Senate File 2372 - Introduced SENATE FILE 2372 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3154) A BILL FOR An Act relating to state taxation and administration by 1 modifying sales and use taxes, individual and corporate 2 income taxes, the automobile rental excise tax, the 3 franchise tax, and the insurance premiums tax, and including 4 effective date, applicability, and retroactive applicability 5 provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 6232SV (3) 89 jm/jh

S.F. 2372 DIVISION I 1 SALES AND USE TAX ON SERVICES AND EXEMPTIONS 2 Section 1. Section 423.2, subsection 6, paragraph bu, Code 3 2022, is amended to read as follows: 4 bu. Software as a service Cloud computing . 5 Sec. 2. Section 423.2, subsection 6, Code 2022, is amended 6 by adding the following new paragraphs: 7 NEW PARAGRAPH . bv. Web hosting. 8 NEW PARAGRAPH . bw. Digital automated services. 9 NEW PARAGRAPH . bx. Scooter rentals. 10 Sec. 3. Section 423.3, subsection 8, paragraph d, 11 subparagraph (1), Code 2022, is amended by adding the following 12 new subparagraph division: 13 NEW SUBPARAGRAPH DIVISION . (e) A specified digital 14 product. 15 Sec. 4. Section 423.3, subsection 47, paragraph a, 16 subparagraph (4), Code 2022, is amended by striking the 17 subparagraph. 18 Sec. 5. Section 423.3, subsection 68, paragraph c, 19 subparagraph (1), subparagraph division (a), Code 2022, is 20 amended to read as follows: 21 (a) “Clothing” includes but is not limited to the 22 following: aprons, household and shop; athletic supporters; 23 baby receiving blankets; bathing suits and caps; beach capes 24 and coats; belts and suspenders; boots; coats and jackets; 25 costumes; diapers (children and adults, including disposable 26 diapers); earmuffs; footlets; formal wear; garters and garter 27 belts; girdles; gloves and mittens for general use; hats 28 and caps; hosiery; insoles for shoes; lab coats; neckties; 29 overshoes; pantyhose; rainwear; rubber pants; sandals; 30 scarves; shoes and shoelaces; slippers; sneakers; socks and 31 stockings; steel-toed shoes; underwear; uniforms, athletic and 32 nonathletic; and wedding apparel. 33 Sec. 6. Section 423.3, subsection 104, paragraph a, Code 34 2022, is amended to read as follows: 35 -1- LSB 6232SV (3) 89 jm/jh 1/ 15

S.F. 2372 a. The sales price of specified digital products and of 1 prewritten computer software sold, and of enumerated services 2 described in section 423.2, subsection 1 , paragraph “a” , 3 subparagraph (5), or section 423.2, subsection 6 , paragraphs 4 “bq” , “br” , “bs” , and “bu” , “bv” , and “bw” furnished, to a 5 commercial enterprise for use exclusively by the commercial 6 enterprise. The use of prewritten computer software, a 7 specified digital product, or service fails to qualify as a 8 use exclusively by the commercial enterprise if its use for 9 noncommercial purposes is more than de minimis. 10 Sec. 7. Section 423.3, subsection 104, paragraph b, 11 subparagraph (1), Code 2022, is amended to read as follows: 12 (1) “Commercial enterprise” means the same as defined in 13 section 423.3, subsection 47 , paragraph “d” , subparagraph (1), 14 but also includes professions and occupations and includes 15 public utilities as defined in section 476.1, subsection 3 . 16 Sec. 8. Section 423.3, Code 2022, is amended by adding the 17 following new subsections: 18 NEW SUBSECTION . 107. The sales price from the sale of 19 period products. For purposes of this subsection, “period 20 products” means sanitary napkins or pads, tampons, menstrual 21 cups, or other similar items used in connection with the 22 menstrual cycle. 23 NEW SUBSECTION . 108. The sales price from the sale of a 24 child or adult diaper, whether cloth or disposable. 25 Sec. 9. Section 423.4, subsection 1, paragraph a, Code 2022, 26 is amended by adding the following new subparagraphs: 27 NEW SUBPARAGRAPH . (10) A nonprofit facility licensed by 28 the state built on or after January 1, 2022, that provides 29 residential addiction recovery and emergency shelter services 30 for children. For purposes of this subparagraph, “children” 31 means the same as “child” as defined in section 234.1. 32 NEW SUBPARAGRAPH . (11) A fair as defined in section 174.1. 33 Sec. 10. REFUNDS. Refunds of taxes, interest, or penalties 34 which arise from claims resulting from the enactment of section 35 -2- LSB 6232SV (3) 89 jm/jh 2/ 15

