S.F. 2384 Section 1. Section 15.335, subsection 7, paragraph b, Code 1 2018, 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, 2016 2018 . 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 422.3, subsection 5, Code 2018, is amended 12 to read as follows: 13 5. “Internal Revenue Code” means the Internal Revenue Code 14 of 1954, prior to the date of its redesignation as the Internal 15 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 16 the Internal Revenue Code of 1986 as amended and in effect on 17 January 1, 2015 2018 . This definition shall not be construed 18 to include any amendment to the Internal Revenue Code enacted 19 after the date specified in the preceding sentence, including 20 any amendment with retroactive applicability or effectiveness. 21 Sec. 3. Section 422.4, subsection 16, Code 2018, is amended 22 to read as follows: 23 16. The words “taxable income” mean the net income as 24 defined in section 422.7 minus the deductions allowed by 25 section 422.9 , in the case of individuals; in the case of 26 estates or trusts, the words “taxable income” mean the taxable 27 income (without a deduction for personal exemption) as 28 computed for federal income tax purposes under the Internal 29 Revenue Code, but with the following adjustments specified in 30 section 422.7 plus the Iowa income tax deducted in computing 31 the federal taxable income and minus federal income taxes as 32 provided in section 422.9 . : 33 a. Add back the personal exemption deduction taken in 34 computing federal taxable income. 35 -1- LSB 5904XS (3) 87 mm/jh 1/ 7

S.F. 2384 b. Make the adjustments specified in section 422.7. 1 c. Add back Iowa income tax deducted in computing federal 2 taxable income. 3 d. Subtract federal income taxes as provided in section 4 422.9. 5 e. Add back the qualified business income deduction under 6 section 199A of the Internal Revenue Code taken in computing 7 federal taxable income. 8 Sec. 4. Section 422.7, subsection 39A, unnumbered paragraph 9 1, Code 2018, is amended to read as follows: 10 The additional first-year depreciation allowance authorized 11 in section 168(k) of the Internal Revenue Code, as enacted by 12 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 13 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 14 112-240, §331, and Pub. L. No. 113-295, §125, Pub. L. No. 15 114-113, division Q, §143, and Pub. L. No. 115-97, §13201, does 16 not apply in computing net income for state tax purposes. If 17 the taxpayer has taken the additional first-year depreciation 18 allowance for purposes of computing federal adjusted gross 19 income, then the taxpayer shall make the following adjustments 20 to federal adjusted gross income when computing net income for 21 state tax purposes: 22 Sec. 5. Section 422.9, subsection 2, unnumbered paragraph 23 1, Code 2018, is amended to read as follows: 24 The total of contributions, interest, taxes, medical 25 expense, nonbusiness losses, and miscellaneous expenses 26 deductible for federal income tax purposes under the Internal 27 Revenue Code but not including the qualified business income 28 deduction provided under section 199A of the Internal Revenue 29 Code , with the following adjustments: 30 Sec. 6. Section 422.9, subsection 2, paragraph i, Code 2018, 31 is amended to read as follows: 32 i. The deduction for state sales and use taxes is allowable 33 only if the taxpayer elected to deduct the state sales and use 34 taxes in lieu of state income taxes under section 164 of the 35 -2- LSB 5904XS (3) 87 mm/jh 2/ 7

S.F. 2384 Internal Revenue Code. A deduction for state sales and use 1 taxes is not allowed if the taxpayer has taken the deduction 2 for state income taxes or claimed the standard deduction under 3 section 63 of the Internal Revenue Code. This paragraph 4 applies to taxable years beginning after December 31, 2003, and 5 before January 1, 2008, and to taxable years beginning after 6 December 31, 2009, and before January 1, 2015 December 31, 7 2017 . 8 Sec. 7. Section 422.9, subsection 3, paragraph d, Code 2018, 9 is amended to read as follows: 10 d. Notwithstanding paragraph “a” , for a taxpayer who is 11 engaged in the trade or business of farming as defined in 12 section 263A(e)(4) of the Internal Revenue Code and has a loss 13 from farming as defined in section 172(b)(1)(F) 172(b)(1)(B) of 14 the Internal Revenue Code including modifications prescribed by 15 rule by the director, the Iowa loss from the trade or business 16 of farming is a net operating loss which may be carried back 17 five taxable years prior to the taxable year of the loss. 18 Sec. 8. Section 422.10, subsection 3, paragraph b, Code 19 2018, is amended to read as follows: 20 b. For purposes of this section , “Internal Revenue Code” 21 means the Internal Revenue Code of 1954, prior to the date of 22 its redesignation as the Internal Revenue Code of 1986 by the 23 Tax Reform Act of 1986, or means the Internal Revenue Code of 24 1986 as amended and in effect on January 1, 2016 2018 . This 25 definition shall not be construed to include any amendment to 26 the Internal Revenue Code enacted after the date specified 27 in the preceding sentence, including any amendment with 28 retroactive applicability or effectiveness. 29 Sec. 9. Section 422.11L, subsection 6, Code 2018, is amended 30 to read as follows: 31 6. For purposes of this section , “Internal Revenue Code” 32 means the Internal Revenue Code of 1954, prior to the date of 33 its redesignation as the Internal Revenue Code of 1986 by the 34 Tax Reform Act of 1986, or means the Internal Revenue Code of 35 -3- LSB 5904XS (3) 87 mm/jh 3/ 7

