Senate File 2470 - Introduced SENATE FILE 2470 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SF 2085) 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 applicability and 5 retroactive applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5288SV (2) 91 jm/jh
S.F. 2470 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, lotteries, 27 elections, legislative actions, and economic indicators. 28 7. “Location percentage” means for each event-driven 29 contract, the percentage rounded to the nearest one 30 ten-thousandth of a percent, equal to the total charges and 31 fees collected from all traders located in this state divided 32 by the total charges and fees collected from all traders in the 33 event-driven contract. 34 8. “Sporting activities” means the outcome of an authorized 35 -1- LSB 5288SV (2) 91 jm/jh 1/ 7
S.F. 2470 sporting event, outcomes within the event, or outcomes 1 surrounding the event. 2 9. “Trader” means any person buying or selling event-driven 3 contracts on a designated contract marketplace. 4 Sec. 2. NEW SECTION . 99H.2 Administration —— rules. 5 1. The department shall administer this chapter. The 6 department shall collect, supervise, and enforce the collection 7 of all fees and taxes imposed under this chapter. 8 2. The director may adopt rules pursuant to chapter 17A that 9 are necessary to enforce this chapter. 10 3. The director may designate employees to administer 11 and enforce the provisions of this chapter, including the 12 collection of all taxes provided for in this chapter. In the 13 enforcement, the director may request aid from the attorney 14 general, the special agents of the state, any county attorney, 15 or any peace officer. The director may appoint clerks and 16 additional help as may be needed to administer this chapter. 17 Sec. 3. NEW SECTION . 99H.3 Scope of provisions. 18 This chapter does not apply to the pari-mutuel system of 19 wagering used or intended to be used in connection with the 20 horse-race or dog-race meetings as authorized under chapter 21 99D, fantasy sports contests as authorized under chapter 22 99E, sports wagering authorized under chapter 99F, or other 23 financial derivatives that are not event-driven contracts. 24 Sec. 4. NEW SECTION . 99H.4 Application —— permit —— 25 registration. 26 1. A person shall not engage in the business of serving as 27 a designated contract market at any place of business in this 28 state or through delivery sales, unless the person obtains a 29 permit through the department. 30 2. An application for a permit under this chapter shall 31 be made to the department in an electronic format or made 32 in any other manner prescribed by the department accompanied 33 by any associated fees required for the permit and any other 34 supporting documentation required. The application shall 35 -2- LSB 5288SV (2) 91 jm/jh 2/ 7
S.F. 2470 include information that is reasonably necessary to identify 1 the person applying for the permit and to administer and 2 collect the taxes imposed under this chapter. 3 3. a. A person issued a permit shall pay an initial permit 4 fee of ten million dollars. 5 b. All permits expire June 30 each year. The annual renewal 6 permit fee shall be one hundred thousand dollars. 7 Sec. 5. NEW SECTION . 99H.5 Prediction market tax. 8 A tax is imposed on the adjusted revenues received each 9 calendar year by a designated contract market from the 10 event-driven contracts authorized under this chapter at the 11 rate of twenty percent. The taxes imposed for event-driven 12 contracts under this chapter shall be paid by the designated 13 contract market to the treasurer of state as determined by the 14 department. 15 Sec. 6. NEW SECTION . 99H.6 Revenues. 16 All revenues generated under this chapter shall be deposited 17 into the general fund of the state. 18 Sec. 7. NEW SECTION . 99H.7 Withholding. 19 All payouts made to traders participating in an event-driven 20 contract are Iowa earned income and are subject to state and 21 federal income tax laws. An amount deducted from revenues 22 for payment of the state tax, pursuant to section 422.16, 23 subsection 2, shall be remitted to the department of revenue on 24 behalf of the trader by the designated contract market. 25 Sec. 8. Section 422.7, Code 2026, is amended by adding the 26 following new subsection: 27 NEW SUBSECTION . 41. a. For purposes of this subsection, 28 “event-driven contract” means the same as defined in section 29 99H.1. 30 b. Section 1256 of the Internal Revenue Code, with respect 31 to event-driven contracts, does not apply in computing net 32 income for state tax purposes. If the taxpayer’s federal 33 taxable income for the tax year was increased or decreased 34 by reason of the application of section 1256 of the Internal 35 -3- LSB 5288SV (2) 91 jm/jh 3/ 7
