Senate Study Bill 1239 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON DAWSON) A BILL FOR An Act relating to the elimination of the individual income tax 1 and alternate income tax by creating the taxpayer relief 2 trust fund and income tax elimination board and fund, and 3 making appropriations. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2989XC (4) 91 jm/jh

S.F. _____ Section 1. Section 2.46, Code 2025, is amended by adding the 1 following new subsection: 2 NEW SUBSECTION . 6. Income tax elimination board. Beginning 3 on or after July 1, 2027, and each fiscal year thereafter until 4 the individual income tax rate is zero, schedule a meeting 5 to examine and discuss the actions taken by the income tax 6 elimination board in the previous fiscal year. 7 Sec. 2. Section 8.54, subsection 1, paragraph b, Code 2025, 8 is amended to read as follows: 9 b. “New revenues” means moneys which are received by the 10 state due to increased tax rates and fees or newly created 11 taxes and fees over and above those moneys which are received 12 due to state taxes and fees which are in effect as of January 13 1 following the December state revenue estimating conference. 14 “New revenues” also includes moneys received by the general fund 15 of the state due to new transfers over and above those moneys 16 received by the general fund of the state due to transfers 17 which are in effect as of January 1 following the December 18 state revenue estimating conference. The department of 19 management shall obtain concurrence from the revenue estimating 20 conference on the eligibility of transfers to the general 21 fund of the state which are to be considered as new revenue 22 in determining the state general fund expenditure limitation. 23 However, “new revenues” does not include transfers to the 24 general fund of the state from the income tax elimination fund 25 pursuant to section 97E.4 that occur during the fiscal year 26 immediately proceeding the fiscal year for which the adjusted 27 revenue estimate is determined. 28 Sec. 3. Section 8.57E, subsection 2, paragraph a, Code 2025, 29 is amended to read as follows: 30 a. Except as otherwise provided in this section , moneys 31 in the taxpayer relief fund shall only be used pursuant to 32 appropriations or transfers made by the general assembly to 33 the taxpayer relief trust fund in section 97E.3 or the income 34 tax elimination fund in section 97E.4 or for tax relief or 35 -1- LSB 2989XC (4) 91 jm/jh 1/ 20

S.F. _____ reductions in income tax rates. 1 Sec. 4. Section 8.57E, Code 2025, is amended by adding the 2 following new subsection: 3 NEW SUBSECTION . 2A. a. Beginning on July 1, 2025, moneys 4 in the taxpayer relief fund may be utilized by the Iowa 5 public employees’ retirement system in conjunction with the 6 department of management to facilitate implementation of this 7 subsection. On January 15, 2026, there is transferred from 8 the taxpayer relief fund to the income tax elimination fund 9 created in section 97E.4, one hundred million dollars which 10 shall be reserved for administrative purposes under chapter 11 97E, and shall not be used to reduce individual income tax 12 rates pursuant to section 422.5B. 13 b. On January 1, 2026, there is transferred from the 14 taxpayer relief fund to the taxpayer relief trust fund created 15 in section 97E.3, two billion six hundred million dollars for 16 the purpose of producing investment returns for deposit into 17 the income tax elimination fund. 18 c. For the fiscal year beginning July 1, 2027, and each 19 fiscal year thereafter, there is transferred from the taxpayer 20 relief fund to the taxpayer relief trust fund created in 21 section 97E.3, an amount equal to twenty-five percent of the 22 moneys transferred to the taxpayer relief fund during the 23 preceding fiscal year. 24 Sec. 5. Section 12B.10, subsection 6, Code 2025, is amended 25 by adding the following new paragraphs: 26 NEW PARAGRAPH . o. Investments by the taxpayer relief trust 27 fund established in section 97E.3. 28 NEW PARAGRAPH . p. Investments by the income tax elimination 29 fund established in section 97E.4. 30 Sec. 6. Section 12B.10C, subsection 4, unnumbered paragraph 31 1, Code 2025, is amended to read as follows: 32 The following entities or funds are not subject to this 33 section : 34 Sec. 7. Section 12B.10C, subsection 4, Code 2025, is amended 35 -2- LSB 2989XC (4) 91 jm/jh 2/ 20

