Senate File 2383 - Introduced SENATE FILE 2383 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3197) A BILL FOR An Act relating to state and local revenue and finance by 1 modifying the individual and corporate income taxes, the 2 franchise tax, tax credits, the moneys and credits tax, the 3 sales and use taxes and local option sales tax, the hotel 4 and motel excise tax, the automobile rental excise tax, the 5 Iowa educational savings plan trust, and the disabilities 6 expenses savings plan trust, making penalties applicable, 7 and including immediate effective date and retroactive and 8 other applicability provisions. 9 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 10 TLSB 5452SV (1) 87 mm/jh

S.F. 2383 DIVISION I 1 INCOME TAX CHANGES FOR TAX YEAR 2018 2 Section 1. EARNED INCOME TAX CREDIT FOR 2018. 3 Notwithstanding the definition of “Internal Revenue Code” 4 in section 422.3, for tax years beginning during the 2018 5 calendar year, any reference to the term “Internal Revenue 6 Code” in section 422.12B shall mean the Internal Revenue Code 7 of 1954, prior to the date of its redesignation as the Internal 8 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 9 the Internal Revenue Code of 1986 as amended and in effect on 10 January 1, 2016, but shall not be construed to include any 11 amendment to the Internal Revenue Code enacted after January 1, 12 2016, including any amendment with retroactive applicability 13 or effectiveness. 14 Sec. 2. ACCOUNTING METHOD AND OTHER MISCELLANEOUS 15 COUPLING PROVISIONS FOR TAX YEAR 2018. Notwithstanding any 16 other provision of law to the contrary, amendments to the 17 Internal Revenue Code enacted in Pub. L. No. 115-97, §13102, 18 §13221, §13504, §13541, §13543, §13611, and §13613, apply in 19 calculating federal adjusted gross income or federal taxable 20 income, as applicable, for state tax purposes for purposes of 21 chapter 422 for tax years beginning during the 2018 calendar 22 year to the extent those amendments affect the calculation of 23 federal adjusted gross income or federal taxable income, as 24 applicable, for federal tax purposes for tax years beginning 25 during the 2018 calendar year. 26 Sec. 3. TEACHER EXPENSE DEDUCTION. Notwithstanding any 27 other provision of law to the contrary, for tax years beginning 28 during the 2018 calendar year, a taxpayer is allowed to take 29 the deduction for certain expenses of elementary and secondary 30 school teachers allowed under section 62(a)(2)(D) of the 31 Internal Revenue Code, as amended by Pub. L. No. 114-113, 32 division Q, §104, in computing net income for state tax 33 purposes. 34 Sec. 4. EFFECTIVE DATE. This division of this Act, being 35 -1- LSB 5452SV (1) 87 mm/jh 1/ 130

S.F. 2383 deemed of immediate importance, takes effect upon enactment. 1 Sec. 5. RETROACTIVE APPLICABILITY. This division of this 2 Act applies retroactively to January 1, 2018, for tax years 3 beginning on or after that date, but before January 1, 2019. 4 DIVISION II 5 INCOME TAX AND FRANCHISE TAX CHANGES BEGINNING IN 2019 6 Sec. 6. Section 217.39, Code 2018, is amended to read as 7 follows: 8 217.39 Persecuted victims of World War II —— reparations —— 9 heirs. 10 Notwithstanding any other law of this state, payments paid 11 to and income from lost property of a victim of persecution 12 for racial, ethnic, or religious reasons by Nazi Germany or 13 any other Axis regime or as an heir of such victim which is 14 exempt from state income tax as provided described in section 15 422.7, subsection 35 , Code 2018, shall not be considered as 16 income or an asset for determining the eligibility for state or 17 local government benefit or entitlement programs. The proceeds 18 are not subject to recoupment for the receipt of governmental 19 benefits or entitlements, and liens, except liens for child 20 support, are not enforceable against these sums for any reason. 21 Sec. 7. Section 422.3, subsection 5, Code 2018, is amended 22 to read as follows: 23 5. “Internal Revenue Code” means the Internal Revenue Code 24 of 1954, prior to the date of its redesignation as the Internal 25 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 26 the Internal Revenue Code of 1986 , as amended and in effect 27 on January 1, 2015 . This definition shall not be construed 28 to include any amendment to the Internal Revenue Code enacted 29 after the date specified in the preceding sentence, including 30 any amendment with retroactive applicability or effectiveness. 31 Sec. 8. Section 422.4, subsection 1, paragraphs b and c, 32 Code 2018, are amended to read as follows: 33 b. “Cumulative inflation factor” means the product of the 34 annual inflation factor for the 1988 2022 calendar year and 35 -2- LSB 5452SV (1) 87 mm/jh 2/ 130

