House Study Bill 273 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON HEIN) A BILL FOR An Act relating to the administration of the tax and related 1 laws by the department of revenue by requiring composite 2 returns for pass-through entities, restricting public 3 disclosure of certain information, providing penalties, and 4 including applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2818YC (4) 89 jm/jh

H.F. _____ DIVISION I 1 ADMINISTRATION, PENALTIES, AND CANCELLATION OF UNUSED PERMITS 2 Section 1. Section 421.17, subsection 13, Code 2021, is 3 amended by striking the subsection. 4 Sec. 2. Section 421.27, Code 2021, is amended to read as 5 follows: 6 421.27 Penalties. 7 1. Failure to timely file a return or deposit form . 8 a. If a person fails to file a return with the department 9 on or before the due date , a return or deposit form there shall 10 be added to the tax shown due or required to be shown due 11 remaining unpaid by the due date a penalty of ten five percent 12 of the remaining unpaid tax shown due or required to be shown 13 due . 14 b. In the case of a specified business with no tax shown 15 due or required to be shown due that fails to timely file an 16 income return, the specified business shall pay the greater of 17 the following penalty amounts: 18 (1) Two hundred dollars. 19 (2) An amount equal to ten five percent of the imputed Iowa 20 liability of the specified business, not to exceed twenty-five 21 thousand dollars. 22 c. The penalty, if assessed pursuant to paragraph “a” or 23 “b” , shall be in addition to any other penalty provided by law. 24 d. The penalty, if assessed pursuant to paragraph “a” or 25 “b” , shall be waived by the department upon a showing by the 26 taxpayer of any of the following conditions: 27 (1) An amount of tax greater than zero is required to be 28 shown due and at least ninety percent of the tax required to be 29 shown due has been paid by the due date of the tax. 30 (2) (a) Those taxpayers who are A taxpayer who is 31 required to file a monthly or quarterly returns, or monthly or 32 semimonthly deposit forms return may have one late return or 33 deposit form one late payment within a three-year period. 34 (b) If the taxpayer receives a waiver of a penalty under 35 -1- LSB 2818YC (4) 89 jm/jh 1/ 22

H.F. _____ this subparagraph, the taxpayer must make timely filings 1 and payments for three years prior to being eligible for 2 receiving another waiver under this subparagraph. If the 3 taxpayer receives a waiver under this subparagraph, the waiver 4 shall apply to penalties assessed under this subsection and 5 subsection 2. 6 (c) The use of any other penalty exception will shall 7 not count as a late return or deposit form late payment for 8 purposes of this exception receiving a waiver by the taxpayer 9 under this subparagraph . 10 (3) The death of a taxpayer, death of a member of the 11 immediate family of the taxpayer, or death of the person 12 directly responsible for filing the return and paying the tax, 13 when the death interferes with timely filing of a return or 14 timely payment of tax . 15 (4) The onset of serious, long-term illness or 16 hospitalization of the taxpayer, of a member of the immediate 17 family of the taxpayer, or of the person directly responsible 18 for filing the return and paying the tax when such illness or 19 hospitalization interferes with the timely filing of a return 20 or timely payment of tax . 21 (5) Destruction of records by fire, flood, or other act of 22 God when the destruction interferes with the timely filing of a 23 return or timely payment of tax . 24 (6) The taxpayer presents proof that the taxpayer relied 25 upon applicable, documented, written advice specifically 26 made to the taxpayer, to the taxpayer’s preparer, or to an 27 association representative of the taxpayer from the department, 28 state department of transportation, county treasurer, or 29 federal internal revenue service, whichever is appropriate, 30 that the reliance was the direct cause of the failure to file 31 or failure to pay, and that the advice has not been superseded 32 by a court decision, ruling by a quasi-judicial body, or the 33 adoption, amendment, or repeal of a rule or law. 34 (7) Reliance upon results in a previous audit was a direct 35 -2- LSB 2818YC (4) 89 jm/jh 2/ 22

