Senate Study Bill 3197 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON FEENSTRA) 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 5452XC (3) 87 mm/jh
S.F. _____ 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 5452XC (3) 87 mm/jh 1/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 2/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 3/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 4/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 5/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 6/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 7/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 8/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 9/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 10/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 11/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 12/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 13/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 14/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 15/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 16/ 130
S.F. _____ 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 5452XC (3) 87 mm/jh 17/ 130
S.F. _____ b. On taxable income between twenty-five thousand dollars 1 and one hundred thousand dollars or any part thereof, the rate 2 of eight percent for tax years beginning prior to January 1, 3 2021, and the rate of five and one-half percent for tax years 4 beginning on or after January 1, 2021 . 5 c. On taxable income between one hundred thousand dollars 6 and two hundred fifty thousand dollars or any part thereof, the 7 rate of ten percent for tax years beginning prior to January 1, 8 2020, the rate of eight percent for tax years beginning during 9 the 2020 calendar year, and the rate of five and one-half 10 percent for tax years beginning on or after January 1, 2021 . 11 d. On taxable income of two hundred fifty thousand dollars 12 or more, the rate of twelve ten percent for tax years beginning 13 on or after January 1, 2019, but prior to January 1, 2021, the 14 rate of eight percent for tax years beginning during the 2021 15 calendar year, and the rate of seven percent for tax years 16 beginning on or after January 1, 2022 . 17 Sec. 39. Section 422.33, subsection 4, Code 2018, is amended 18 by striking the subsection. 19 Sec. 40. Section 422.35, unnumbered paragraph 1, Code 2018, 20 is amended to read as follows: 21 The term “net income” means the taxable income before the 22 net operating loss deduction, as properly computed for federal 23 income tax purposes under the Internal Revenue Code, with the 24 following adjustments: 25 Sec. 41. Section 422.35, subsection 4, Code 2018, is amended 26 to read as follows: 27 4. Subtract fifty percent of the federal income taxes paid 28 or accrued, as the case may be, during the tax year to the 29 extent payment is for a tax year beginning prior to January 1, 30 2019 , adjusted by any federal income tax refunds ; and add the 31 Iowa income tax deducted in computing said taxable income to 32 the extent the tax was deducted for a tax year beginning prior 33 to January 1, 2019 . 34 Sec. 42. Section 422.35, subsection 6, paragraph a, 35 -18- LSB 5452XC (3) 87 mm/jh 18/ 130
S.F. _____ unnumbered paragraph 1, Code 2018, is amended to read as 1 follows: 2 If For tax years beginning before January 1, 2022, if the 3 taxpayer is a small business corporation, subtract an amount 4 equal to sixty-five percent of the wages paid to individuals, 5 but not to exceed twenty thousand dollars per individual, named 6 in subparagraphs (1), (2), and (3) who were hired for the first 7 time by the taxpayer during the tax year for work done in this 8 state: 9 Sec. 43. Section 422.35, subsection 6A, paragraph a, 10 unnumbered paragraph 1, Code 2018, is amended to read as 11 follows: 12 If For tax years beginning prior to January 1, 2022, if the 13 taxpayer is a business corporation and does not qualify for 14 the adjustment under subsection 6 , subtract an amount equal to 15 sixty-five percent of the wages paid to individuals, but shall 16 not exceed twenty thousand dollars per individual, named in 17 subparagraphs (1) and (2) who were hired for the first time by 18 the taxpayer during the tax year for work done in this state: 19 Sec. 44. Section 422.35, subsection 11, Code 2018, is 20 amended by striking the subsection and inserting in lieu 21 thereof the following: 22 11. a. Add any federal net operating loss deduction carried 23 over from a taxable year beginning prior to January 1, 2019. 24 b. Any Iowa net operating loss carried over from a taxable 25 year beginning prior to January 1, 2019, may be deducted as 26 provided in section 422.35, subsection 11, Code 2018. 27 Sec. 45. Section 422.35, Code 2018, is amended by adding the 28 following new subsection: 29 NEW SUBSECTION . 23. The additional first-year depreciation 30 allowance authorized in section 168(k) of the Internal Revenue 31 Code does not apply in computing net income for state tax 32 purposes. If the taxpayer has taken the additional first-year 33 depreciation allowance for purposes of computing federal 34 taxable income, then the taxpayer shall make the following 35 -19- LSB 5452XC (3) 87 mm/jh 19/ 130
S.F. _____ adjustments to federal taxable income when computing net income 1 for state tax purposes: 2 a. Add the total amount of depreciation taken under section 3 168(k) of the Internal Revenue Code for the tax year. 4 b. Subtract the amount of depreciation allowable under the 5 modified accelerated cost recovery system described in section 6 168 of the Internal Revenue Code and calculated without regard 7 to section 168(k). 8 c. Any other adjustments to gains or losses necessary to 9 reflect the adjustments made in paragraphs “a” and “b” . The 10 director shall adopt rules for the administration of this 11 paragraph. 12 Sec. 46. Section 422.35, subsections 3, 5, 7, 8, 10, 16, 13 17, 18, 19, 19A, 19B, 20, 22, and 24, Code 2018, are amended by 14 striking the subsections. 15 Sec. 47. Section 541B.3, subsection 1, paragraph b, Code 16 2018, is amended to read as follows: 17 b. A married couple electing to file a joint Iowa individual 18 income tax return may establish a joint first-time homebuyer 19 savings account. Married taxpayers electing to file separate 20 tax returns or separately on a combined tax return for Iowa tax 21 purposes shall not establish or maintain a joint first-time 22 homebuyer savings account. 23 Sec. 48. Section 541B.6, Code 2018, is amended to read as 24 follows: 25 541B.6 Tax considerations. 26 The state income tax treatment of a first-time homebuyer 27 savings account shall be as provided in section 422.7, 28 subsection 41 , and section 422.9, subsection 2 , paragraph “k” . 29 Sec. 49. EFFECTIVE DATE. This division of this Act takes 30 effect January 1, 2019. 31 Sec. 50. APPLICABILITY. This division of this Act applies 32 to tax years beginning on or after January 1, 2019. 33 DIVISION III 34 TAX CREDITS 35 -20- LSB 5452XC (3) 87 mm/jh 20/ 130
S.F. _____ Sec. 51. Section 8.57E, subsection 2, Code 2018, is amended 1 to read as follows: 2 2. Moneys in the taxpayers trust fund shall only be used 3 pursuant to appropriations or transfers made by the general 4 assembly for tax relief. During each fiscal year beginning on 5 or after July 1, 2014, but before June 30, 2020, in which the 6 balance of the taxpayers trust fund equals or exceeds thirty 7 million dollars, there is transferred from the taxpayers trust 8 fund to the Iowa taxpayers trust fund tax credit fund created 9 in section 422.11E , the entire balance of the taxpayers trust 10 fund to be used for the Iowa taxpayers trust fund tax credit in 11 accordance with section 422.11E, subsection 5 . 12 Sec. 52. Section 15.119, subsection 2, paragraph a, Code 13 2018, is amended by striking the paragraph and inserting in 14 lieu thereof the following: 15 a. The high quality jobs program administered pursuant 16 to sections 15.326 through 15.336. In allocating tax 17 credits pursuant to this subsection, the authority shall not 18 allocate more than eighty million dollars for purposes of this 19 paragraph. 20 Sec. 53. Section 15.119, subsection 2, paragraphs d, e, and 21 g, Code 2018, are amended to read as follows: 22 d. The tax credits for investments in qualifying businesses 23 issued pursuant to section 15E.43 . In allocating tax credits 24 pursuant to this subsection , the authority shall not allocate 25 two more than four million dollars for purposes of this 26 paragraph , unless the authority determines that the tax credits 27 awarded will be less than that amount . 28 e. The tax credits for investments in an innovation fund 29 pursuant to section 15E.52 . In allocating tax credits pursuant 30 to this subsection in a fiscal year in which the allocation for 31 purposes of paragraph “d” does not exceed two million dollars , 32 the authority shall not allocate more than eight million 33 dollars for purposes of this paragraph , unless the authority 34 determines that the tax credits awarded will be less than that 35 -21- LSB 5452XC (3) 87 mm/jh 21/ 130