S.F. 2372 423.4, subsection 1, paragraph “a”, subparagraph (11), in this 1 division of this Act, occurring between January 1, 2021, and 2 the effective date of this section of this Act shall be limited 3 to twenty-five thousand dollars in the aggregate, and shall not 4 be allowed unless refund claims are filed by October 1, 2022, 5 notwithstanding any other law to the contrary. If the amount 6 of the claims totals more than twenty-five thousand dollars 7 in the aggregate, the department of revenue shall prorate the 8 twenty-five thousand dollars in the aggregate among all the 9 claimants’ in relation to the amounts of the claimants valid 10 claims. 11 Sec. 11. EFFECTIVE DATE. Except as otherwise provided, this 12 division of this Act takes effect January 1, 2023. 13 Sec. 12. EFFECTIVE DATE. The following, being deemed of 14 immediate importance, take effect upon enactment: 15 1. The section of this division of this Act enacting a 16 provision allowing for refunds of taxes, interest, or penalties 17 which arise from the enactment of section 423.4, subsection 1, 18 paragraph “a”, subparagraph (11). 19 2. The portion of the section of this division of this 20 Act enacting section 423.4, subsection 1, paragraph “a”, 21 subparagraph (11). 22 Sec. 13. RETROACTIVE APPLICABILITY. The following apply 23 retroactively to January 1, 2021: 24 1. The section of this division of this Act enacting a 25 provision allowing for refunds of taxes, interest, or penalties 26 which arise from the enactment of section 423.4, subsection 1, 27 paragraph “a”, subparagraph (11). 28 2. The portion of the section of this division of this 29 Act enacting section 423.4, subsection 1, paragraph “a”, 30 subparagraph (11). 31 DIVISION II 32 AUTOMOBILE RENTAL EXCISE TAX 33 Sec. 14. Section 423.14A, subsection 1, paragraph b, 34 subparagraph (3), Code 2022, is amended by striking the 35 -3- LSB 6232SV (3) 89 jm/jh 3/ 15

S.F. 2372 subparagraph. 1 Sec. 15. Section 423C.2, subsection 7, Code 2022, is amended 2 by striking the subsection. 3 Sec. 16. Section 423C.3, subsection 3, paragraph b, Code 4 2022, is amended by striking the paragraph. 5 Sec. 17. EFFECTIVE DATE. This division of this Act takes 6 effect January 1, 2023. 7 DIVISION III 8 MANUFACTURED FOOD —— SALES TAX EXEMPTION 9 Sec. 18. Section 423.3, subsection 49, Code 2022, is amended 10 to read as follows: 11 49. a. The sales price from the sale of carbon dioxide 12 in a liquid, solid, or gaseous form, electricity, steam, and 13 other taxable services and the lease or rental of tangible 14 personal property when used by a manufacturer of food products 15 to primarily produce marketable food products for human 16 consumption food or food ingredients , including but not 17 limited to treatment of material to change its form, context, 18 or condition, in order to produce the food product or food 19 ingredients , maintenance of quality or integrity of the 20 food product or food ingredients , changing or maintenance of 21 temperature levels necessary to avoid spoilage or to hold the 22 food product or food ingredients in marketable condition, 23 maintenance of environmental conditions necessary for the safe 24 or efficient use of machinery and material used to produce 25 the food product or food ingredients , sanitation and quality 26 control activities, formation of packaging, placement into 27 shipping containers, and movement of the material or food 28 product or food ingredients until shipment from the building 29 of manufacture. 30 b. For purposes of this subsection, “food or food 31 ingredients” means the same as “food and food ingredients” as 32 defined in subsection 57, paragraph “d” , and includes tangible 33 personal property that could be sold for ingestion or chewing 34 by humans but is sold for another use. 35 -4- LSB 6232SV (3) 89 jm/jh 4/ 15

