S.F. 434 Section 1. NEW SECTION . 422.11X Private instruction 1 organization tax credit. 2 1. The taxes imposed under this subchapter, less the credits 3 allowed under section 422.12, shall be reduced by a private 4 instruction tax credit equal to sixty-five percent of the 5 amount of the voluntary cash or noncash contributions made 6 by the taxpayer during the tax year to a private instruction 7 organization, subject to the maximum total value of tax credits 8 allowed in subsection 8. The tax credit shall be claimed by 9 use of a tax credit certificate as provided in subsection 7. 10 2. To be eligible for this credit, all of the following 11 shall apply: 12 a. A deduction pursuant to section 170 of the Internal 13 Revenue Code for any amount of the contribution is not taken 14 for state tax purposes. 15 b. The contribution does not designate that any part of the 16 contribution be used for the direct benefit of any dependent of 17 the taxpayer or any other student designated by the taxpayer. 18 c. The value of a noncash contribution shall be appraised 19 pursuant to rules of the director. 20 3. Any credit in excess of the tax liability is not 21 refundable but the excess for the tax year may be credited to 22 the tax liability for the following five tax years or until 23 depleted, whichever is the earlier. 24 4. Married taxpayers who file separate returns or file 25 separately on a combined return form must determine the tax 26 credit under subsection 1 based upon their combined net income 27 and allocate the total credit amount to each spouse in the 28 proportion that each spouse’s respective net income bears to 29 the total combined net income. Nonresidents or part-year 30 residents of Iowa must determine their tax credit in the ratio 31 of their Iowa source net income to their all source net income. 32 Nonresidents or part-year residents who are married and elect 33 to file separate returns or to file separately on a combined 34 return form must allocate the tax credit between the spouses 35 -1- LSB 2621XS (2) 89 jm/jh 1/ 7

S.F. 434 in the ratio of each spouse’s Iowa source net income to the 1 combined Iowa source net income of the taxpayers. 2 5. An individual may claim the tax credit allowed a 3 partnership, limited liability company, S corporation, estate, 4 or trust electing to have the income taxed directly to the 5 individual. The amount claimed by the individual shall be 6 based upon the pro rata share of the individual’s earnings of 7 the partnership, limited liability company, S corporation, 8 estate, or trust. 9 6. For purposes of this section: 10 a. “Eligible student” means a student who is a member of 11 a household whose total annual income during the calendar 12 year before the student receives a grant for purposes of this 13 section does not exceed an amount equal to four times the most 14 recently published federal poverty guidelines in the federal 15 register by the United States department of health and human 16 services. 17 b. “Grant” means grants to students to cover all or part of 18 qualified private instruction. 19 c. “Private instruction organization” means a charitable 20 organization in this state that is exempt from federal taxation 21 under section 501(c)(3) of the Internal Revenue Code and that 22 does all of the following: 23 (1) Allocates at least ninety percent of its annual revenue 24 in grants for eligible students to allow them to receive 25 qualified private instructions of their parents’ choice. 26 (2) Only awards grants to eligible students who reside in 27 Iowa. 28 (3) Provides grants to eligible students without limiting 29 availability to a type of qualified private instruction. 30 (4) Only provides grants to eligible students in a certain 31 geographic area within the state. 32 (5) Prepares an annual reviewed financial statement 33 certified by a public accounting firm. 34 d. “Qualified private instruction” means independent 35 -2- LSB 2621XS (2) 89 jm/jh 2/ 7

S.F. 434 private instruction as defined in section 299A.1, subsection 1 2, paragraph “b” , competent private instruction under section 2 299A.2, or private instruction by a nonlicensed person under 3 section 299A.3. 4 7. a. In order for the taxpayer to claim the private 5 instruction organization tax credit under subsection 1, a 6 tax credit certificate issued by the private instruction 7 organization to which the contribution was made shall be 8 included with the person’s tax return. The tax credit 9 certificate shall contain the taxpayer’s name, address, tax 10 identification number, the amount of the contribution, the 11 amount of the credit, and other information required by the 12 department. 13 b. (1) The department shall authorize a private instruction 14 organization to issue tax credit certificates for contributions 15 made to the private instruction organization, limited by the 16 maximum total dollar value of the tax credits available for the 17 calendar year in subsection 8. The aggregate amount of tax 18 credit certificates that the department shall authorize for a 19 private instruction organization for a calendar year shall be 20 determined for that organization by the department equal to the 21 product of the following: 22 (a) The maximum total dollar value of the tax credits 23 available for the calendar year. 24 (b) The ratio of the number of households submitting a 25 participation form to the department for a particular private 26 instruction organization to the total participation forms 27 submitted. 28 (2) However, a private instruction organization shall not 29 be authorized to issue tax credit certificates unless the 30 organization is controlled by a board of directors consisting 31 of at least seven members. The names and addresses of the 32 members shall be provided to the department and shall be made 33 available by the department to the public, notwithstanding any 34 state confidentiality restrictions. 35 -3- LSB 2621XS (2) 89 jm/jh 3/ 7

