HSB 543 (LSB 5398XL (9) 90)

SENATE/HOUSE FILE _____

BY  (PROPOSED GOVERNOR BILL)

A BILL FOR

An Act relating to state taxation and appropriations by combining special purpose funds, modifying individual income tax rates, placing assessment limitations for property tax purposes on commercial child care facilities, and modifying unemployment benefits, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
SPECIAL PURPOSE FUNDS

    Section 1.  Section 7D.29, subsection 1, paragraphs a and b, Code 2024, are amended to read as follows:
   a.  From the appropriation made from the Iowa economic emergency cash reserve fund in section 8.55 8.56 for purposes of paying such expenses.
   b.  To the extent the appropriation from the Iowa economic emergency cash reserve fund described in paragraph “a” is insufficient to pay such expenses, there is appropriated from moneys in the general fund of the state not otherwise appropriated the amount necessary to fund that deficiency.
    Sec. 2.  Section 8.22A, subsection 2, Code 2024, is amended to read as follows:
   2.  The conference shall meet as often as deemed necessary, but shall meet at least three times per year with at least one meeting taking place each year in March. The conference may use sources of information deemed appropriate. At each meeting, the conference shall agree to estimates for the current fiscal year and the following fiscal year for the general fund of the state, lottery revenues to be available for disbursement, and from gambling revenues and from interest earned on the cash reserve fund and the economic emergency fund to be deposited in the rebuild Iowa infrastructure fund. At the meeting taking place each year in March, in addition to agreeing to estimates for the current fiscal year and the following fiscal year, the conference shall agree to estimates for the fiscal year beginning July 1 of the following calendar year. Only an estimate for the following fiscal year agreed to by the conference pursuant to subsection 3, 4, or 5, shall be used for purposes of calculating the state general fund expenditure limitation under section 8.54, and any other estimate agreed to shall be considered a preliminary estimate that shall not be used for purposes of calculating the state general fund expenditure limitation.
    Sec. 3.  Section 8.22A, subsection 5, paragraph b, Code 2024, is amended to read as follows:
   b.  The amount of revenue for the following fiscal year from gambling revenues and from interest earned on the cash reserve fund and the economic emergency fund to be deposited in the rebuild Iowa infrastructure fund under section 8.56 and section 8.57, subsection 5, paragraph “e” “f”.
    Sec. 4.  Section 8.54, subsection 1, unnumbered paragraph 1, Code 2024, is amended to read as follows:
   For the purposes of section 8.22A, this section, and sections 8.55 through 8.56 and 8.57:
    Sec. 5.  Section 8.54, subsection 5, paragraph a, Code 2024, is amended to read as follows:
   a.  For fiscal years in which it is anticipated that the distribution of moneys from the Iowa economic emergency fund in accordance with section 8.55 8.57, subsection 2, paragraph “c”, will result in moneys being transferred to the general fund of the state, the original state general fund expenditure limitation amount provided for in subsection 3 shall be readjusted to include the amount of moneys anticipated to be so transferred.
    Sec. 6.  Section 8.56, subsections 1 and 3, Code 2024, are amended to read as follows:
   1.  A cash reserve fund is created in the state treasury. The cash reserve fund shall be separate from the general fund of the state and shall not be considered part of the general fund of the state except in determining the cash position of the state as provided in subsection 3. The moneys in the cash reserve fund are not subject to section 8.33 and shall not be transferred, used, obligated, appropriated, or otherwise encumbered except as provided in this section. Notwithstanding section 12C.7, subsection 2, interest or earnings on moneys deposited in the cash reserve fund shall be credited to the rebuild Iowa infrastructure fund created in section 8.57. Moneys in the cash reserve fund may be used for cash flow purposes during a fiscal year provided that any moneys so allocated are returned to the cash reserve fund by the end of that fiscal year.
   3.  a.  The moneys in the cash reserve fund shall only be used pursuant to an appropriation made by the general assembly or as provided in this section. An appropriation shall be made in accordance with subsection 4 only for the fiscal year in which the appropriation is made. The moneys shall only be appropriated by the general assembly for nonrecurring emergency expenditures and shall not be appropriated for payment of any collective bargaining agreement or arbitrator’s decision negotiated or awarded under chapter 20. Except as provided in section 8.58, the cash reserve fund shall be considered a special account for the purposes of section 8.53 in determining the cash position of the general fund of the state for the payment of state obligations.
   b.  Moneys in the cash reserve fund may be used for cash flow purposes during a fiscal year provided that any moneys so allocated are returned to the cash reserve fund by the end of that fiscal year.
   c.  There is appropriated from the cash reserve fund to the executive council an amount sufficient to pay the expenses authorized by the executive council, as specified in section 7D.29.
   d.  There is appropriated from the cash reserve fund to the general fund of the state for the fiscal year in which moneys in the fund were used for cash flow purposes, for the purposes of reducing or preventing any overdraft on or deficit in the general fund of the state, the amount from the cash reserve fund that was used for cash flow purposes pursuant to paragraph “b” and that was not returned to the cash reserve fund by June 30 of the fiscal year. The appropriation in this paragraph shall not exceed one percent of the adjusted revenue estimate for the fiscal year for which the appropriation is made and is contingent upon all of the following having occurred:
   (1)  Prior to an appropriation being made pursuant to this paragraph, the balance of the general fund of the state at the end of the fiscal year for which the appropriation is made is negative.
   (2)  The governor issues an official proclamation and notifies the legislative fiscal committee and the legislative services agency that the balance of the general fund is negative and that an appropriation made pursuant to this paragraph brings the general fund of the state into balance.
   e.  If an appropriation is made pursuant to paragraph “d” for a fiscal year, there is appropriated from the general fund of the state to the cash reserve fund for the following fiscal year the amount of the appropriation made pursuant to paragraph “d”.
    Sec. 7.  Section 8.56, subsection 4, paragraph a, unnumbered paragraph 1, Code 2024, is amended to read as follows:
   Except as provided in subsection 1 3, an appropriation shall not be made from the cash reserve fund unless the appropriation is in accordance with all of the following:
    Sec. 8.  Section 8.57, subsection 1, paragraph a, Code 2024, is amended to read as follows:
