Senate File 2395 - Introduced SENATE FILE 2395 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3198) A BILL FOR An Act concerning the apportionment of certain business 1 income of an airline or a qualified air freight forwarder 2 for purposes of Iowa corporate income tax, and including 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5593SV (2) 87 mm/jh

S.F. 2395 Section 1. Section 422.33, subsection 2, paragraph a, 1 subparagraph (2), Code 2018, is amended by adding the following 2 new subparagraph divisions: 3 NEW SUBPARAGRAPH DIVISION . (0f) Notwithstanding 4 subparagraph division (c), where income is derived by an 5 airline from transportation operations, the part attributable 6 to business within the state shall be in the proportion that 7 the miles of the airline traveled in this state bears to the 8 total miles of such airline traveled everywhere. 9 NEW SUBPARAGRAPH DIVISION . (00f) (i) Notwithstanding 10 subparagraph division (c), where income is derived by a 11 qualified air freight forwarder from transportation operations 12 through an affiliated airline, such income shall be apportioned 13 as follows: 14 (A) For tax years beginning during the 2019 calendar year, 15 eighty percent of such income shall be equitably apportioned 16 as provided in subparagraph division (c), and of the remaining 17 twenty percent of such income, the part attributable to 18 business within the state shall be in the proportion that the 19 miles of the qualified air freight forwarder’s affiliated 20 airline traveled in this state bears to the total miles of the 21 affiliated airline traveled everywhere. 22 (B) For tax years beginning during the 2020 calendar year, 23 sixty percent of such income shall be equitably apportioned as 24 provided in subparagraph division (c), and of the remaining 25 forty percent of such income, the part attributable to business 26 within the state shall be in the proportion that the miles 27 of the qualified air freight forwarder’s affiliated airline 28 traveled in this state bears to the total miles of the 29 affiliated airline traveled everywhere. 30 (C) For tax years beginning during the 2021 calendar year, 31 forty percent of such income shall be equitably apportioned as 32 provided in subparagraph division (c), and of the remaining 33 sixty percent of such income, the part attributable to business 34 within the state shall be in the proportion that the miles 35 -1- LSB 5593SV (2) 87 mm/jh 1/ 4

S.F. 2395 of the qualified air freight forwarder’s affiliated airline 1 traveled in this state bears to the total miles of the 2 affiliated airline traveled everywhere. 3 (D) For tax years beginning during the 2021 calendar year, 4 twenty percent of such income shall be equitably apportioned 5 as provided in subparagraph division (c), and of the remaining 6 eighty percent of such income, the part attributable to 7 business within the state shall be in the proportion that the 8 miles of the qualified air freight forwarder’s affiliated 9 airline traveled in this state bears to the total miles of the 10 affiliated airline traveled everywhere. 11 (E) For tax years beginning on or after January 1, 2022, 12 the part attributable to business within the state shall be 13 in the proportion that the miles of the qualified air freight 14 forwarder’s affiliated airline traveled in this state bears to 15 the total miles of the affiliated airline traveled everywhere. 16 (ii) For purposes of this subparagraph division (00f), 17 “qualified air freight forwarder” means a taxpayer who meets all 18 of the following requirements: 19 (A) The taxpayer is primarily engaged in the facilitation of 20 the transportation of property by air. 21 (B) The taxpayer does not itself operate aircraft. 22 (C) The taxpayer is in the same affiliated group as an 23 airline. 24 Sec. 2. Section 422.33, subsection 2, paragraph a, 25 subparagraph (2), subparagraph division (g), Code 2018, is 26 amended to read as follows: 27 (g) Where income consists of more than one class of income 28 as provided in subparagraph divisions (a) through (e) (00f) 29 of this subparagraph, it shall be reasonably apportioned by 30 the business activity ratio provided in rules adopted by the 31 director. 32 Sec. 3. APPLICABILITY. This Act applies to tax years 33 beginning on or after January 1, 2019. 34 EXPLANATION 35 -2- LSB 5593SV (2) 87 mm/jh 2/ 4

S.F. 2395 The inclusion of this explanation does not constitute agreement with 1 the explanation’s substance by the members of the general assembly. 2 This bill relates to the apportionment of income of an 3 airline and of a qualified air freight forwarder for purposes 4 of the Iowa corporate income tax. 5 A corporation doing business both within and without Iowa is 6 required to apportion its business income among Iowa and the 7 other states in which it does business. The amount of business 8 income apportioned to Iowa is generally in the same percentage 9 as the business’s gross sales made within Iowa if the business 10 involves the manufacture or sale of goods and products, or in 11 the same percentage as the business’s gross receipts earned 12 within Iowa if the business involves something other than the 13 manufacture or sale of goods and products. However, airlines 14 and other specified industries have special rules provided 15 by administrative rule for apportioning the income of those 16 industries. 17 Under current law pursuant to 701 Iowa administrative code, 18 rule 54.7(2), an airline deriving income from transportation 19 operations is required to apportion its business income to 20 Iowa in the same proportion that its mileage traveled in Iowa 21 bears to its total mileage traveled everywhere. The bill 22 specifies that an airline shall apportion this business income 23 in the same manner described above as required under 701 Iowa 24 administrative code, rule 54.7(2). 25 The bill also provides rules for apportioning income derived 26 by a qualified air freight forwarder from transportation 27 operations through an affiliated airline. The bill defines 28 “qualified air freight forwarder” to be a taxpayer that is 29 primarily engaged in the facilitation of the transportation of 30 property by air, and that does not itself operate aircraft but 31 that is in the same affiliated group as an airline. 32 The bill states that the qualified air freight forwarder 33 income derived from transportation operations shall be 34 apportioned to Iowa either under the current rules of the 35 -3- LSB 5593SV (2) 87 mm/jh 3/ 4

S.F. 2395 director of revenue (current statutory rules), or in the 1 same proportion that the miles of the qualified air freight 2 forwarder’s affiliated airline traveled in this state bears to 3 the total miles of the affiliated airline traveled everywhere 4 (affiliated airline mileage rules), based on increasing 5 percentages as enumerated in the bill over a number of tax 6 years. 7 The bill applies to tax years beginning on or after January 8 1, 2019. 9 -4- LSB 5593SV (2) 87 mm/jh 4/ 4