SF 428 (LSB 1935XS (3) 87)

SENATE FILE 428

BY  ALLEN, KINNEY, BOLKCOM, LYKAM, JOCHUM, RAGAN, HART, and BOWMAN

A BILL FOR

An Act updating the Code references to the Internal Revenue Code and decoupling from certain federal bonus depreciation provisions, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
INTERNAL REVENUE CODE REFERENCES

    Section 1.  Section 15.335, subsection 7, paragraph b, Code 2017, is amended to read as follows:
   b.  For purposes of this section, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2015 2017.
    Sec. 2.  Section 422.3, subsection 5, Code 2017, is amended to read as follows:
   5.  “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended to and including January 1, 2015 2017.
    Sec. 3.  Section 422.9, subsection 2, paragraph i, Code 2017, is amended to read as follows:
   i.  The deduction for state sales and use taxes is allowable only if the taxpayer elected to deduct the state sales and use taxes in lieu of state income taxes under section 164 of the Internal Revenue Code. A deduction for state sales and use taxes is not allowed if the taxpayer has taken the deduction for state income taxes or claimed the standard deduction under section 63 of the Internal Revenue Code. This paragraph applies to taxable years beginning after December 31, 2003, and before January 1, 2008, and to taxable years beginning after December 31, 2009, and before January 1, 2015.
    Sec. 4.  Section 422.10, subsection 3, paragraph b, Code 2017, is amended to read as follows:
   b.  For purposes of this section, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2015 2017.
    Sec. 5.  Section 422.11L, subsection 6, Code 2017, is amended to read as follows:
   6.  For purposes of this section, “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended to and including January 1, 2016 2017.
    Sec. 6.  Section 422.32, subsection 1, paragraph h, Code 2017, is amended to read as follows:
   h.  “Internal Revenue Code” means the Internal Revenue Code of 1954, prior to the date of its redesignation as the Internal Revenue Code of 1986 by the Tax Reform Act of 1986, or means the Internal Revenue Code of 1986 as amended to and including January 1, 2015 2017.
    Sec. 7.  Section 422.33, subsection 5, paragraph e, subparagraph (2), Code 2017, is amended to read as follows:
   (2)  For purposes of this subsection, “Internal Revenue Code” means the Internal Revenue Code in effect on January 1, 2015 2017.
    Sec. 8.  EFFECTIVE UPON ENACTMENT.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 9.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2016, for tax years beginning on or after that date.
DIVISION II
BONUS DEPRECIATION

    Sec. 10.  Section 422.7, subsection 39A, unnumbered paragraph 1, Code 2017, is amended to read as follows:
   The additional first-year depreciation allowance authorized in section 168(k) of the Internal Revenue Code, as enacted by Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 114-113, §143, does not apply in computing net income for state tax purposes. If the taxpayer has taken the additional first-year depreciation allowance for purposes of computing federal adjusted gross income, then the taxpayer shall make the following adjustments to federal adjusted gross income when computing net income for state tax purposes:
    Sec. 11.  Section 422.35, subsection 19A, unnumbered paragraph 1, Code 2017, is amended to read as follows:
   The additional first-year depreciation allowance authorized in section 168(k) of the Internal Revenue Code, as enacted by Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 114-113, §143, does not apply in computing net income for state tax purposes. If the taxpayer has taken the additional first-year depreciation allowance for purposes of computing federal taxable income, then the taxpayer shall make the following adjustments to federal taxable income when computing net income for state tax purposes:
    Sec. 12.  EFFECTIVE UPON ENACTMENT.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 13.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2016, for tax years ending on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   Under current law with the exception of the solar energy system credit in Code section 422.llL, Iowa Code references to the Internal Revenue Code include the Internal Revenue Code in effect on January 1, 2015, meaning federal income tax revisions made by Congress in 2015 and 2016 are not applicable for Iowa tax purposes for 2016 or beyond. This bill updates the Iowa Code references to the Internal Revenue Code to make those 2015 and 2016 federal income tax revisions applicable for Iowa income tax purposes, and decouples with certain bonus depreciation provisions.
   DIVISION I —— INTERNAL REVENUE CODE REFERENCES. The division amends Code sections 422.3 and 422.32, general definition sections in the chapter of the Code that governs corporate and individual income tax and the franchise tax on financial institutions, to update the references to the Internal Revenue Code. 
   The division amends Code sections 15.335, 422.10, and 422.33 to update the references to the Internal Revenue Code for the state research activities credit for individuals, corporations, and corporations participating in certain economic development programs to include the federal changes to the research activities credit and the alternative simplified research activities credit. 
   The division amends Code section 422.11L to update the reference to the Internal Revenue Code for the state solar energy system credit to include federal changes made in 2016 to the federal residential energy efficient property credit and the federal energy credit. This reference to the Internal Revenue Code already includes federal changes made in 2015 to these federal credits (see 2016 Iowa Acts, ch. 1128, §4, 20, and ch. 1138, §40-41).
   Code section 422.9 provides individuals a deduction from net income for state sales and use taxes if the individual chose to deduct sales and use tax in lieu of state income taxes or the standard deduction for federal income tax purposes. This deduction was set to expire under both federal and Iowa law for tax years beginning on or after January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 made the federal deduction permanent. The division allows the Iowa deduction and makes it permanent for tax years beginning on or after January 1, 2016.
   Division I takes effect upon enactment and applies retroactively to January 1, 2016, for tax years beginning on or after that date.
   DIVISION II —— BONUS DEPRECIATION. The division decouples, for Iowa income tax purposes, from the federal additional first-year depreciation allowance in section 168(k) of the Internal Revenue Code (bonus depreciation) which was modified and extended through 2019 by the federal Protecting Americans from Tax Hikes Act of 2015. By decoupling, taxpayers who claim bonus depreciation for federal tax purposes are required to add such depreciation amounts back to Iowa net income, but are then allowed under existing state law to deduct the amount of depreciation that would otherwise be allowable under federal law, without regard to the bonus depreciation allowance.
   Division II takes effect upon enactment and applies retroactively to January 1, 2016, for tax years ending on or after that date.