Senate File 2085 - Introduced SENATE FILE 2085 BY KLIMESH A BILL FOR An Act relating to event-driven contracts traded on dedicated 1 contract markets by requiring a permit to conduct business 2 in the state, imposing a tax on adjusted revenues, making 3 adjustments to individual and corporate income taxes, 4 providing for fees, and including retroactive applicability 5 provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5288XS (12) 91 jm/jh
S.F. 2085 Section 1. NEW SECTION . 99H.1 Definitions. 1 As used in this chapter, unless the context otherwise 2 requires: 3 1. “Adjusted revenues” means for each event-driven contract 4 the amount equal to the total charges and fees collected from 5 all traders participating in the event-driven contract less 6 payouts made to traders participating in the event-driven 7 contract, multiplied by the location percentage. 8 2. “Department” means the department of revenue. 9 3. “Designated contract market” means a digital marketplace 10 for trading event-driven contracts that is also regulated by 11 the federal commodity futures trading commission. 12 4. “Director” means the director of revenue. 13 5. “Economic indicators” means a statistic or data point 14 about an economic activity that allows an analyst to assess 15 current economic performance. 16 6. “Event-driven contract” means a financial derivative 17 traded on a designated contract market that provides a fixed 18 binary payout based upon the occurrence or nonoccurrence of a 19 specific future event that is contingent upon and determined 20 solely by the definitive outcome of a verifiable specific event 21 or external measure rather than being based upon the continuous 22 fluctuation of a security price, commodity value, or interest 23 rate that may or may not correlate with traditional market 24 prices or broad economic measures. An “event-driven contract” 25 is limited to those financial derivatives that provide a fixed 26 binary payout related to sporting activities, elections, 27 legislative actions, and economic indicators. 28 7. “Location percentage” means for each event-driven 29 contract, the percentage rounded to the nearest tenth of a 30 percent, equal to the total charges and fees collected from all 31 traders located in this state divided by the total charges and 32 fees collected from all traders in the event-driven contract. 33 8. “Sporting activities” means the outcome of an authorized 34 sporting event, outcomes within the event, or outcomes 35 -1- LSB 5288XS (12) 91 jm/jh 1/ 7
S.F. 2085 surrounding the event. 1 9. “Trader” means any person buying or selling event-driven 2 contracts on a designated contract marketplace. 3 Sec. 2. NEW SECTION . 99H.2 Administration —— rules. 4 1. The department shall administer this chapter. The 5 department shall collect, supervise, and enforce the collection 6 of all fees and taxes imposed under this chapter. 7 2. The director may adopt rules pursuant to chapter 17A that 8 are necessary to enforce this chapter. 9 3. The director may designate employees to administer 10 and enforce the provisions of this chapter, including the 11 collection of all taxes provided for in this chapter. In the 12 enforcement, the director may request aid from the attorney 13 general, the special agents of the state, any county attorney, 14 or any peace officer. The director may appoint clerks and 15 additional help as may be needed to administer this chapter. 16 Sec. 3. NEW SECTION . 99H.3 Scope of provisions. 17 This chapter does not apply to the pari-mutuel system of 18 wagering used or intended to be used in connection with the 19 horse-race or dog-race meetings as authorized under chapter 20 99D, fantasy sports contests as authorized under chapter 21 99E, sports wagering authorized under chapter 99F, or other 22 financial derivatives that are not event-driven contracts. 23 Sec. 4. NEW SECTION . 99H.4 Application —— permit —— 24 registration. 25 1. A person shall not engage in the business of serving as 26 a designated contract market at any place of business in this 27 state or through delivery sales, unless the person obtains a 28 permit through the department. 29 2. An application for a permit under this chapter shall 30 be made to the department in an electronic format or made 31 in any other manner prescribed by the department accompanied 32 by any associated fees required for the permit and any other 33 supporting documentation required. The application shall 34 include information that is reasonably necessary to identify 35 -2- LSB 5288XS (12) 91 jm/jh 2/ 7