H.F. _____ cause for the failure to file or the failure to pay where the 1 previous audit expressly and clearly addressed the issue and 2 the previous audit results have not been superseded by a court 3 decision, or the adoption, amendment, or repeal of a rule or 4 law. 5 (8) Under rules prescribed by the director, the taxpayer 6 presents documented proof of substantial authority to rely 7 upon a particular position or upon proof that all facts and 8 circumstances are disclosed on a return or deposit form . 9 (9) The return , deposit form, or payment is timely, but 10 erroneously, mailed with adequate postage to the internal 11 revenue service, another state agency, or a local government 12 agency and the taxpayer provides proof of timely mailing with 13 adequate postage. 14 (10) The tax has been paid by the wrong licensee and the 15 payments were timely remitted to the department for one or more 16 tax periods prior to notification by the department. 17 (11) The failure to file was discovered through a sanctioned 18 self-audit program conducted by the department. 19 (12) If the availability of funds in payment of tax required 20 to be made through electronic funds transfer is delayed and the 21 delay of availability is due to reasons beyond the control of 22 the taxpayer. “Electronic funds transfer” means any transfer 23 of funds, other than a transaction originated by check, draft, 24 or similar paper instrument, that is initiated through an 25 electronic terminal telephone, computer, magnetic tape, or 26 similar device for the purpose of ordering, instructing, or 27 authorizing a financial institution to debit or credit an 28 account. 29 (13) The failure to file a timely inheritance tax return 30 resulting solely from a disclaimer that required the personal 31 representative to file an inheritance tax return. The penalty 32 shall be waived if such return is filed and any tax due is paid 33 within the later of nine months from the date of death or sixty 34 days from the delivery or filing of the disclaimer pursuant to 35 -3- LSB 2818YC (4) 89 jm/jh 3/ 22

H.F. _____ section 633E.12 . 1 (14) That an Iowa inheritance tax return is filed for 2 an estate within the later of nine months from the date of 3 death or sixty days from the filing of a disclaimer by the 4 beneficiary of the estate refusing to take the property or 5 right or interest in the property. 6 2. Failure to timely pay the tax shown due , or the tax 7 required to be shown due, with the filing of a return or deposit 8 form . If a person fails to pay the tax shown due or required 9 to be shown due, on a return or deposit form on or before the 10 due date , there shall be added to the tax shown due or required 11 to be shown due remaining unpaid by the due date a penalty of 12 five percent of the unpaid tax due . The penalty shall be in 13 addition to any other penalty provided by law. The penalty, if 14 assessed, shall be waived by the department upon a showing by 15 the taxpayer of any of the following conditions: 16 a. At least ninety percent of the tax required to be 17 shown due has been paid by the due date of the tax Any reason 18 listed under subsection 1, paragraph “d” , except subsection 1, 19 paragraph “d” , subparagraph (11) . 20 b. The taxpayer voluntarily files an amended return and pays 21 all tax shown to be due on the return prior to any contact by 22 the department, except under a sanctioned self-audit program 23 conducted by the department. 24 c. (1) Except in the case of a final federal partnership 25 adjustment governed by subparagraph (2), the taxpayer 26 voluntarily files an amended return which includes a copy of 27 the federal document showing the final disposition or final 28 federal adjustments and pays any additional Iowa tax due within 29 one hundred eighty days of the final determination date of the 30 federal government’s audit. For purposes of this subparagraph, 31 “final determination date” means the same as defined in section 32 422.25 . 33 (2) (a) In the case of a final federal partnership 34 adjustment arising from a partnership level audit, with respect 35 -4- LSB 2818YC (4) 89 jm/jh 4/ 22