   a.  The “cash reserve goal percentage” for fiscal years beginning on or after July 1, 2004 2024, is seven twelve and one-half percent of the adjusted revenue estimate. For each fiscal year in which the appropriation of the surplus existing in the general fund of the state at the conclusion of the prior fiscal year pursuant to paragraph “b” was not sufficient for the cash reserve fund to reach the cash reserve goal percentage for the current fiscal year, there is appropriated from the general fund of the state an amount to be determined as follows:
   (1)  If the balance of the cash reserve fund in the current fiscal year is not more than six eleven and one-half percent of the adjusted revenue estimate for the current fiscal year, the amount of the appropriation under this lettered paragraph is one percent of the adjusted revenue estimate for the current fiscal year.
   (2)  If the balance of the cash reserve fund in the current fiscal year is more than six eleven and one-half percent but less than seven twelve and one-half percent of the adjusted revenue estimate for that fiscal year, the amount of the appropriation under this lettered paragraph is the amount necessary for the cash reserve fund to reach seven twelve and one-half percent of the adjusted revenue estimate for the current fiscal year.
   (3)  The moneys appropriated under this lettered paragraph shall be credited in equal and proportionate amounts in each quarter of the current fiscal year.
    Sec. 9.  Section 8.57, subsections 2 and 3, Code 2024, are amended to read as follows:
   2.  a.  Moneys appropriated under subsection 1 shall be first credited to the cash reserve fund. To the extent that moneys appropriated under subsection 1 would make the moneys in the cash reserve fund exceed the cash reserve goal percentage of the adjusted revenue estimate for the fiscal year, the moneys are appropriated to the department of management to be spent for the purpose of eliminating Iowa’s GAAP deficit, including the payment of items budgeted in a subsequent fiscal year which under generally accepted accounting principles should be budgeted in the current fiscal year. These moneys shall be deposited into a GAAP deficit reduction account established within the department of management.
   b.  The department of management shall annually file with both houses of the general assembly at the time of the submission of the governor’s budget, a schedule of the items for which moneys appropriated under this subsection for the purpose of eliminating Iowa’s GAAP deficit, including the payment of items budgeted in a subsequent fiscal year which under generally accepted accounting principles should be budgeted in the current fiscal year, shall be spent. The schedule shall indicate the fiscal year in which the spending for an item is to take place and shall incorporate the items detailed in 
1994 Iowa Acts, ch. 1181, §17
. The schedule shall list each item of expenditure and the estimated dollar amount of moneys to be spent on that item for the fiscal year. The department of management may submit during a regular legislative session an amended schedule for legislative consideration. If moneys appropriated under this subsection are not enough to pay for all listed expenditures, the department of management shall distribute the payments among the listed expenditure items. Moneys appropriated to the department of management under this subsection shall not be spent on items other than those included in the filed schedule.
   c.  On September 1 following the close of a fiscal year, moneys in the GAAP deficit reduction account which remain unexpended for items on the filed schedule for the previous fiscal year shall be credited to the Iowa economic emergency fund as follows:
   (1)  The difference between the actual net revenue for the general fund of the state for the fiscal year and the adjusted revenue estimate for the fiscal year shall be transferred to the taxpayer relief fund created in section 8.57E.
   (2)  The remainder of the excess, if any, shall be transferred to the general fund of the state.
   3.  To the extent that moneys appropriated under subsection subsections 1 and 2 exceed the amounts necessary for the cash reserve fund to reach its maximum balance and the amounts necessary to eliminate Iowa’s GAAP deficit, including elimination of the making of any appropriation in an incorrect fiscal year, the moneys shall be appropriated to the Iowa economic emergency fund transferred pursuant to subsection 2, paragraph “c”.
    Sec. 10.  Section 8.57, subsection 5, paragraph d, Code 2024, is amended to read as follows:
   d.  The general assembly may provide that all or part of the moneys deposited in the GAAP deficit reduction account created in this section shall be transferred to the rebuild Iowa infrastructure fund in lieu of appropriation of the moneys to the Iowa economic emergency fund under subsection 2, paragraph “c”.
    Sec. 11.  Section 8.57E, subsection 2, paragraph b, subparagraph (1), Code 2024, is amended to read as follows:
   (1)  For the fiscal year beginning July 1, 2023, and for each fiscal year thereafter, if the actual net revenue for the general fund of the state for the fiscal year plus the amount transferred to the general fund of the state under section 8.55 8.57, subsection 2, paragraph “b” “c”, for the fiscal year, if any, is less than one hundred three and one-half percent of the actual net revenue for the general fund of the state for the prior fiscal year, there is transferred from the taxpayer relief fund to the general fund of the state an amount equal to the difference or the remaining balance of the taxpayer relief fund, whichever is lower, subject to subparagraph (2).
    Sec. 12.  Section 8.58, Code 2024, is amended to read as follows:
   8.58  Exemption from automatic application.
   1.  To the extent that moneys appropriated under section 8.57 do not result in moneys being credited to the general fund of the state under section 8.55 8.57, subsection 2, paragraph “c”, moneys appropriated under section 8.57 and moneys contained in the cash reserve fund, rebuild Iowa infrastructure fund, environment first fund, Iowa economic emergency fund, taxpayer relief fund, state bond repayment fund, Iowa coronavirus fiscal recovery fund, and Iowa coronavirus capital projects fund shall not be considered in the application of any formula, index, or other statutory triggering mechanism which would affect appropriations, payments, or taxation rates, contrary provisions of the Code notwithstanding.
   2.  To the extent that moneys appropriated under section 8.57 do not result in moneys being credited to the general fund of the state under section 8.55 8.57, subsection 2, paragraph “c”, moneys appropriated under section 8.57 and moneys contained in the cash reserve fund, rebuild Iowa infrastructure fund, environment first fund, Iowa economic emergency fund, taxpayer relief fund, state bond repayment fund, Iowa coronavirus fiscal recovery fund, and Iowa coronavirus capital projects fund shall not be considered by an arbitrator or in negotiations under chapter 20.
    Sec. 13.  REPEAL.  Section 8.55, Code 2024, is repealed.
    Sec. 14.  TRANSFER OF MONEYS.  On the effective date of this division of this Act, moneys remaining in the Iowa economic emergency fund created in section 8.55, Code 2024, shall be transferred as follows:
   1.  To the cash reserve fund created in section 8.56 up to the maximum balance of the cash reserve fund as described in sections 8.56 and 8.57, as amended by this division of this Act.
   2.  If moneys remain after the transfer under subsection 1, to the general fund of the state.
DIVISION II
INDIVIDUAL INCOME TAXES —— FUTURE INCOME TAX RATES —— ALTERNATE TAX RATES —— WITHHOLDING

