House File 2471 - Reprinted HOUSE FILE 2471 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 2359) (SUCCESSOR TO HSB 604) (As Amended and Passed by the House April 23, 2012 ) A BILL FOR An Act relating to economic development by providing an 1 adjustment to net income for certified suppliers of anchor 2 manufacturers for purposes of state taxation and including 3 retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 HF 2471 (5) 84 mm/sc/md

H.F. 2471 Section 1. NEW SECTION . 15.226 Definitions. 1 For purposes of this part: 2 1. “Anchor manufacturer” means a business that meets all of 3 the following: 4 a. Manufactures tangible personal property at a facility in 5 Iowa. 6 b. Exports at least fifty percent of the tangible personal 7 property produced at the facility to markets outside of the 8 state. 9 2. “Certified supplier” means a business certified pursuant 10 to section 15.227. 11 3. “Facility” means a building or buildings located in the 12 state at which tangible personal property is manufactured for 13 sale within or without the state of Iowa. 14 4. “Manufactured” or “Manufactures” means adding value to 15 personal property through a process of manufacturing, refining, 16 purifying, combining of different materials, the packaging of 17 meats, extracting and recovering natural resources, and all 18 processes of fabricating and curing, with a view to selling the 19 property for gain or profit. 20 5. “Tangible personal property” means the same as defined in 21 section 422.33, subsection 2, unnumbered paragraph 2. 22 Sec. 2. NEW SECTION . 15.227 Certification of suppliers. 23 1. A business meeting the requirements of subsection 2 may 24 apply to the authority, no later than ninety days after the 25 end of a tax year of the business, for certification under 26 this section. If a business applying to the authority meets 27 the requirements of subsection 2, the authority shall issue 28 a certificate to the business stating that the business is a 29 certified supplier. 30 2. To receive certification as a certified supplier, a 31 business must meet all of the following for the tax year 32 immediately preceding the tax year for which the requested 33 certificate will be valid: 34 a. The business manufactures tangible personal property at a 35 -1- HF 2471 (5) 84 mm/sc/md 1/ 7

H.F. 2471 facility in Iowa. 1 b. The business derives more than ten percent of its gross 2 sales of tangible personal property manufactured at a facility 3 in Iowa from sales to anchor manufacturers. For purposes of 4 the requirement in this paragraph, a business may aggregate 5 gross sales to more than one anchor manufacturer. 6 c. All sales by the business to anchor manufacturers are 7 arm’s length transactions. 8 d. The business provides a statement from an anchor 9 manufacturer, signed by an officer or authorized representative 10 of the anchor manufacturer, attesting that the anchor 11 manufacturer meets the definition of anchor manufacturer under 12 section 15.226, and provides supporting documentation in a form 13 prescribed by the authority. 14 e. The business meets one of the following criteria: 15 (1) At least ten percent of the total payroll of the 16 business is located in the state. 17 (2) The business employs at least fifty employees at a 18 facility in the state. 19 f. The business agrees to annually provide to the authority 20 information and data on jobs created and capital investments 21 made in the state by the business. The information and data 22 shall be in a form prescribed by the authority. 23 g. The business is not an anchor manufacturer. 24 3. A certificate is valid for one tax year and shall include 25 an expiration date. Reapplication may be made each year for 26 certification under this part. The department of revenue shall 27 accept a validly issued, unexpired certificate issued under 28 this section. 29 4. The authority shall not issue certificates pursuant 30 to this section for tax years beginning on or after January 31 1, 2015. On or after January 1, 2015, the authority and the 32 department of revenue shall coordinate with the chairpersons 33 of the senate and house standing committees on economic 34 growth and rebuild Iowa to evaluate the effectiveness of this 35 -2- HF 2471 (5) 84 mm/sc/md 2/ 7