S.F. 2372 Sec. 19. REFUNDS. Refunds of taxes, interest, or penalties 1 which arise from the enactment of this division of this Act, 2 for sales or services occurring between January 1, 2019, and 3 the effective date of this division of this Act, shall be 4 limited to one hundred thousand dollars in the aggregate for 5 any calendar year in which claims are eligible for a refund and 6 shall not be allowed unless refund claims are filed by October 7 1, 2022, notwithstanding any other law to the contrary. If the 8 amount of claims totals more than one hundred thousand dollars 9 in the aggregate for any calendar year in which claims are 10 eligible for a refund, the department of revenue shall prorate 11 the one hundred thousand dollars in the aggregate among all the 12 claimants for that particular calendar year in relation to the 13 amounts of the claimants’ valid claims. 14 Sec. 20. EFFECTIVE DATE. This division of this Act, being 15 deemed of immediate importance, takes effect upon enactment. 16 Sec. 21. RETROACTIVE APPLICABILITY. This division of this 17 Act applies retroactively to January 1, 2019. 18 DIVISION IV 19 NATIONAL GUARD PAY 20 Sec. 22. Section 422.7, Code 2022, is amended by adding the 21 following new subsection: 22 NEW SUBSECTION . 42B. Subtract, to the extent included, up 23 to twenty thousand dollars of pay received by the taxpayer for 24 service pursuant to 32 U.S.C. §502. 25 Sec. 23. APPLICABILITY. This division of this Act applies 26 to tax years beginning on or after January 1, 2023. 27 DIVISION V 28 NET OPERATING LOSS DEDUCTION 29 Sec. 24. Section 422.7, unnumbered paragraph 1, Code 2022, 30 is amended to read as follows: 31 The term “net income” means the adjusted gross income before 32 the net operating loss deduction taxable income as properly 33 computed for federal income tax purposes under section 63 34 of the Internal Revenue Code before the net operating loss 35 -5- LSB 6232SV (3) 89 jm/jh 5/ 15

S.F. 2372 deduction , with the following adjustments: 1 Sec. 25. Section 422.9, Code 2022, is amended by striking 2 the section and inserting in lieu thereof the following: 3 422.9 Carryforward of Iowa net operating loss —— deduction. 4 1. If, after applying all of the adjustments provided for in 5 section 422.7 and the allocation provisions of section 422.8, 6 and subject to the modifications provided in section 172(d) 7 of the Internal Revenue Code, the taxable income results in 8 a net operating loss, such Iowa net operating loss, if any, 9 shall be carried forward and such carryforward amounts shall be 10 available as a deduction under this subsection in future years. 11 2. The deduction allowed under subsection 1 shall be 12 calculated by subtracting the sum of the following from net 13 income: 14 a. The aggregate amount of net operating losses arising in 15 taxable years beginning before January 1, 2023, carried to such 16 taxable year. 17 b. The lesser of the aggregate amount of net operating 18 losses arising in taxable years beginning after December 31, 19 2022, carried to such taxable year, or eighty percent of the 20 excess of taxable income, if any, computed without regard to 21 the deductions under this section and, to the extent included 22 in the Iowa net income calculation, sections 199A and 250 of 23 the Internal Revenue Code, over the amount determined under 24 paragraph “a” . 25 Sec. 26. Section 422.35, subsection 11, Code 2022, is 26 amended by striking the subsection and inserting in lieu 27 thereof the following: 28 11. a. If, after applying all of the adjustments provided 29 for in this section and the allocation and apportionment 30 provisions of section 422.33, the Iowa taxable income results 31 in a net operating loss, such Iowa net operating loss shall 32 be carried forward and such carryforward amounts shall be 33 available as a deduction under this subsection in future years. 34 b. For the current year subtract the sum of the following, 35 -6- LSB 6232SV (3) 89 jm/jh 6/ 15

