23