S.F. _____ amount . In allocating tax credits pursuant to this subsection 1 in a fiscal year in which the allocation for purposes of 2 paragraph “d” exceeds two million dollars, the authority shall 3 not allocate for purposes of this paragraph an amount that 4 exceeds an amount equal to the difference of eight million 5 dollars less the amount that the allocation for purposes of 6 paragraph “d” exceeds two million dollars for the same fiscal 7 year. 8 g. The workforce housing tax incentives program administered 9 pursuant to sections 15.351 through 15.356 . In allocating 10 tax credits pursuant to this subsection , the authority shall 11 not allocate more than twenty twenty-two million dollars for 12 purposes of this paragraph. Of the moneys allocated under this 13 paragraph, five seven million dollars shall be reserved for 14 allocation to qualified housing projects in small cities, as 15 defined in section 15.352 , that are registered on or after July 16 1, 2017. 17 Sec. 54. Section 15.329, subsection 1, paragraph f, Code 18 2018, is amended to read as follows: 19 f. The business shall not be a retail business or a business 20 where entrance is limited by a cover charge or membership 21 requirement , or a web search portal business as defined in 22 section 423.3, subsection 93, or a data center business as 23 defined in section 423.3, subsection 95, unless such web search 24 portal business or data center business had a physical presence 25 in this state prior to July 1, 2018 . 26 Sec. 55. Section 15.331A, subsection 1, Code 2018, is 27 amended to read as follows: 28 1. The eligible business shall be entitled to a refund 29 of the sales and use taxes paid under chapter 423 for gas, 30 electricity, water, or sewer utility services, goods, wares, or 31 merchandise, or on services rendered, furnished, or performed 32 to or for a contractor or subcontractor and used in the 33 fulfillment of a written contract relating to the construction 34 or equipping of a facility that is part of a project of the 35 -22- LSB 5452XC (3) 87 mm/jh 22/ 130
S.F. _____ eligible business. Taxes attributable to intangible property 1 and furniture and furnishings shall not be refunded. However, 2 an eligible business shall be entitled to a refund for taxes 3 attributable to racks, shelving, and conveyor equipment to be 4 used in a warehouse or distribution center subject to section 5 15.331C . 6 Sec. 56. Section 15.331C, Code 2018, is amended to read as 7 follows: 8 15.331C Corporate tax credit for certain sales taxes paid by 9 third-party developer. 10 1. An eligible business may claim a corporate tax credit 11 in an amount equal to the sales and use taxes paid by a 12 third-party developer under chapter 423 for gas, electricity, 13 water, or sewer utility services, goods, wares, or merchandise, 14 or on services rendered, furnished, or performed to or for a 15 contractor or subcontractor and used in the fulfillment of a 16 written contract relating to the construction or equipping of 17 a facility of the eligible business. Taxes attributable to 18 intangible property and furniture and furnishings shall not 19 be included , but taxes attributable to racks, shelving, and 20 conveyor equipment to be used in a warehouse or distribution 21 center shall be included . Any credit in excess of the tax 22 liability for the tax year may be credited to the tax liability 23 for the following seven years or until depleted, whichever 24 occurs earlier. An eligible business may elect to receive a 25 refund of all or a portion of an unused tax credit. 26 2. A third-party developer shall state under oath, on 27 forms provided by the department of revenue, the amount of 28 taxes paid as described in subsection 1 and shall submit such 29 forms to the department of revenue. The taxes paid shall be 30 itemized to allow identification of the taxes attributable 31 to racks, shelving, and conveyor equipment to be used in a 32 warehouse or distribution center. After receiving the form 33 from the third-party developer, the department of revenue shall 34 issue a tax credit certificate to the eligible business equal 35 -23- LSB 5452XC (3) 87 mm/jh 23/ 130
S.F. _____ to the sales and use taxes paid by a third-party developer 1 under chapter 423 for gas, electricity, water, or sewer 2 utility services, goods, wares, or merchandise, or on services 3 rendered, furnished, or performed to or for a contractor or 4 subcontractor and used in the fulfillment of a written contract 5 relating to the construction or equipping of a facility. 6 The department of revenue shall also issue a tax credit 7 certificate to the eligible business equal to the taxes paid 8 and attributable to racks, shelving, and conveyor equipment to 9 be used in a warehouse or distribution center. The aggregate 10 combined total amount of tax refunds under section 15.331A for 11 taxes attributable to racks, shelving, and conveyor equipment 12 to be used in a warehouse or distribution center and of tax 13 credit certificates issued by the department of revenue for the 14 taxes paid and attributable to racks, shelving, and conveyor 15 equipment to be used in a warehouse or distribution center 16 shall not exceed five hundred thousand dollars in a fiscal 17 year. If an applicant for a tax credit certificate does not 18 receive a certificate for the taxes paid and attributable 19 to racks, shelving, and conveyor equipment to be used in a 20 warehouse or distribution center, the application shall be 21 considered in succeeding fiscal years. The eligible business 22 shall not claim a tax credit under this section unless a tax 23 credit certificate issued by the department of revenue is 24 included with the taxpayer’s tax return for the tax year for 25 which the tax credit is claimed. A tax credit certificate 26 shall contain the eligible business’s name, address, tax 27 identification number, the amount of the tax credit, and other 28 information deemed necessary by the department of revenue. 29 Sec. 57. Section 15.335, subsection 7, paragraph b, Code 30 2018, is amended by striking the paragraph and inserting in 31 lieu thereof the following: 32 b. For purposes of this section, “Internal Revenue Code” 33 means the same as defined in section 422.3. 34 Sec. 58. Section 15.335, subsection 8, Code 2018, is amended 35 -24- LSB 5452XC (3) 87 mm/jh 24/ 130