S.F. 2372 to the extent available, any net operating loss carryforward 1 amount as follows: 2 (1) The aggregate amount of net operating losses arising in 3 taxable years beginning before January 1, 2023, carried to such 4 taxable year. 5 (2) The lesser of the aggregate amount of net operating 6 losses arising in taxable years beginning after December 31, 7 2022, carried to such taxable year, or eighty percent of the 8 excess of taxable income, if any, computed without regard to 9 the deductions under this subsection to the extent included in 10 the Iowa net income calculation, section 250 of the Internal 11 Revenue Code, over the amount determined under subparagraph 12 (1). 13 c. Any portion of a net operating loss which was sustained 14 from that portion of the trade or business carried on outside 15 the state of Iowa shall not be deducted. 16 d. The deductions described in this subsection are allowed 17 subject to the requirement that a corporation affected by the 18 allocation provisions of section 422.33 shall be permitted to 19 deduct only that portion of the deductions for net operating 20 loss that is fairly and equitably allocable to Iowa, under 21 rules prescribed by the director. 22 Sec. 27. REPEAL. 2018 Iowa Acts, chapter 1161, sections 23 108, 109, 120, 128, and 129, are repealed. 24 Sec. 28. EFFECTIVE DATE. This division of this Act takes 25 effect January 1, 2023. 26 Sec. 29. APPLICABILITY. This division of this Act applies 27 to tax years beginning on or after January 1, 2023. 28 DIVISION VI 29 CHANGES TO SALE OF CERTAIN QUALIFIED STOCK PROVISIONS 30 Sec. 30. Section 422.7, subsection 63, paragraph c, 31 subparagraph (2), as enacted by 2022 Iowa Acts, House File 32 2317, section 1, is amended to read as follows: 33 (2) “Employee-owner” means an individual who owns capital 34 stock in a qualified corporation for at least ten years, which 35 -7- LSB 6232SV (3) 89 jm/jh 7/ 15

S.F. 2372 capital stock was acquired by the individual while employed and 1 on account of employment by such any qualified corporation for 2 at least ten cumulative years. 3 Sec. 31. Section 422.7, subsection 63, paragraph c, 4 subparagraph (4), subparagraph division (b), as enacted by 2022 5 Iowa Acts, House File 2317, section 1, is amended to read as 6 follows: 7 (b) “Qualified corporation” includes any member of an Iowa 8 affiliated group if the Iowa affiliated group includes a member 9 that has employed individuals in this state for at least ten 10 years. For purposes of this subparagraph division, “Iowa 11 affiliated group” means an affiliated group that has made is 12 eligible to make a valid election to file an Iowa consolidated 13 income tax return under section 422.37 in the year in which 14 the deduction under this subsection is claimed. “Member” 15 includes any entity that is eligible to be included in the a 16 consolidated return under section 422.37, subsection 2, for the 17 tax year in which the deduction is claimed. 18 Sec. 32. EFFECTIVE DATE. This division of this Act takes 19 effect January 1, 2023. 20 Sec. 33. APPLICABILITY. This division of this Act applies 21 to tax years beginning on or after January 1, 2023. 22 DIVISION VII 23 FRANCHISE TAX 24 Sec. 34. Section 422.63, Code 2022, is amended to read as 25 follows: 26 422.63 Amount of tax. 27 1. The franchise tax is imposed annually in an amount equal 28 to five the percent specified in subsection 2 of the net income 29 received or accrued during the taxable year. If the net income 30 of the financial institution is derived from its business 31 carried on entirely within the state, the tax shall be imposed 32 on the entire net income, but if the business is carried on 33 partly within and partly without the state, the portion of net 34 income reasonably attributable to the business within the state 35 -8- LSB 6232SV (3) 89 jm/jh 8/ 15