S.F. 2085 the person applying for the permit and to administer and 1 collect the taxes imposed under this chapter. 2 3. a. A person issued a permit shall pay an initial permit 3 fee of ten million dollars. 4 b. All permits expire June 30 each year. The annual renewal 5 permit fee shall be one hundred thousand dollars. 6 Sec. 5. NEW SECTION . 99H.5 Prediction market tax. 7 A tax is imposed on the adjusted revenues received 8 each taxable year by a designated contract market from the 9 event-driven contracts authorized under this chapter at the 10 rate of twenty percent. The taxes imposed for event-driven 11 contracts under this chapter shall be paid by the designated 12 contract market to the treasurer of state as determined by the 13 department. 14 Sec. 6. NEW SECTION . 99H.6 Revenues. 15 All revenues generated under this chapter shall be deposited 16 into the general fund of the state. 17 Sec. 7. NEW SECTION . 99H.7 Withholding. 18 All payouts made to traders participating in an event-driven 19 contract are Iowa earned income and are subject to state and 20 federal income tax laws. An amount deducted from revenues 21 for payment of the state tax, pursuant to section 422.16, 22 subsection 2, shall be remitted to the department of revenue on 23 behalf of the trader by the designated contract market. 24 Sec. 8. Section 422.7, Code 2026, is amended by adding the 25 following new subsection: 26 NEW SUBSECTION . 41. a. For purposes of this subsection, 27 “event-driven contract” means the same as defined in section 28 99H.1. 29 b. Section 1256 of the Internal Revenue Code, with respect 30 to event-driven contracts, does not apply in computing net 31 income for state tax purposes. If the taxpayer’s federal 32 taxable income for the tax year was increased or decreased 33 by reason of the application of section 1256 of the Internal 34 Revenue Code with regard to event-driven contracts, the 35 -3- LSB 5288XS (12) 91 jm/jh 3/ 7
S.F. 2085 taxpayer shall recompute net income for state tax purposes as 1 follows: 2 (1) Subtract net gain or add net loss from event-driven 3 contracts, including any loss carried back from a previous tax 4 year. 5 (2) Add gain from each event-driven contract. 6 (3) If the taxpayer itemized deductions, subtract the total 7 loss from each event-driven contract for the same tax year 8 up to an amount equal to ninety percent of the gain added in 9 subparagraph (2). 10 c. The director shall prescribe rules to carry out the 11 provisions of this subsection, including the creation of forms 12 for a taxpayer to use to report gain and loss for event-driven 13 contracts. 14 Sec. 9. Section 422.16, subsection 2, Code 2026, is amended 15 by adding the following new paragraph: 16 NEW PARAGRAPH . 0e. (1) For purposes of this subsection, 17 state income tax shall be withheld on gains in excess of six 18 hundred dollars derived from an event-driven contract that is 19 subject to federal taxation under section 1256 of the Internal 20 Revenue Code. 21 (2) For purposes of this paragraph, “event-driven contract” 22 means the same as defined in section 99H.1. 23 Sec. 10. Section 422.35, Code 2026, is amended by adding the 24 following new subsection: 25 NEW SUBSECTION . 15. a. For purposes of this subsection, 26 “event-driven contract” means the same as defined in section 27 99H.1. 28 b. Section 1256 of the Internal Revenue Code, with respect 29 to event-driven contracts, does not apply in computing net 30 income for state tax purposes. If the taxpayer’s federal 31 taxable income for the tax year was increased or decreased 32 by reason of the application of section 1256 of the Internal 33 Revenue Code with regard to event-driven contracts, the 34 taxpayer shall recompute net income for state tax purposes as 35 -4- LSB 5288XS (12) 91 jm/jh 4/ 7