S.F. _____ by adding the following new paragraphs: 1 NEW PARAGRAPH . l. The taxpayer relief trust fund 2 established in section 97E.3. 3 NEW PARAGRAPH . m. The income tax elimination trust 4 established in section 97E.4. 5 Sec. 8. Section 97B.1, subsection 1, Code 2025, is amended 6 to read as follows: 7 1. The “Iowa Public Employees’ Retirement System” is 8 established as an independent agency within the executive 9 branch of state government. The Iowa public employees’ 10 retirement system shall administer the retirement system 11 established under this chapter , and beginning July 1, 2025, 12 shall administer chapter 97E . 13 Sec. 9. NEW SECTION . 97E.1 Purpose. 14 The purpose of this chapter is to create and ensure economic 15 vitality and growth for the benefit of future generations of 16 Iowans by setting aside and protecting moneys today in order to 17 responsibly eliminate the individual income tax in the future. 18 Sec. 10. NEW SECTION . 97E.2 Definitions. 19 For the purpose of this chapter and unless otherwise 20 required by the context: 21 1. “Board” means the income tax elimination board. 22 2. “Elimination fund” means the income tax elimination fund. 23 3. “System” means the Iowa public employees’ retirement 24 system as defined in section 97B.1. 25 4. “Trust fund” means the taxpayer relief trust fund. 26 Sec. 11. NEW SECTION . 97E.3 Taxpayer relief trust fund. 27 1. a. Beginning January 1, 2026, a trust fund is created, 28 separate and apart from all other public moneys or funds of 29 this state and the balance in the trust fund shall not be 30 considered part of the balance of the general fund of the 31 state. 32 b. Notwithstanding section 12C.7, subsection 2, interest 33 or earnings on moneys deposited in the trust fund shall be 34 credited to the fund. Notwithstanding section 8.33, moneys 35 -3- LSB 2989XC (4) 91 jm/jh 3/ 20

S.F. _____ credited to the trust fund shall not revert at the close of a 1 fiscal year. 2 2. The trust fund shall consist of all moneys collected by 3 or appropriated or transferred to the trust fund, together with 4 all interest, dividends, and rents, and shall also include all 5 securities or investment income and other assets acquired by 6 and through the use of the moneys belonging to the trust fund 7 and any other moneys that have been paid into the trust fund. 8 3. a. The system is hereby made the custodian of the trust 9 fund, and shall administer the trust fund, and shall hold and 10 disburse the trust fund in accordance with the requirements of 11 this chapter. As custodian, the system shall be authorized to 12 disburse moneys in the fund upon warrants drawn by the director 13 of the department of administrative services pursuant to an 14 order of the system. 15 b. (1) Prior to July 1, 2027, the system may contract with 16 any custodian bank currently being utilized for the custody of 17 retirement fund assets in chapter 97B. When contracting with 18 such a bank pursuant to this subparagraph, the system shall not 19 be subject to the procurement requirements of chapter 8A. This 20 subparagraph is repealed on January 1, 2028. 21 (2) On or after July 1, 2027, the system shall not select 22 any bank or other third party for the purposes of investment 23 asset safekeeping, other custody, or settlement services 24 without prior consultation with and approval of the board. 25 (3) Any bank expenses that are incurred shall be paid as 26 provided in section 97E.5. 27 c. The system, subject to approval or upon delegation by 28 the board, may execute contracts and agreements with investment 29 advisors, consultants, and investment management and benefit 30 consultant firms in the administration of investments of moneys 31 in the trust fund, and any other contracts and agreements 32 necessary for the administration of the trust fund. The 33 expenses for services specified in this paragraph shall be paid 34 as provided in section 97E.5. 35 -4- LSB 2989XC (4) 91 jm/jh 4/ 20