S.F. 2383 all annual inflation factors for subsequent calendar years 1 as determined pursuant to this subsection . The cumulative 2 inflation factor applies to all tax years beginning on or after 3 January 1 of the calendar year for which the latest annual 4 inflation factor has been determined. 5 c. The annual inflation factor for the 1988 2022 calendar 6 year is one hundred percent. 7 Sec. 9. Section 422.4, subsection 2, Code 2018, is amended 8 by striking the subsection. 9 Sec. 10. Section 422.4, subsection 16, Code 2018, is amended 10 to read as follows: 11 16. The words “taxable income” mean the net income as 12 defined in section 422.7 minus the deductions deduction allowed 13 by section 422.9 , if available, in the case of individuals; 14 in the case of estates or trusts, the words “taxable income” 15 mean the taxable income (without a deduction for personal 16 exemption) as computed for federal income tax purposes under 17 the Internal Revenue Code, but with the adjustments specified 18 in section 422.7 plus the Iowa income tax deducted in computing 19 the federal taxable income and minus federal income taxes as 20 provided in section 422.9 . 21 Sec. 11. Section 422.5, subsection 1, paragraphs a, b, c, d, 22 and e, Code 2018, are amended by striking the paragraphs and 23 inserting in lieu thereof the following: 24 a. On all taxable income from zero through twelve thousand 25 dollars in the case of a married couple filing jointly, or from 26 zero to six thousand dollars in the case of all other persons, 27 five percent. 28 b. On all taxable income exceeding twelve thousand dollars 29 but not exceeding thirty thousand dollars in the case of a 30 married couple filing jointly, or exceeding six thousand 31 dollars but not exceeding fifteen thousand dollars in the case 32 of all other persons, five and one-quarter percent. 33 c. On all taxable income exceeding thirty thousand dollars 34 but not exceeding sixty thousand dollars in the case of a 35 -3- LSB 5452SV (1) 87 mm/jh 3/ 130

S.F. 2383 married couple filing jointly, or exceeding fifteen thousand 1 dollars but not exceeding thirty thousand dollars in the case 2 of all other persons, five and one-half percent. 3 d. On all taxable income exceeding sixty thousand dollars 4 but not exceeding one hundred fifty thousand dollars in the 5 case of a married couple filing jointly, or exceeding thirty 6 thousand dollars but not exceeding seventy-five thousand 7 dollars in the case of all other persons, six percent. 8 e. On all taxable income exceeding one hundred fifty 9 thousand dollars in the case of a married couple filing 10 jointly, or exceeding seventy-five thousand dollars in the case 11 of all other persons, the following: 12 (1) Six and six-tenths percent for tax years beginning 13 during the 2019 calendar year. 14 (2) Six and one-half percent for tax years beginning during 15 the 2020 calendar year. 16 (3) Six and four-tenths percent for tax years beginning 17 during the 2021 calendar year. 18 (4) Six and three-tenths percent for tax years beginning on 19 or after January 1, 2022. 20 Sec. 12. Section 422.5, subsection 1, paragraphs f, g, h, 21 and i, Code 2018, are amended by striking the paragraphs. 22 Sec. 13. Section 422.5, subsection 1, paragraph j, Code 23 2018, is amended to read as follows: 24 j. (1) The tax imposed upon the taxable income of a 25 nonresident shall be computed by reducing the amount determined 26 pursuant to paragraphs “a” through “i” “e” by the amounts of 27 nonrefundable credits under this division and by multiplying 28 this resulting amount by a fraction of which the nonresident’s 29 net income allocated to Iowa, as determined in section 30 422.8, subsection 2 , paragraph “a” , is the numerator and the 31 nonresident’s total net income computed under section 422.7 is 32 the denominator. This provision also applies to individuals 33 who are residents of Iowa for less than the entire tax year. 34 (2) (a) The tax imposed upon the taxable income of a 35 -4- LSB 5452SV (1) 87 mm/jh 4/ 130