S.F. _____ by striking the subsection and inserting in lieu thereof the 1 following: 2 8. Any tax credit in excess of the taxpayer’s liability for 3 the tax year is not refundable and may not be credited to the 4 tax liability for any other year. 5 Sec. 59. Section 16.80, subsection 5, paragraphs a and b, 6 Code 2018, are amended to read as follows: 7 a. Except as provided in paragraph “b” , the tax credit shall 8 equal five seven percent of the amount paid to the taxpayer 9 under the agreement. 10 b. The tax credit shall equal fifteen seventeen percent 11 of the amount paid to the taxpayer from crops or animals sold 12 under an agreement in which the payment is exclusively made 13 from the sale of crops or animals. 14 Sec. 60. Section 16.80, subsection 10, Code 2018, is amended 15 to read as follows: 16 10. The amount of tax credit certificates that may be issued 17 pursuant to this section shall not exceed six eight million 18 dollars in any fiscal year. The authority shall issue the tax 19 credit certificates on a first-come, first-served basis. 20 Sec. 61. NEW SECTION . 260G.8 Future repeal. 21 This chapter is repealed effective July 1, 2025. 22 Sec. 62. Section 403.19A, subsection 3, paragraph c, 23 subparagraph (2), Code 2018, is amended to read as follows: 24 (2) The pilot project city and the economic development 25 authority shall not enter into a withholding agreement after 26 June 30, 2018 2019 . 27 Sec. 63. Section 404A.4, subsection 1, paragraph a, Code 28 2018, is amended to read as follows: 29 a. Except as provided in subsections 2 and 3 , the authority 30 shall not award in any one fiscal year an amount of tax credits 31 provided in section 404A.2 in excess of forty-five thirty-five 32 million dollars. 33 Sec. 64. Section 404A.4, subsections 2 and 3, Code 2018, are 34 amended by striking the subsections. 35 -25- LSB 5452XC (3) 87 mm/jh 25/ 130
S.F. _____ Sec. 65. NEW SECTION . 404A.7 Future repeal. 1 This chapter is repealed effective July 1, 2025. 2 Sec. 66. Section 422.10, subsection 1, Code 2018, is amended 3 by adding the following new paragraph: 4 NEW PARAGRAPH . 0a. An individual shall only be eligible for 5 the credit provided in this section if the business conducting 6 the research meets all of the following requirements: 7 (1) (a) The business is engaged in the manufacturing, 8 life sciences, software engineering, or aviation and aerospace 9 industry. 10 (b) A person who is engaged in agricultural production 11 as defined in section 423.1, or who is a contractor, 12 subcontractor, builder, or a contractor-retailer that engages 13 in commercial and residential repair and installation, 14 including but not limited to heating or cooling installation 15 and repair, plumbing and pipe fitting, security system 16 installation, or electrical installation and repair, does not 17 qualify under subparagraph division (a) and is not eligible 18 for the credit. For purposes of this subparagraph division, 19 “contractor-retailer” means a business that makes frequent 20 retail sales to the public or to other contractors and that 21 also engages in the performance of construction contracts. 22 (2) The business claims and is allowed a research credit 23 for such qualified research expenses under section 41 of the 24 Internal Revenue Code for the same taxable year as it is 25 claiming the credit provided in this section. 26 Sec. 67. Section 422.10, subsection 3, Code 2018, is amended 27 by adding the following new paragraph: 28 NEW PARAGRAPH . 0a. For purposes of this section, “base 29 amount” means the product of the fixed-based percentage times 30 the average annual gross receipts of the taxpayer for the four 31 taxable years preceding the taxable year for which the credit 32 is being determined, but in no event shall the base amount be 33 less than fifty percent of the qualified research expenses for 34 the credit year. 35 -26- LSB 5452XC (3) 87 mm/jh 26/ 130
S.F. _____ Sec. 68. Section 422.10, subsection 3, paragraph a, Code 1 2018, is amended to read as follows: 2 a. For purposes of this section , “base amount” , “basic 3 research payment” , and “qualified research expense” mean the 4 same as defined for the federal credit for increasing research 5 activities under section 41 of the Internal Revenue Code, 6 except that for the alternative simplified credit such amounts 7 are for research conducted within this state. 8 Sec. 69. Section 422.10, subsection 3, paragraph b, Code 9 2018, is amended by striking the paragraph. 10 Sec. 70. Section 422.11B, Code 2018, is amended to read as 11 follows: 12 422.11B Minimum tax credit. 13 1. a. There For tax years beginning before January 1, 2020, 14 there is allowed as a credit against the tax determined in 15 section 422.5, subsection 1 , paragraphs “a” through “j” for a 16 tax year an amount equal to the minimum tax credit for that tax 17 year. 18 b. The minimum tax credit for a tax year is the excess, if 19 any, of the net minimum tax imposed for all prior tax years 20 beginning on or after January 1, 1987, but before January 1, 21 2019, over the amount allowable as a credit under this section 22 for those prior tax years. 23 2. a. The allowable credit under subsection 1 for a 24 tax year beginning before January 1, 2019, shall not exceed 25 the excess, if any, of the tax determined in section 422.5, 26 subsection 1 , paragraphs “a” through “j” over the state 27 alternative minimum tax as determined in section 422.5, 28 subsection 2 , Code 2018 . The allowable credit under subsection 29 1 for a tax year beginning in the 2019 calendar year shall not 30 exceed the tax determined under section 422.5, subsection 1. 31 b. The net minimum tax for a tax year is the excess, if 32 any, of the tax determined in section 422.5, subsection 2 , 33 Code 2018, for the tax year over the tax determined in section 34 422.5, subsection 1 , paragraphs “a” through “j” for the tax 35 -27- LSB 5452XC (3) 87 mm/jh 27/ 130
S.F. _____ year. 1 3. This section is repealed January 1, 2020, for tax years 2 beginning on or after January 1, 2020. 3 Sec. 71. Section 422.11E, Code 2018, is amended by adding 4 the following new subsection: 5 NEW SUBSECTION . 6. This section is repealed on January 1, 6 2020. 7 Sec. 72. Section 422.11S, subsection 6, paragraph a, Code 8 2018, is amended to read as follows: 9 a. “Eligible student” means a student who is a member of a 10 household whose total annual income during the calendar year 11 before the student receives a tuition grant for purposes of 12 this section does not exceed an amount equal to three four 13 times the most recently published federal poverty guidelines in 14 the federal register by the United States department of health 15 and human services. 16 Sec. 73. Section 422.11S, subsection 8, paragraph a, 17 subparagraph (2), Code 2018, is amended to read as follows: 18 (2) “Total approved tax credits” means for the tax year 19 beginning in the 2006 calendar year, two million five hundred 20 thousand dollars, for the tax year beginning in the 2007 21 calendar year, five million dollars, for tax years beginning 22 on or after January 1, 2008, but before January 1, 2012, seven 23 million five hundred thousand dollars, for tax years beginning 24 on or after January 1, 2012, but before January 1, 2014, eight 25 million seven hundred fifty thousand dollars, and for tax years 26 beginning on or after January 1, 2014, but before January 1, 27 2019, twelve million dollars , and for tax years beginning on or 28 after January 1, 2019, thirteen million dollars . 29 Sec. 74. Section 422.12, subsection 2, paragraph b, Code 30 2018, is amended to read as follows: 31 b. A For tax years beginning before January 1, 2022, a 32 tuition credit equal to twenty-five percent of the first one 33 thousand dollars which the taxpayer has paid to others for each 34 dependent in grades kindergarten through twelve, for tuition 35 -28- LSB 5452XC (3) 87 mm/jh 28/ 130
