House File 478 - Reprinted HOUSE FILE 478 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 3) (As Amended and Passed by the House March 13, 2013 ) A BILL FOR An Act relating to revenue and taxation by modifying the 1 transfer of moneys from the Iowa economic emergency fund to 2 the taxpayers trust fund, creating an Iowa taxpayers trust 3 fund tax credit and fund and providing for the transfer of 4 moneys for purposes of the credit, creating an alternative 5 base income tax and an alternative cumulative income surtax 6 imposed at the election of the taxpayer and including 7 effective date and retroactive applicability provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 HF 478 (3) 85 mm/sc/md

H.F. 478 DIVISION I 1 ALTERNATIVE BASE INCOME TAX AND 2 ALTERNATIVE CUMULATIVE INCOME SURTAX 3 Section 1. NEW SECTION . 422.5A Tax imposed —— alternative 4 base income tax. 5 1. For purposes of this section, “base income” means the 6 adjusted gross income before the net operating loss deduction 7 as properly computed for federal income tax purposes under the 8 Internal Revenue Code, with the following adjustments: 9 a. Subtract a standard deduction equal to six thousand two 10 hundred thirty-five dollars for a married person who files 11 separately or a single person or equal to twelve thousand four 12 hundred seventy dollars for a married couple who files a joint 13 return, a surviving spouse, or a head of household. 14 b. Subtract interest and dividends from federal securities. 15 2. Notwithstanding any other provision of law, a resident 16 or nonresident may, in lieu of the taxes imposed under section 17 422.5, elect to be subject to state income tax as imposed and 18 computed pursuant to subsection 3. Such election must be made 19 not later than the due date for filing the return for a taxable 20 year, including extensions thereof, and under rules to be 21 prescribed by the director. 22 3. A tax is imposed upon every resident and nonresident 23 of the state making the election under subsection 2 which tax 24 shall be levied, collected, and paid annually in an amount 25 equal to the base income of the resident or nonresident times 26 four and one-half percent. 27 4. Notwithstanding any other provision of law, a resident or 28 nonresident making the election under subsection 2 shall not 29 be allowed any nonrefundable or refundable credit otherwise 30 allowed under this division for the tax year for which the 31 election is made, except for the credits for withheld tax and 32 estimated tax paid under section 422.16. 33 5. A taxpayer making the election under subsection 2 shall 34 be subject to an alternative cumulative income surtax as 35 -1- HF 478 (3) 85 mm/sc/md 1/ 9

H.F. 478 provided in section 298.14. 1 Sec. 2. Section 298.14, Code 2013, is amended to read as 2 follows: 3 298.14 School district income surtaxes. 4 1. a. For each fiscal year, the cumulative total of the 5 percents of surtax approved by the board of directors of a 6 school district and collected by the department of revenue 7 under sections 257.21 , 257.29 , and 298.2 , and the enrichment 8 surtax under section 442.15 , Code 1989, and an income surtax 9 collected by a political subdivision under chapter 422D , shall 10 not exceed twenty percent. 11 b. Notwithstanding paragraph “a” , or any other provision 12 of law to the contrary, for a taxpayer who makes an election 13 under section 422.5A, subsection 2, and who is subject to an 14 income surtax as provided in section 257.21, 257.29, 298.2, 15 442.15, Code 1989, or chapter 422D, the appropriate governing 16 body shall impose, and the department of revenue shall collect, 17 an alternative cumulative income surtax from the taxpayer in an 18 amount equal to one hundred twenty-two percent of the amount 19 generated by each surtax imposed by the school district or 20 political subdivision for the tax year in which the election 21 is made. 22 2. A school district income surtax fund is created in the 23 office of treasurer of state. Income surtaxes collected by 24 the department of revenue under sections 257.21 , 257.29 , and 25 298.2 and section 442.15 , Code 1989, shall be deposited in the 26 school district income surtax fund to the credit of each school 27 district. A separate accounting of each surtax, by school 28 district, shall be maintained. 29 3. The director of the department of administrative 30 services shall draw warrants in payment of the surtaxes 31 collected in each school district. Warrants shall be payable 32 in two installments to be paid on approximately the first day 33 of December and the first day of February following collection 34 of the taxes and shall be delivered to the respective school 35 -2- HF 478 (3) 85 mm/sc/md 2/ 9