    Sec. 15.  Section 421.27, subsection 9, paragraph a, subparagraph (3), Code 2024, is amended to read as follows:
   (3)  In the case of all other entities, including corporations described in section 422.36, subsection 5, and all other entities required to file an information return under section 422.15, subsection 2, the entity’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the top income tax rate imposed under section 422.5A 422.5 for the tax year, less any Iowa tax credits available to the entity.
    Sec. 16.  Section 422.5, subsection 1, paragraph a, Code 2024, is amended to read as follows:
   a.  A tax is imposed upon every resident and nonresident of the state which tax shall be levied, collected, and paid annually upon and with respect to the entire taxable income as defined in this subchapter at rates as provided in section 422.5A. the following rates:
   (1)  For the tax year beginning on or after January 1, 2024, but before January 1, 2025, a rate of 3.65 percent.
   (2)  For the tax years beginning on or after January 1, 2025, a rate of 3.50 percent.
    Sec. 17.  Section 422.5, subsection 2, paragraph b, Code 2024, is amended by striking the paragraph.
    Sec. 18.  Section 422.5, subsection 3, paragraph b, Code 2024, is amended by striking the paragraph.
    Sec. 19.  Section 422.5, subsection 6, Code 2024, is amended by striking the subsection.
    Sec. 20.  Section 422.16, subsection 2, paragraph e, Code 2024, is amended to read as follows:
   e.  For the purposes of this subsection, state income tax shall be withheld at the highest rate for the applicable tax year described in section 422.5A 422.5 from supplemental wages of an employee in those circumstances in which the employer treats the supplemental wages as wholly separate from regular wages for purposes of withholding and federal income tax is withheld from the supplemental wages under section 3402(g) of the Internal Revenue Code.
    Sec. 21.  Section 422.16B, subsection 2, paragraph a, Code 2024, is amended to read as follows:
   a.  (1)  A pass-through entity shall file a composite return on behalf of all nonresident members and shall report and pay the income or franchise tax imposed under this chapter at the maximum state income or franchise tax rate applicable to the member under section 422.5A 422.5, 422.33, or 422.63 on the nonresident members’ distributive shares of the income from the pass-through entity.
   (2)  The tax rate applicable to a tiered pass-through entity shall be the maximum state income tax rate under section 422.5A 422.5.
    Sec. 22.  Section 422.16C, subsection 4, paragraph a, Code 2024, is amended to read as follows:
   a.  A taxpayer making an election under this section shall be subject to tax in an amount equal to the maximum rate for the applicable tax year under section 422.5A 422.5, imposed against the taxable income of the taxpayer for the taxable year properly determined under this chapter and allocated and apportioned to the state under the rules adopted by the department. The tax shall be due with the taxpayer’s return required under this chapter.
    Sec. 23.  Section 422.16C, subsection 5, paragraph a, subparagraph (2), Code 2024, is amended to read as follows:
   (2)  The difference between one hundred percent and the highest individual income tax rate in effect for the tax year.
    Sec. 24.  Section 422.21, subsection 5, Code 2024, is amended to read as follows:
   5.  The director shall determine for the 2023 calendar year and each subsequent calendar year the annual and cumulative inflation factors for each calendar year to be applied to tax years beginning on or after January 1 of that calendar year. The director shall compute the new dollar amounts as specified to be adjusted in section 422.5 by the latest cumulative inflation factor and round off the result to the nearest one dollar. The annual and cumulative inflation factors determined by the director are not rules as defined in section 17A.2, subsection 11. 
    Sec. 25.  Section 422.25A, subsection 5, paragraph c, subparagraphs (3), (4), and (5), Code 2024, are amended to read as follows:
   (3)  Determine the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to nonresident individual partners and nonresident fiduciary partners and allocate and apportion such adjustments as provided in section 422.33 at the partnership or tiered partner level, and multiply the resulting amount by the maximum highest individual income tax rate pursuant to section 422.5A for the reviewed year.
   (4)  For the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to tiered partners:
   (a)  Determine the amount of such adjustments which are of a type that would be subject to sourcing to Iowa under section 422.8, subsection 2, paragraph “a”, as a nonresident, and then determine the portion of this amount that would be sourced to Iowa under those provisions as if the tiered partner were a nonresident.
   (b)  Determine the amount of such adjustments which are of a type that would not be subject to sourcing to Iowa under section 422.8, subsection 2, paragraph “a”, as a nonresident. 
   (c)  Determine the portion of the amount in subparagraph division (b) that can be established, as prescribed by the department by rule, to be properly allocable to indirect partners that are nonresident partners or other partners not subject to tax on the adjustments.
   (d)  Multiply the total of the amounts determined in subparagraph divisions (a) and (b), reduced by any amount determined in subparagraph division (c), by the highest individual income tax rate pursuant to section 422.5A for the reviewed year. 
   (5)  For the total distributive share of all final federal partnership adjustments and positive reallocation adjustments as modified by this title that are reported to resident individual partners and resident fiduciary partners, multiply that amount by the highest individual income tax rate pursuant to section 422.5A for the reviewed year.
    Sec. 26.  REPEAL.  2022 Iowa Acts, chapter 1002, sections 19, 20, 21, 22, 23, and 24, are repealed.
    Sec. 27.  REPEAL.  2023 Iowa Acts, chapter 115, sections 20 and 21, are repealed.
    Sec. 28.  REPEAL.  Section 422.5A, Code 2024, is repealed.
    Sec. 29.  RATE OF WITHHOLDING.  Notwithstanding any other provision of law to the contrary, for tax years beginning on or after January 1, 2024, any required rate of withholding shall not be higher than the rate for the applicable tax year pursuant to section 422.5 as amended by this division of this Act.
    Sec. 30.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 31.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2024, for tax years beginning on or after that date.
DIVISION III
PENALTY FOR OVERWITHHOLDING