S.F. _____ 4. a. All moneys that are appropriated or otherwise 1 transferred or deposited into the trust fund are appropriated 2 and made available to be used for transfers made to the income 3 tax elimination fund made pursuant to subsection 5. 4 b. The expenses to administer the trust fund shall be as 5 provided in section 97E.5. 6 5. Beginning July 1, 2029, and each July 1 thereafter, five 7 percent of the remaining balance of the trust fund at the close 8 of the preceding fiscal year shall be transferred to the income 9 tax elimination fund created in section 97E.4. The remaining 10 balance in the trust fund shall be computed by the system and 11 certified by the board. 12 6. Moneys in the trust fund, except so much of the trust 13 fund as may be necessary to be kept on hand for the making of 14 disbursements under this chapter, shall be invested by the 15 board in any investments according to the investment policy of 16 the board, and subject to the requirements of chapters 12F, 17 12H, 12J, and 12K, and the earnings therefrom shall be credited 18 to the fund. 19 7. After the individual income tax rate is adjusted to 20 zero pursuant to section 422.5B, any moneys remaining in the 21 fund shall be transferred to the general fund of the state in 22 the same fiscal year, or transferred as soon as the system is 23 able to prudently liquidate any remaining moneys, whichever is 24 earlier. 25 Sec. 12. NEW SECTION . 97E.4 Income tax elimination fund 26 —— expense account. 27 1. Commencing January 1, 2026, an income tax elimination 28 fund is created separate and apart from all other public moneys 29 or funds of this state and the balance of the elimination fund 30 shall not be considered part of the balance of the general fund 31 of the state. 32 2. a. The elimination fund shall consist of all moneys 33 transferred to the elimination fund pursuant to sections 8.57E 34 and 97E.3 or appropriated to or otherwise collected by the 35 -5- LSB 2989XC (4) 91 jm/jh 5/ 20

S.F. _____ elimination fund for the purpose of reducing the individual 1 income tax rate to zero. 2 b. Notwithstanding section 12C.7, subsection 2, interest or 3 earnings on moneys deposited in the income tax elimination fund 4 shall be credited to the elimination fund. Notwithstanding 5 section 8.33, moneys credited to the income tax elimination 6 fund shall not revert at the close of a fiscal year. 7 3. a. The system is hereby made custodian of the 8 elimination fund, and shall administer the elimination fund, 9 and shall hold and disburse the fund in accordance with the 10 requirements of this chapter. As custodian, the system shall 11 be authorized to disburse moneys in the elimination fund 12 upon warrants drawn by the director of the department of 13 administrative services pursuant to the order of the system. 14 b. The system shall not select any bank or other third 15 party for the purposes of investment asset safekeeping, other 16 custody, or settlement services without prior consultation with 17 and approval of the board. 18 c. The system, subject to approval or upon delegation by 19 the board, may execute contracts and agreements with investment 20 advisors, consultants, and investment management and benefit 21 consultant firms in the administration of investments of moneys 22 in the elimination fund, and any other contracts and agreements 23 necessary for the administration of the elimination fund. The 24 expenses for services specified in this paragraph shall be paid 25 as provided in section 97E.5. 26 4. a. All moneys that are appropriated or otherwise 27 transferred or deposited into the elimination fund are 28 appropriated and made available to be used for investment, 29 investment management, and administrative expenses, and for 30 transfers to the general fund as provided in section 422.5B. 31 b. The expenses to administer the elimination fund shall be 32 as provided in section 97E.5. 33 5. Moneys in the elimination fund, except so much of the 34 elimination fund as may be necessary to be kept on hand for the 35 -6- LSB 2989XC (4) 91 jm/jh 6/ 20