H.F. _____ to the audited partnership or a direct partner or indirect 1 partner of the audited partnership, the audited partnership, 2 direct partner, or indirect partner voluntarily and timely 3 complies with its reporting and payment requirements under 4 section 422.25A, subsection 4 or 5 . 5 (b) As used in this subparagraph, all words and phrases 6 defined in section 422.25A shall have the same meaning given 7 them by that section. 8 d. The taxpayer presents proof that the taxpayer relied 9 upon applicable, documented, written advice specifically 10 made to the taxpayer, to the taxpayer’s preparer, or to an 11 association representative of the taxpayer from the department, 12 state department of transportation, county treasurer, or 13 federal internal revenue service, whichever is appropriate, 14 that has not been superseded by a court decision, ruling by a 15 quasi-judicial body, or the adoption, amendment, or repeal of 16 a rule or law. 17 e. Reliance upon results in a previous audit was a direct 18 cause for the failure to pay the tax required to be shown due 19 where the previous audit expressly and clearly addressed the 20 issue and the previous audit results have not been superseded 21 by a court decision, or the adoption, amendment, or repeal of 22 a rule or law. 23 f. Under rules prescribed by the director, the taxpayer 24 presents documented proof of substantial authority to rely 25 upon a particular position or upon proof that all facts and 26 circumstances are disclosed on a return or deposit form. 27 g. The return, deposit form, or payment is timely, but 28 erroneously, mailed with adequate postage to the internal 29 revenue service, another state agency, or a local government 30 agency and the taxpayer provides proof of timely mailing with 31 adequate postage. 32 h. The tax has been paid by the wrong licensee and the 33 payments were timely remitted to the department for one or more 34 tax periods prior to notification by the department. 35 -5- LSB 2818YC (4) 89 jm/jh 5/ 22

H.F. _____ i. That an Iowa inheritance tax return is filed for an 1 estate within the later of nine months from the date of 2 death or sixty days from the filing of a disclaimer by the 3 beneficiary of the estate refusing to take the property or 4 right or interest in the property. 5 3. Audit and examination deficiencies. If any person 6 fails to pay the tax required to be shown due with the filing 7 of a return or deposit and the department discovers the 8 underpayment, there shall be added to the tax required to be 9 shown due a penalty of five percent of the unpaid tax required 10 to be shown due , which shall be in lieu of the penalty in 11 subsection 2 . The penalty, if assessed, shall be waived by 12 the department upon a showing by the taxpayer of any of the 13 following conditions: 14 a. At least ninety percent of the tax required to be shown 15 due has been paid by the due date. 16 b. The taxpayer presents proof that the taxpayer relied upon 17 applicable, documented, written advice specifically made to 18 the taxpayer, to the taxpayer’s preparer, or to an association 19 representative of the taxpayer from the department, state 20 department of transportation, county treasurer, or federal 21 internal revenue service, whichever is appropriate, that the 22 reliance was the direct cause for the failure to pay, and that 23 the advice has not been superseded by a court decision, ruling 24 by a quasi-judicial body, or the adoption, amendment, or repeal 25 of a rule or law. 26 c. Reliance upon results in a previous audit was a direct 27 cause for the failure to pay the tax shown due or required to 28 be shown due where the previous audit expressly and clearly 29 addressed the issue and the previous audit results have 30 not been superseded by a court decision, or the adoption, 31 amendment, or repeal of a rule or law. 32 d. Under rules prescribed by the director, the taxpayer 33 presents documented proof of substantial authority to rely 34 upon a particular position or upon proof that all facts and 35 -6- LSB 2818YC (4) 89 jm/jh 6/ 22

H.F. _____ circumstances are disclosed on a return or deposit form . 1 4. Willful failure to file or deposit pay . 2 a. (1) In case of willful failure to file a return 3 or deposit form with the intent to evade tax or a filing 4 requirement, willful failure to pay with the intent to evade 5 tax, or in case of willfully filing a false return or deposit 6 form with the intent to evade tax, in lieu of the penalties 7 otherwise provided in this section , there shall be added to the 8 tax remaining unpaid by the due date a penalty of seventy-five 9 percent shall be added to the amount shown due or required to 10 be shown as tax on the return or deposit form of the unpaid tax . 11 (2) In case of a willful failure by a specified business to 12 file an income return with no tax shown due or required to be 13 shown due with intent to evade a filing requirement, or in case 14 of willfully filing a false income return with no tax shown due 15 or required to be shown due with the intent to evade reporting 16 of Iowa-source income, the penalty imposed shall be the greater 17 of the following amounts: 18 (a) One thousand five hundred dollars. 19 (b) An amount equal to seventy-five percent of the imputed 20 Iowa liability of the specified business. 21 (3) If penalties are applicable for failure to file a 22 return or deposit form and failure to pay the tax shown due or 23 required to be shown due on the return or deposit form, the 24 penalty provision for failure to file shall be in lieu of the 25 penalty provisions for failure to pay the tax shown due or 26 required to be shown due on the return or deposit form, except 27 in the case of willful failure to file a return or deposit form 28 or willfully filing a false return or deposit form with intent 29 to evade tax. 30 b. The penalties imposed under this subsection are not 31 subject to waiver. 32 5. Failure to remit on extension. If a person fails to 33 remit at least ninety percent of the tax required to be shown 34 due by the time an extension for further time to file a return 35 -7- LSB 2818YC (4) 89 jm/jh 7/ 22

