HF 2062 (LSB 5050YH (3) 89)

HOUSE FILE 2062

BY  WILLS

A BILL FOR

An Act relating to individual and corporate income taxes by providing an alternative base income tax at the election of the taxpayer, and including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
ALTERNATIVE INCOME TAX —— ELECTION

    Section 1.  NEW SECTION.  422.5B  Tax imposed —— alternative base income tax.
   1.  For purposes of this section, “base income” means taxable income as properly computed for federal income tax purposes under section 63 of the Internal Revenue Code, with the following adjustments:
   a.  Subtract to the extent included net capital gains income.
   b.  Subtract to the extent included dividend and interest income.
   c.  Subtract to the extent included the amount of social security benefits taxable under section 86 of the Internal Revenue Code.
   d.  Subtract to the extent included the total amount of governmental or other pension or retirement pay, including but not limited to defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed by a self-employed person as an employer, and deferred compensation plans or any earning attributable to the deferred compensation plans.
   2.  Notwithstanding any other provision of law, a resident or nonresident may, in lieu of the taxes imposed and calculated under sections 422.5 and 422.5A, elect to be subject to state income tax imposed and calculated pursuant to subsection 3.
   3.  A tax is imposed upon every resident and nonresident of the state making the election under subsection 2 which tax shall be levied, collected, and paid annually in an amount equal to the net income of the resident or nonresident times four percent.
   4.  Notwithstanding any other provision of law to the contrary, a resident or nonresident making the election under subsection 2 shall not be allowed any nonrefundable or refundable credit allowed under this subchapter for the tax year for which the election is made, except for withheld tax and estimated tax paid under section 422.16.
    Sec. 2.  Section 422.13, Code 2022, is amended by adding the following new subsection:
   NEW SUBSECTION.  1A.  a.  Notwithstanding subsection 1, a resident or nonresident of this state who is at least sixty-five years old on December 31 of the tax year and who elects to be subject to the alternative base income tax in subsection 422.5B, shall not be required to make and file a return if the taxpayer’s base income does not exceed thirty-two thousand dollars in the case of married persons filing jointly, heads of household, and surviving spouses or twenty-four thousand dollars in the case for all other taxpayers. For purposes of this subsection, “base income” means the same as defined in section 422.5B, except that it includes all amounts of pensions or other retirement income received from any source which is not taxable under section 422.5B, but does not include military retirement pay described in section 422.7, subsections 31A and 31B.
   b.  A taxpayer who is at least sixty-five years old on December 31 of the tax year and whose base income does not exceed the applicable amounts in paragraph “a” and who does not make and file a return pursuant to this section shall be deemed to have made the election pursuant to section 422.5B.
    Sec. 3.  Section 422.13, subsection 2, Code 2022, is amended to read as follows:
   2.  For purposes of determining the requirement for filing a return under subsection 1 or 1A, the combined net income or base income, as the case may be, of a husband and wife from sources taxable under this subchapter shall be considered.
    Sec. 4.  NEW SECTION.  422.33A  Corporate tax imposed —— alternative base income tax.
   1.  For purposes of this section, “base income” means the taxable income as properly computed under the Internal Revenue Code, with the following adjustments:
   a.  Subtract to the extent included interest and dividend income.
   b.  Subtract to the extent included net capital gain income.
   2.  Notwithstanding any other provision of law, in lieu of the rates of taxation imposed under section 422.33, subsections 1 and 1A, a corporation doing business in this state, or deriving income from sources within this state, may elect to be subject to the state corporate income tax imposed on the base income received by the corporation during the income year at a rate of four percent.
   3.  Notwithstanding any other provision of law to the contrary, a resident or nonresident making the election under subsection 1 shall not be allowed any nonrefundable or refundable credit allowed under this subchapter for the tax year for which the election is made.
DIVISION II
CONFORMING CHANGES