    Sec. 32.  Section 422.16, Code 2024, is amended by adding the following new subsection:
   NEW SUBSECTION.  16.  a.  A withholding agent required to deduct and withhold individual income tax under this section shall adjust the rate of withholding for each payee to the individual income tax rate applicable to the payee within sixty days of a change to the individual income tax rate in section 422.5.
   b.  Any withholding agent that is in violation of paragraph “a” shall pay a penalty of one hundred dollars for each payee’s withholding that is not adjusted per payroll period.
   c.  The penalty shall not apply if the overwithholding resulted from one or more of the following circumstances:
   (1)  A payee has requested additional withholding above the individual income tax rate pursuant to section 422.5.
   (2)  A withholding agent is overwithholding to correct erroneous underwithholding within the same calendar year.
   (3)  A withholding agent makes a clerical or mathematical error that results in the amount of withholding for a payee being within one percent or twenty dollars of the correct amount of withholding, whichever is greater.
   d.  Any penalty imposed under this subsection shall be in addition to any other penalty provided by law.
   e.  Any penalty imposed pursuant to this subsection is not subject to waiver.
    Sec. 33.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
DIVISION IV
ESTIMATED TAX THRESHOLD

    Sec. 34.  Section 422.16, subsection 12, paragraph a, subparagraph (1), Code 2024, is amended to read as follows:
   (1)  Taxpayers filing a return shall make estimated tax payments if their Iowa income tax liability can reasonably be expected to amount to two hundred one thousand dollars or more for the year.
    Sec. 35.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2025.
    Sec. 36.  APPLICABILITY.  This division of this Act applies to tax years beginning on or after January 1, 2025.
DIVISION V
LUMP SUM DISTRIBUTION OF RETIREMENT INCOME

    Sec. 37.  Section 422.5, subsection 8, Code 2024, is amended to read as follows:
   8.  a.  In addition to the other taxes imposed by this section, a tax is imposed, except under paragraph “b”, on the amount of a lump sum distribution for which the taxpayer has elected under section 402(e) of the Internal Revenue Code to be separately taxed for federal income tax purposes for the tax year. The rate of tax is equal to twenty-five percent of the separate federal tax imposed on the amount of the lump sum distribution. A nonresident is liable for this tax only on that portion of the lump sum distribution allocable to Iowa. The total amount of the lump sum distribution subject to separate federal tax shall be included in net income for purposes of determining eligibility under subsections 2 and 3, as applicable, except the amount of the lump sum distribution exempt from state tax in paragraph “b” shall not be included.
   b.  The amount of a lump sum distribution that is received from a governmental or other pension or retirement plan, including defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans is exempt from state tax imposed under paragraph “a” if received by a person who is disabled, or is fifty-five years of age or older, or is the surviving spouse of an individual or is a survivor having an insurable interest in an individual who would have qualified for the exemption under this subsection for the tax year.
    Sec. 38.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 39.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2024, for tax years beginning on or after that date.
DIVISION VI
CHILD CARE FACILITY PROPERTY TAX ASSESSMENT LIMITATION

