S.F. 456 Section 1. Section 422.33, subsection 2, paragraph a, 1 subparagraph (2), Code 2021, 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 2021 calendar year, 15 ninety percent of such income shall be equitably apportioned 16 as provided in subparagraph division (c), and of the remaining 17 ten percent of such income, the part attributable to business 18 within the state shall be in the proportion that the miles 19 of the qualified air freight forwarder’s affiliated airline 20 traveled in this state bears to the total miles of the 21 affiliated airline traveled everywhere. 22 (B) For tax years beginning during the 2022 calendar year, 23 eighty percent of such income shall be equitably apportioned 24 as provided in subparagraph division (c), and of the remaining 25 twenty percent of such income, the part attributable to 26 business within the state shall be in the proportion that the 27 miles of the qualified air freight forwarder’s affiliated 28 airline traveled in this state bears to the total miles of the 29 affiliated airline traveled everywhere. 30 (C) For tax years beginning during the 2023 calendar year, 31 seventy percent of such income shall be equitably apportioned 32 as provided in subparagraph division (c), and of the remaining 33 thirty percent of such income, the part attributable to 34 business within the state shall be in the proportion that the 35 -1- LSB 1529SV (1) 89 jm/jh 1/ 5

S.F. 456 miles of the qualified air freight forwarder’s affiliated 1 airline traveled in this state bears to the total miles of the 2 affiliated airline traveled everywhere. 3 (D) For tax years beginning during the 2024 calendar year, 4 sixty percent of such income shall be equitably apportioned as 5 provided in subparagraph division (c), and of the remaining 6 forty percent of such income, the part attributable to business 7 within the state shall be in the proportion that the miles 8 of the qualified air freight forwarder’s affiliated airline 9 traveled in this state bears to the total miles of the 10 affiliated airline traveled everywhere. 11 (E) For tax years beginning during the 2025 calendar year, 12 fifty percent of such income shall be equitably apportioned as 13 provided in subparagraph division (c), and of the remaining 14 fifty percent of such income, the part attributable to business 15 within the state shall be in the proportion that the miles 16 of the qualified air freight forwarder’s affiliated airline 17 traveled in this state bears to the total miles of the 18 affiliated airline traveled everywhere. 19 (F) For tax years beginning during the 2026 calendar year, 20 forty percent of such income shall be equitably apportioned as 21 provided in subparagraph division (c), and of the remaining 22 sixty percent of such income, the part attributable to business 23 within the state shall be in the proportion that the miles 24 of the qualified air freight forwarder’s affiliated airline 25 traveled in this state bears to the total miles of the 26 affiliated airline traveled everywhere. 27 (G) For tax years beginning during the 2027 calendar year, 28 thirty percent of such income shall be equitably apportioned 29 as provided in subparagraph division (c), and of the remaining 30 seventy percent of such income, the part attributable to 31 business within the state shall be in the proportion that the 32 miles of the qualified air freight forwarder’s affiliated 33 airline traveled in this state bears to the total miles of the 34 affiliated airline traveled everywhere. 35 -2- LSB 1529SV (1) 89 jm/jh 2/ 5

S.F. 456 (H) For tax years beginning during the 2028 calendar year, 1 twenty percent of such income shall be equitably apportioned 2 as provided in subparagraph division (c), and of the remaining 3 eighty percent of such income, the part attributable to 4 business within the state shall be in the proportion that the 5 miles of the qualified air freight forwarder’s affiliated 6 airline traveled in this state bears to the total miles of the 7 affiliated airline traveled everywhere. 8 (I) For tax years beginning during the 2029 calendar year, 9 ten percent of such income shall be equitably apportioned as 10 provided in subparagraph division (c), and of the remaining 11 ninety percent of such income, the part attributable to 12 business within the state shall be in the proportion that the 13 miles of the qualified air freight forwarder’s affiliated 14 airline traveled in this state bears to the total miles of the 15 affiliated airline traveled everywhere. 16 (J) For tax years beginning on or after January 1, 2030, 17 the part attributable to business within the state shall be 18 in the proportion that the miles of the qualified air freight 19 forwarder’s affiliated airline traveled in this state bears to 20 the total miles of the affiliated airline traveled everywhere. 21 (ii) For purposes of this subparagraph division (00f), 22 “qualified air freight forwarder” means a taxpayer who meets all 23 of the following requirements: 24 (A) The taxpayer is primarily engaged in the facilitation of 25 the transportation of property by air. 26 (B) The taxpayer does not itself operate aircraft. 27 (C) The taxpayer is in the same affiliated group as an 28 airline. 29 Sec. 2. Section 422.33, subsection 2, paragraph a, 30 subparagraph (2), subparagraph division (g), Code 2021, is 31 amended to read as follows: 32 (g) Where income consists of more than one class of income 33 as provided in subparagraph divisions (a) through (e) (00f) 34 of this subparagraph, it shall be reasonably apportioned by 35 -3- LSB 1529SV (1) 89 jm/jh 3/ 5

S.F. 456 the business activity ratio provided in rules adopted by the 1 director. 2 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies 3 retroactively to January 1, 2021, for tax years beginning on 4 or after that date. 5 EXPLANATION 6 The inclusion of this explanation does not constitute agreement with 7 the explanation’s substance by the members of the general assembly. 8 This bill relates to the apportionment of income of an 9 airline and of a qualified air freight forwarder for purposes 10 of the Iowa corporate income tax. 11 A corporation doing business both within and without Iowa is 12 required to apportion its business income among Iowa and the 13 other states in which it does business. The amount of business 14 income apportioned to Iowa is generally in the same percentage 15 as the business’s gross sales made within Iowa if the business 16 involves the manufacture or sale of goods and products, or in 17 the same percentage as the business’s gross receipts earned 18 within Iowa if the business involves something other than the 19 manufacture or sale of goods and products. However, airlines 20 and other specified industries have special rules provided 21 by administrative rule for apportioning the income of those 22 industries. 23 Under current law pursuant to 701 Iowa administrative code, 24 rule 54.7(2), an airline deriving income from transportation 25 operations is required to apportion its business income to 26 Iowa in the same proportion that its mileage traveled in Iowa 27 bears to its total mileage traveled everywhere. The bill 28 specifies that an airline shall apportion this business income 29 in the same manner described above as required under 701 Iowa 30 administrative code, rule 54.7(2). 31 The bill also provides rules for apportioning income derived 32 by a qualified air freight forwarder from transportation 33 operations through an affiliated airline. The bill defines 34 “qualified air freight forwarder” to be a taxpayer that is 35 -4- LSB 1529SV (1) 89 jm/jh 4/ 5

S.F. 456 primarily engaged in the facilitation of the transportation of 1 property by air, and that does not itself operate aircraft but 2 that is in the same affiliated group as an airline. 3 The bill states that the qualified air freight forwarder 4 income derived from transportation operations shall be 5 apportioned to Iowa either under the current rules of the 6 director of revenue (current statutory rules), or in the 7 same proportion that the miles of the qualified air freight 8 forwarder’s affiliated airline traveled in this state bears to 9 the total miles of the affiliated airline traveled everywhere 10 (affiliated airline mileage rules), based on increasing 11 percentages as enumerated in the bill over a number of tax 12 years. 13 The bill applies retroactively to tax years beginning on or 14 after January 1, 2021. 15 -5- LSB 1529SV (1) 89 jm/jh 5/ 5