S.F. _____ and textbooks of each dependent in attending an elementary or 1 secondary school situated in Iowa, which school is accredited 2 or approved under section 256.11 , which is not operated for 3 profit, and which adheres to the provisions of the federal 4 Civil Rights Act of 1964 and chapter 216 . Notwithstanding 5 any other provision, all other credits allowed under this 6 subsection shall be deducted before the tuition credit under 7 this paragraph. The department, when conducting an audit of 8 a taxpayer’s return, shall also audit the tuition tax credit 9 portion of the tax return. 10 Sec. 75. Section 422.12, subsection 2, paragraph c, 11 subparagraph (1), Code 2018, is amended to read as follows: 12 (1) A For tax years beginning before January 1, 2022, 13 a volunteer fire fighter and volunteer emergency medical 14 services personnel member credit equal to one hundred dollars 15 to compensate the taxpayer for the voluntary services if the 16 volunteer served for the entire tax year. A taxpayer who 17 is a paid employee of an emergency medical services program 18 or a fire department and who is also a volunteer emergency 19 medical services personnel member or volunteer fire fighter in 20 a city, county, or area governed by an agreement pursuant to 21 chapter 28E where the emergency medical services program or 22 fire department performs services, shall qualify for the credit 23 provided under this paragraph “c” . 24 Sec. 76. Section 422.12, subsection 2, paragraph d, 25 subparagraph (1), Code 2018, is amended to read as follows: 26 (1) A For tax years beginning before January 1, 2022, a 27 reserve peace officer credit equal to one hundred dollars to 28 compensate the taxpayer for services as a reserve peace officer 29 if the reserve peace officer served for the entire tax year. 30 Sec. 77. Section 422.33, subsection 5, Code 2018, is amended 31 by adding the following new paragraph: 32 NEW PARAGRAPH . 0e. A corporation shall only be 33 eligible for the credit provided in this subsection if the 34 business conducting the research meets all of the following 35 -29- LSB 5452XC (3) 87 mm/jh 29/ 130
S.F. _____ requirements: 1 (1) (a) The business is engaged in the manufacturing, 2 life sciences, software engineering, or aviation and aerospace 3 industry. 4 (b) A person who is engaged in agricultural production 5 as defined in section 423.1, or who is a contractor, 6 subcontractor, builder, or a contractor-retailer that engages 7 in commercial and residential repair and installation, 8 including but not limited to heating or cooling installation 9 and repair, plumbing and pipe fitting, security system 10 installation, or electrical installation and repair, does not 11 qualify under subparagraph division (a) and is not eligible 12 for the credit. For purposes of this subparagraph division, 13 “contractor-retailer” means a business that makes frequent 14 retail sales to the public or to other contractors and that 15 also engages in the performance of construction contracts. 16 (2) The business claims and is allowed a research credit 17 for such qualified research expenses under section 41 of the 18 Internal Revenue Code for the same taxable year as it is 19 claiming the credit provided in this subsection. 20 Sec. 78. Section 422.33, subsection 5, paragraph e, Code 21 2018, is amended by adding the following new subparagraph: 22 NEW SUBPARAGRAPH . (01) For purposes of this section, “base 23 amount” means the product of the fixed-based percentage times 24 the average annual gross receipts of the taxpayer for the four 25 taxable years preceding the taxable year for which the credit 26 is being determined, but in no event shall the base amount be 27 less than fifty percent of the qualified research expenses for 28 the credit year. 29 Sec. 79. Section 422.33, subsection 5, paragraph e, 30 subparagraph (1), Code 2018, is amended to read as follows: 31 (1) For purposes of this subsection , “base amount” , “basic 32 research payment” , and “qualified research expense” mean the 33 same as defined for the federal credit for increasing research 34 activities under section 41 of the Internal Revenue Code, 35 -30- LSB 5452XC (3) 87 mm/jh 30/ 130
S.F. _____ except that for the alternative simplified credit such amounts 1 are for research conducted within this state. 2 Sec. 80. Section 422.33, subsection 5, paragraph e, 3 subparagraph (2), Code 2018, is amended by striking the 4 subparagraph. 5 Sec. 81. Section 422.33, subsection 7, Code 2018, is amended 6 to read as follows: 7 7. a. (1) There For tax years beginning before January 1, 8 2020, there is allowed as a credit against the tax determined 9 in subsection 1 for a tax year an amount equal to the minimum 10 tax credit for that tax year. 11 (2) The minimum tax credit for a tax year is the excess, 12 if any, of the net minimum tax imposed for all prior tax years 13 beginning on or after January 1, 1987, but before January 14 1, 2019, over the amount allowable as a credit under this 15 subsection for those prior tax years. 16 b. (1) The allowable credit under paragraph “a” for a tax 17 year beginning before January 1, 2019, shall not exceed the 18 excess, if any, of the tax determined in subsection 1 over 19 the state alternative minimum tax as determined in subsection 20 4 . The allowable credit under paragraph “a” for a tax year 21 beginning in the 2019 calendar year shall not exceed the tax 22 determined in subsection 1. 23 (2) The net minimum tax for a tax year is the excess, if 24 any, of the tax determined in subsection 4 for the tax year 25 over the tax determined in subsection 1 for the tax year. 26 c. This subsection is repealed January 1, 2020, for tax 27 years beginning on or after January 1, 2020. 28 Sec. 82. 2018 INTERIM TAX CREDIT STUDY. The legislative tax 29 expenditure committee created in section 2.45 shall study all 30 tax credits available under Iowa law during the 2018 interim. 31 The study shall comprehensively review and evaluate each tax 32 credit to assess its cost, equity, simplicity, competitiveness, 33 public purpose, adequacy, effectiveness, and the extent of 34 conformance with the original purpose of the tax credit. The 35 -31- LSB 5452XC (3) 87 mm/jh 31/ 130
S.F. _____ legislative tax expenditure committee shall also consider 1 new or different tax credits or other incentive programs 2 for economic development that will improve predictability, 3 flexibility, and utilization, and put Iowa in the best position 4 for attracting and retaining business in the future. The 5 legislative tax expenditure committee shall submit its findings 6 and recommendations to the general assembly for consideration 7 during the 2019 legislative session. 8 Sec. 83. FUTURE REPEAL. Sections 15.326, 15.327, 15.329, 9 15.330, 15.330A, 15.331A, 15.331C, 15.332, 15.333, 15.333A, 10 15.335, 15.335A, 15.335B, 15.335C, and 15.336, Code 2018, are 11 repealed effective July 1, 2025. 12 Sec. 84. REPEAL. Sections 422.10A, 422.11I, and 422.11N, 13 Code 2018, are repealed. 14 Sec. 85. REPEAL. Section 422.11L, Code 2018, is repealed. 15 Sec. 86. REPEAL. Chapter 190B, Code 2018, is repealed. 16 Sec. 87. EFFECTIVE DATE AND APPLICABILITY. 17 1. Except as provided in subsections 2 through 11, this 18 division of this Act takes effect January 1, 2019, and applies 19 to tax years beginning on or after that date. 20 2. The section of this division of this Act repealing 21 section 422.11L, takes effect July 1, 2018, and applies to 22 solar energy system installations occurring on or after that 23 date. 24 3. The section of this division of this Act striking and 25 replacing section 15.119, subsection 2, paragraph “a”, takes 26 effect July 1, 2018. 27 4. The section of this division of this Act amending section 28 15.119, subsection 2, paragraphs “d”, “e”, and “g”, takes 29 effect July 1, 2018. 30 5. The sections of this division of this Act amending 31 section 404A.4 take effect July 1, 2018. 32 6. The section of this division of this Act amending section 33 16.80, subsection 10, takes effect July 1, 2018. 34 7. The sections of this division of this Act enacting 35 -32- LSB 5452XC (3) 87 mm/jh 32/ 130