S.F. 2383 resident shareholder in an S corporation or of an estate 1 or trust with a situs in Iowa that is a shareholder in an S 2 corporation, which S corporation has in effect for the tax 3 year an election under subchapter S of the Internal Revenue 4 Code and carries on business within and without the state, 5 may be computed by reducing the amount determined pursuant to 6 paragraphs “a” through “i” “e” by the amounts of nonrefundable 7 credits under this division and by multiplying this resulting 8 amount by a fraction of which the resident’s or estate’s 9 or trust’s net income allocated to Iowa, as determined in 10 section 422.8, subsection 2 , paragraph “b” , is the numerator 11 and the resident’s or estate’s or trust’s total net income 12 computed under section 422.7 is the denominator. If a resident 13 shareholder, or an estate or trust with a situs in Iowa 14 that is a shareholder, has elected to take advantage of this 15 subparagraph (2), and for the next tax year elects not to take 16 advantage of this subparagraph, the resident or estate or 17 trust shareholder shall not reelect to take advantage of this 18 subparagraph for the three tax years immediately following the 19 first tax year for which the shareholder elected not to take 20 advantage of this subparagraph, unless the director consents to 21 the reelection. This subparagraph also applies to individuals 22 who are residents of Iowa for less than the entire tax year. 23 (b) This subparagraph (2) shall not affect the amount of 24 the taxpayer’s checkoffs under this division , the credits from 25 tax provided under this division , and the allocation of these 26 credits between spouses if the taxpayers filed separate returns 27 or separately on combined returns . 28 Sec. 14. Section 422.5, subsection 2, Code 2018, is amended 29 by striking the subsection. 30 Sec. 15. Section 422.5, subsections 3 and 3B, Code 2018, are 31 amended to read as follows: 32 3. a. The tax shall not be imposed on a resident or 33 nonresident whose net income, as defined in section 422.7 , is 34 thirteen thousand five hundred dollars or less in the case 35 -5- LSB 5452SV (1) 87 mm/jh 5/ 130

S.F. 2383 of married persons filing jointly or filing separately on a 1 combined return , heads of household, and surviving spouses or 2 nine thousand dollars or less in the case of all other persons; 3 but in the event that the payment of tax under this division 4 would reduce the net income to less than thirteen thousand five 5 hundred dollars or nine thousand dollars as applicable, then 6 the tax shall be reduced to that amount which would result 7 in allowing the taxpayer to retain a net income of thirteen 8 thousand five hundred dollars or nine thousand dollars as 9 applicable. The preceding sentence does not apply to estates 10 or trusts. For the purpose of this subsection , the entire net 11 income, including any part of the net income not allocated 12 to Iowa, shall be taken into account. For purposes of this 13 subsection , net income includes all amounts of pensions or 14 other retirement income, except for military retirement pay 15 excluded under section 422.7, subsection 31A , paragraph “a” , 16 or section 422.7, subsection 31B , paragraph “a” , received from 17 any source which is not taxable under this division as a result 18 of the government pension exclusions in section 422.7 , or any 19 other state law. If the combined net income of a husband and 20 wife exceeds thirteen thousand five hundred dollars, neither 21 of them shall receive the benefit of this subsection , and it 22 is immaterial whether they file a joint return or separate 23 returns. However, if a husband and wife file separate returns 24 and have a combined net income of thirteen thousand five 25 hundred dollars or less, neither spouse shall receive the 26 benefit of this paragraph, if one spouse has a net operating 27 loss and elects to carry back or carry forward the loss as 28 provided under the Internal Revenue Code or in section 422.9 , 29 subsection 3 . A person who is claimed as a dependent by 30 another person as defined in section 422.12 shall not receive 31 the benefit of this subsection if the person claiming the 32 dependent has net income exceeding thirteen thousand five 33 hundred dollars or nine thousand dollars as applicable or the 34 person claiming the dependent and the person’s spouse have 35 -6- LSB 5452SV (1) 87 mm/jh 6/ 130

