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

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

S.F. _____ the proportion that the miles of the qualified air freight 1 forwarder’s affiliated airline traveled in this state bears to 2 the total miles of the affiliated airline traveled everywhere. 3 (D) For tax years beginning on or after January 1, 2021, 4 the part attributable to business within the state shall be 5 in the proportion that the miles of the qualified air freight 6 forwarder’s affiliated airline traveled in this state bears to 7 the total miles of the affiliated airline traveled everywhere. 8 (ii) For purposes of this subparagraph division (00f), 9 “qualified air freight forwarder” means a taxpayer who meets all 10 of the following requirements: 11 (A) The taxpayer is primarily engaged in the facilitation of 12 the transportation of property by air. 13 (B) The taxpayer does not itself operate aircraft. 14 (C) The taxpayer is in the same affiliated group as an 15 airline. 16 Sec. 2. EFFECTIVE DATE. This Act, being deemed of immediate 17 importance, takes effect upon enactment. 18 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies 19 retroactively to January 1, 2018, for tax years beginning on 20 or after that date. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 This bill relates to the apportionment of income of an 25 airline and of a qualified air freight forwarder for purposes 26 of the Iowa corporate income tax. 27 A corporation doing business both within and without Iowa is 28 required to apportion its business income among Iowa and the 29 other states in which it does business. The amount of business 30 income apportioned to Iowa is generally in the same percentage 31 as the business’s gross sales made within Iowa if the business 32 involves the manufacture or sale of goods and products, or in 33 the same percentage as the business’s gross receipts earned 34 within Iowa if the business involves something other than the 35 -2- LSB 5593XC (3) 87 mm/jh 2/ 4

S.F. _____ manufacture or sale of goods and products. However, airlines 1 and other specified industries have special rules provided 2 by administrative rule for apportioning the income of those 3 industries. 4 Under current law pursuant to 701 Iowa administrative code, 5 rule 54.7(2), an airline deriving income from transportation 6 operations is required to apportion its business income to 7 Iowa in the same proportion that its mileage traveled in Iowa 8 bears to its total mileage traveled everywhere. The bill 9 specifies that an airline shall apportion this business income 10 in the same manner described above as required under 701 Iowa 11 administrative code, rule 54.7(2). 12 The bill also provides rules for apportioning income derived 13 by a qualified air freight forwarder from transportation 14 operations through an affiliated airline. The bill defines 15 “qualified air freight forwarder” to be a taxpayer that is 16 primarily engaged in the facilitation of the transportation of 17 property by air, and that does not itself operate aircraft but 18 that is in the same affiliated group as an airline. 19 The bill states that the qualified air freight forwarder 20 income shall be apportioned to Iowa either under the current 21 rules of the director of revenue (current statutory rules), 22 or in the same proportion that the miles of the qualified air 23 freight forwarder’s affiliated airline traveled in this state 24 bears to the total miles of the affiliated airline traveled 25 everywhere (affiliated airline mileage rules), depending on the 26 tax year. 27 For tax years beginning during the 2018 calendar year, 28 qualified air freight forwarder income shall be apportioned 75 29 percent under the current statutory rules, and 25 percent under 30 the affiliated airline mileage rules. These apportionment 31 percentages change to 50 percent and 50 percent for tax years 32 beginning during the 2019 calendar year, respectively, and to 33 25 percent and 75 percent for tax years beginning during the 34 2020 calendar year, respectively. For tax years beginning on 35 -3- LSB 5593XC (3) 87 mm/jh 3/ 4

S.F. _____ or after January 1, 2021, all business income derived by a 1 qualified air freight forwarder from transportation operations 2 through an affiliated airline shall be apportioned under the 3 affiliated airline mileage rules. 4 The bill takes effect upon enactment and applies 5 retroactively to January 1, 2018, for tax years beginning on 6 or after that date. 7 -4- LSB 5593XC (3) 87 mm/jh 4/ 4