H.F. _____ is made, there shall be added to the tax shown due or required 1 to be shown due a penalty of ten percent of the unpaid tax due . 2 6. Liability —— fraudulent practice. A person who makes 3 an erroneous application for refund, credit, reimbursement, 4 rebate, or other payment shall be liable for any overpayment 5 received or tax liability reduced plus interest at the rate in 6 effect under section 421.7 . 7 a. In addition, a person commits a fraudulent practice and 8 is liable for a penalty equal to seventy-five percent of the 9 refund, credit, exemption, reimbursement, rebate, or other 10 payment or benefit being claimed if the person does any of the 11 following: 12 (1) Willfully makes a false or frivolous application for 13 refund, credit, exemption, reimbursement, rebate, or other 14 payment or benefit with intent to evade tax or with intent to 15 receive a refund, credit, exemption, reimbursement, rebate, or 16 other payment or benefit, to which the person is not entitled. 17 (2) Willfully submits any false information, document, 18 or document containing false information in support of an 19 application for refund, credit, exemption, reimbursement, 20 rebate, or other payment or benefit with the intent to evade 21 tax or with intent to receive a refund, credit exemption, 22 reimbursement, rebate, or other payment or benefit, to which 23 the person is not entitled . 24 (3) Willfully submits with any false information, document, 25 or document containing false information in support of an 26 application for refund with the intent to evade tax or with 27 intent to receive a refund, credit, exemption, reimbursement, 28 rebate, or other payment benefit, to which the person is not 29 entitled. 30 b. Payments, penalties, and interest due under this 31 subsection may be collected and enforced in the same manner as 32 the tax imposed. 33 c. Penalties imposed under this subsection are not subject 34 to waiver. 35 -8- LSB 2818YC (4) 89 jm/jh 8/ 22

H.F. _____ 7. Failure to use required form or manner . If a person fails 1 to remit payment of taxes in the form or manner required by the 2 rules of the director, there shall be added to the amount of 3 the tax a penalty of five percent of the amount of tax shown 4 due or required to be shown due the payment remitted in the 5 incorrect form or manner not to exceed five hundred dollars 6 per instance of incorrect form or manner of payment . The 7 penalty shall be in addition to any other penalty provided by 8 law. The penalty imposed by this subsection shall be waived if 9 the taxpayer did not receive notification of the requirement 10 to remit tax payments electronically or if the electronic 11 transmission of the payment was not in a format or by means 12 specified by the director and the payment was made before the 13 taxpayer was notified of the requirement to remit tax payments 14 electronically. 15 8. Additional penalty. In addition to the penalties imposed 16 by this section , if a taxpayer fails to file a return within 17 ninety days of written notice demand issued by the department 18 pursuant to the rules implementing this subsection that the 19 taxpayer is required to do so, there shall be added to the 20 amount shown due or required to be shown due a penalty in the 21 amount of one thousand dollars. The penalty shall be waived by 22 the department upon a showing of good reason as defined by the 23 department by rule. 24 9. Definitions. As used in this section : 25 a. “Imputed Iowa liability” means any of the following: 26 (1) In the case of corporations other than corporations 27 described in section 422.34 or section 422.36, subsection 5 , 28 the corporation’s Iowa net income after the application of the 29 Iowa business activity ratio, if applicable, multiplied by the 30 top income tax rate imposed under section 422.33 for the tax 31 year. 32 (2) In the case of financial institutions as defined in 33 section 422.61 , the financial institution’s Iowa net income 34 after the application of the Iowa business activity ratio, if 35 -9- LSB 2818YC (4) 89 jm/jh 9/ 22