S.F. _____ section 422.10, subsection 1, paragraph “0a”, and enacting 1 section 422.33, subsection 5, paragraph “0e”, being deemed of 2 immediate importance, take effect upon enactment, and apply 3 retroactively to January 1, 2018, for tax years beginning on or 4 after that date and for tax returns, including amended returns, 5 filed on or after that date for any tax year. 6 8. The sections of this division of this Act amending 7 section 422.10, subsection 3, paragraph “a”, and section 8 422.33, subsection 5, paragraph “e”, subparagraph (1), and 9 enacting section 422.10, subsection 3, paragraph “0a”, and 10 section 422.33, subsection 5, paragraph “e”, subparagraph 11 (01), being deemed of immediate importance, take effect upon 12 enactment, and apply retroactively to January 1, 2010, for tax 13 years beginning on or after that date. 14 9. The section of this division of this Act amending section 15 15.329, subsection 1, paragraph “f”, takes effect July 1, 2018. 16 10. The section of this division of this Act amending 17 section 403.19A, subsection 3, paragraph “c”, subparagraph (2), 18 takes effect July 1, 2018. 19 11. The section of this division of this Act establishing 20 a 2018 interim tax credit study by the legislative tax 21 expenditure committee takes effect July 1, 2018. 22 DIVISION IV 23 FRANCHISE TAX AND MONEYS AND CREDITS TAX 24 Sec. 88. Section 15.293A, subsection 1, paragraph a, Code 25 2018, is amended to read as follows: 26 a. A redevelopment tax credit shall be allowed against 27 the taxes imposed in chapter 422, divisions II, III, and V , 28 and in chapter 432 , and against the moneys and credits tax 29 imposed in section 533.329 , for a portion of a taxpayer’s 30 equity investment, as provided in subsection 3 , in a qualifying 31 redevelopment project. 32 Sec. 89. Section 15.293A, subsection 2, paragraphs c and f, 33 Code 2018, are amended to read as follows: 34 c. The tax credit certificate, unless rescinded by the 35 -33- LSB 5452XC (3) 87 mm/jh 33/ 130
S.F. _____ authority, shall be accepted by the department of revenue as 1 payment for taxes imposed pursuant to chapter 422, divisions 2 II, III, and V , and in chapter 432 , and for the moneys and 3 credits tax imposed in section 533.329 , subject to any 4 conditions or restrictions placed by the authority upon 5 the face of the tax credit certificate and subject to the 6 limitations of this section . 7 f. A tax credit shall not be claimed by a transferee 8 under this section until a replacement tax credit certificate 9 identifying the transferee as the proper holder has been 10 issued. The transferee may use the amount of the tax credit 11 transferred against the taxes imposed in chapter 422, divisions 12 II, III, and V , and in chapter 432 , and against the moneys and 13 credits tax imposed in section 533.329 , for any tax year the 14 original transferor could have claimed the tax credit. Any 15 consideration received for the transfer of the tax credit shall 16 not be included as income under chapter 422, divisions II, III, 17 and V . Any consideration paid for the transfer of the tax 18 credit shall not be deducted from income under chapter 422, 19 divisions II, III, and V . 20 Sec. 90. Section 15.333, subsection 1, Code 2018, is amended 21 to read as follows: 22 1. An eligible business may claim a tax credit equal to a 23 percentage of the new investment directly related to new jobs 24 created or retained by the project. The tax credit shall be 25 amortized equally over five calendar years. The tax credit 26 shall be allowed against taxes imposed under chapter 422, 27 division II, III, or V , and against the moneys and credits tax 28 imposed in section 533.329 . If the business is a partnership, 29 S corporation, limited liability company, cooperative organized 30 under chapter 501 and filing as a partnership for federal tax 31 purposes, or estate or trust electing to have the income taxed 32 directly to the individual, an individual may claim the tax 33 credit allowed. The amount claimed by the individual shall 34 be based upon the pro rata share of the individual’s earnings 35 -34- LSB 5452XC (3) 87 mm/jh 34/ 130
S.F. _____ of the partnership, S corporation, limited liability company, 1 cooperative organized under chapter 501 and filing as a 2 partnership for federal tax purposes, or estate or trust. The 3 percentage shall be determined as provided in section 15.335A . 4 Any tax credit in excess of the tax liability for the tax year 5 may be credited to the tax liability for the following seven 6 years or until depleted, whichever occurs first. 7 Sec. 91. Section 15.355, subsection 3, paragraph b, Code 8 2018, is amended to read as follows: 9 b. The tax credit shall be allowed against the taxes imposed 10 in chapter 422, divisions II, III, and V , and in chapter 432 , 11 and against the moneys and credits tax imposed in section 12 533.329 . 13 Sec. 92. Section 15.355, subsection 3, paragraph e, 14 subparagraphs (3) and (6), Code 2018, are amended to read as 15 follows: 16 (3) The tax credit certificate, unless rescinded by the 17 authority, shall be accepted by the department of revenue as 18 payment for taxes imposed pursuant to chapter 422, divisions 19 II, III, and V , and in chapter 432 , and for the moneys and 20 credits tax imposed in section 533.329 , subject to any 21 conditions or restrictions placed by the authority upon 22 the face of the tax credit certificate and subject to the 23 limitations of this program. 24 (6) A tax credit shall not be claimed by a transferee 25 under this section until a replacement tax credit certificate 26 identifying the transferee as the proper holder has been 27 issued. The transferee may use the amount of the tax credit 28 transferred against the taxes imposed in chapter 422, divisions 29 II, III, and V , and in chapter 432 , and against the moneys and 30 credits tax imposed in section 533.329 , for any tax year the 31 original transferor could have claimed the tax credit. Any 32 consideration received for the transfer of the tax credit shall 33 not be included as income under chapter 422, divisions II, 34 III, and V . Any consideration paid for the transfer of the tax 35 -35- LSB 5452XC (3) 87 mm/jh 35/ 130
S.F. _____ credit shall not be deducted from income under chapter 422, 1 divisions II, III, and V . 2 Sec. 93. Section 15E.43, subsection 1, paragraphs a and d, 3 Code 2018, are amended to read as follows: 4 a. For tax years beginning on or after January 1, 2015, 5 a tax credit shall be allowed against the taxes imposed in 6 chapter 422, divisions II, III, and V , and in chapter 432 , and 7 against the moneys and credits tax imposed in section 533.329 , 8 for a portion of a taxpayer’s equity investment, as provided in 9 subsection 2 , in a qualifying business. 10 d. For a tax credit claimed against the taxes imposed in 11 chapter 422, division II , any tax credit in excess of the 12 tax liability is refundable. In lieu of claiming a refund, 13 the taxpayer may elect to have the overpayment shown on 14 the taxpayer’s final, completed return credited to the tax 15 liability for the following tax year. For a tax credit claimed 16 against the taxes imposed in chapter 422, divisions III and 17 V , and in chapter 432 , and against the moneys and credits tax 18 imposed in section 533.329 , any tax credit in excess of the 19 taxpayer’s liability for the tax year may be credited to the 20 tax liability for the following three years or until depleted, 21 whichever is earlier. A tax credit shall not be carried back 22 to a tax year prior to the tax year in which the taxpayer 23 redeems the tax credit. 24 Sec. 94. Section 15E.44, subsection 4, Code 2018, is amended 25 to read as follows: 26 4. After verifying the eligibility of a qualifying 27 business, the authority shall issue a tax credit certificate 28 to be included with the equity investor’s tax return. The tax 29 credit certificate shall contain the taxpayer’s name, address, 30 tax identification number, the amount of credit, the name of 31 the qualifying business, and other information required by the 32 department of revenue. The tax credit certificate, unless 33 rescinded by the authority, shall be accepted by the department 34 of revenue as payment for taxes imposed pursuant to chapter 35 -36- LSB 5452XC (3) 87 mm/jh 36/ 130