S.F. 2372 shall be specifically allocated or equitably apportioned within 1 and without the state under rules of the director. 2 2. a. For tax years beginning prior to January 1, 2023, 3 five percent. 4 b. For tax years beginning on or after January 1, 2023, but 5 before January 1, 2024, four and four-fifths percent. 6 c. For tax years beginning on or after January 1, 2024, but 7 before January 1, 2025, four and three-fifths percent. 8 d. For tax years beginning on or after January 1, 2025, but 9 before January 1, 2026, four and two-fifths percent. 10 e. For tax years beginning on or after January 1, 2026, but 11 before January 1, 2027, four and one-fifth percent. 12 f. For tax years beginning on or after January 1, 2027, 13 three and nine-tenths percent. 14 DIVISION VIII 15 INSURANCE PREMIUMS TAX 16 Sec. 35. Section 432.1, subsection 2, Code 2022, is amended 17 to read as follows: 18 2. The “applicable percent” for purposes of subsection 1 of 19 this section and section 432.2 is the following: 20 a. For calendar years beginning before the 2003 calendar 21 year, two percent. 22 b. For the 2003 calendar year, one and three-fourths 23 percent. 24 c. For the 2004 calendar year, one and one-half percent. 25 d. For the 2005 calendar year, one and one-fourth percent. 26 e. For the 2006 and subsequent calendar years year through 27 the 2022 calendar year , one percent. 28 f. For the 2023 calendar year, ninety-five hundredths of one 29 percent. 30 g. For the 2024 and subsequent calendar years, nine-tenths 31 of one percent. 32 Sec. 36. Section 432.1, subsection 4, Code 2022, is amended 33 to read as follows: 34 4. The “applicable percent” for purposes of subsection 3 is 35 -9- LSB 6232SV (3) 89 jm/jh 9/ 15

S.F. 2372 the following: 1 a. For calendar years beginning before the 2004 calendar 2 year, two percent. 3 b. For the 2004 calendar year, one and three-fourths 4 percent. 5 c. For the 2005 calendar year, one and one-half percent. 6 d. For the 2006 calendar year, one and one-fourth percent. 7 e. For the 2007 and subsequent calendar years year through 8 the 2022 calendar year , one percent. 9 f. For the 2023 calendar year, ninety-five hundredths of one 10 percent. 11 g. For the 2024 and subsequent calendar years, nine-tenths 12 of one percent. 13 EXPLANATION 14 The inclusion of this explanation does not constitute agreement with 15 the explanation’s substance by the members of the general assembly. 16 This bill relates to state taxation and administration by 17 modifying sales and use taxes, individual and corporate income 18 taxes, the automobile rental excise tax, the franchise tax, and 19 the insurance premium tax. 20 DIVISION I —— SALES AND USE TAX ON SERVICES AND EXEMPTIONS. 21 The bill strikes “software as a service” and substitutes “cloud 22 computing” as a service for purposes of imposing sales tax. 23 The bill makes the following services subject to the sales tax: 24 web hosting, digital automated services, and scooter. However, 25 the bill exempts web hosting and digital automated services 26 from the sales tax when furnished to a commercial enterprise 27 for use exclusively by the commercial enterprise. 28 The bill exempts “specified digital products” from the sales 29 tax when used in agricultural production. 30 The bill strikes the sales and use tax exemption on the 31 sales price from the sale or rental of computer or computer 32 peripherals by an insurance company, financial institution, or 33 commercial enterprise. 34 The bill exempts from the sales tax the sale of period 35 -10- LSB 6232SV (3) 89 jm/jh 10/ 15