S.F. 434 c. Pursuant to rules of the department, a private 1 instruction organization shall initially register with the 2 department. The organization’s registration shall include 3 proof of section 501(c)(3) status and provide the geographic 4 area the private instruction organization serves. Once the 5 private instruction organization has registered, it is not 6 required to subsequently register unless the geographic area 7 it serves changes. 8 d. Each household that receives funds from a private 9 instruction organization shall submit a participation form 10 annually to the department by November 1. For the 2021 11 calendar year only, each household served by a private 12 instruction organization shall submit a participation form to 13 the department by August 1, 2021. 14 8. The maximum total dollar value of the tax credits for 15 the 2021 calendar year shall not exceed one-half of the total 16 approved tax credits calculated pursuant to section 422.11S, 17 subsection 8, for the 2021 calendar year. For calendar years 18 beginning on or after January 1, 2022, the maximum total value 19 of tax credits shall not exceed the total approved tax credits 20 calculated pursuant to section 422.11S, subsection 8, for the 21 same corresponding calendar year. 22 9. Each year by December 1, the department shall authorize 23 private instruction organizations to issue tax credit 24 certificates for the following calendar year. However, for the 25 2021 calendar year only, the department, by September 1, 2021, 26 shall authorize private instruction organizations to issue tax 27 credit certificates for the 2021 calendar year. 28 10. A private instruction organization that receives a 29 voluntary cash or noncash contribution pursuant to this section 30 shall report to the department, on a form prescribed by the 31 department, by January 12 of each calendar year all of the 32 following information: 33 a. The name and address of the members and the chairperson 34 of the governing board of the private instruction organization. 35 -4- LSB 2621XS (2) 89 jm/jh 4/ 7

S.F. 434 b. The total number and dollar value of contributions 1 received and the total number and dollar value of the tax 2 credits approved during the previous calendar year. 3 c. A list of the individual donors for the previous calendar 4 year that includes the dollar value of each donation and the 5 dollar value of each approved tax credit. 6 d. The total number of eligible students utilizing grants 7 for the school year in progress and the total dollar value of 8 the grants. 9 e. The name and address of each household at which grants 10 are currently being utilized. 11 f. The name of the person providing private instruction and 12 the number of eligible students receiving private instruction 13 by the person. 14 Sec. 2. Section 422.33, Code 2021, is amended by adding the 15 following new subsection: 16 NEW SUBSECTION . 31. The taxes imposed under this subchapter 17 shall be reduced by a private instruction organization tax 18 credit as provided pursuant to section 422.11X. 19 Sec. 3. EFFECTIVE DATE. This Act, being deemed of immediate 20 importance, takes effect upon enactment. 21 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies 22 retroactively to January 1, 2021, for tax years beginning on 23 or after that date. 24 EXPLANATION 25 The inclusion of this explanation does not constitute agreement with 26 the explanation’s substance by the members of the general assembly. 27 This bill provides an individual and corporate income 28 tax credit equal to a maximum 65 percent of the voluntary 29 contributions made to a private instruction organization that 30 is exempt from federal income tax. At least 90 percent of 31 total contributions must be used by the private instruction 32 organization to provide grants to students who are members 33 of households that have total annual income that does not 34 exceed four times the most recently published federal poverty 35 -5- LSB 2621XS (2) 89 jm/jh 5/ 7

S.F. 434 guidelines. The contribution may not be deducted as a 1 charitable deduction for state tax purposes or be designated 2 for the direct benefit of a dependent or any other student 3 designated by the taxpayer. 4 The private instruction organization must limit the grants 5 to students who reside in Iowa, must provide grants without 6 limiting the type of private instruction received, and only 7 provide grants to students in a certain geographic area. 8 The tax credit is claimed by attaching a tax credit 9 certificate to the taxpayer’s tax return. A private 10 instruction organization is authorized to issue a tax credit 11 certificate in an amount determined by the department. The 12 amount available for each private instruction organization 13 is determined by multiplying the maximum total value of tax 14 credits available for the calendar year with the ratio of the 15 number of households submitting a participation form to the 16 department of revenue for a particular private instruction 17 organization to the total participation forms submitted. Each 18 household that receives funds from a private instruction 19 organization must submit a participation form to the department 20 of revenue. The maximum total value of tax credits available 21 each calendar year equals the maximum total value of tax 22 credits available for the school tuition organization tax 23 credit in Code section 422.11S, except for calendar year 2021, 24 the maximum amount available shall be one-half of the amount 25 available for school tuition organizations. 26 The private instruction organization must report to the 27 department of revenue by January 12 of each calendar year 28 the members of the governing board, the total dollar value 29 of contributions received and the total dollar value of 30 tax credits approved, a list of donors, the total number of 31 students receiving grants for the school year, the name and 32 address of each household utilizing the grants, and the name 33 of the person providing private instruction and the number of 34 eligible students receiving private instruction by the person. 35 -6- LSB 2621XS (2) 89 jm/jh 6/ 7