    Sec. 5.  Section 257.21, subsection 2, Code 2022, is amended to read as follows:
   2.  The instructional support income surtax shall be imposed on the state individual income tax for the calendar year during which the school’s budget year begins, or for a taxpayer’s fiscal year ending during the second half of that calendar year and after the date the board adopts a resolution to participate in the program or the first half of the succeeding calendar year, and shall be imposed on all individuals residing in the school district on the last day of the applicable tax year. As used in this section, “state individual income tax” means the taxes computed under section 422.5, less the amounts of nonrefundable credits allowed under chapter 422, subchapter II, or the tax computed under section 422.5B.
    Sec. 6.  Section 422.16, subsection 8, Code 2022, is amended to read as follows:
   8.  An employer or withholding agent shall be liable for the payment of the tax required to be deducted and withheld or the amount actually deducted, whichever is greater, under subsections 1 and 12 of this section; and any amount deducted and withheld as tax under subsections 1 and 12 of this section during any calendar year upon the wages of any employee, nonresident, or other person shall be allowed as a credit to the employee, nonresident, or other person against the tax imposed by section 422.5, or section 422.5B, irrespective of whether or not such tax has been, or will be, paid over by the employer or withholding agent to the department as provided by this chapter.
    Sec. 7.  Section 422.21, subsection 1, Code 2022, is amended to read as follows:
   1.  Returns shall be in the form the director prescribes, and shall be filed with the department on or before the last day of the fourth month after the expiration of the tax year. However, cooperative associations as defined in section 6072(d) of the Internal Revenue Code shall file their returns on or before the fifteenth day of the ninth month following the close of the taxable year and nonprofit corporations subject to the unrelated business income tax imposed by section 422.33, subsection 1A, shall file their returns on or before the fifteenth day of the fifth month following the close of the taxable year. If, under the Internal Revenue Code, a corporation is required to file a return covering a tax period of less than twelve months, the state return shall be for the same period and is due forty-five days after the due date of the federal tax return, excluding any extension of time to file. In case of sickness, absence, or other disability, or if good cause exists, the director may allow further time for filing returns. The director shall cause to be prepared blank forms for the returns and shall cause them to be distributed throughout the state and to be furnished upon application, but failure to receive or secure the form does not relieve the taxpayer from the obligation of making a return that is required. The department may as far as consistent with the Code draft income tax forms to conform to the income tax forms of the internal revenue department of the United States government. Each return by a taxpayer upon whom a tax is imposed by section 422.5 or 422.5B shall show the county of the residence of the taxpayer.
    Sec. 8.  Section 422.85, Code 2022, is amended to read as follows:
   422.85  Imposition of estimated tax.
   A taxpayer subject to the tax imposed by sections 422.33, 422.33A, and 422.60 shall make payments of estimated tax for the taxable year if the amount of tax payable, less credits, can reasonably be expected to be more than one thousand dollars for the taxable year. For purposes of this subchapter, “estimated tax” means the amount which the taxpayer estimates to be the tax due and payable under subchapter III or V of this chapter for the taxable year.
    Sec. 9.  Section 422D.2, Code 2022, is amended to read as follows:
   422D.2  Local income surtax.
   A county may impose by ordinance a local income surtax as provided in section 422D.1 at the rate set by the board of supervisors, of up to one percent, on the state individual income tax of each individual residing in the county at the end of the individual’s applicable tax year. However, the cumulative total of the percents of income surtax imposed on any taxpayer in the county shall not exceed twenty percent. The reason for imposing the surtax and the amount needed, as determined by the board of supervisors after recommendation of the county emergency medical services system advisory council, shall be set out on the ballot and in the ordinance. The surtax rate shall be set to raise only the amount needed. For purposes of this section, “state individual income tax” means the tax computed under section 422.5, less the amounts of nonrefundable credits allowed under chapter 422, subchapter II, or the tax computed under section 422.5B.
DIVISION III
EFFECTIVE DATE AND APPLICABILITY

    Sec. 10.  EFFECTIVE DATE.  This Act takes effect January 1, 2023.
    Sec. 11.  APPLICABILITY.  This Act applies to tax years beginning on or after January 1, 2023.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to individual and corporate income taxes by creating an alternative base income tax imposed at the election of the taxpayer.
   Division I relates to the computation and imposition of an alternative base income tax.
   In lieu of the regular individual net income tax computed under Code sections 422.5 and 422.5A, a resident or nonresident individual may elect to be subject to an alternative base income tax as provided in the bill.
   The state income tax of a taxpayer making an election shall be an amount of tax equal to the taxpayer’s base income times four percent. “Base income” is defined as taxable income as properly computed for federal income tax purposes under section 63 of the Internal Revenue Code, with the following adjustments: less interest and dividend income, less net capital gain income, and less social security benefits and retirement income. An electing taxpayer shall not be allowed any nonrefundable or refundable tax credit for the tax year for which the election is made, except the credits for withheld tax and estimated tax paid under Code section 422.16.
   Taxpayers who are 65 years of age or older who elect the alternative base income tax are not required to file an income tax return if base income does not exceed $32,000 for a married person filing jointly, a head of household, or a surviving spouse, or $24,000 for all other persons. For purposes of calculating base income for the filing threshold, taxpayers are required to add back any social security benefits or retirement income otherwise exempt under the bill except for military retirement pay. Taxpayers who meet these requirements and who do not file a tax return are deemed to have elected to be subject to the alternative base income tax.
   In lieu of the regular corporate income tax computation in Code section 422.33(1) and unrelated business income in Code section 422.33(1A), the state income tax of a corporate income taxpayer making an election shall be an amount of tax equal to the taxpayer’s base income times 4 percent. “Base income” is defined as taxable income as properly computed for federal income tax purposes under the Internal Revenue Code, with the following adjustments: less interest and dividend income and less net capital gain income. An electing corporate income taxpayer shall not be allowed any nonrefundable or refundable tax credit for the tax year for which the election is made.
   Division II makes miscellaneous conforming changes.
   Division III provides that the bill takes effect January 1, 2023, for tax years beginning on or after that date.