H.F. _____ applicable, multiplied by the franchise tax rate imposed under 1 section 422.63 for the tax year. 2 (3) In this case of all other entities, including 3 corporations described in section 422.36, subsection 5 , and all 4 other entities required to file an information return under 5 section 422.15, subsection 2 , the entity’s Iowa net income 6 after the application of the Iowa business activity ratio, if 7 applicable, multiplied by the top income tax rate imposed under 8 section 422.5A for the tax year. 9 b. “Income return” means an income tax return or information 10 return required under section 422.15, subsection 2 , or section 11 422.36 , 422.37 , or 422.62 . 12 c. “Specified business” means a partnership or other entity 13 required to file an information return under section 422.15, 14 subsection 2 , a corporation required to file a return under 15 section 422.36 or 422.37 , or a financial institution required 16 to file a return under section 422.62 . 17 Sec. 3. Section 421.60, subsection 2, paragraph d, Code 18 2021, is amended to read as follows: 19 d. (1) A taxpayer is permitted to designate in writing 20 the type of tax and tax periods to which any voluntary payment 21 relates, provided that separate written instructions accompany 22 the payment. This paragraph does not apply to jeopardy 23 assessments and does not apply if the department has to enforce 24 collection of the payment. 25 (2) As used in this paragraph, “tax period” means a period 26 of time for which a return is required. 27 Sec. 4. Section 422.25, subsection 4, Code 2021, is amended 28 to read as follows: 29 4. a. All payments received must be credited first, to 30 the penalty and interest accrued, and then to the tax due. If 31 payments in multiple tax periods are unpaid, payments received 32 shall be credited first to the penalty and interest accrued and 33 then tax due for the earliest period, and then credited to each 34 following tax period in chronological order from the earliest 35 -10- LSB 2818YC (4) 89 jm/jh 10/ 22

H.F. _____ tax period to the latest tax period. Payments required to be 1 made within a tax period must be credited first to the earliest 2 deposit period within the tax period. For purposes of this 3 subsection , the department shall not reapply prior payments 4 made on or before the due date of the original return by the 5 taxpayer to penalty or interest determined to be due after the 6 date of those prior payments, except that the taxpayer and the 7 department may agree to apply payments in accordance with rules 8 adopted by the director when there are both agreed and unagreed 9 to items as a result of an examination. 10 b. As used in this subsection, “tax period” means a period 11 of time for which a return is required. 12 Sec. 5. Section 422.75, Code 2021, is amended to read as 13 follows: 14 422.75 Statistics —— publication. 15 The department shall prepare and publish an annual report 16 which shall include statistics reasonably available, with 17 respect to the operation of this chapter , including amounts 18 collected, classification of taxpayers, and such other facts 19 as are deemed pertinent and valuable. The annual report shall 20 also include the reports and information required pursuant to 21 section 421.17, subsection 13 , and section 421.60, subsection 22 2 , paragraphs “i” and “l” . 23 Sec. 6. Section 423.14, subsection 2, paragraph b, Code 24 2021, is amended to read as follows: 25 b. The tax upon the use of all tangible personal property 26 and specified digital products other than that enumerated in 27 paragraph “a” , which is sold by a seller who is a retailer or 28 its agent that is not otherwise required to collect sales tax 29 under the provisions of this chapter , shall may be collected by 30 the retailer or agent and remitted to the department, pursuant 31 to the provisions of paragraph “e” , and sections 423.24 , 423.29 , 32 423.30 , 423.32 , and 423.33 . 33 Sec. 7. CANCELLATION OF UNUSED PERMITS. Notwithstanding 34 any other provision of law to the contrary, from July 1, 2021, 35 -11- LSB 2818YC (4) 89 jm/jh 11/ 22

