SF 456 (LSB 1529SV (1) 89)

SENATE FILE 456

BY  COMMITTEE ON COMMERCE

(SUCCESSOR TO SSB 1049)

A BILL FOR

An Act concerning the apportionment of certain business income of an airline or a qualified air freight forwarder for purposes of Iowa corporate income tax, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.33, subsection 2, paragraph a, subparagraph (2), Code 2021, is amended by adding the following new subparagraph divisions:
   NEW SUBPARAGRAPH DIVISION.  (0f)  Notwithstanding subparagraph division (c), where income is derived by an airline from transportation operations, the part attributable to business within the state shall be in the proportion that the miles of the airline traveled in this state bears to the total miles of such airline traveled everywhere.
   NEW SUBPARAGRAPH DIVISION.  (00f)  (i)  Notwithstanding subparagraph division (c), where income is derived by a qualified air freight forwarder from transportation operations through an affiliated airline, such income shall be apportioned as follows:
   (A)  For tax years beginning during the 2021 calendar year, ninety percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining ten percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (B)  For tax years beginning during the 2022 calendar year, eighty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining twenty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (C)  For tax years beginning during the 2023 calendar year, seventy percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining thirty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (D)  For tax years beginning during the 2024 calendar year, sixty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining forty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (E)  For tax years beginning during the 2025 calendar year, fifty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining fifty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (F)  For tax years beginning during the 2026 calendar year, forty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining sixty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (G)  For tax years beginning during the 2027 calendar year, thirty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining seventy percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (H)  For tax years beginning during the 2028 calendar year, twenty percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining eighty percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (I)  For tax years beginning during the 2029 calendar year, ten percent of such income shall be equitably apportioned as provided in subparagraph division (c), and of the remaining ninety percent of such income, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (J)  For tax years beginning on or after January 1, 2030, the part attributable to business within the state shall be in the proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere.
   (ii)  For purposes of this subparagraph division (00f), “qualified air freight forwarder” means a taxpayer who meets all of the following requirements:
   (A)  The taxpayer is primarily engaged in the facilitation of the transportation of property by air.
   (B)  The taxpayer does not itself operate aircraft.
   (C)  The taxpayer is in the same affiliated group as an airline.
    Sec. 2.  Section 422.33, subsection 2, paragraph a, subparagraph (2), subparagraph division (g), Code 2021, is amended to read as follows:
   (g)  Where income consists of more than one class of income as provided in subparagraph divisions (a) through (e) (00f) of this subparagraph, it shall be reasonably apportioned by the business activity ratio provided in rules adopted by the director.
    Sec. 3.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2021, for tax years beginning on or after that date.
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 the apportionment of income of an airline and of a qualified air freight forwarder for purposes of the Iowa corporate income tax.
   A corporation doing business both within and without Iowa is required to apportion its business income among Iowa and the other states in which it does business. The amount of business income apportioned to Iowa is generally in the same percentage as the business’s gross sales made within Iowa if the business involves the manufacture or sale of goods and products, or in the same percentage as the business’s gross receipts earned within Iowa if the business involves something other than the manufacture or sale of goods and products. However, airlines and other specified industries have special rules provided by administrative rule for apportioning the income of those industries.
   Under current law pursuant to 701 Iowa administrative code, rule 54.7(2), an airline deriving income from transportation operations is required to apportion its business income to Iowa in the same proportion that its mileage traveled in Iowa bears to its total mileage traveled everywhere. The bill specifies that an airline shall apportion this business income in the same manner described above as required under 701 Iowa administrative code, rule 54.7(2).
   The bill also provides rules for apportioning income derived by a qualified air freight forwarder from transportation operations through an affiliated airline. The bill defines “qualified air freight forwarder” to be a taxpayer that is primarily engaged in the facilitation of the transportation of property by air, and that does not itself operate aircraft but that is in the same affiliated group as an airline. 
   The bill states that the qualified air freight forwarder income derived from transportation operations shall be apportioned to Iowa either under the current rules of the director of revenue (current statutory rules), or in the same proportion that the miles of the qualified air freight forwarder’s affiliated airline traveled in this state bears to the total miles of the affiliated airline traveled everywhere (affiliated airline mileage rules), based on increasing percentages as enumerated in the bill over a number of tax years.
   The bill applies retroactively to tax years beginning on or after January 1, 2021.