S.F. 2085 follows: 1 (1) Subtract net gain or add net loss from event-driven 2 contracts, including any loss carried back from a previous tax 3 year. 4 (2) Add gain from each event-driven contract. 5 (3) If the taxpayer itemized deductions, subtract the total 6 loss from each event-driven contract for the same tax year 7 up to an amount equal to ninety percent of the gain added in 8 subparagraph (2). 9 c. The director shall prescribe rules to carry out the 10 provisions of this subsection, including the creation of forms 11 for a taxpayer to use to report gain and loss for event-driven 12 contracts. 13 Sec. 11. RETROACTIVE APPLICABILITY. The following apply 14 retroactively to January 1, 2026, for tax years beginning on 15 or after that date: 16 1. The section of this Act enacting section 422.7, 17 subsection 41. 18 2. The section of this Act enacting section 422.33, 19 subsection 15. 20 EXPLANATION 21 The inclusion of this explanation does not constitute agreement with 22 the explanation’s substance by the members of the general assembly. 23 This bill relates to event-driven contracts traded on 24 dedicated contract markets by requiring a permit to conduct 25 business in the state, imposing a tax on adjusted revenues, and 26 making adjustments to individual and corporate income taxes. 27 REGULATION AND ADMINISTRATION. The bill defines 28 “event-driven contract” to generally mean a financial 29 derivative traded on a designated contract market (prediction 30 market) that is regulated by the federal commodity futures 31 trading commission that provides a fixed binary payout based 32 upon the occurrence or nonoccurrence of a specific future event 33 rather than being based upon the continuous fluctuation of a 34 security price, commodity value, or interest rate. The bill 35 -5- LSB 5288XS (12) 91 jm/jh 5/ 7
S.F. 2085 limits event-driven contracts to those financial derivatives 1 relating to sporting activities, elections, legislative 2 actions, and economic indicators. 3 The bill prohibits a person from engaging in the business of 4 serving as a prediction market at any place of business in this 5 state or through delivery sales, unless the person obtains a 6 permit through the department of revenue (department). 7 The bill directs the department to administer the bill. The 8 bill requires an application for a permit to be made to the 9 department in an electronic format or made in any other manner 10 prescribed by the department accompanied by any associated 11 fees required for the permit and any supporting documentation 12 required. The application shall include information that is 13 reasonably necessary to identify the person applying for the 14 permit and to administer and collect the taxes imposed under 15 the bill. The bill establishes the initial fee to obtain a 16 permit at $10 million. All permits expire June 30. The annual 17 renewal permit fee is established at $100,000. 18 The bill imposes a new tax on the adjusted revenues received 19 each fiscal year by a prediction market from any event-driven 20 contracts authorized at the rate of 20 percent. The bill 21 defines “adjusted revenues”. 22 The bill specifies all revenues generated from the fees and 23 the new tax are credited to the general fund of the state. 24 INDIVIDUAL AND CORPORATE INCOME TAXES. The starting point 25 for determining either individual or corporate Iowa net income 26 is federal taxable income. The bill specifies section 1256 of 27 the Internal Revenue Code (IRC), with respect to event-driven 28 contracts, does not apply in computing net income for purposes 29 of state individual and corporate income taxes. The bill 30 requires a taxpayer to recompute the gains and losses from 31 event-driven contracts including any loss carried back for 32 purposes of Iowa net income and then requires the taxpayer 33 to add back the gain derived from trading on a prediction 34 market if the trade involves an event-driven contract. If the 35 -6- LSB 5288XS (12) 91 jm/jh 6/ 7
S.F. 2085 taxpayer itemized deductions on the taxpayer’s federal return, 1 the bill requires the taxpayer to subtract the total loss from 2 each event-driven contract up to an amount equal to 90 percent 3 of the gains added back from event-driven contracts. 4 The bill requires state income tax to be withheld on gains 5 derived from an event-driven contract that is subject to 6 federal taxation under section 1256 of the IRC and is in excess 7 of $600. 8 -7- LSB 5288XS (12) 91 jm/jh 7/ 7