S.F. _____ 422, divisions II, III, and V , and in chapter 432 , and for the 1 moneys and credits tax imposed in section 533.329 , subject to 2 any conditions or restrictions placed by the authority upon 3 the face of the tax credit certificate and subject to the 4 limitations of section 15E.43 . 5 Sec. 95. Section 15E.52, subsection 2, paragraph a, Code 6 2018, is amended to read as follows: 7 a. A tax credit shall be allowed against the taxes imposed 8 in chapter 422, divisions II, III, and V , and in chapter 432 , 9 and against the moneys and credits tax imposed in section 10 533.329 , for a portion of a taxpayer’s equity investment in the 11 form of cash in an innovation fund. 12 Sec. 96. Section 15E.52, subsection 13, Code 2018, is 13 amended to read as follows: 14 13. The transferee may use the amount of the tax credit 15 transferred against the taxes imposed in chapter 422, divisions 16 II, III, and V , and in chapter 432 , and against the moneys and 17 credits tax imposed in section 533.329 , for any tax year the 18 original transferor could have claimed the tax credit. Any 19 consideration received for the transfer of the tax credit shall 20 not be included as income under chapter 422, divisions II, III, 21 and V . Any consideration paid for the transfer of the tax 22 credit shall not be deducted from income under chapter 422, 23 divisions II, III, and V . 24 Sec. 97. Section 15E.62, subsection 8, Code 2018, is amended 25 to read as follows: 26 8. “Tax credit” means a contingent tax credit issued 27 pursuant to section 15E.66 that is available against tax 28 liabilities imposed by chapter 422, divisions II, III, and 29 V , and by chapter 432 and against the moneys and credits tax 30 imposed by section 533.329 . 31 Sec. 98. Section 15E.305, subsection 1, Code 2018, is 32 amended to read as follows: 33 1. For tax years beginning on or after January 1, 2003, 34 a tax credit shall be allowed against the taxes imposed in 35 -37- LSB 5452XC (3) 87 mm/jh 37/ 130
S.F. _____ chapter 422, divisions II, III, and V , and in chapter 432 , and 1 against the moneys and credits tax imposed in section 533.329 2 equal to twenty-five percent of a taxpayer’s endowment gift to 3 an endow Iowa qualified community foundation. An individual 4 may claim a tax credit under this section of a partnership, 5 limited liability company, S corporation, estate, or trust 6 electing to have income taxed directly to the individual. The 7 amount claimed by the individual shall be based upon the pro 8 rata share of the individual’s earnings from the partnership, 9 limited liability company, S corporation, estate, or trust. A 10 tax credit shall be allowed only for an endowment gift made to 11 an endow Iowa qualified community foundation for a permanent 12 endowment fund established to benefit a charitable cause in 13 this state. The amount of the endowment gift for which the 14 tax credit is claimed shall not be deductible in determining 15 taxable income for state income tax purposes. Any tax credit 16 in excess of the taxpayer’s tax liability for the tax year may 17 be credited to the tax liability for the following five years 18 or until depleted, whichever occurs first. A tax credit shall 19 not be carried back to a tax year prior to the tax year in which 20 the taxpayer claims the tax credit. 21 Sec. 99. Section 331.427, subsection 1, unnumbered 22 paragraph 1, Code 2018, is amended to read as follows: 23 Except as otherwise provided by state law, county revenues 24 from taxes and other sources for general county services shall 25 be credited to the general fund of the county, including 26 revenues received under sections 9I.11 , 101A.3 , 101A.7 , 123.36 , 27 123.143 , 142D.9 , 176A.8 , 321.105 , 321.152 , 321G.7 , 321I.8 , 28 section 331.554, subsection 6 , sections 341A.20 , 364.3 , 368.21 , 29 423A.7 , 428A.8 , 433.15 , 434.19 , 445.57 , 453A.35 , 458A.21 , 30 483A.12 , 533.329 , 556B.1 , 583.6 , 602.8108 , 904.908 , and 906.17 , 31 and the following: 32 Sec. 100. Section 422.60, subsection 2, paragraph a, Code 33 2018, is amended to read as follows: 34 a. In addition to all taxes imposed under this division , 35 -38- LSB 5452XC (3) 87 mm/jh 38/ 130
S.F. _____ there is imposed upon each financial institution doing business 1 within the state and that is not exempt from the federal income 2 tax, the greater of the tax determined in section 422.63 or 3 the state alternative minimum tax equal to sixty percent of 4 the maximum state franchise tax rate, rounded to the nearest 5 one-tenth of one percent, of the state alternative minimum 6 taxable income of the taxpayer computed under this subsection . 7 Sec. 101. Section 422.60, subsection 3, paragraph a, 8 subparagraph (1), Code 2018, is amended to read as follows: 9 (1) There For a financial institution that is not exempt 10 from the federal income tax, there is allowed as a credit 11 against the tax determined in section 422.63 for a tax year an 12 amount equal to the minimum tax credit for that tax year. 13 Sec. 102. Section 422.61, subsections 1, 3, and 4, Code 14 2018, are amended to read as follows: 15 1. “Financial institution” means a state bank as defined 16 in section 524.103, subsection 41 , a state bank chartered 17 under the laws of any other state, a national banking 18 association, a trust company, a federally chartered savings 19 and loan association, an out-of-state state chartered savings 20 bank, a credit union as defined in section 533.102 that is 21 incorporated or organized under chapter 533 or under the laws 22 of another state, a financial institution chartered by the 23 federal home loan bank board, a non-Iowa chartered savings and 24 loan association, or a production credit association , or an 25 agricultural credit association that is a member of the farm 26 credit system under the federal Farm Credit Act, 12 U.S.C. ch. 27 23, as amended . 28 3. a. “Net income” means one of the following: 29 (1) For a financial institution that is exempt from the 30 federal income tax, the total revenue less total expenses as 31 properly reported on the financial institution’s internal 32 revenue service form 990 covering the same period, with the 33 adjustments in paragraph “b” to the extent the taxes, income, 34 and deductions described in such adjustments are applicable 35 -39- LSB 5452XC (3) 87 mm/jh 39/ 130
S.F. _____ to the financial institution’s calculation of revenues and 1 expenses as determined by the director by rule. 2 (2) For any other financial institution, the net income of 3 the financial institution computed in accordance with section 4 422.35 , with the following adjustments : in paragraph “b” . 5 b. Applicable adjustments in computing “net income” : 6 a. (1) Federal income taxes paid or accrued shall not be 7 subtracted. 8 b. (2) Notwithstanding section 422.35, subsection 2 , or 9 any other provisions of law, income from obligations of the 10 state and its political subdivisions and franchise taxes paid 11 or accrued under this division during the taxable year shall 12 be added. Income from sales of obligations of the state and 13 its political subdivisions and interest and dividend income 14 from these obligations are exempt from the taxes imposed by 15 this division only if the law authorizing the obligations 16 specifically exempts the income from the sale and interest and 17 dividend income from the state franchise tax. 18 c. (3) Interest and dividends from federal securities shall 19 not be subtracted. 20 d. (4) Interest and dividends derived from obligations of 21 United States possessions, agencies, and instrumentalities, 22 including bonds which were purchased after January 1, 1991, and 23 issued by the governments of Puerto Rico, Guam, and the Virgin 24 Islands shall be added, to the extent they were not included in 25 computing federal taxable income. 26 e. (5) A deduction disallowed under section 265(b) or 27 section 291(e)(1)(B) of the Internal Revenue Code shall be 28 subtracted. 29 f. (6) A deduction shall not be allowed for that portion of 30 the taxpayer’s expenses computed under this paragraph which is 31 allocable to an investment in an investment subsidiary. The 32 portion of the taxpayer’s expenses which is allocable to an 33 investment in an investment subsidiary is an amount which bears 34 the same ratio to the taxpayer’s expenses as the taxpayer’s 35 -40- LSB 5452XC (3) 87 mm/jh 40/ 130
