SF 2085 (LSB 5288XS (12) 91)

SENATE FILE 2085

BY  KLIMESH

A BILL FOR

An Act relating to event-driven contracts traded on dedicated contract markets by requiring a permit to conduct business in the state, imposing a tax on adjusted revenues, making adjustments to individual and corporate income taxes, providing for fees, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

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