SF 552 (LSB 1993SV (3) 90)

SENATE FILE 552

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO SSB 1126)

A BILL FOR

An Act relating to individual and corporate income taxes, the insurance premium tax, and including the contingent repeal of the individual income tax, and including retroactive applicability and effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
FUTURE INDIVIDUAL INCOME TAX RATE CHANGES

    Section 1.  Section 422.5, subsection 2, paragraph b, subparagraph (2), Code 2023, is amended to read as follows:
   (2)  (a)  (i)  (A)  For the tax year beginning on or after January 1, 2023, but before January 1, 2024, the alternate tax rate is 6.00 percent.
   (B)  For the tax year beginning on or after January 1, 2024, but before January 1, 2025, the alternate tax rate is 5.70 percent.
   (C)  For the tax year beginning on or after January 1, 2025, but before January 1, 2026, the alternate tax rate is 5.20 4.80 percent.
   (D)  For the tax year beginning on or after January 1, 2026, but before January 1, 2027, the alternate tax rate is 3.95 percent.
   (E)  For the tax year beginning on or after January 1, 2027, but before January 1, 2028, the alternate tax rate is 3.35 percent.
   (ii)  This subparagraph division (a) is repealed January 1, 2026 2028.
   (b)  For tax years beginning on or after January 1, 2026 2028, the alternate tax rate is 4.40 3.00 percent.
    Sec. 2.  Section 422.5, subsection 3, paragraph b, subparagraph (2), Code 2023, is amended to read as follows:
   (2)  (a)  (i)  (A)  For the tax year beginning on or after January 1, 2023, but before January 1, 2024, the alternate tax rate is 6.00 percent.
   (B)  For the tax year beginning on or after January 1, 2024, but before January 1, 2025, the alternate tax rate is 5.70 percent.
   (C)  For the tax year beginning on or after January 1, 2025, but before January 1, 2026, the alternate tax rate is 5.20 4.80 percent.
   (D)  For the tax year beginning on or after January 1, 2026, but before January 1, 2027, the alternate tax rate is 3.95 percent.
   (E)  For the tax year beginning on or after January 1, 2027, but before January 1, 2028, the alternate tax rate is 3.35 percent.
   (ii)  This subparagraph division (a) is repealed January 1, 2026 2028.
   (b)  For tax years beginning on or after January 1, 2026 2028, the alternate tax rate is 4.40 3.00 percent.
    Sec. 3.  Section 422.5A, subsection 1, paragraph a, subparagraph (3), Code 2023, is amended to read as follows:
   (3)  For the tax year beginning on or after January 1, 2025, but before January 1, 2026:
   (a)  On taxable income from 0 through $12,000, the rate of 4.40 4.00 percent.
   (b)  On taxable income exceeding $12,000, the rate of 4.82 4.40 percent.
    Sec. 4.  Section 422.5A, subsection 1, paragraph b, subparagraph (3), Code 2023, is amended to read as follows:
   (3)  For the tax year beginning on or after January 1, 2025, but before January 1, 2026:
   (a)  On taxable income from 0 through $6,000, the rate of 4.40 4.00 percent.
   (b)  On taxable income exceeding $6,000, the rate of 4.82 4.40 percent.
    Sec. 5.  2022 Iowa Acts, chapter 1002, section 20, is amended to read as follows:
   SEC. 20.  Section 422.5, subsection 1, paragraph a, Code 2022, is amended to read as follows:
   a.  (1)  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 a rate of three and nine-tenths percent. the following rates in the following tax years:
   (a)  For the tax year beginning on or after January 1, 2026, but before January 1, 2027, the rate of 3.55 percent.
   (b)  For the tax year beginning on or after January 1, 2027, but before January 1, 2028, the rate of 2.95 percent.
   (c)  For tax years beginning on or after January 1, 2028, the rate of 2.50 percent.
   (2)  (a)  Notwithstanding the rate in subparagraph (1), the department of revenue shall determine the individual income tax rate as provided in this subparagraph. The tax rate in subparagraph (1) shall remain in effect until the rate is adjusted pursuant to this subparagraph. A rate adjusted in this subparagraph shall remain in effect until the rate is adjusted again pursuant to this subparagraph.
   (b)  By November 1, 2029, and by November 1 each year thereafter, until the individual income tax rate equals zero, the department of management shall determine the amount of moneys available in the taxpayer relief fund in section 8.57E, and the net individual income tax receipts at the close of the preceding fiscal year. The department of revenue shall adjust and apply a new rate based upon the amount of moneys available in the taxpayer relief fund as provided in subparagraph division (c).
   (c)  (i)  The rate shall be adjusted in such a way that the rate would have generated an amount equal to the net receipts generated from the rate in the preceding fiscal year less the amount available in the taxpayer relief fund in section 8.57E that is used in the calculation in this subparagraph division.
   (ii)  The rate shall not be adjusted unless the rate is able to be adjusted at least one-tenth of one percent. The rate, when adjusted, shall be rounded down to the nearest one-tenth of one percent.
   (iii)  If a determination is made by the department of revenue that the rate is subject to adjustment, the department of revenue shall adjust the rate specified in subparagraph (1), or if the rate has been previously adjusted, adjust the previously adjusted rate.
   (d)  If an adjustment is made pursuant to subparagraph division (c), the amount of moneys in the taxpayer relief fund used in the calculation in subparagraph division (c) shall be transferred to the general fund of the state in the fiscal year the rate is adjusted. 
   (e)  If a rate is adjusted pursuant to subparagraph division (c), the director of revenue shall cause an advisory notice containing the new individual income tax rate to be published in the Iowa administrative bulletin and on the internet site of the department of revenue. The calculation and publication of the adjusted tax rate by the director of revenue is exempt from chapter 17A, and shall be submitted for publication by the first December 31 following the determination date to adjust the rate.
DIVISION II
FUTURE CORPORATE INCOME TAX RATE CHANGES