S.F. _____ making of disbursements under this section, shall be invested 1 by the board, and subject to the requirements of chapters 12F, 2 12H, 12J, and 12K, and the earnings therefrom shall be credited 3 to the fund. 4 6. After one hundred million dollars is transferred to the 5 elimination fund pursuant to section 8.57E, the one hundred 6 million dollars shall be transferred to an expense account 7 created within the elimination fund and shall be reserved for 8 the purpose of paying expenses pursuant to section 97E.5. 9 7. After the individual income tax rate is adjusted to 10 zero pursuant to section 422.5B and after all outstanding 11 investment, investment management, and administrative expenses 12 have been paid, any moneys remaining in the elimination fund 13 shall be transferred to the general fund of the state in the 14 same fiscal year. 15 Sec. 13. NEW SECTION . 97E.5 Expenses. 16 1. Any billed investment, investment management, and 17 administrative expenses related to the trust fund and 18 elimination fund shall be charged first against the expense 19 account established in section 97E.4, and if the expense 20 account is insufficient to pay the expenses, the expenses shall 21 be paid next from the elimination fund, and then from the trust 22 fund. 23 2. a. The total expenses for administration of the 24 trust fund and the elimination fund shall be computed by the 25 system and reviewed by the board for payment to the system by 26 September 30 following each fiscal year ending on June 30 that 27 the trust fund or elimination fund contained moneys in the 28 preceding fiscal year. The administrative expenses shall be 29 the higher of five million dollars or two-tenths of one percent 30 of the combined value of the trust fund and elimination fund on 31 June 30 each year either fund contained moneys in the preceding 32 fiscal year. 33 b. Notwithstanding paragraph “a” , if the combined value of 34 the trust fund and elimination fund is a de minimis amount, the 35 -7- LSB 2989XC (4) 91 jm/jh 7/ 20

S.F. _____ board shall establish the administrative fee. 1 Sec. 14. NEW SECTION . 97E.6 Income tax elimination board. 2 1. The income tax elimination board is established. The 3 duties of the board are to establish and implement policy in 4 matters relating to the investment of the trust fund and the 5 elimination fund. The board shall be the trustee of the trust 6 fund and the elimination fund. Section 4A.5 does not apply to 7 the board. 8 2. a. At least annually the board shall have a public 9 meeting and review the investment policies and procedures used 10 by the board and system. Following the review and a public 11 meeting, the board shall, pursuant to the requirements of 12 section 97E.7, and in consultation with the chief investment 13 officer of the system and other relevant personnel of the 14 system, establish an investment policy and goal statement that 15 shall direct the investment activities concerning each fund. 16 b. The board shall review and approve the administrative 17 expenses of the system each fiscal year. 18 3. a. The board shall consist of eleven members, including 19 seven voting members and four nonvoting members. 20 b. (1) The voting members shall be as follows: 21 (a) Four public members, appointed by the governor who 22 each have substantial experience in institutional investments, 23 institutional finance, or other business management. 24 (b) Two public members, appointed by the governor who are 25 citizens of the state. 26 (c) The director of the department of management. 27 (2) A voting member shall not hold other office or position 28 under the laws of this state, or any other state or territory 29 or of the United States, except a member of the board may also 30 serve on the system’s investment board established in section 31 97B.8A. 32 c. The nonvoting members of the board shall be two state 33 representatives, one appointed by the speaker of the house of 34 representatives and one by the minority leader of the house, 35 -8- LSB 2989XC (4) 91 jm/jh 8/ 20

S.F. _____ and two state senators, one appointed by the majority leader of 1 the senate and one by the minority leader of the senate. 2 d. Four voting members of the board shall constitute a 3 quorum. 4 e. The four members who have substantial institutional 5 investment experience or substantial institutional financial 6 experience shall be paid actual expenses incurred as a member 7 and shall receive a per diem as specified in section 7E.6 8 for each day of service not exceeding forty days per year. 9 Legislative members shall be paid the per diem and expenses 10 specified in section 2.10, for each day of service. The per 11 diem and expenses of the legislative members shall be paid 12 from funds appropriated under section 2.12. The two remaining 13 public members and the director of the department of management 14 shall be paid actual expenses incurred as members of the board 15 and such performance as members of the board shall not affect 16 benefits such as salary, vacation accrual, or a leave of 17 absence for sickness or injury. 18 f. The appointive terms of the members appointed by the 19 governor are for six-year staggered terms whose initial terms 20 shall be designated by the governor beginning and ending as 21 provided in section 69.19. If there is a vacancy in the 22 membership of the board for one of the members appointed by 23 the governor, the governor has the power of appointment. 24 Gubernatorial appointees to this board are subject to 25 confirmation by the senate. 26 4. a. The board shall adopt rules pursuant to chapter 17A 27 or adopt any policies necessary to administer this chapter. 28 Prior to any rule adopted by the board, the board shall notify 29 the fiscal committee of the legislative council the content 30 of any rule or policy by electronic means, and shall provide 31 the fiscal committee at least ten days to comment on the rule 32 before adopting the rule. 33 b. Beginning on or after July 1, 2027, and each fiscal year 34 thereafter, the board shall report to the fiscal committee of 35 -9- LSB 2989XC (4) 91 jm/jh 9/ 20