H.F. 2471 certification process and the related adjustments to net income 1 provided in chapter 422, and the feasibility of continuing both 2 into the future. 3 Sec. 3. NEW SECTION . 15.228 Eligibility for adjustment to 4 net income of certified suppliers. 5 1. A certified supplier shall be eligible to make the 6 adjustment to net income in section 422.35, subsection 26, for 7 a tax year if all the following apply: 8 a. The certified supplier’s net business income for the tax 9 year, allocated and apportioned to this state under section 10 422.33, subsection 2, paragraph “b” , computed without regard 11 to section 422.35, subsection 26, increased by more than five 12 percent over the certified supplier’s net business income in 13 the prior year, allocated and apportioned to this state under 14 section 422.33, subsection 2, paragraph “b” . 15 b. The certified supplier attaches a copy of a valid, 16 unexpired certificate issued under section 15.227 to the 17 certified supplier’s tax return required under chapter 422. 18 2. A taxpayer who is a shareholder in a subchapter S 19 corporation that is a certified supplier shall be eligible to 20 make the adjustment to net income in section 422.7, subsection 21 57, for a tax year if all the following apply: 22 a. The certified supplier’s net business income for the tax 23 year, allocated and apportioned to this state under section 24 422.33, subsection 2, paragraph “b ”, computed without regard 25 to section 422.35, subsection 26, increased by more than five 26 percent over the certified supplier’s net business income in 27 the prior year, allocated and apportioned to this state under 28 section 422.33, subsection 2, paragraph “b” , computed with 29 regard to section 422.35, subsection 26, if the subchapter S 30 corporation was a certified supplier in the previous tax year 31 and met the eligibility requirements in this paragraph “a” . 32 b. The shareholder attaches a copy of a valid, unexpired 33 certificate issued under section 15.227 to the shareholder’s 34 tax return required under chapter 422. 35 -3- HF 2471 (5) 84 mm/sc/md 3/ 7

H.F. 2471 3. For purposes of establishing eligibility under this 1 section, “net business income” shall not include any income of 2 a certified supplier that is attributable to an existing trade 3 or business or income-producing contract that was acquired by 4 the certified supplier through merger or acquisition during or 5 after the first year for which the certified supplier becomes 6 eligible pursuant to this section for the adjustments to net 7 income in section 422.7, subsection 57, or section 422.35, 8 subsection 26. 9 Sec. 4. NEW SECTION . 15.229 Rules. 10 The authority and the department of revenue may adopt rules 11 for the implementation of this part. 12 Sec. 5. Section 257.21, Code 2011, is amended to read as 13 follows: 14 257.21 Computation of instructional support amount. 15 1. The department of management shall establish the amount 16 of instructional support property tax to be levied and the 17 amount of instructional support income surtax to be imposed 18 by a district in accordance with the decision of the board 19 under section 257.19 for each school year for which the 20 instructional support program is authorized. The department 21 of management shall determine these amounts based upon the 22 most recent figures available for the district’s valuation of 23 taxable property, individual state income tax paid, and budget 24 enrollment in the district, and shall certify to the district’s 25 county auditor the amount of instructional support property 26 tax, and to the director of revenue the amount of instructional 27 support income surtax to be imposed if an instructional support 28 income surtax is to be imposed. 29 2. The instructional support income surtax shall be imposed 30 on the state individual income tax for the calendar year during 31 which the school’s budget year begins, or for a taxpayer’s 32 fiscal year ending during the second half of that calendar year 33 and after the date the board adopts a resolution to participate 34 in the program or the first half of the succeeding calendar 35 -4- HF 2471 (5) 84 mm/sc/md 4/ 7