S.F. 2372 products and child and adult diapers. Period products are 1 defined in the bill. 2 The bill strikes “professions and occupations” from 3 the definition of “commercial enterprise” in Code section 4 423.3(104) thus making sales to professions and occupations 5 related to prewritten software, specified digital services, 6 and other services subject to the sales tax. The bill expands 7 the definition of “commercial enterprise” to include a “public 8 utility” as defined in Code section 476.1(3). As a result, the 9 sales price of specified digital products, prewritten computer 10 software, and other enumerated digital and computer services 11 furnished to a public utility are exempt from the sales tax, if 12 exclusively used by the public utility. 13 Currently, a “designated exempt entity” may apply to the 14 department of revenue, under certain circumstances, for the 15 refund of sales or use tax upon the sales price of all sales 16 of building materials, supplies, equipment, or from services 17 furnished to a contractor, used in the performance of a written 18 contract with the designated exempt entity. 19 The bill makes a nonprofit facility licensed by the state 20 built on or after January 1, 2022, a designated exempt entity, 21 if the facility provides residential addiction recovery and 22 emergency shelter services for children under 18 years of age 23 and certain young adults. 24 The bill also makes a county or district fair a designated 25 exempt entity. This provision takes effect upon enactment and 26 applies retroactively to January 1, 2021. The bill allows for 27 refunds of taxes, interest, or penalties arising from claims 28 resulting from the enactment of the bill. The bill limits the 29 refund amount to $25,000 in the aggregate. 30 Except as otherwise provided, the division takes effect 31 January 1, 2023. 32 DIVISION II —— AUTOMOBILE RENTAL EXCISE TAX. The bill 33 repeals an exception for the collection of the automobile 34 rental excise tax of a person or an affiliate of a person who 35 -11- LSB 6232SV (3) 89 jm/jh 11/ 15

S.F. 2372 owns, operates, or controls an automobile peer-to-peer sharing 1 marketplace. 2 This division takes effect January 1, 2023. 3 DIVISION III —— MANUFACTURED FOOD —— SALES TAX EXEMPTION. 4 The bill exempts from the sales tax the sales of certain items 5 and services used by a manufacturer to primarily produce food 6 or food ingredients, including the lease or rental of tangible 7 personal property used to primarily produce such food or food 8 ingredients. 9 The bill defines “food or food ingredients” to mean the same 10 as defined in Code section 423.3(57)(d) and includes tangible 11 personal property that could be sold for ingestion or chewing 12 by humans but is sold for another use. 13 Under current law, in order to receive the sales tax 14 exemption the items or services must be used to produce 15 marketable food products for human consumption. 16 By operation of Code section 423.6, an item exempt from the 17 imposition of the sales tax is also exempt from the use tax 18 imposed in Code section 423.5. 19 The bill requires refunds of taxes, interest, or penalties 20 arising from claims resulting from the enactment of the bill 21 for sales or services occurring between January 1, 2019, and 22 the effective date of the bill to be filed prior to October 23 1, 2022. Refunds of taxes, interest, or penalties shall not 24 exceed $100,000 in the aggregate in any calendar year in which 25 claims are eligible for a refund. If the amount of claims 26 totals more than $100,000 in the aggregate for any calendar 27 year in which claims are eligible for a refund, the department 28 of revenue shall prorate the $100,000 in the aggregate among 29 all the claimants for that particular calendar year. 30 This division takes effect upon enactment and applies 31 retroactively to January 1, 2019. 32 DIVISION IV —— NATIONAL GUARD PAY. The bill exempts from the 33 individual income tax up to $20,000 of pay received by a member 34 of the national guard for any required drills, field exercises, 35 -12- LSB 6232SV (3) 89 jm/jh 12/ 15