S.F. _____ the legislative council including the investment decisions, 1 transfers, and any other actions taken by the board in the 2 previous fiscal year. 3 Sec. 15. NEW SECTION . 97E.7 Investment and management of 4 funds —— standards —— immunity. 5 1. In establishing the investment policy of the trust fund 6 and elimination fund and providing for the separate investment 7 of each fund, the system and board shall do the following: 8 a. Exercise the judgment and care, under the circumstances 9 then prevailing, which persons of prudence, discretion, and 10 intelligence exercise in the management of their own affairs, 11 not for the purpose of speculation, but with regard to the 12 permanent disposition of the funds, considering the probable 13 income, as well as the probable safety, of their capital. 14 b. Give appropriate consideration to those facts and 15 circumstances that the system and board know or should know 16 are relevant to the particular investment or investment policy 17 involved, including the role the investment plays in the total 18 value of each fund. 19 c. For the purposes of this subsection, appropriate 20 consideration includes a determination that the particular 21 investment or investment policy is reasonably designed to 22 further the purposes of each fund, taking into consideration 23 the risk of loss and the opportunity for gain or income 24 associated with the investment or investment policy and 25 consideration of the following factors as they relate to each 26 fund: 27 (1) The composition of the fund with regard to 28 diversification. 29 (2) The liquidity and current return of the investments in 30 the fund relative to the anticipated cash flow requirements of 31 the fund. 32 (3) The projected return of the investments relative to the 33 funding objectives of the fund. 34 2. Within the limitations of the investment standards 35 -10- LSB 2989XC (4) 91 jm/jh 10/ 20

S.F. _____ prescribed in this section, the system may acquire and retain 1 every kind of property and every kind of investment which 2 persons of prudence, discretion, and intelligence acquire or 3 retain for their own account. Consistent with this section, 4 investments shall be made in a manner that will enhance 5 the economy of this state, and in particular, will result 6 in increased employment of the residents of this state. 7 Investments of moneys in each fund are not subject to sections 8 73.15 through 73.22. 9 3. Except as provided in subsection 6, if there is loss 10 to either fund, the system, the employees of the system, 11 the members of the board severally, and the board are not 12 personally liable, and the loss shall be charged against the 13 appropriate fund. There is appropriated from the appropriate 14 fund the amount required to cover a loss. 15 4. In managing the investment of either fund, the system, in 16 accordance with the investment policy established by the board, 17 is authorized to do the following: 18 a. To sell any securities or other property in either 19 fund and reinvest the proceeds when such action may be deemed 20 advisable by the system for the protection of the applicable 21 fund or the preservation of the value of the investment. 22 Such sale of securities or other property of either fund and 23 reinvestment shall only be made in accordance with policies 24 of the board in the manner and to the extent provided in this 25 chapter. 26 b. To subscribe for the purchase of securities for future 27 delivery in anticipation of future income. The securities 28 shall be paid for by anticipated income or from funds from the 29 sale of securities or other property held by the applicable 30 fund. 31 c. To pay for securities directed to be purchased upon 32 the receipt of the purchasing bank’s paid statement or paid 33 confirmation of purchase. 34 5. In the administration of the investment of moneys in 35 -11- LSB 2989XC (4) 91 jm/jh 11/ 20