    Sec. 40.  Section 441.21, subsection 5, paragraph b, subparagraph (2), unnumbered paragraph 1, Code 2024, is amended to read as follows:
   For Except as prescribed for property subject to subparagraph (3), for valuations established for the assessment year beginning January 1, 2022, and each assessment year thereafter, the portion of actual value at which each property unit of commercial property shall be assessed shall be the sum of the following:
    Sec. 41.  Section 441.21, subsection 5, paragraph b, Code 2024, is amended by adding the following new subparagraph:
   NEW SUBPARAGRAPH.  (3)  (a)  For valuations established for the assessment year beginning January 1, 2024, and each assessment year thereafter, the portion of actual value at which each portion of a property unit of commercial property that is primarily used as a child care facility as defined in section 237A.1, and for which an application has been allowed under this subparagraph, shall be assessed at an amount equal to the product of the assessment limitation percentage applicable to residential property under subsection 4 for that assessment year multiplied by the actual value of the property.
   (b)  Applications to qualify a child care facility for the assessment limitation allowed under this subparagraph shall be filed with the assessor not later than July 1 of the assessment year for which the person is requesting the assessment limitation. The application shall be on forms prescribed by the department of revenue and must include all of the following information:
   (i)  A description of the property, including the property’s location.
   (ii)  A copy of the license to operate as a child care facility issued by the department of health and human services, or other proof of eligibility as set forth by the department of revenue by rule.
   (iii)  Any other information as required by the department of revenue.
   (c)  Upon allowance of the application, the assessment limitation shall be applied on the portion of the property unit of commercial property that is primarily used as a child care facility for successive years without further filing as long as the property continues to be classified as commercial property and is used for the purposes specified in the original application for assessment limitation.
   (d)  No later than July 6 of each year, the assessor shall remit the applications for assessment limitation to the county auditor with the assessor’s recommendation for allowance or disallowance of the assessment limitation. If the assessor recommends disallowance, the assessor shall submit the reasons for the recommendation in writing to the county auditor.
   (e)  No later than July 15 of each year, the county auditor shall forward the applications for assessment limitation to the board of supervisors. The board shall determine the eligibility for each application on or before September 1 of each year. 
   (i)  If the board disallows a claim, the board shall send written notice by mail to the applicant at the applicant’s last-known address. The notice shall state the reasons for disallowing the application and shall state the applicant’s right to appeal the board’s action to the district court. An applicant may appeal the board’s decision to the district court of the county in which the property is located within thirty days of the date of the notice of disallowance.
   (ii)  No later than October 1 of each year, the board of supervisors shall certify all allowed assessment limitations received for that year with the county auditor.
   (f)  If a property that has been granted an assessment limitation ceases to be used as a child care facility, the owner of the child care facility shall give written notice to the assessor by the July 1 following the date the property ceased to be used as a child care facility. 
   (g)  (i)  If the board determines at any time within thirty-six months of allowing an assessment limitation that the assessment limitation was allowed in error, the board shall notify the property owner by mail and conduct a hearing on the matter.
   (ii)  If, after a hearing required by subparagraph subdivision (i), the board determines the assessment limitation was allowed in error and the assessment limitation should be disallowed, the treasurer shall collect from the property owner the amount of tax that would have been assessed on the property if there had been no allowance of the assessment limitation under this subparagraph (3). The amount due shall become a lien on the property that received the assessment limitation and shall be collected by the county treasurer in the same manner as other taxes.
   (h)  The assessor shall retain a permanent file of properties that have approved assessment limitations pursuant to this subparagraph. If the assessor receives notice of a title transfer pursuant to subparagraph division (i), then the assessor shall file a notice of transfer of property.
   (i)  The county recorder shall give notice to the assessor of each transfer of title filed in the recorder’s office for a property which has an allowed assessment limitation pursuant to this subparagraph. The notice from the county recorder shall describe the property transferred, the name of the person who transferred title, and the name of the person to whom title is transferred.
   (j)  The department of revenue shall adopt rules to implement and administer this subparagraph.
    Sec. 42.  Section 441.21, subsection 5, paragraph e, subparagraphs (1) and (3), Code 2024, are amended to read as follows:
   (1)  For the fiscal year beginning July 1, 2023, there is appropriated from the general fund of the state to the department of revenue the sum of one hundred twenty-two million three hundred fifty thousand dollars to be used for payments under this paragraph calculated as a result of the assessment limitations imposed under paragraph “b”, subparagraph (2), subparagraph division (a), and paragraph “c”, subparagraph (2), subparagraph division (a). For each fiscal year beginning on or after July 1, 2024, there is appropriated from the general fund of the state to the department of revenue the sum of one hundred twenty-five million dollars to be used for payments under this paragraph calculated as a result of the assessment limitations imposed under paragraph “b”, subparagraph (2), subparagraph division (a), and paragraph “c”, subparagraph (2), subparagraph division (a), and paragraph “b”, subparagraph (3), for the portion of the actual value of the property unit equal to or less than one hundred fifty thousand dollars. 
   (3)  On or before July 1 of each fiscal year, the assessor shall report to the county auditor that portion of the total actual value of all commercial property and industrial property in the county that is subject to the assessment limitations imposed under paragraph “b”, subparagraph (2), subparagraph division (a), and paragraph “c”, subparagraph (2), subparagraph division (a), and paragraph “b”, subparagraph (3), for the portion of the actual value of the property unit equal to or less than one hundred fifty thousand dollars, for the assessment year used to calculate the taxes due and payable in that fiscal year.
    Sec. 43.  Section 441.21, subsection 5, paragraph e, subparagraph (4), subparagraph division (a), Code 2024, is amended to read as follows:
   (a)  The product of the portion of the total actual value of all commercial property, industrial property, and property valued by the department under chapter 434 in the county that is subject to the assessment limitations imposed under paragraph “b”, subparagraph (2), subparagraph division (a);, and paragraph “c”, subparagraph (2), subparagraph division (a),; and paragraph “b”, subparagraph (3), for the portion of the actual value of the property unit equal to or less than one hundred fifty thousand dollars, for the applicable assessment year used to calculate taxes which are due and payable in the applicable fiscal year multiplied by the difference, stated as a percentage, between ninety percent and the assessment limitation percentage applicable to residential property under subsection 4 for the applicable assessment year. 
    Sec. 44.  RETROACTIVE APPLICABILITY.  The following apply retroactively to assessment years beginning on or after January 1, 2024:
   1.  The section of this division of this Act amending section 441.21, subsection 5, paragraph “b”, subparagraph (2), unnumbered paragraph 1.
   2.  The section of this division of this Act enacting section 441.21, subsection 5, paragraph “b”, subparagraph (3).
    Sec. 45.  APPLICABILITY.  The following apply to fiscal years beginning on or after July 1, 2025, for payments pursuant to section 441.21, subsection 5, paragraph “e”:
   1.  The section of this division of this Act amending section 441.21, subsection 5, paragraph “e”, subparagraphs (1) and (3).
   2.  The section of this division of this Act amending section 441.21, subsection 5, paragraph “e”, subparagraph (4), subparagraph division (a).
    Sec. 46.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
DIVISION VII
UNEMPLOYMENT BENEFITS