S.F. _____ average adjusted basis, as computed pursuant to section 1016 1 of the Internal Revenue Code, of investment in that investment 2 subsidiary bears to the average adjusted basis for all assets 3 of the taxpayer. The portion of the taxpayer’s expenses that 4 is computed and disallowed under this paragraph shall be added. 5 g. (7) Where a financial institution as defined in section 6 581 of the Internal Revenue Code is not subject to income tax 7 and the shareholders of the financial institution are taxed on 8 the financial institution’s income under the provisions of the 9 Internal Revenue Code, such tax treatment shall be disregarded 10 and the financial institution shall compute its net income for 11 franchise tax purposes in the same manner under this subsection 12 as a financial institution that is subject to or liable for 13 federal income tax under the Internal Revenue Code in effect 14 for the applicable year. 15 4. “Taxable year” means the calendar year or the fiscal year 16 ending during a calendar year, for which the tax is payable. 17 “Fiscal year” includes a tax period of less than twelve months 18 if, under the Internal Revenue Code, a corporation is required 19 to file a tax return or internal revenue service form 990 20 covering a tax period of less than twelve months. 21 Sec. 103. Section 422.62, Code 2018, is amended to read as 22 follows: 23 422.62 Due and delinquent dates. 24 The franchise tax is due and payable on the first day 25 following the end of the taxable year of each financial 26 institution, and for a financial institution that is exempt 27 from the federal income tax, the franchise tax is delinquent 28 after the last day of the fifth month following the due date. 29 For all other financial institutions, the franchise tax is 30 delinquent after the last day of the fourth month following the 31 due date or forty-five days after the due date of the federal 32 tax return, excluding extensions of time to file, whichever is 33 the later. Every financial institution shall file a return as 34 prescribed by the director on or before the delinquency date. 35 -41- LSB 5452XC (3) 87 mm/jh 41/ 130
S.F. _____ Sec. 104. Section 422.63, Code 2018, is amended to read as 1 follows: 2 422.63 Amount of tax. 3 1. The franchise tax is imposed annually in an amount equal 4 to five percent of computed by applying the following rates 5 of taxation to the net income received or accrued during the 6 taxable year : 7 a. On net income from zero to seven million five hundred 8 thousand dollars, two percent . 9 b. On net income exceeding seven million five hundred 10 thousand dollars, four percent. 11 2. If the net income of the financial institution is derived 12 from its business carried on entirely within the state, the tax 13 in subsection 1 shall be imposed on the entire net income, but 14 if the business is carried on partly within and partly without 15 the state, the tax in subsection 1 shall be imposed on the 16 portion of net income reasonably attributable to the business 17 within the state , which net income shall be specifically 18 allocated or equitably apportioned within and without the state 19 under rules of the director. 20 Sec. 105. REPEAL. Section 533.329, Code 2018, is repealed. 21 Sec. 106. PRESERVATION OF EXISTING RIGHTS. This division 22 of this Act is not intended and shall not limit, modify, 23 or otherwise adversely affect any tax credit or tax credit 24 certificate issued, awarded, or allowed before January 1, 2019, 25 nor shall it limit, modify, or otherwise adversely affect 26 a taxpayer’s right to claim or redeem a tax credit issued, 27 awarded, or allowed before January 1, 2019, including but not 28 limited to any tax credit carryforward amount. Any amount of 29 tax credit that would have been eligible to be claimed by a 30 taxpayer on or after January 1, 2019, against the moneys and 31 credits tax imposed in section 533.329, Code 2018, shall be 32 allowed in the same manner and to the same extent as a credit 33 against the franchise tax imposed in chapter 422, division V. 34 Sec. 107. EFFECTIVE DATE. This division of this Act takes 35 -42- LSB 5452XC (3) 87 mm/jh 42/ 130
S.F. _____ effect January 1, 2019. 1 Sec. 108. APPLICABILITY. This division of this Act applies 2 to tax years beginning on or after January 1, 2019. 3 DIVISION V 4 CHANGES TO IOWA EDUCATIONAL SAVINGS PLAN TRUST AND IOWA ABLE 5 SAVINGS PLAN TRUST 6 Sec. 109. Section 12D.1, Code 2018, is amended to read as 7 follows: 8 12D.1 Purpose and definitions. 9 1. The general assembly finds that the general welfare and 10 well-being of the state are directly related to educational 11 levels and skills of the citizens of the state, and that a 12 vital and valid public purpose is served by the creation and 13 implementation of programs which encourage and make possible 14 the attainment of higher formal education by the greatest 15 number of citizens of the state. The state has limited 16 resources to provide additional programs for higher education 17 funding and the continued operation and maintenance of the 18 state’s public institutions of higher education and the general 19 welfare of the citizens of the state will be enhanced by 20 establishing a program which allows citizens of the state to 21 invest money in a public trust for future application to the 22 payment of higher education costs qualified education expenses . 23 The creation of the means of encouragement for citizens to 24 invest in such a program represents the carrying out of a 25 vital and valid public purpose. In order to make available 26 to the citizens of the state an opportunity to fund future 27 higher formal education needs, it is necessary that a public 28 trust be established in which moneys may be invested for future 29 educational use. 30 2. As used in this chapter , unless the context otherwise 31 requires: 32 a. “Account balance limit” means the maximum allowable 33 aggregate balance of accounts established for the same 34 beneficiary. Account earnings, if any, are included in the 35 -43- LSB 5452XC (3) 87 mm/jh 43/ 130
S.F. _____ account balance limit. 1 b. “Administrative fund” means the administrative fund 2 established under section 12D.4 . 3 c. “Beneficiary” means the individual designated by a 4 participation agreement to benefit from advance payments of 5 higher education costs qualified education expenses on behalf 6 of the beneficiary. 7 d. “Benefits” means the payment of higher education costs 8 qualified education expenses on behalf of a beneficiary by the 9 trust during the beneficiary’s attendance at an institution of 10 higher education a qualified educational institution . 11 e. “Higher education costs” means the same as “qualified 12 higher education expenses” as defined in section 529(e)(3) of 13 the Internal Revenue Code . 14 f. e. “Institution of higher education” means an institution 15 described in section 481 of the federal Higher Education Act of 16 1965, 20 U.S.C. §1088, which is eligible to participate in the 17 United States department of education’s student aid programs. 18 g. f. “Internal Revenue Code” means the same as defined 19 in section 12I.1 . 20 h. g. “Iowa educational savings plan trust” or “trust” means 21 the trust created under section 12D.2 . 22 i. h. “Participant” means an individual, individual’s legal 23 representative, trust, estate, or an organization described 24 in section 501(c)(3) of the Internal Revenue Code and exempt 25 from taxation under section 501(a) of the Internal Revenue 26 Code, that has entered into a participation agreement under 27 this chapter for the advance payment of higher education costs 28 qualified education expenses on behalf of a beneficiary. 29 j. i. “Participation agreement” means an agreement between 30 a participant and the trust entered into under this chapter . 31 k. j. “Program fund” means the program fund established 32 under section 12D.4 . 33 k. “Qualified education expenses” means the same as 34 “qualified higher education expenses” as defined in section 35 -44- LSB 5452XC (3) 87 mm/jh 44/ 130