H.F. 2471 year, and shall be imposed on all individuals residing in the 1 school district on the last day of the applicable tax year. 2 As used in this section , “state individual income tax” means 3 the taxes computed under section 422.5 , without regard to the 4 adjustment to net income in section 422.7, subsection 57 , less 5 the amounts of nonrefundable credits allowed under chapter 422, 6 division II . 7 Sec. 6. Section 422.7, Code Supplement 2011, is amended by 8 adding the following new subsection: 9 NEW SUBSECTION . 57. a. If the adjusted gross income 10 includes income from a subchapter S corporation for which the 11 taxpayer is a shareholder, which subchapter S corporation is 12 a certified supplier that meets the requirements in section 13 15.228, subsection 2, paragraph “a” , the taxpayer may subtract 14 an amount based on the taxpayer’s pro rata share of the 15 profits or losses from the subchapter S corporation equal to 16 the difference between the subchapter S corporation’s net 17 business income for the tax year, allocated and apportioned 18 to this state under section 422.33, subsection 2, paragraph 19 “b” , computed without regard to section 422.35, subsection 26, 20 and one hundred five percent of the subchapter S corporation’s 21 net business income for the prior tax year, allocated and 22 apportioned under section 422.33, subsection 2, paragraph “b” , 23 computed with regard to section 422.35, subsection 26, if 24 the subchapter S corporation was a certified supplier in the 25 previous tax year and met the requirements in section 15.228, 26 subsection 2, paragraph “a” . A taxpayer who is a resident shall 27 not make the subtraction provided in this subsection unless 28 the taxpayer also makes an election pursuant to section 422.5, 29 subsection 1, paragraph “j” , subparagraph (2). 30 b. For purposes of the adjustment provided in this 31 subsection, “net business income” shall not include any 32 income of a certified supplier that is attributable to an 33 existing trade or business or income-producing contract that 34 was acquired by the certified supplier through merger or 35 -5- HF 2471 (5) 84 mm/sc/md 5/ 7

H.F. 2471 acquisition during or after the first year for which the 1 certified supplier becomes eligible for the adjustment in this 2 subsection. 3 Sec. 7. Section 422.35, Code Supplement 2011, is amended by 4 adding the following new subsection: 5 NEW SUBSECTION . 26. a. If the taxpayer is a certified 6 supplier that meets the requirements in section 15.228, 7 subsection 1, subtract an amount equal to the difference 8 between the taxpayer’s net business income for the tax year, 9 allocated and apportioned under section 422.33, subsection 2, 10 paragraph “b” , computed without regard to this subsection, and 11 one hundred five percent of the taxpayer’s net business income 12 for the prior tax year, allocated and apportioned under section 13 422.33, subsection 2, paragraph “b” . 14 b. For purposes of the adjustment provided in this 15 subsection, “net business income” shall not include any 16 income of a certified supplier that is attributable to an 17 existing trade or business or income-producing contract 18 which was acquired by the certified supplier through merger 19 or acquisition during or after the first year for which the 20 certified supplier becomes eligible for the adjustment in this 21 subsection. 22 Sec. 8. Section 422D.2, Code 2011, is amended to read as 23 follows: 24 422D.2 Local income surtax. 25 A county may impose by ordinance a local income surtax as 26 provided in section 422D.1 at the rate set by the board of 27 supervisors, of up to one percent, on the state individual 28 income tax of each individual residing in the county at the 29 end of the individual’s applicable tax year. However, the 30 cumulative total of the percents of income surtax imposed on 31 any taxpayer in the county shall not exceed twenty percent. 32 The reason for imposing the surtax and the amount needed 33 shall be set out in the ordinance. The surtax rate shall be 34 set to raise only the amount needed. For purposes of this 35 -6- HF 2471 (5) 84 mm/sc/md 6/ 7

H.F. 2471 section , “state individual income tax” means the tax computed 1 under section 422.5 , without regard to the adjustment to net 2 income in section 422.7, subsection 57 , less the amounts of 3 nonrefundable credits allowed under chapter 422, division II . 4 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies 5 retroactively to January 1, 2012, for tax years beginning on 6 or after that date. 7 -7- HF 2471 (5) 84 mm/sc/md 7/ 7