S.F. 2383 combined net income exceeding thirteen thousand five hundred 1 dollars or nine thousand dollars as applicable. 2 b. In lieu of the computation in subsection 1 or 2 , or in 3 paragraph “a” of this subsection , if the married persons’ , 4 filing jointly or filing separately on a combined return , 5 head of household’s, or surviving spouse’s net income exceeds 6 thirteen thousand five hundred dollars, the regular tax imposed 7 under this division shall be the lesser of the maximum state 8 individual income tax rate for the tax year times the portion 9 of the net income in excess of thirteen thousand five hundred 10 dollars or the regular tax liability computed without regard 11 to this sentence. Taxpayers electing to file separately shall 12 compute the alternate tax described in this paragraph using the 13 total net income of the husband and wife. The alternate tax 14 described in this paragraph does not apply if one spouse elects 15 to carry back or carry forward the loss as provided under the 16 Internal Revenue Code or in section 422.9 , subsection 3 . 17 3B. a. The tax shall not be imposed on a resident or 18 nonresident who is at least sixty-five years old on December 19 31 of the tax year and whose net income, as defined in section 20 422.7 , is thirty-two thousand dollars or less in the case 21 of married persons filing jointly or filing separately on a 22 combined return , heads of household, and surviving spouses or 23 twenty-four thousand dollars or less in the case of all other 24 persons; but in the event that the payment of tax under this 25 division would reduce the net income to less than thirty-two 26 thousand dollars or twenty-four thousand dollars as applicable, 27 then the tax shall be reduced to that amount which would result 28 in allowing the taxpayer to retain a net income of thirty-two 29 thousand dollars or twenty-four thousand dollars as applicable. 30 The preceding sentence does not apply to estates or trusts. 31 For the purpose of this subsection , the entire net income, 32 including any part of the net income not allocated to Iowa, 33 shall be taken into account. For purposes of this subsection , 34 net income includes all amounts of pensions or other retirement 35 -7- LSB 5452SV (1) 87 mm/jh 7/ 130

S.F. 2383 income, except for military retirement pay excluded under 1 section 422.7, subsection 31A , paragraph “a” , or section 422.7, 2 subsection 31B , paragraph “a” , received from any source which is 3 not taxable under this division as a result of the government 4 pension exclusions in section 422.7 , or any other state law. 5 If the combined net income of a husband and wife exceeds 6 thirty-two thousand dollars, neither of them shall receive the 7 benefit of this subsection , and it is immaterial whether they 8 file a joint return or separate returns. However, if a husband 9 and wife file separate returns and have a combined net income 10 of thirty-two thousand dollars or less, neither spouse shall 11 receive the benefit of this paragraph, if one spouse has a net 12 operating loss and elects to carry back or carry forward the 13 loss as provided under the Internal Revenue Code or in section 14 422.9 , subsection 3 . A person who is claimed as a dependent by 15 another person as defined in section 422.12 shall not receive 16 the benefit of this subsection if the person claiming the 17 dependent has net income exceeding thirty-two thousand dollars 18 or twenty-four thousand dollars as applicable or the person 19 claiming the dependent and the person’s spouse have combined 20 net income exceeding thirty-two thousand dollars or twenty-four 21 thousand dollars as applicable. 22 b. In lieu of the computation in subsection 1 , 2, or 3 , if 23 the married persons’ , filing jointly or filing separately on 24 a combined return , head of household’s, or surviving spouse’s 25 net income exceeds thirty-two thousand dollars, the regular tax 26 imposed under this division shall be the lesser of the maximum 27 state individual income tax rate for the tax year times the 28 portion of the net income in excess of thirty-two thousand 29 dollars or the regular tax liability computed without regard 30 to this sentence. Taxpayers electing to file separately shall 31 compute the alternate tax described in this paragraph using the 32 total net income of the husband and wife. The alternate tax 33 described in this paragraph does not apply if one spouse elects 34 to carry back or carry forward the loss as provided under the 35 -8- LSB 5452SV (1) 87 mm/jh 8/ 130