    Sec. 47.  Section 96.1A, subsection 36, Code 2024, is amended to read as follows:
   36.  “Taxable wages” means an amount of wages upon which an employer is required to contribute based upon wages which have been paid in this state during a calendar year to an individual by an employer or the employer’s predecessor, in this state or another state which extends a like comity to this state, with respect to employment, upon which the employer is required to contribute, which equals the greater of the following:
   a.  Sixty-six and two-thirds Thirty-three and one-third percent of the statewide average weekly wage which was used during the previous calendar year to determine maximum weekly benefit amounts, multiplied by fifty-two and rounded to the next highest multiple of one hundred dollars.
   b.  That portion of wages subject to a tax under a federal law imposing a tax against which credit may be taken for contributions required to be paid into a state unemployment compensation fund.
    Sec. 48.  Section 96.7, subsection 2, paragraph c, subparagraphs (1) and (2), Code 2024, are amended to read as follows:
   (1)  A nonconstruction contributory employer newly subject to this chapter shall pay contributions at the rate specified in the twelfth fourth benefit ratio rank but not less than one percent until the end of the calendar year in which the employer’s account has been chargeable with benefits for twelve consecutive calendar quarters immediately preceding the computation date.
   (2)  A construction or landscaping contributory employer, as defined under rules adopted by the department pursuant to chapter 17A, which is newly subject to this chapter shall pay contributions at the rate specified in the twenty-first ninth benefit ratio rank until the end of the calendar year in which the employer’s account has been chargeable with benefits for twelve consecutive calendar quarters.
    Sec. 49.  Section 96.7, subsection 2, paragraph d, subparagraph (1), Code 2024, is amended to read as follows:
   (1)  The current reserve fund ratio is computed by dividing the total funds available for payment of benefits, on the computation date or on August 15 following the computation date if the total funds available for payment of benefits is a higher amount on August 15, by the total wages paid in covered employment excluding reimbursable employment wages during the first four calendar quarters of the five calendar quarters year immediately preceding the computation date. However, in computing the current reserve fund ratio, beginning July 1, 2007, one hundred fifty million dollars shall be added to the total funds available for payment of benefits on each computation date. 
    Sec. 50.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (a), Code 2024, is amended by striking the subparagraph division.
    Sec. 51.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (b), Code 2024, is amended by striking the subparagraph division and inserting in lieu thereof the following:
   (b)  If the current reserve fund ratio:
Equals or            But is                     The contribution rate
 exceeds            less than                     table in effect shall be