H.F. _____ through December 31, 2021, the department of revenue shall have 1 authority to cancel withholding tax permits, sales tax permits, 2 or use tax permits that the department of revenue has verified 3 are no longer in use. 4 DIVISION II 5 PASS-THROUGH ENTITIES —— COMPOSITE RETURNS 6 Sec. 8. Section 29C.24, subsection 3, paragraph a, 7 subparagraph (3), Code 2021, is amended to read as follows: 8 (3) The imposition of income taxes under chapter 422, 9 subchapters II and III , including the requirement to file tax 10 returns under sections 422.13 through 422.15 , section 422.16B, 11 or section 422.36 , as applicable, and including the requirement 12 to withhold and remit income tax from out-of-state employees 13 under section 422.16 . In addition, the performance of disaster 14 or emergency-related work during a disaster response period 15 by an out-of-state business or out-of-state employee shall 16 not require an out-of-state business to be included in a 17 consolidated return under section 422.37 , and shall not 18 increase the amount of net income of the out-of-state business 19 allocated and apportioned to the state under section 422.8 or 20 422.33 , as applicable. 21 Sec. 9. Section 422.9, subsection 2A, paragraph b, Code 22 2021, is amended by striking the paragraph. 23 Sec. 10. Section 422.13, subsection 5, Code 2021, is amended 24 by striking the subsection. 25 Sec. 11. Section 422.13, subsection 6, Code 2021, is amended 26 to read as follows: 27 6. Notwithstanding subsections 1 through 5 4 and sections 28 422.14 and 422.15 , a return is not required by a taxpayer as 29 provided in section 29C.24 . 30 Sec. 12. Section 422.16, subsection 12, paragraph a, Code 31 2021, is amended to read as follows: 32 a. In the case of nonresidents having income subject to 33 taxation by Iowa, but not subject to withholding of such tax 34 under subsection 1 hereof or subject to the provisions of 35 -12- LSB 2818YC (4) 89 jm/jh 12/ 22

H.F. _____ section 422.16B , withholding agents shall withhold from such 1 income at the same rate as provided in subsection 1 hereof, and 2 such withholding agents and such nonresidents shall be subject 3 to the provisions of this section , according to the context, 4 except that such withholding agents may be absolved of such 5 requirement to withhold taxes from such nonresident’s income 6 upon receipt of a certificate from the department issued in 7 accordance with the provisions of section 422.17 , as hereby 8 amended. In the case of nonresidents having income from a 9 trade or business carried on by them in whole or in part within 10 the state of Iowa, such nonresident shall be considered to be 11 subject to the provisions of this subsection unless such trade 12 or business is of such nature that the business entity itself, 13 as a withholding agent, is required to and does withhold Iowa 14 income tax from the distributions made to such nonresident from 15 such trade or business. 16 Sec. 13. Section 422.16, subsection 12, paragraph c, Code 17 2021, is amended by striking the paragraph. 18 Sec. 14. NEW SECTION . 422.16B Pass-through entity composite 19 returns. 20 1. As used in this section, unless the context otherwise 21 requires: 22 a. “Nonresident member” means a partner in a partnership as 23 defined in section 422.25A, a shareholder of an S corporation, 24 or a beneficiary of an estate or trust, who is any of the 25 following: 26 (1) An individual who is not a resident of this state. 27 (2) A partnership without a commercial domicile in this 28 state. 29 (3) A trust or estate without a situs in this state. 30 (4) A C corporation or S corporation without a commercial 31 domicile in this state. 32 (5) A financial institution as defined in section 422.61 33 without a commercial domicile in this state. 34 b. “Pass-through entity” includes any entity that is a 35 -13- LSB 2818YC (4) 89 jm/jh 13/ 22