S.F. 2383 Internal Revenue Code or in section 422.9 , subsection 3 . 1 c. This subsection applies even though one spouse has not 2 attained the age of sixty-five, if the other spouse is at least 3 sixty-five at the end of the tax year. 4 Sec. 16. Section 422.5, subsection 6, Code 2018, is amended 5 by striking the subsection and inserting in lieu thereof the 6 following: 7 6. Upon determination of the latest cumulative inflation 8 factor, the director shall reduce each tax rate in subsection 9 1, paragraphs “a” through “d” , and paragraph “e” , subparagraph 10 (4), by the same percentage that the latest cumulative 11 inflation factor exceeds one hundred percent, shall round off 12 the resulting rate to the nearest one-hundredth of one percent, 13 and shall incorporate the result into the income tax forms and 14 instructions for each tax year. 15 Sec. 17. Section 422.7, unnumbered paragraph 1, Code 2018, 16 is amended to read as follows: 17 The term “net income” means the adjusted gross income before 18 the net operating loss deduction taxable income as properly 19 computed for federal income tax purposes under section 63 the 20 Internal Revenue Code, with the following adjustments: 21 Sec. 18. Section 422.7, Code 2018, is amended by adding the 22 following new subsections: 23 NEW SUBSECTION . 4. Add any federal net operating loss 24 deduction carried over from a taxable year beginning prior to 25 January 1, 2019. 26 NEW SUBSECTION . 6. a. For tax years beginning in the 2019 27 calendar year, subtract the amount of federal income taxes 28 paid during the tax year to the extent payment is for a tax 29 year beginning prior to January 1, 2019, and add any federal 30 income tax refunds received during the tax year to the extent 31 the federal income tax was deducted for a tax year beginning 32 prior to January 1, 2019. Where married persons who have filed 33 a joint federal income tax return file separately for state tax 34 purposes, such total shall be divided between them according 35 -9- LSB 5452SV (1) 87 mm/jh 9/ 130

S.F. 2383 to the portion of the total paid by each. Federal income taxes 1 paid for a tax year in which an Iowa return was not required to 2 be filed shall not be subtracted. 3 b. Notwithstanding any other provision of law to the 4 contrary, amounts subtracted or added pursuant to this 5 subsection shall not be included in the calculation of net 6 income for purposes of section 422.5, subsection 3 or 3B, or 7 section 422.13. 8 Sec. 19. Section 422.7, subsection 12, paragraph a, 9 unnumbered paragraph 1, Code 2018, is amended to read as 10 follows: 11 If For tax years beginning prior to January 1, 2022, if the 12 adjusted gross federal taxable income includes income or loss 13 from a small business operated by the taxpayer, an additional 14 deduction shall be allowed in computing the income or loss from 15 the small business if the small business hired for employment 16 in the state during its annual accounting period ending with or 17 during the taxpayer’s tax year any of the following: 18 Sec. 20. Section 422.7, subsection 12A, paragraph a, 19 unnumbered paragraph 1, Code 2018, is amended to read as 20 follows: 21 If For tax years beginning prior to January 1, 2022, if the 22 adjusted gross federal taxable income includes income or loss 23 from a business operated by the taxpayer, and if the business 24 does not qualify for the adjustment under subsection 12 , an 25 additional deduction shall be allowed in computing the income 26 or loss from the business if the business hired for employment 27 in the state during its annual accounting period ending with or 28 during the taxpayer’s tax year either of the following: 29 Sec. 21. Section 422.7, subsection 13, Code 2018, is amended 30 by striking the subsection and inserting in lieu thereof the 31 following: 32 13. Subtract, to the extent included, the amount of social 33 security benefits taxable under section 86 of the Internal 34 Revenue Code. 35 -10- LSB 5452SV (1) 87 mm/jh 10/ 130