_______________________________________________________________

   ——             0.50                           A

  0.50             0.90                           B

  0.90             1.30                          C

  1.30             ——                           D

    Sec. 52.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (d), Code 2024, is amended by striking the subparagraph division and inserting in lieu thereof the following:
   (d)  Each employer qualified for an experience rating shall be assigned a contribution rate for each rate year that corresponds to the employer’s benefit ratio rank in the contribution rate table effective for the rate year from the following contribution rate tables. Each employer’s benefit ratio rank shall be computed by listing all the employers by increasing benefit ratios, from the lowest benefit ratio to the highest benefit ratio and grouping the employers so listed into nine separate ranks containing as nearly as possible fourteen and twenty-nine hundredths percent of the total taxable wages, excluding reimbursable employment wages, in the first six ranks, and four and seventy-six hundredths percent of the total taxable wages, excluding reimbursable employment wages, in ranks seven, eight, and nine, paid in covered employment during the four completed calendar quarters immediately preceding the computation date. If an employer’s taxable wages qualify the employer for two separate benefit ratio ranks the employer shall be afforded the benefit ratio rank assigned the lower contribution rate. Employers with identical benefit ratios shall be assigned to the same benefit ratio rank.
      Approximate                 Contribution Rate Tables
Benefit       Cumulative
Ratio       Taxable
Rank       Payroll Limit                 A                     B                         C                             D 

__________________________________________________________

 1        14.29%                0.00                    0.00                        0.00                            0.00 

 2        28.58%                0.40                    0.30                        0.10                            0.10 

 3        42.87%                1.20                    0.80                        0.40                            0.20 

 4        57.16%                2.10                    1.40                        0.60                            0.30 

 5        71.45%                3.60                    2.40                        1.10                            0.50 

 6        85.74%                5.40                    4.10                        1.90                            0.90 

 7        90.50%                5.40                    5.40                        4.20                            2.00 

 8        95.26%                5.40                    5.40                        5.40                            2.80 

 9        100.00%                5.40                    5.40                        5.40                            5.40 