S.F. 2470 Revenue Code with regard to event-driven contracts, the 1 taxpayer shall recompute net income for state tax purposes as 2 follows: 3 (1) Subtract net gain or add net loss from event-driven 4 contracts, including any loss carried back from a previous tax 5 year. 6 (2) Add gain from each event-driven contract. 7 (3) If the taxpayer itemized deductions, subtract the total 8 loss from each event-driven contract for the same tax year 9 up to an amount equal to ninety percent of the gain added in 10 subparagraph (2). 11 c. The director shall prescribe rules to carry out the 12 provisions of this subsection, including the creation of forms 13 for a taxpayer to use to report gain and loss for event-driven 14 contracts. 15 Sec. 9. Section 422.16, subsection 2, Code 2026, is amended 16 by adding the following new paragraph: 17 NEW PARAGRAPH . 0e. (1) For purposes of this subsection, 18 state income tax shall be withheld on gains in excess of six 19 hundred dollars derived from an event-driven contract that is 20 subject to federal taxation under section 1256 of the Internal 21 Revenue Code. 22 (2) For purposes of this paragraph, “event-driven contract” 23 means the same as defined in section 99H.1. 24 Sec. 10. Section 422.35, Code 2026, is amended by adding the 25 following new subsection: 26 NEW SUBSECTION . 15. 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 -4- LSB 5288SV (2) 91 jm/jh 4/ 7
S.F. 2470 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. 11. RETROACTIVE APPLICABILITY. The following apply 15 retroactively to January 1, 2026, for tax years beginning on 16 or after that date: 17 1. The section of this Act enacting section 422.7, 18 subsection 41. 19 2. The section of this Act enacting section 422.33, 20 subsection 15. 21 Sec. 12. APPLICABILITY. For purposes of the imposition and 22 collection of the prediction market tax in new Code chapter 23 99H, if enacted by this Act, the first tax year shall begin 24 July 1, 2026, and end December 31, 2026, and afterwards each 25 tax year shall begin January 1. 26 EXPLANATION 27 The inclusion of this explanation does not constitute agreement with 28 the explanation’s substance by the members of the general assembly. 29 This bill relates to event-driven contracts traded on 30 dedicated contract markets by requiring a permit to conduct 31 business in the state, imposing a tax on adjusted revenues, and 32 making adjustments to individual and corporate income taxes. 33 REGULATION AND ADMINISTRATION. The bill defines 34 “event-driven contract” to generally mean a financial 35 -5- LSB 5288SV (2) 91 jm/jh 5/ 7
S.F. 2470 derivative traded on a designated contract market (prediction 1 market) that is regulated by the federal commodity futures 2 trading commission that provides a fixed binary payout based 3 upon the occurrence or nonoccurrence of a specific future event 4 rather than being based upon the continuous fluctuation of a 5 security price, commodity value, or interest rate. The bill 6 limits event-driven contracts to those financial derivatives 7 relating to sporting activities, lotteries, elections, 8 legislative actions, and economic indicators. 9 The bill prohibits a person from engaging in the business of 10 serving as a prediction market at any place of business in this 11 state or through delivery sales, unless the person obtains a 12 permit through the department of revenue (department). 13 The bill directs the department to administer the bill. The 14 bill requires an application for a permit to be made to the 15 department in an electronic format or made in any other manner 16 prescribed by the department accompanied by any associated 17 fees required for the permit and any supporting documentation 18 required. The application shall include information that is 19 reasonably necessary to identify the person applying for the 20 permit and to administer and collect the taxes imposed under 21 the bill. The bill establishes the initial fee to obtain a 22 permit at $10 million. All permits expire June 30. The annual 23 renewal permit fee is established at $100,000. 24 The bill imposes a new tax on the adjusted revenues received 25 each calendar year by a prediction market from any event-driven 26 contracts authorized at the rate of 20 percent. The bill 27 defines “adjusted revenues”. 28 The bill specifies all revenues generated from the fees and 29 the new tax are credited to the general fund of the state. 30 INDIVIDUAL AND CORPORATE INCOME TAXES. The starting point 31 for determining either individual or corporate Iowa net income 32 is federal taxable income. The bill specifies section 1256 of 33 the Internal Revenue Code (IRC), with respect to event-driven 34 contracts, does not apply in computing net income for purposes 35 -6- LSB 5288SV (2) 91 jm/jh 6/ 7
S.F. 2470 of state individual and corporate income taxes. The bill 1 requires a taxpayer to recompute the gains and losses from 2 event-driven contracts including any loss carried back for 3 purposes of Iowa net income and then requires the taxpayer 4 to add back the gain derived from trading on a prediction 5 market if the trade involves an event-driven contract. If 6 the taxpayer itemized deductions on the taxpayer’s federal 7 return, the bill requires the taxpayer to subtract the total 8 loss from each event-driven contract up to an amount equal to 9 90 percent of the gains added back from event-driven contracts. 10 The provisions apply retroactively to January 1, 2026, for tax 11 years beginning on or after that date. 12 The bill requires state income tax to be withheld on gains 13 derived from an event-driven contract that is subject to 14 federal taxation under section 1256 of the IRC and is in excess 15 of $600. 16 -7- LSB 5288SV (2) 91 jm/jh 7/ 7