S.F. 2383 Sec. 22. Section 422.7, Code 2018, is amended by adding the 1 following new subsections: 2 NEW SUBSECTION . 18. Add, to the extent deducted for federal 3 tax purposes, charitable contributions under section 170 of 4 the Internal Revenue Code to the extent such contribution was 5 made to an organization for the purpose of deposit in the Iowa 6 education savings plan trust established in chapter 12D, and 7 the taxpayer designated that any part of the contribution be 8 used for the direct benefit of any dependent of the taxpayer or 9 any other single beneficiary designated by the taxpayer. 10 NEW SUBSECTION . 19. a. Subtract, to the extent included, 11 income resulting from the payment by an employer of the 12 taxpayer, whether paid to the taxpayer or to a lender, of 13 principal or interest on any qualified education loan incurred 14 by the taxpayer. 15 b. If the taxpayer has a deduction in computing federal 16 taxable income under section 221 of the Internal Revenue Code 17 for interest on a qualified education loan, the taxpayer shall 18 recompute for purposes of this subsection the amount of the 19 deduction under paragraph “a” by not subtracting any amount of 20 income resulting from the employer’s payment of interest on a 21 qualified education loan that was also deducted by the taxpayer 22 under section 221 of the Internal Revenue Code. 23 c. For purposes of this subsection, “qualified education 24 loan” means the same as defined in section 221 of the Internal 25 Revenue Code. 26 Sec. 23. Section 422.7, subsection 31, Code 2018, is amended 27 to read as follows: 28 31. For a person who is disabled, or is fifty-five years of 29 age or older, or is the surviving spouse of an individual or 30 a survivor having an insurable interest in an individual who 31 would have qualified for the exemption under this subsection 32 for the tax year, subtract, to the extent included, the 33 total amount of a governmental or other pension or retirement 34 pay, including, but not limited to, defined benefit or 35 -11- LSB 5452SV (1) 87 mm/jh 11/ 130

S.F. 2383 defined contribution plans, annuities, individual retirement 1 accounts, plans maintained or contributed to by an employer, 2 or maintained or contributed to by a self-employed person as 3 an employer, and deferred compensation plans or any earnings 4 attributable to the deferred compensation plans, up to a 5 maximum of six ten thousand dollars for a person, other than a 6 husband or wife, who files a separate state income tax return 7 and up to a maximum of twelve twenty thousand dollars for a 8 husband and wife who file a joint state income tax return. 9 However, a surviving spouse who is not disabled or fifty-five 10 years of age or older can only exclude the amount of pension or 11 retirement pay received as a result of the death of the other 12 spouse. A husband and wife filing separate state income tax 13 returns or separately on a combined state return are allowed 14 a combined maximum exclusion under this subsection of up to 15 twelve twenty thousand dollars. The twelve twenty thousand 16 dollar exclusion shall be allocated to the husband or wife 17 in the proportion that each spouse’s respective pension and 18 retirement pay received bears to total combined pension and 19 retirement pay received. 20 Sec. 24. Section 422.7, subsection 41, Code 2018, is amended 21 by adding the following new paragraph: 22 NEW PARAGRAPH . 0e. Add, to the extent deducted for 23 federal tax purposes, interest, taxes, and other miscellaneous 24 expenses to the extent such amounts are eligible home costs 25 in connection with a qualified home purchase that were paid 26 or reimbursed from funds in a first-time homebuyer savings 27 account. 28 Sec. 25. Section 422.7, subsection 44, paragraph a, 29 unnumbered paragraph 1, Code 2018, is amended to read as 30 follows: 31 If For tax years beginning before January 1, 2022, if the 32 taxpayer, while living, donates one or more of the taxpayer’s 33 human organs to another human being for immediate human organ 34 transplantation during the tax year, subtract, to the extent 35 -12- LSB 5452SV (1) 87 mm/jh 12/ 130

S.F. 2383 not otherwise excluded, the following unreimbursed expenses 1 incurred by the taxpayer and related to the taxpayer’s organ 2 donation: 3 Sec. 26. Section 422.7, subsection 47, Code 2018, is amended 4 to read as follows: 5 47. Subtract, to the extent not otherwise deducted in 6 computing adjusted gross federal taxable income, the amounts 7 paid by the taxpayer to the department of veterans affairs for 8 the purpose of providing grants under the injured veterans 9 grant program established in section 35A.14 . Amounts 10 subtracted under this subsection shall not be used by the 11 taxpayer in computing the amount of charitable contributions as 12 defined by section 170 of the Internal Revenue Code. 13 Sec. 27. Section 422.7, Code 2018, is amended by adding the 14 following new subsection: 15 NEW SUBSECTION . 51. The additional first-year depreciation 16 allowance authorized in section 168(k) of the Internal Revenue 17 Code does not apply in computing net income for state tax 18 purposes. If the taxpayer has taken the additional first-year 19 depreciation allowance for purposes of computing federal 20 taxable income, then the taxpayer shall make the following 21 adjustments to federal taxable income when computing net income 22 for state tax purposes: 23 a. Add the total amount of depreciation taken under section 24 168(k) of the Internal Revenue Code for the tax year. 25 b. Subtract the amount of depreciation allowable under the 26 modified accelerated cost recovery system described in section 27 168 of the Internal Revenue Code and calculated without regard 28 to section 168(k). 29 c. Any other adjustments to gains or losses necessary to 30 reflect the adjustments made in paragraphs “a” and “b” . The 31 director shall adopt rules for the administration of this 32 paragraph. 33 Sec. 28. Section 422.7, subsections 3, 7, 8, 9, 10, 11, 14, 34 15, 16, 20, 21, 22, 23, 24, 25, 26, 29, 30, 35, 36, 37, 39, 39A, 35 -13- LSB 5452SV (1) 87 mm/jh 13/ 130