S.F. _____ each fund, employees of the system and members of the board 1 may travel outside the state for the purpose of meeting with 2 investment firms and consultants and attending conferences and 3 meetings to fulfill their fiduciary responsibilities. 4 6. The system, employees of the system, the board, and the 5 members of the board are not personally liable for actions or 6 omissions under this chapter that do not involve malicious or 7 wanton misconduct even if those actions or omissions violate 8 the standards established in this section. 9 Sec. 16. Section 421.27, subsection 9, paragraph a, 10 subparagraph (3), Code 2025, is amended to read as follows: 11 (3) In the case of all other entities, including 12 corporations described in section 422.36, subsection 5 , and all 13 other entities required to file an information return under 14 section 422.15, subsection 2 , the entity’s Iowa net income 15 after the application of the Iowa business activity ratio, if 16 applicable, multiplied by the income tax rate imposed under 17 section 422.5 , as may be adjusted pursuant to section 422.5B, 18 for the tax year, less any Iowa tax credits available to the 19 entity. 20 Sec. 17. NEW SECTION . 422.5B Reduction of the individual 21 income tax rate and alternate tax rate. 22 1. For tax years beginning on or after January 1, 2030, 23 and notwithstanding the individual income tax rate in section 24 422.5, subsection 1, paragraph “a” , the department of revenue 25 shall determine the individual income tax rate as provided 26 in this section. The tax rate in effect in section 422.5 27 shall remain in effect until the rate is adjusted pursuant to 28 subsection 2. A rate adjusted in subsection 2 shall remain 29 in effect until the rate is adjusted again pursuant to this 30 section. 31 2. a. Before November 1, 2029, and before November 1 32 each year thereafter, until the individual income tax rate is 33 adjusted to zero, the department of management shall determine 34 the amount of money available in the income tax elimination 35 -12- LSB 2989XC (4) 91 jm/jh 12/ 20

S.F. _____ fund in section 97E.4, and the net individual income tax 1 receipts at the close of the preceding fiscal year. The amount 2 available in the income tax elimination fund and the net tax 3 receipts shall be provided to the department of revenue for the 4 calculation in paragraph “b” . 5 b. By November 1, 2029, and by November 1 each year 6 thereafter, the department of revenue shall adjust the 7 individual income tax rate as provided in this paragraph if all 8 of the following apply: 9 (1) The amount of net sales and use tax revenue collected by 10 the state during the most recent October 1 through September 30 11 calculation period is greater than one hundred three percent 12 of the net sales and use tax revenue collected during the 13 immediately preceding calculation period covering the same 14 months. 15 (2) The rate is able to be adjusted downward at least 16 one-tenth of one percent in such a way that the proposed 17 adjusted rate would have generated an amount equal to the net 18 individual income tax receipts generated from the rate in 19 the preceding fiscal year less any transfer amount from the 20 income tax elimination fund in section 97E.4. If the rate is 21 adjusted, the rate shall be adjusted downward to the nearest 22 one-tenth of one percent. 23 (3) There is less than four hundred fifty million dollars 24 in the income tax elimination fund in section 97E.4, excluding 25 the amount in the expense account in section 97E.4, but at 26 least one hundred fifty percent of the amount to be transferred 27 to the general fund of the state pursuant to subsection 3 is 28 available in the income tax elimination fund. 29 c. If a determination is made by the department of revenue 30 that the rate is subject to adjustment, the department of 31 revenue shall adjust the rate specified in section 422.5, 32 subsection 1, paragraph “a” , or if the rate has been previously 33 adjusted, adjust the previously adjusted rate. 34 3. If an adjustment is made pursuant to subsection 2, one 35 -13- LSB 2989XC (4) 91 jm/jh 13/ 20

S.F. _____ hundred fifty percent of the amount of moneys in the income 1 tax elimination fund used in the calculation in subsection 2 2, paragraph “b” , subparagraph (2), shall be transferred to 3 the general fund of the state in the fiscal year the rate is 4 adjusted. 5 4. If the moneys in the income tax elimination fund in 6 section 97E.4 reach four hundred fifty million dollars as 7 determined under subsection 2, paragraph “a” , excluding the 8 amount in the expense account in section 97E.4, the moneys in 9 the income tax elimination fund, excluding the amount in the 10 expense account, shall be transferred to the taxpayer relief 11 trust fund created in section 97E.3. 12 5. If the individual income tax rate is adjusted downward 13 pursuant to subsection 2, the alternate state individual income 14 tax rate in section 422.5, subsection 2, paragraph “b” , and 15 section 422.5, subsection 3, paragraph “b” , shall be adjusted 16 downward in the same proportion as the downward adjustment of 17 the individual income tax rate pursuant to subsection 2. If 18 the alternate state individual income tax rate is adjusted, the 19 rate shall be adjusted downward to the nearest one-tenth of one 20 percent. If the individual income tax rate is adjusted to zero 21 pursuant to subsection 2, the alternate state individual income 22 tax rate shall be zero. 23 6. If the rates are adjusted pursuant to subsections 2 24 and 5, the director of revenue shall cause an advisory notice 25 containing the new individual income tax rate and alternate 26 tax rate to be published in the Iowa administrative bulletin 27 and on the internet site of the department of revenue. The 28 calculation and publication of the adjusted tax rates by the 29 director of revenue is exempt from chapter 17A, and shall be 30 submitted for publication by the first December 31 following 31 the determination date to adjust the rates. 32 Sec. 18. Section 422.16, subsection 2, paragraph e, Code 33 2025, is amended to read as follows: 34 e. For the purposes of this subsection , state income tax 35 -14- LSB 2989XC (4) 91 jm/jh 14/ 20