    Sec. 6.  Section 422.33, subsection 1, paragraph b, subparagraph (1), subparagraph division (b), Code 2023, is amended to read as follows:
   (b)  By November 1, 2022, and by November 1 each year thereafter, the department of management shall determine the net corporate income tax receipts for the fiscal year preceding the determination date. If net corporate income tax receipts for the preceding fiscal year exceed seven six hundred eighty million dollars, the department of revenue shall adjust and apply new corporate income tax rates as provided in subparagraph (2).
    Sec. 7.  Section 422.33, subsection 1, paragraph b, subparagraph (2), subparagraph division (a), Code 2023, is amended to read as follows:
   (a)  If a determination has been made that net corporate income tax receipts for the preceding fiscal year exceeded seven six hundred eighty million dollars, the department of revenue shall adjust the tax rates specified in paragraph “a”, subparagraphs (3) and (4), and apply the adjusted rates for tax years beginning on or after the next January 1 following the determination date.
    Sec. 8.  Section 422.33, subsection 1, paragraph b, subparagraph (2), subparagraph division (b), subparagraph subdivision (i), Code 2023, is amended to read as follows:
   (i)  The tax rates subject to adjustment shall be adjusted in such a way that when combined with all the other rates specified in paragraph “a”, the tax rates would have generated net corporate income tax receipts that equal seven six hundred eighty million dollars in the preceding fiscal year.
    Sec. 9.  Section 422.33, subsection 1, paragraph b, subparagraph (2), subparagraph division (b), subparagraph subdivision (iii), Code 2023, is amended to read as follows:
   (iii)  The tax rates adjusted pursuant to this paragraph shall not be adjusted below five and one-half four and three-fourths percent.
    Sec. 10.  2022 Iowa Acts, chapter 1002, sections 57 and 58, are amended to read as follows:
   SEC. 57.  Section 422.33, subsection 1, Code 2022, is amended by striking the subsection and inserting in lieu thereof the following:
   1.  A tax is imposed annually upon each corporation doing business in this state, or deriving income from sources within this state, in an amount computed by applying the rate of five and one-half four and three-fourths percent to the net income received by the corporation during the income year.
   SEC. 58.  CONTINGENT EFFECTIVE DATE.  This division of this Act takes effect on the first January 1 after each rate of taxation on the net income received by a corporation is equalized to equal five and one-half four and three-fourths percent pursuant to section 422.33, subsection 1, paragraph “b”, as amended by this Act. The director of revenue shall inform the Code editor upon the occurrence of this contingency.
DIVISION III
INSURANCE PREMIUM TAX