S.F. 2383 39B, 40, 43, 45, 49, 53, 55, 56, 57, and 58, Code 2018, are 1 amended by striking the subsections. 2 Sec. 29. Section 422.8, subsection 4, Code 2018, is amended 3 by striking the subsection. 4 Sec. 30. Section 422.9, Code 2018, is amended by striking 5 the section and inserting in lieu thereof the following: 6 422.9 Iowa net operating loss incurred prior to January 1, 7 2019. 8 Any Iowa net operating loss carried over from a taxable year 9 beginning prior to January 1, 2019, may be deducted as provided 10 in section 422.9, subsection 3, Code 2018. 11 Sec. 31. Section 422.11S, subsection 4, Code 2018, is 12 amended to read as follows: 13 4. Married taxpayers who file separate returns or file 14 separately on a combined return form must determine the tax 15 credit under subsection 1 based upon their combined net income 16 and allocate the total credit amount to each spouse in the 17 proportion that each spouse’s respective net income bears to 18 the total combined net income. Nonresidents or part-year 19 residents of Iowa must determine their tax credit in the ratio 20 of their Iowa source net income to their all source net income. 21 Nonresidents or part-year residents who are married and elect 22 to file separate returns or to file separately on a combined 23 return form must allocate the tax credit between the spouses 24 in the ratio of each spouse’s Iowa source net income to the 25 combined Iowa source net income of the taxpayers. 26 Sec. 32. Section 422.12B, subsection 2, Code 2018, is 27 amended to read as follows: 28 2. Married taxpayers electing to file separate returns or 29 filing separately on a combined return may avail themselves 30 of the earned income credit by allocating the earned income 31 credit to each spouse in the proportion that each spouse’s 32 respective earned income bears to the total combined earned 33 income. Taxpayers affected by the allocation provisions of 34 section 422.8 shall be permitted a deduction for the credit 35 -14- LSB 5452SV (1) 87 mm/jh 14/ 130

S.F. 2383 only in the amount fairly and equitably allocable to Iowa under 1 rules prescribed by the director. 2 Sec. 33. Section 422.12C, subsection 4, Code 2018, is 3 amended to read as follows: 4 4. Married taxpayers who have filed joint federal returns 5 electing to file separate returns or to file separately on a 6 combined return form must determine the child and dependent 7 care credit under subsection 1 or the early childhood 8 development tax credit under subsection 2 based upon their 9 combined net income and allocate the total credit amount to 10 each spouse in the proportion that each spouse’s respective net 11 income bears to the total combined net income. Nonresidents 12 or part-year residents of Iowa must determine their Iowa child 13 and dependent care credit in the ratio of their Iowa source 14 net income to their all source net income. Nonresidents or 15 part-year residents who are married and elect to file separate 16 returns or to file separately on a combined return form must 17 allocate the Iowa child and dependent care credit between the 18 spouses in the ratio of each spouse’s Iowa source net income to 19 the combined Iowa source net income of the taxpayers. 20 Sec. 34. Section 422.13, subsection 1, paragraph c, Code 21 2018, is amended by striking the paragraph. 22 Sec. 35. Section 422.16, subsection 1, paragraph f, Code 23 2018, is amended by striking the paragraph. 24 Sec. 36. Section 422.21, subsections 2, 5, and 7, Code 2018, 25 are amended to read as follows: 26 2. An individual in the armed forces of the United States 27 serving in an area designated by the president of the United 28 States or the United States Congress as a combat zone or as a 29 qualified hazardous duty area, or deployed outside the United 30 States away from the individual’s permanent duty station while 31 participating in an operation designated by the United States 32 secretary of defense as a contingency operation as defined 33 in 10 U.S.C. §101(a)(13), or which became such a contingency 34 operation by the operation of law, or an individual serving in 35 -15- LSB 5452SV (1) 87 mm/jh 15/ 130