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 state taxation and appropriations by combining special purpose funds, modifying individual income tax rates, placing assessment limitations for property taxation purposes on commercial child care facilities, and modifying unemployment benefits. 
   DIVISION I —— SPECIAL PURPOSE FUNDS. The bill combines the Iowa economic emergency fund (EEF) and the cash reserve fund (CRF) by (1) eliminating the EEF, (2) increasing the maximum balance of the CRF from 7.5 percent of the adjusted revenue estimate to 12.5 percent of the adjusted revenue estimate, and (3) authorizing moneys in the CRF to be used for purposes previously authorized for moneys in the EEF. These authorizations include (1) support of the executive council, (2) appropriations to the general fund of the state (GF) under emergency circumstances when the balance of the GF is negative, and (3) transfers of a budget surplus to the taxpayer relief fund and to the GF, as applicable. Upon the elimination of the EEF, remaining EEF moneys are transferred to the taxpayer relief fund and then remainder of the excess, if any, to the GF.
   DIVISION II —— INDIVIDUAL INCOME TAXES —— FUTURE TAX RATES —— ALTERNATE TAX RATES.
   FUTURE INDIVIDUAL INCOME TAX RATES. The bill strikes the graduated individual income tax rates that go into effect in tax years 2024 and 2025, and establishes new individual income tax flat rates beginning in tax years on or after January 1, 2024.
   The bill establishes the individual income tax flat rate for the tax year beginning January 1, 2024, but before January 1, 2025, at 3.65 percent. 
   The bill establishes the individual income tax flat rate for the tax years beginning on or after January 1, 2025, at 3.50 percent. Under current law, the individual income tax flat rate of 3.90 percent goes into effect for tax years beginning on or after January 1, 2026.
   The bill strikes references to calculating the latest cumulative inflation factor in Code section 422.5(6) and Code section 422.21(5) due to removing income tax brackets and establishing the individual income tax flat rate commencing with tax years beginning on or after January 1, 2024. 
   ALTERNATE INDIVIDUAL INCOME TAX RATES. The bill repeals the alternate individual income tax rates. The alternate income tax rate is available for a taxpayer whose income marginally exceeds the individual income tax filing thresholds in Code sections 422.5(2) and (3), and is used to calculate income tax owed. 
   EFFECTIVE DATE AND APPLICABILITY. The division takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2024.
   DIVISION III —— PENALTY FOR OVERWITHHOLDING. The bill requires a withholding agent to adjust the rate of withholding for each payee (taxpayer) to the individual income tax rate applicable to the payee within 60 days of a change to the individual income tax rate. The term “withholding agent” is defined in Code section 422.16(1).
   A withholding agent who knowingly does not adjust the rate of withholding to the individual income tax rate applicable to the payee within 60 days of a change to the individual income tax rate is required to pay a penalty of $100 for each payee’s withholding that is not adjusted per payroll period.
   The overwithholding penalty does not apply if the overwithholding resulted because a payee has requested additional withholding above the individual income tax rate; the withholding agent is overwithholding to correct erroneous underwithholding; or the withholding agent makes a clerical or mathematical error in the amount of withholding that is within 1 percent or $20 of the correct amount, whichever is greater. 
   The overwithholding penalty imposed pursuant to the bill is not subject to waiver. 
   The division takes effect upon enactment.
   DIVISION IV —— ESTIMATED TAX THRESHOLD. Under the bill, a taxpayer filing a return is required to make estimated tax payments if Iowa income tax liability can reasonably be expected to exceed $1,000 or more. Under current law, such a taxpayer filing a return is required to make estimated tax payments if Iowa income tax liability can reasonably be expected to exceed $200 or more.
   The division takes effect January 1, 2025, and applies to tax years on or after that date. 
   DIVISION V —— LUMP SUM DISTRIBUTION OF RETIREMENT INCOME. Under current law, commencing with tax years beginning on or after January 1, 2023, retirement income is not subject to Iowa individual income tax. However, under current law a lump sum distribution from a retirement account is subject to Iowa income tax under Code section 422.5(8) at a rate of 25 percent of the federal tax rate imposed on the amount of the lump sum distribution.
   The bill provides that the taxation of a lump sum distribution from a retirement account is also exempt from state taxation by exempting the lump sum distribution for a person who is disabled, or 55 years of age or older, or who is the surviving spouse of an individual or is a survivor having an insurable interest in an individual who would have qualified for the exemption for the tax year. 
   The bill excludes the lump sum distribution exempt from state taxation from being included in calculating the individual income tax filing thresholds in Code section 422.5(2) and (3). 
   The division takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2024.
   DIVISION VI —— CHILD CARE FACILITY PROPERTY TAX ASSESSMENT LIMITATION. This division of the bill relates to assessment limitations for property taxation purposes for commercial child care facilities, and includes applicability and effective date provisions.
   Code section 441.21(5) determines the amount of actual value of commercial property that is subject to property tax. The amount is the sum of the residential assessment limitation to the portion of the property’s value that does not exceed $150,000 plus 90 percent of the property’s value in excess of $150,000. 
   The bill division excludes property that is primarily used as a child care facility from the calculation of the actual value of the property. The bill instead specifies that for assessment years beginning on or after January 1, 2024, the amount of actual value used as child care facilities that is subject to tax is equal to the product of the assessment limitation percentage applicable to residential property multiplied by the actual value of the property provided that the property owner has applied for the assessment limitation and the county board of supervisors has allowed such an assessment limitation.
   The division establishes application procedures, approval procedures, and recordkeeping procedures for the assessment limitation.
   The division makes conforming changes to reflect the child care facility assessment limitation.
   The division applies retroactively to assessment years beginning on or after January 1, 2024, and applies to payments to local governments for fiscal years beginning on or after July 1, 2025.
   The division takes effect upon enactment.
   DIVISION VII —— UNEMPLOYMENT BENEFITS. The bill modifies the definition of “taxable wages” by eliminating the wages paid to an employee from another state from the calculation of wages upon which an employer is required to contribute to the unemployment compensation fund (fund) when the other state extends a like comity (reciprocity) to Iowa for employment purposes.
   Under current law, the calculation of taxable wages upon which an employer is required to contribute to the fund is the greater amount of the two amounts calculated pursuant to paragraphs “a” and “b” under Code section 96.1A(36). The bill changes the calculation of one these amounts under paragraph “a” by reducing the percentage of statewide average weekly wage used in the calculation from 66.66 percent to 33.33 percent of the statewide average weekly wage used during the previous calendar year which is then multiplied by 52 and rounded to the nearest $100 to determine maximum weekly benefit amounts.
   The amount in paragraph “a” as calculated under the bill would be the amount used to calculate taxable wages upon which an employer is required to contribute to the fund if that amount exceeds the amount in paragraph “b” under Code section 96.1A(36).
   The calculation of the unemployment contribution rate each year is a dynamic calculation dependent upon the calculation of the current reserve ratio, the benefit ratio rank, and the contribution rate table in effect for the rate year. The bill changes the current reserve ratio calculation, the number of benefit ratio ranks, the contribution rates, and the contribution rate table.
   The current reserve ratio (calculation of available benefit amount in fund) determines the contribution rate table in effect for the rate year following the computation date. The bill changes the computation of the current reserve fund ratio in Code section 96.7(2)(d)(1) by basing the calculation of the ratio on the preceding year rather than the previous five calendar quarters, and strikes the requirement that $150 million be added on the reserve ratio computation date to the total funds available for benefits. The bill also strikes the computation of the highest cost-benefit ratio and removes the ratio from the computation of the current reserve ratio.
   The bill modifies the contribution rate table by reducing the number of possible rate tables that could be in effect for the rate year from eight contribution rate tables to four contribution rate tables. Under the bill and current law, only one contribution rate table may be in effect per rate year. In reducing the number of possible contribution rates tables from eight to four, the bill also changes the numbered contribution rate designations to lettered contribution rate designations.
   Under current law, there are 21 benefit ratio ranks in the contribution table. The benefit ratio is a calculation based upon the average number of unemployment benefits charged to an employer over previous calendar quarters. The higher the benefits charged to an employer, the higher the benefit ratio rank the employer receives. The bill reduces the number of benefit ratio ranks from 21 to 9.
   Under current law, each of the 21 benefit ratio rank constitutes 4.76 percent of total taxable wages. The bill groups the benefit ratio ranks differently by separating each of the first six benefit ratio ranks by 14.29 percent of total taxable wages, and separates the last three benefit ratio ranks by 4.76 percent of total taxable wages.
   Under current law, the highest contribution rate that corresponds with the highest benefit ratio rank is 9.0 percent. Under the bill, the highest contribution rate that corresponds with the highest benefit ratio rank is 5.40 percent.
   As a result of the bill, each employer will be assigned one of the nine new benefit ratio ranks that corresponds with one of the four new lettered contribution rate designations in effect for the rate year to determine the contribution rate for the year.