S.F. _____ shall be withheld at the rate described in section 422.5 , as 1 may be adjusted pursuant to section 422.5B, from supplemental 2 wages of an employee in those circumstances in which the 3 employer treats the supplemental wages as wholly separate from 4 regular wages for purposes of withholding and federal income 5 tax is withheld from the supplemental wages under section 6 3402(g) of the Internal Revenue Code. 7 Sec. 19. Section 422.16B, subsection 2, paragraph a, Code 8 2025, is amended to read as follows: 9 a. (1) A pass-through entity shall file a composite return 10 on behalf of all nonresident members and shall report and pay 11 the income or franchise tax imposed under this chapter at the 12 maximum state income or franchise tax rate applicable to the 13 member under section 422.5 , 422.5B, 422.33 , or 422.63 on the 14 nonresident members’ distributive shares of the income from the 15 pass-through entity. 16 (2) The tax rate applicable to a tiered pass-through entity 17 shall be the state income tax rate under section 422.5 , as may 18 be adjusted pursuant to section 422.5B . 19 Sec. 20. Section 422.16C, subsection 4, paragraph a, Code 20 2025, is amended to read as follows: 21 a. A taxpayer making an election under this section shall 22 be subject to tax in an amount equal to the rate under section 23 422.5 , as may be adjusted pursuant to section 422.5B , imposed 24 against the taxable income of the taxpayer for the taxable 25 year properly determined under this chapter and allocated 26 and apportioned to the state under the rules adopted by the 27 department. The tax shall be due with the taxpayer’s return 28 required under this chapter . 29 EXPLANATION 30 The inclusion of this explanation does not constitute agreement with 31 the explanation’s substance by the members of the general assembly. 32 This bill relates to the elimination of the individual 33 income tax and alternate income tax by creating the taxpayer 34 relief trust fund and income tax elimination board and fund. 35 -15- LSB 2989XC (4) 91 jm/jh 15/ 20

S.F. _____ CREATION OF TAXPAYER RELIEF TRUST FUND, INCOME TAX 1 ELIMINATION FUND, AND BOARD. The bill creates the taxpayer 2 relief trust fund (trust fund) and the income tax elimination 3 fund (ITEF) for the purpose of reducing future individual 4 income tax rates to zero. Under the bill, moneys are 5 transferred through both funds before being used to fund the 6 reduction of the individual income tax rate. 7 TRANSFERS FROM TAXPAYER RELIEF FUND. Beginning on July 1, 8 2025, the bill transfers $100 million from the taxpayer relief 9 fund (TRF) to the ITEF. 10 On January 1, 2026, the bill transfers $2.6 billion from 11 the TRF to the trust fund. For FY 2028, and each fiscal year 12 thereafter, the bill transfers from TRF to the trust fund, an 13 amount equal to 25 percent of moneys transferred into the TRF 14 each fiscal year. 15 TRUST FUND. The trust fund is created beginning January 16 1, 2026, separate and apart from all other public moneys or 17 funds of this state and the balance in the trust fund shall not 18 be considered part of the balance of the general fund of the 19 state. 20 The trust fund shall consist of all moneys collected by or 21 appropriated or transferred to the trust fund including all 22 interest, dividends, and rents, and shall also include all 23 securities or investment income and other assets acquired by 24 the use of the moneys in the trust fund and any other moneys 25 that have been transferred or paid into the fund. 26 The trust fund shall be administered by the Iowa public 27 employees’ retirement system (IPERS). 28 Beginning July 1, 2029, and each July 1 thereafter, the bill 29 transfers 5 percent of the remaining balance of the trust fund 30 at the close of the preceding fiscal year into the ITEF. 31 After the individual income tax rate is adjusted to zero, 32 the bill requires any moneys remaining in the trust fund to be 33 transferred to the general fund of the state in the fiscal year 34 the rate is adjusted to zero. 35 -16- LSB 2989XC (4) 91 jm/jh 16/ 20