H.F. _____ partnership or a pass-through entity as those terms are defined 1 in 422.25A. 2 c. “Tiered pass-through entity” means a member of a pass- 3 through entity that is itself a pass-through entity. 4 2. a. (1) A pass-through entity shall file a composite 5 return on behalf of all nonresident members and shall report 6 and pay the income or franchise tax imposed under this chapter 7 at the maximum state income or franchise tax rate applicable 8 to the member under section 422.5A, 422.33, or 422.63 on the 9 nonresident members’ distributive shares of the income from the 10 pass-through entity. 11 (2) The tax rate applicable to a tiered pass-through entity 12 shall be the maximum state income tax rate under section 13 422.5A. 14 b. The composite return is due and shall be filed by the 15 due date of the pass-through entity’s annual return required 16 under section 422.14, 422.15, or 422.36, including extensions. 17 The return shall be on a form prescribed by the department 18 showing the total amounts paid or credited to the pass-through 19 entity’s nonresident members, the amounts of income or 20 franchise tax remitted in accordance with this section, if any, 21 and such other information as the department may require. A 22 pass-through entity shall furnish to its nonresident members a 23 record of the amount of Iowa income or franchise tax remitted 24 on behalf of such nonresident member in the manner and form 25 prescribed by the department. 26 c. The Iowa income or franchise tax on the composite return 27 is due on and shall be paid by the due date of the pass-through 28 entity’s annual return required under section 422.14, 422.15, 29 or 422.36, without extensions. 30 3. a. A pass-through entity is liable to the state for 31 the payment of the tax required to be remitted under this 32 section, together with applicable interest and penalties, 33 but is not liable to any nonresident member for any amount 34 withheld from distributions to or from the distributive share 35 -14- LSB 2818YC (4) 89 jm/jh 14/ 22

H.F. _____ of such nonresident member and remitted in compliance with this 1 section. 2 b. If a pass-through entity fails to pay any amount of tax 3 required under this section and thereafter the tax is paid 4 by the nonresident member, the amount of tax as paid by the 5 nonresident member shall not be collected from the pass-through 6 entity, but such payment by the nonresident member shall not 7 relieve the pass-through entity from any penalty or interest 8 associated with the failure to pay. 9 4. a. A nonresident member that has been included on a 10 composite return filed pursuant to this section shall receive 11 credit for Iowa income or franchise tax paid on the nonresident 12 member’s behalf by the pass-through entity, and any amounts in 13 excess of the nonresident member’s Iowa tax liability for the 14 applicable tax period may be refunded to the nonresident member 15 with interest in accordance with section 421.60, subsection 16 2, paragraph “e” . The nonresident member’s Iowa return shall 17 constitute a claim for refund for this purpose. In lieu of 18 claiming a refund, the nonresident member may elect to have the 19 overpayment shown on the nonresident member’s final, completed 20 return for the taxable year credited to the taxpayer’s tax 21 liability for the following taxable year. 22 b. A tiered pass-through entity shall be subject to the 23 same requirements to file a composite return and pay tax 24 under this section with respect to the distributive shares 25 of the tiered pass-through entity’s income. Any Iowa income 26 or franchise tax paid on the tiered pass-through entity’s 27 behalf by another pass-through entity may be applied against 28 that tiered pass-through entity’s own composite tax remittance 29 obligation imposed under this section. 30 c. A nonresident individual included on a composite tax 31 return filed pursuant to this section shall be relieved of 32 the requirement to file an individual income tax return under 33 section 422.13 if income from the pass-through entity is the 34 nonresident individual’s only Iowa-source income. 35 -15- LSB 2818YC (4) 89 jm/jh 15/ 22

H.F. _____ 5. A pass-through entity shall not be required to remit Iowa 1 income or franchise tax on behalf of a nonresident member if 2 any of the following apply: 3 a. The pass-through entity is a publicly traded partnership 4 as defined in section 7704(b) of the Internal Revenue Code, 5 provided the publicly traded partnership files with the 6 department an information return that reports the name, 7 address, taxpayer identification number, and any other 8 information requested by the department for each unit 9 holder with an income in this state from the publicly traded 10 partnership in excess of five hundred dollars. 11 b. A composite return is not required as provided in section 12 29C.24. 13 c. The department determines by rule or through a ruling 14 that the nonresident member’s income should not be subject to 15 composite return reporting, such as a member that is exempt 16 from Iowa income or franchise tax. 17 6. If the director determines that it is necessary for the 18 efficient administration of this chapter, the director may 19 require that a composite return be filed for nonresidents other 20 than nonresident members of a pass-through entity. 21 7. All powers of the director and requirements of the 22 director apply to returns filed under this section including 23 but not limited to the provisions of this subchapter and 24 subchapter VI. The provisions of section 422.16, subsection 25 2, paragraph “c” , and subsections 6, 10, and 14, applying 26 to withholding agents, shall apply in the same manner to 27 pass-through entities under this section. 28 8. For the efficient administration of this chapter, the 29 director may require or provide for the composite return on the 30 same form as or combined with a pass-through entity’s annual 31 return required under section 422.14, 422.15, or 422.36, but in 32 such case the composite return shall be considered a separate 33 return for purposes of this chapter and section 421.27. 34 Sec. 15. APPLICABILITY. This division of this Act applies 35 -16- LSB 2818YC (4) 89 jm/jh 16/ 22