S.F. 2384 1986 as amended and in effect on January 1, 2016 2018 . This 1 definition shall not be construed to include any amendment to 2 the Internal Revenue Code enacted after the date specified 3 in the preceding sentence, including any amendment with 4 retroactive applicability or effectiveness. 5 Sec. 10. Section 422.32, subsection 1, paragraph h, Code 6 2018, is amended to read as follows: 7 h. “Internal Revenue Code” means the Internal Revenue Code 8 of 1954, prior to the date of its redesignation as the Internal 9 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 10 the Internal Revenue Code of 1986 as amended and in effect on 11 January 1, 2015 2018 . This definition shall not be construed 12 to include any amendment to the Internal Revenue Code enacted 13 after the date specified in the preceding sentence, including 14 any amendment with retroactive applicability or effectiveness. 15 Sec. 11. Section 422.33, subsection 5, paragraph e, 16 subparagraph (2), Code 2018, is amended to read as follows: 17 (2) For purposes of this subsection , “Internal Revenue 18 Code” means the Internal Revenue Code of 1954, prior to the 19 date of its redesignation as the Internal Revenue Code of 1986 20 by the Tax Reform Act of 1986, or means the Internal Revenue 21 Code of 1986 as amended and in effect on January 1, 2016 22 2018 . This definition shall not be construed to include any 23 amendment to the Internal Revenue Code enacted after the date 24 specified in the preceding sentence, including any amendment 25 with retroactive applicability or effectiveness. 26 Sec. 12. Section 422.35, subsection 19A, unnumbered 27 paragraph 1, Code 2018, is amended to read as follows: 28 The additional first-year depreciation allowance authorized 29 in section 168(k) of the Internal Revenue Code, as enacted by 30 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 31 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 32 112-240, §331, and Pub. L. No. 113-295, §125, Pub. L. No. 33 114-113, division Q, §143, and Pub. L. No. 115-97, §13201, does 34 not apply in computing net income for state tax purposes. If 35 -4- LSB 5904XS (3) 87 mm/jh 4/ 7

S.F. 2384 the taxpayer has taken the additional first-year depreciation 1 allowance for purposes of computing federal taxable income, 2 then the taxpayer shall make the following adjustments to 3 federal taxable income when computing net income for state tax 4 purposes: 5 Sec. 13. EFFECTIVE DATE. This Act, being deemed of 6 immediate importance, takes effect upon enactment. 7 Sec. 14. RETROACTIVE APPLICABILITY. This Act applies 8 retroactively to January 1, 2018, for tax years beginning on 9 or after that date. 10 EXPLANATION 11 The inclusion of this explanation does not constitute agreement with 12 the explanation’s substance by the members of the general assembly. 13 Under current law with the exception of the solar energy 14 system tax credit and the research activities tax credits, Iowa 15 Code references to the Internal Revenue Code (IRC) include 16 the IRC in effect on January 1, 2015, meaning federal income 17 tax revisions made by Congress in 2015 through 2017 are not 18 applicable for Iowa tax purposes. This bill updates the Code 19 references to the IRC to make those 2015 through 2017 federal 20 income tax revisions, including revisions made in the federal 21 Protecting Americans from Tax Hikes Act of 2015 (PATH Act) 22 and in the federal Tax Cuts and Jobs Act of 2017, applicable 23 for Iowa tax purposes, except for certain revisions described 24 below. 25 The bill amends Code sections 422.3 and 422.32, general 26 definition sections in the chapter of the Code that governs 27 individual and corporate income tax and the franchise tax on 28 financial institutions, to update the references to the IRC. 29 The bill amends Code sections 15.335, 422.10, and 422.33 30 to update the references to the IRC for the state research 31 activities credit for individuals, corporations, and 32 corporations participating in certain economic development 33 programs to include the 2016 and 2017 federal changes, if any, 34 made to the research activities credit and the alternative 35 -5- LSB 5904XS (3) 87 mm/jh 5/ 7

S.F. 2384 simplified research activities credit. 1 The bill amends Code section 422.11L to update the reference 2 to the IRC for the state solar energy system credit to include 3 2016 and 2017 federal changes, if any, made to these federal 4 credits. 5 Code section 422.9 provides individuals a deduction from net 6 income for state sales and use taxes if the individual chose 7 to deduct sales and use tax in lieu of state income taxes or 8 the standard deduction for federal income tax purposes. This 9 deduction was set to expire under both federal and Iowa law for 10 tax years beginning on or after January 1, 2015. The federal 11 PATH Act of 2015 made the federal deduction permanent. The 12 bill allows the Iowa deduction and makes it permanent for tax 13 years beginning on or after January 1, 2018. 14 The bill decouples, for Iowa individual income tax purposes, 15 from the qualified business income deduction enacted in the 16 federal Tax Cuts and Jobs Act of 2017. This federal qualified 17 business income deduction is provided to noncorporate taxpayers 18 for up to 20 percent of certain domestic qualified business 19 income earned by a taxpayer from a partnership, S corporation, 20 limited liability company, other pass-through entity, or a sole 21 proprietorship. 22 The bill also decouples, for Iowa individual and corporate 23 income tax and franchise tax purposes, from the federal 24 additional first-year depreciation allowance in section 168(k) 25 of the IRC (bonus depreciation) which was enacted and modified 26 by the federal PATH Act of 2015 and the federal Tax Cuts and 27 Jobs Act of 2017. By decoupling, taxpayers who claim bonus 28 depreciation for federal tax purposes are required to add 29 such depreciation amounts back to Iowa net income, but are 30 then allowed under existing state law to deduct the amount of 31 depreciation that would otherwise be allowable under federal 32 law, without regard to the bonus depreciation allowance. 33 The bill takes effect upon enactment and applies 34 retroactively to January 1, 2018, for tax years beginning on 35 -6- LSB 5904XS (3) 87 mm/jh 6/ 7