S.F. 2372 or in the performance of any other orders under 32 U.S.C. §502. 1 This division applies to tax years beginning on or after 2 January 1, 2023. 3 DIVISION V —— NET OPERATING LOSS DEDUCTION. For tax years 4 beginning on or after January 1, 2023, 2018 Iowa Acts, chapter 5 1161, sections 120, 128, and 129, are set to go into effect, 6 which provide that a net operating loss will no longer be 7 calculated at the state level for individual and corporate 8 income taxpayers, as applicable, and requires such taxpayers 9 to add back any federal net operating loss deduction carried 10 over from a tax year beginning prior to January 1, 2023, but 11 such taxpayers are allowed to deduct any remaining Iowa net 12 operating loss from a prior taxable year. The net operating 13 loss deduction remains available to taxpayers at the federal 14 level. 15 The bill strikes the provisions in 2018 Iowa Acts, chapter 16 1161, disallowing a separate net operating loss calculation 17 at the state level and creates an Iowa net operating loss 18 calculation. 19 INDIVIDUAL INCOME TAXPAYERS. For individual income 20 taxpayers, under the Iowa net operating loss deduction 21 calculation, the taxpayer subtracts the net operating loss 22 carryforward amount from net income calculated as follows: the 23 sum of the aggregate amount of net operating losses arising 24 in taxable years beginning before January 1, 2023, carried to 25 such taxable year, and the lesser of the aggregate amount of 26 net operating losses arising in taxable years beginning after 27 December 31, 2022, carried to such taxable year, or 80 percent 28 of the excess of taxable income, without regard to certain 29 deductions. 30 CORPORATE INCOME TAXPAYERS. For corporate income taxpayers, 31 under the Iowa net operating loss deduction calculation, the 32 taxpayer subtracts the net operating loss carryforward amount 33 from net income as follows: the sum of the aggregate amount 34 of net operating losses arising in taxable years beginning 35 -13- LSB 6232SV (3) 89 jm/jh 13/ 15

S.F. 2372 before January 1, 2023, carried to such taxable year, and the 1 lesser of the aggregate amount of net operating losses arising 2 in taxable years beginning after December 31, 2022, carried 3 to such taxable year, or 80 percent of the excess of taxable 4 income, without regard to certain deductions. 5 The bill provides that the portion of a net operating loss 6 which was sustained from that portion of the trade or business 7 carried on outside the state of Iowa shall not be deducted. 8 The bill provides that a taxpayer is only permitted to deduct 9 the portion of the deduction for net operating loss that is 10 fairly and equitably allocable to Iowa, under rules prescribed 11 by the director or revenue. 12 EFFECTIVE DATE AND APPLICABILITY. This division takes 13 effect January 1, 2023, and applies to tax years beginning on 14 or after that date. 15 DIVISION VI —— CHANGES TO SALE OF CERTAIN QUALIFIED STOCK 16 PROVISIONS. The bill makes changes to provisions related to 17 the sale of certain qualified stock in 2022 Iowa Acts, House 18 File 2317, as enacted. 2022 Iowa Acts, House File 2317, 19 grants an employee-owner one irrevocable lifetime election 20 to exclude from state individual income tax the net capital 21 gain from the state of the capital stock on one qualified 22 corporation. The bill expands the definition of “qualified 23 corporation” to include any “member” of an Iowa affiliate group 24 if the affiliated group is eligible to make a valid election 25 to file an Iowa consolidated income tax return under Code 26 section 422.37 in the year the qualified stock sale deduction 27 is made. The bill expands the definition of “member” under 28 the definition of “qualified corporation” in 2022 Iowa Acts, 29 House File 2317, to include any entity that is eligible to be 30 included in a consolidated return under Code section 422.37(2) 31 if an election is made to file a consolidated return. 32 This division takes effect January 1, 2023, and applies to 33 tax years beginning on or after that date. 34 DIVISION VII —— FRANCHISE TAX. The bill phases in a 35 -14- LSB 6232SV (3) 89 jm/jh 14/ 15

S.F. 2372 reduction of the current franchise tax of 5 percent of net 1 income as follows: Commencing with the tax years beginning 2 during the 2023 calendar year, 4.80 percent; for tax years 3 beginning during the 2024 calendar year, 4.60 percent; for tax 4 years beginning during the 2025 calendar year, 4.40 percent; 5 for tax years beginning during the 2026 calendar year, 4.20 6 percent; and for all tax years beginning on or after January 7 1, 2027, 3.90 percent. 8 DIVISION VIII —— INSURANCE PREMIUMS TAX. The bill reduces 9 the insurance premiums tax on the gross amount of premiums 10 received by an insurance company from 1 percent to .95 percent 11 in calendar year 2023, and from .95 percent to .90 percent for 12 the 2024 calendar year and subsequent calendar years. 13 -15- LSB 6232SV (3) 89 jm/jh 15/ 15