H.F. _____ to tax years beginning on or after January 1, 2022. 1 DIVISION III 2 PUBLIC AGENCY DISCLOSURE —— TAX-EXEMPT ENTITIES —— DEPARTMENT 3 OF REVENUE 4 Sec. 16. 2021 Iowa Acts, House File 309, if enacted, is 5 amended by adding the following new section: 6 SEC. 6A. NEW SECTION . 22A.6 Applicability —— department 7 of revenue. 8 1. The following shall not be construed as a violation of 9 this chapter with respect to the department of revenue: 10 a. The identification of a person as a representative, 11 responsible party, employee, withholding agent, or other 12 signatory or contact of an entity exempt from taxation under 13 section 501(c) of the Internal Revenue Code on any return, 14 form, application, or other document required to be filed with 15 the department, including but not limited to a tax return or 16 tax permit. 17 b. Powers exercised under section 422.70. 18 c. Information sought pursuant to discovery in a contested 19 case proceeding. 20 d. Information that is expressly required to be provided 21 by the department by law including but not limited to section 22 422.11S. 23 2. The restrictions imposed under this chapter shall not 24 be construed to entitle any taxpayer or tax-exempt entity to 25 any deduction, exemption, credit, or other tax position which 26 the taxpayer or exempt entity is unable to substantiate with 27 sufficient evidence. 28 EXPLANATION 29 The inclusion of this explanation does not constitute agreement with 30 the explanation’s substance by the members of the general assembly. 31 This bill relates to the administration of the tax and 32 related laws by the department of revenue by requiring 33 composite returns for pass-through entities, restricting public 34 disclosure of certain information, and modifying penalty 35 -17- LSB 2818YC (4) 89 jm/jh 17/ 22

H.F. _____ provisions. 1 DIVISION I. The bill updates language in Code section 421.27 2 (penalties) to enhance the readability of the Code section. 3 The bill specifies that the taxpayer has the burden to prove 4 any of the conditions necessary to waive a penalty under Code 5 section 421.27. 6 The bill modifies the penalty for the failure of a person to 7 file a return from 10 percent of the tax shown due or required 8 to be shown due to 5 percent of the unpaid tax. 9 Currently, if a business fails to file a return, the business 10 pays a penalty of $200 or an amount equal to 10 percent of the 11 imputed Iowa liability, not to exceed $25,000, whichever is 12 greater. The bill modifies the penalty provision to specify 13 the business pays a penalty of $200 or an amount equal to 5 14 percent of the imputed Iowa liability, not to exceed $25,000, 15 whichever is greater. 16 The bill specifies the penalties for failure to timely file a 17 return are in addition to any other penalty provided by law. 18 The bill specifies that a taxpayer who is required to file a 19 quarterly or monthly return may have one late return or payment 20 over a three-year period before being ineligible to receive a 21 waiver of a penalty for failing to file a return. 22 Currently, there are 14 conditions a taxpayer may raise 23 in order to be eligible to receive the waiver of a penalty 24 for failing to file a return. The bill strikes one of these 25 conditions relating to the failure to file an inheritance tax 26 return that resulted from a disclaimer, so in such a situation 27 the penalty is not waivable. 28 The penalty for failing to timely pay tax due is modified by 29 the bill by assessing a 5 percent penalty against the unpaid 30 tax due rather than 5 percent of the tax. 31 The bill allows most conditions a taxpayer may raise in order 32 to be eligible to receive a waiver of a penalty for failing to 33 file a return to apply to the waiver of the penalty for failing 34 to timely pay a tax due. 35 -18- LSB 2818YC (4) 89 jm/jh 18/ 22