S.F. 2383 support of those forces, is allowed the same additional time 1 period after leaving the combat zone or the qualified hazardous 2 duty area, or ceasing to participate in such contingency 3 operation, or after a period of continuous hospitalization, to 4 file a state income tax return or perform other acts related 5 to the department, as would constitute timely filing of the 6 return or timely performance of other acts described in section 7 7508(a) of the Internal Revenue Code. An individual on active 8 duty federal military service in the armed forces, armed forces 9 military reserve, or national guard who is deployed outside 10 the United States in other than a combat zone, qualified 11 hazardous duty area, or contingency operation is allowed the 12 same additional period of time described in section 7508(a) 13 of the Internal Revenue Code to file a state income tax 14 return or perform other acts related to the department. For 15 the purposes of this subsection , “other acts related to the 16 department” includes filing claims for refund for any tax 17 administered by the department, making tax payments other than 18 withholding payments, filing appeals on the tax matters, filing 19 other tax returns, and performing other acts described in the 20 department’s rules. The additional time period allowed applies 21 to the spouse of the individual described in this subsection 22 to the extent the spouse files jointly or separately on the 23 combined return form with the individual or when the spouse 24 is a party with the individual to any matter for which the 25 additional time period is allowed. 26 5. The director shall determine for the 1989 2022 and each 27 subsequent calendar year the annual and cumulative inflation 28 factors for each calendar year to be applied to tax years 29 beginning on or after January 1 of that calendar year. The 30 director shall compute the new dollar amounts tax rates 31 as specified to be adjusted in section 422.5 by the latest 32 cumulative inflation factor and round off the result to the 33 nearest one dollar one-hundredth of one percent . The annual 34 and cumulative inflation factors determined by the director 35 -16- LSB 5452SV (1) 87 mm/jh 16/ 130

S.F. 2383 are not rules as defined in section 17A.2, subsection 11 . The 1 director shall determine for the 1990 calendar year and each 2 subsequent calendar year the annual and cumulative standard 3 deduction factors to be applied to tax years beginning on or 4 after January 1 of that calendar year. The director shall 5 compute the new dollar amounts of the standard deductions 6 specified in section 422.9, subsection 1 , by the latest 7 cumulative standard deduction factor and round off the result 8 to the nearest ten dollars. The annual and cumulative standard 9 deduction factors determined by the director are not rules as 10 defined in section 17A.2, subsection 11 . 11 7. If married taxpayers file a joint return or file 12 separately on a combined return in accordance with rules 13 prescribed by the director, both spouses are jointly and 14 severally liable for the total tax due on the return, except 15 when one spouse is considered to be an innocent spouse under 16 criteria established pursuant to section 6015 of the Internal 17 Revenue Code. 18 Sec. 37. Section 422.32, subsection 1, paragraph h, Code 19 2018, is amended to read as follows: 20 h. “Internal Revenue Code” means the Internal Revenue Code 21 of 1954, prior to the date of its redesignation as the Internal 22 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 23 the Internal Revenue Code of 1986 , as amended and in effect 24 on January 1, 2015 . This definition shall not be construed 25 to include any amendment to the Internal Revenue Code enacted 26 after the date specified in the preceding sentence, including 27 any amendment with retroactive applicability or effectiveness. 28 Sec. 38. Section 422.33, subsection 1, paragraphs a, b, c, 29 and d, Code 2018, are amended to read as follows: 30 a. On the first twenty-five thousand dollars of taxable 31 income, or any part thereof, the rate of six percent for tax 32 years beginning prior to January 1, 2021, and the rate of 33 five and one-half percent for tax years beginning on or after 34 January 1, 2021 . 35 -17- LSB 5452SV (1) 87 mm/jh 17/ 130