S.F. _____ 529(e)(3) of the Internal Revenue Code, as amended by Pub. L. 1 No. 115-97, and shall include elementary and secondary school 2 expenses for tuition described in section 529(c)(7) of the 3 Internal Revenue Code, subject to the limitations imposed by 4 section 529(e)(3)(A) of the Internal Revenue Code. 5 l. “Qualified educational institution” means an institution 6 of higher education, or any elementary or secondary public, 7 private, or religious school described in section 529(c)(7) of 8 the Internal Revenue Code. 9 l. m. “Tuition and fees” “Tuition” means the quarter , or 10 semester , or annual charges imposed to attend an institution 11 of higher education a qualified educational institution and 12 required as a condition of enrollment or attendance . 13 Sec. 110. Section 12D.2, subsections 2, 5, 9, and 14, Code 14 2018, are amended to read as follows: 15 2. Enter into agreements with any institution of higher 16 education qualified educational institution , the state, or any 17 federal or other state agency, or other entity as required to 18 implement this chapter . 19 5. Carry out studies and projections so the treasurer of 20 state may advise participants regarding present and estimated 21 future higher education costs qualified education expenses 22 and levels of financial participation in the trust required 23 in order to enable participants to achieve their educational 24 funding objectives. 25 9. Make payments to institutions of higher education 26 qualified educational institutions , participants, or 27 beneficiaries, pursuant to participation agreements on behalf 28 of beneficiaries. 29 14. Establish, impose, and collect administrative fees 30 and charges in connection with transactions of the trust, and 31 provide for reasonable service charges , including penalties for 32 cancellations and late payments with respect to participation 33 agreements . 34 Sec. 111. Section 12D.3, subsections 1 and 2, Code 2018, are 35 -45- LSB 5452XC (3) 87 mm/jh 45/ 130
S.F. _____ amended to read as follows: 1 1. a. Each participation agreement may require a 2 participant to agree to invest a specific amount of money in 3 the trust for a specific period of time for the benefit of a 4 specific beneficiary. A participant shall not be required to 5 make an annual contribution on behalf of a beneficiary. The 6 maximum contribution that may be deducted for Iowa income tax 7 purposes shall not exceed two thousand dollars per beneficiary 8 per year adjusted annually to reflect increases in the consumer 9 price index. The treasurer of state shall set an account 10 balance limit to maintain compliance with section 529 of the 11 Internal Revenue Code. A contribution shall not be permitted 12 to the extent it causes the aggregate balance of all accounts 13 established for the same beneficiary under the trust to exceed 14 the applicable account balance limit. 15 b. Participation agreements may be amended to provide for 16 adjusted levels of payments based upon changed circumstances or 17 changes in educational plans. 18 2. The execution of a participation agreement by the trust 19 shall not guarantee in any way that higher education costs 20 qualified education expenses will be equal to projections 21 and estimates provided by the trust or that the beneficiary 22 named in any participation agreement will attain any of the 23 following: 24 a. Be admitted to an institution of higher education a 25 qualified educational institution . 26 b. If admitted, be determined a resident for tuition 27 purposes by the institution of higher education qualified 28 educational institution . 29 c. Be allowed to continue attendance at the institution of 30 higher education qualified educational institution following 31 admission. 32 d. Graduate from the institution of higher education 33 qualified educational institution . 34 Sec. 112. Section 12D.3, Code 2018, is amended by adding the 35 -46- LSB 5452XC (3) 87 mm/jh 46/ 130
S.F. _____ following new subsection: 1 NEW SUBSECTION . 5. A participant may designate a successor 2 in accordance with rules adopted by the treasurer of state. 3 The designated successor shall succeed to the ownership of the 4 account in the event of the death of the participant. In the 5 event a participant dies and has not designated a successor to 6 the account, the following criteria shall apply: 7 a. The beneficiary of the account, if eighteen years of 8 age or older, shall become the owner of the account as well as 9 remain the beneficiary upon filing the appropriate forms in 10 accordance with rules adopted by the treasurer of state. 11 b. If the beneficiary of the account is under the age of 12 eighteen, account ownership shall be transferred to the first 13 surviving parent or other legal guardian of the beneficiary to 14 file the appropriate forms in accordance with rules adopted by 15 the treasurer of state. 16 Sec. 113. Section 12D.4, Code 2018, is amended to read as 17 follows: 18 12D.4 Program and administrative funds —— investment and 19 payments. 20 1. a. The treasurer of state shall segregate moneys 21 received by the trust into two funds: the program fund and the 22 administrative fund. 23 b. All moneys paid by participants in connection with 24 participation agreements shall be deposited as received into 25 separate accounts within the program fund. 26 c. Contributions to the trust made by participants may only 27 be made in the form of cash. 28 d. A participant or beneficiary shall not provide investment 29 direction regarding program contributions or earnings held by 30 the trust may, directly or indirectly, direct the investment of 31 any contributions to the trust or any earnings thereon no more 32 than two times in a calendar year . 33 e. The amount of cash distributions from the trust and all 34 other qualified state tuition programs under section 529 of 35 -47- LSB 5452XC (3) 87 mm/jh 47/ 130
S.F. _____ the Internal Revenue Code to a beneficiary during any taxable 1 year shall, in the aggregate, include no more than ten thousand 2 dollars in expenses for tuition in connection with enrollment 3 at an elementary or secondary public, private, or religious 4 school incurred during the taxable year. 5 2. Moneys accrued by participants in the program fund of 6 the trust may be used for payments to any institution of higher 7 education qualified educational institution . Payments can be 8 made to the qualified educational institution, the participant, 9 or the beneficiary. 10 Sec. 114. Section 12D.6, subsection 1, paragraph a, Code 11 2018, is amended to read as follows: 12 a. A participant retains ownership of all payments made 13 under a participation agreement up to the date of utilization 14 for payment of higher education costs qualified education 15 expenses for the beneficiary. 16 Sec. 115. Section 12D.6, subsections 2, 3, and 5, Code 2018, 17 are amended to read as follows: 18 2. In the event the program is terminated prior to payment 19 of higher education costs qualified education expenses for the 20 beneficiary, the participant is entitled to a refund of the 21 participant’s account balance. 22 3. The institution of higher education qualified 23 educational institution shall obtain ownership of the payments 24 made for the higher education costs qualified education 25 expenses paid to the institution at the time each payment is 26 made to the institution. 27 5. A participant may transfer ownership rights to another 28 eligible individual, including a gift of the ownership rights 29 to a minor beneficiary participant, or may transfer funds to 30 another plan under the trust or to an ABLE account as permitted 31 under section 529(c)(3)(C) of the Internal Revenue Code . 32 The transfer shall be made and the property distributed in 33 accordance with rules adopted by the treasurer of state or with 34 the terms of the participation agreement. 35 -48- LSB 5452XC (3) 87 mm/jh 48/ 130
S.F. _____ Sec. 116. Section 12D.7, Code 2018, is amended to read as 1 follows: 2 12D.7 Effect of payments on determination of need and 3 eligibility for student financial aid. 4 A student loan program, student grant program, or other 5 program administered by any agency of the state, except as 6 may be otherwise provided by federal law or the provisions 7 of any specific grant applicable to that law, shall not take 8 into account and shall not consider amounts available for 9 the payment of higher education costs qualified education 10 expenses pursuant to the Iowa educational savings plan trust in 11 determining need and eligibility for student aid. 12 Sec. 117. Section 12D.9, subsection 1,