S.F. _____ ITEF. The bill establishes the ITEF on January 1, 2026. 1 The ITEF shall consist of all moneys transferred to the fund 2 from the trust fund or appropriated to or otherwise collected 3 by ITEF for the purpose of reducing the individual income tax 4 rate to zero. 5 The ITEF shall also be administered by IPERS. The moneys 6 in the ITEF are deposited into the general fund of the state 7 when the individual income tax rate is adjusted pursuant to the 8 procedures in new Code section 422.5B in the bill. 9 After the rate is adjusted to zero, the bill requires any 10 moneys remaining in the ITEF to be transferred to the general 11 fund of the state in the fiscal year the rate is adjusted to 12 zero. 13 EXPENSES. The investment management and administrative 14 expenses for the trust fund and fund shall be first charged 15 against the expense account established in new Code section 16 97E.5, and if the expense account is insufficient to pay the 17 expenses, the expenses shall be paid next from ITEF and then 18 from the trust fund. The administrative expenses shall be the 19 higher of $5 million or two-tenths of 1 percent of the combined 20 value of the trust fund and elimination fund on June 30 each 21 year either fund contained moneys in the preceding fiscal year. 22 BOARD. The bill creates the income tax elimination board to 23 establish policy and to review implementation of the policy, in 24 matters relating to the investment of the trust fund and the 25 ITEF. The bill establishes the board as trustee of both funds. 26 The board shall review and approve the administrative 27 expenses of the system each fiscal year. 28 Prior to July 1, 2027, the system may contract with any 29 custodian bank currently being utilized for the custody of 30 retirement fund assets. 31 On or after July 1, 2027, the system shall not select any 32 bank or other third party for the purposes of investment asset 33 safekeeping, other custody, or settlement services without 34 prior consultation with and approval of the board. 35 -17- LSB 2989XC (4) 91 jm/jh 17/ 20

S.F. _____ The bill requires the board to report to the fiscal committee 1 of the legislative council. 2 The board shall consist of 11 members, including 7 voting 3 members and 4 nonvoting members. 4 The voting members shall be as follows: four public members, 5 appointed by the governor who each have substantial experience 6 in institutional investment, institutional finance, or business 7 management; two public members, appointed by the governor who 8 are citizens of the state; and the director of the department 9 of management. 10 The nonvoting members of the board shall be two state 11 representatives, one appointed by the speaker of the house of 12 representatives and one by the minority leader of the house, 13 and two state senators, one appointed by the majority leader 14 of the senate and one by the minority leader of the senate. 15 Code section 4A.5 (dissolution of boards) does not apply to the 16 board. 17 IPERS. The bill requires IPERS and the board to develop 18 separate investment policies for each fund. IPERS and the 19 board have broader authority to establish the investment policy 20 for the trust fund than the investment policy for ITEF. The 21 investment policy for the ITEF shall be similar to the Iowa 22 public employees’ retirement system in Code chapter 97B. In 23 developing the investment policy for either fund, the bill 24 requires IPERS and the board to exercise judgment and care that 25 requires prudence, discretion, probable income, and probable 26 safety, as if investing personal funds. The board is required 27 to give appropriate consideration to investments that are 28 reasonably designed to further the purposes of each fund, 29 taking into consideration the risk of loss and the opportunity 30 for gain or income associated with the investment or investment 31 policy. 32 The bill allows each fund to acquire and retain every kind 33 of property and every kind of investment which persons of 34 prudence, discretion, and intelligence acquire or retain for a 35 -18- LSB 2989XC (4) 91 jm/jh 18/ 20