    Sec. 11.  Section 432.1, subsection 2, Code 2023, is amended to read as follows:
   2.  The “applicable percent” for purposes of subsection 1 of this section and section 432.2 is the following:
   a.  For calendar years beginning before the 2003 calendar year, two percent.
   b.  For the 2003 calendar year, one and three-fourths percent.
   c.  For the 2004 calendar year, one and one-half percent.
   d.  For the 2005 calendar year, one and one-fourth percent.
   e.  For the 2006 and subsequent calendar years year through the 2024 calendar year, one percent.
   f.  For the 2025 calendar year, ninety-five hundredths of one percent.
   g.  For the 2026 and subsequent calendar years, nine-tenths of one percent.
    Sec. 12.  Section 432.1, subsection 4, Code 2023, is amended to read as follows:
   4.  The “applicable percent” for purposes of subsection 3 is the following:
   a.  For calendar years beginning before the 2004 calendar year, two percent.
   b.  For the 2004 calendar year, one and three-fourths percent.
   c.  For the 2005 calendar year, one and one-half percent.
   d.  For the 2006 calendar year, one and one-fourth percent.
   e.  For the 2007 and subsequent calendar years year through the 2024 calendar year, one percent.
   f.  For the 2025 calendar year, ninety-five hundredths of one percent.
   g.  For the 2026 and subsequent calendar years, nine-tenths of one percent.
DIVISION IV
SALE OF CERTAIN QUALIFIED STOCK —— NET CAPITAL GAIN EXCLUSION

    Sec. 13.  Section 422.7, subsection 43, paragraph c, subparagraph (2), Code 2023, is amended to read as follows:
   (2)  “Employee-owner” means an individual who owns capital stock in a qualified corporation for at least ten years, which capital stock was acquired by the individual while employed and on account of employment by such any qualified corporation for at least ten cumulative years.
    Sec. 14.  Section 422.7, subsection 43, paragraph c, subparagraph (4), subparagraph division (b), Code 2023, is amended to read as follows:
   (b)  “Qualified corporation” includes any member of an Iowa affiliated group if the Iowa affiliated group includes a member that has employed individuals in this state for at least ten years. For purposes of this subparagraph division, “Iowa affiliated group” means an affiliated group that has made is eligible to make a valid election to file an Iowa consolidated income tax return under section 422.37 in the year in which the deduction under this subsection is claimed. “Member” includes any entity that is eligible to be included in the a consolidated return under section 422.37, subsection 2, for the tax year in which the deduction is claimed.
    Sec. 15.  EFFECTIVE DATE.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 16.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2023, 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 reduces the individual and corporate income tax rates and the insurance premium tax rates.
   DIVISION I —— FUTURE INDIVIDUAL INCOME TAX RATE CHANGES.  The bill reduces the individual income tax rates for the tax year beginning January 1, 2025, but before January 1, 2026, as follows:
    Married filing jointly

      Income over:            But not over:                        Tax rate:

      1) $0            $12,000                        4.00%

      2) $12,000                        4.40%
    All other filers other than married filing jointly

      Income over:            But not over:                        Tax rate:

      1) $0            $6,000                        4.00%

      2) $6,000                        4.40%
   The bill further reduces the 3.90 percent individual flat income tax rate established for tax years beginning on or after January 1, 2026, in 2022 Iowa Acts, chapter 1002, section 20. For the tax year beginning on or after January 1, 2026, but before January 1, 2027, the bill reduces the individual tax rate to 3.55 percent. For the tax year beginning on or after January 1, 2027, but before January 1, 2028, the bill reduces the individual income tax rate to 2.95 percent. For tax years beginning on or after January 1, 2028, the bill reduces the individual income tax rate to 2.50 percent.
   Currently, an alternate income tax calculation exists in Code section 422.5. The alternate income tax is an alternate method of calculating income tax liability in lieu of the regular income tax calculation for taxpayers with income slightly above the income tax filing thresholds. The alternate method multiplies the taxpayer’s taxable income above the income tax filing thresholds in Code section 422.5(2)(b) or 422.5(3)(b) by the highest existing individual income tax rate until the taxpayer’s tax liability is equal to the tax liability that would have been calculated under the regular income tax calculation method, then after such point the regular income tax calculation with the regular income tax rates are used. The bill phases in changes to the alternate tax rate until the rate is set at 3.00 percent commencing with tax years beginning on or after January 1, 2028.
   After reducing the individual income tax rate to 2.50 percent, the bill establishes a procedure where the individual income tax rate may be adjusted commencing with tax years beginning on or after January 1, 2030. The bill specifies the individual income tax rate shall be adjusted each tax year until the rate is zero, if sufficient funds to make the adjustment are available in the taxpayer relief fund. 
   By November 1, 2029, and by November 1 each year thereafter, the department of management shall determine the amount of moneys available in the taxpayer relief fund, and the net individual income tax receipts at the close of the preceding fiscal year. The department of revenue shall adjust and apply a new individual income tax rate based upon the amount of money available in the taxpayer relief fund. The bill specifies the department of revenue shall adjust and apply a new individual income tax rate in such a way that the rate would have generated an amount equal to the net receipts generated from the rate in the preceding fiscal year less the amount used in the calculation in the taxpayer relief fund.
   The bill prohibits the rate from being adjusted unless the rate is able to be adjusted at least one-tenth of 1 percent. The rate, when adjusted, shall be rounded down to the nearest one-tenth of 1 percent.
   The bill requires the moneys in the taxpayer relief fund be transferred to the general fund of the state in the fiscal year the rate is adjusted.
   If a tax rate is adjusted, the bill requires the director of revenue to cause an advisory notice containing the new individual income tax rate to be published in the Iowa administrative bulletin and on the internet site of the department of revenue. The calculation and publication of the adjusted tax rate by the director of revenue is exempt from Code chapter 17A, and shall be submitted for publication by the first December 31 following the determination date to adjust the tax rates.
   DIVISION II —— FUTURE CORPORATE INCOME TAX RATE CHANGES.  Under current law, by November 1 of each year, the department of management shall determine the net corporate income tax receipts for the previous fiscal year, if a determination has been made that net corporate income tax receipts for the preceding fiscal year exceeded $700 million, the department of revenue shall reduce the corporate tax rates and apply the adjusted rates for tax years beginning on or after the next January 1 following such a determination, but the tax rate shall not be adjusted below 5.50 percent. The bill reduces the threshold amount for determining if taxes are to be reduced from $700 million net corporate income tax receipts to $680 million net corporate income tax receipts, and reduces the lowest possible adjusted corporate tax rate to 4.75 percent.
   DIVISION III —— INSURANCE PREMIUMS TAX. The bill reduces the insurance premium tax on the gross amount of premiums received by an insurance company from 1 percent to .95 percent in calendar year 2025, and from .95 percent to .90 percent for the 2026 calendar year and subsequent calendar years.
   DIVISION IV —— SALE OF QUALIFIED STOCK —— CAPITAL GAIN EXCLUSION. The bill amends Code section 422.7(43), which excludes the net capital gain on the sale of certain qualified stock and was enacted during the 2022 legislative session.
   Under the bill, the definition of “employee-owner” is modified to include employment at any qualified corporation rather than an individual who owns capital stock in a qualified corporation for at least 10 years while employed and on account of that corporation. The bill modifies the definition of “Iowa affiliated group” within the definition of “qualified corporation” to include an affiliated group that is eligible to make a valid election to file an Iowa consolidated income tax return rather than an affiliated group that has made a valid election to file an Iowa consolidated income tax return. The bill modifies the definition of “member” within the definition of “qualified corporation” to include any entity that is eligible to be included in a consolidated return rather than any entity included in the consolidated return.
   The division takes effect upon enactment and applies retroactively to January 1, 2023, for tax years beginning on or after that date.