H.F. 478 districts. 1 DIVISION II 2 TAXPAYERS TRUST FUND 3 Sec. 3. Section 8.54, subsection 5, Code 2013, is amended by 4 striking the subsection. 5 Sec. 4. Section 8.55, subsection 2, Code 2013, is amended 6 to read as follows: 7 2. The maximum balance of the fund is the amount equal to 8 two and one-half percent of the adjusted revenue estimate for 9 the fiscal year. If the amount of moneys in the Iowa economic 10 emergency fund is equal to the maximum balance, moneys in 11 excess of this amount shall be distributed as follows: 12 a. The first sixty million dollars of the difference between 13 the actual net revenue for the general fund of the state for 14 the fiscal year and the adjusted revenue estimate for the 15 fiscal year shall be transferred to the taxpayers trust fund. 16 b. The remainder of the excess, if any, shall be transferred 17 to the general fund of the state. 18 Sec. 5. Section 8.57E, subsection 2, Code 2013, is amended 19 to read as follows: 20 2. Moneys in the taxpayers trust fund shall only be used 21 pursuant to appropriations or transfers made by the general 22 assembly for tax relief. During each fiscal year beginning on 23 or after July 1, 2014, in which the balance of the taxpayers 24 trust fund equals or exceeds thirty million dollars, there is 25 transferred from the taxpayers trust fund to the Iowa taxpayers 26 trust fund tax credit fund created in section 422.11E, the 27 entire balance of the taxpayers trust fund to be used for the 28 Iowa taxpayers trust fund tax credit in accordance with section 29 422.11E, subsection 5. 30 Sec. 6. Section 8.58, Code 2013, is amended to read as 31 follows: 32 8.58 Exemption from automatic application. 33 1. To the extent that moneys appropriated under section 34 8.57 do not result in moneys being credited to the general fund 35 -3- HF 478 (3) 85 mm/sc/md 3/ 9

H.F. 478 under section 8.55, subsection 2 , moneys Moneys appropriated 1 under in section 8.57 and moneys contained in the cash reserve 2 fund, rebuild Iowa infrastructure fund, environment first 3 fund, Iowa economic emergency fund, and taxpayers trust fund 4 shall not be considered in the application of any formula, 5 index, or other statutory triggering mechanism which would 6 affect appropriations, payments, or taxation rates, contrary 7 provisions of the Code notwithstanding. 8 2. To the extent that moneys appropriated under section 9 8.57 do not result in moneys being credited to the general fund 10 under section 8.55, subsection 2 , moneys Moneys appropriated 11 under in section 8.57 and moneys contained in the cash reserve 12 fund, rebuild Iowa infrastructure fund, environment first fund, 13 Iowa economic emergency fund, and taxpayers trust fund shall 14 not be considered by an arbitrator or in negotiations under 15 chapter 20 . 16 DIVISION III 17 IOWA TAXPAYERS TRUST FUND TAX CREDIT 18 Sec. 7. TAXPAYERS TRUST FUND —— IOWA TAXPAYERS TRUST FUND 19 TAX CREDIT TRANSFER. During the fiscal year beginning July 20 1, 2013, there is transferred from the taxpayers trust fund 21 created in section 8.57E to the Iowa taxpayers trust fund tax 22 credit fund created in section 422.11E, an amount equal to the 23 sum of the balance of the taxpayers trust fund as determined 24 after the close of the fiscal year beginning July 1, 2012, and 25 ending June 30, 2013, including the amount transferred for that 26 fiscal year to the taxpayers trust fund from the Iowa economic 27 emergency fund created in section 8.55 in the fiscal year 28 beginning July 1, 2013, and ending June 30, 2014, to be used 29 for the Iowa taxpayers trust fund tax credit in accordance with 30 section 422.11E, subsection 5. 31 Sec. 8. NEW SECTION . 422.11E Iowa taxpayers trust fund tax 32 credit. 33 1. For purposes of this section, unless the context 34 otherwise requires: 35 -4- HF 478 (3) 85 mm/sc/md 4/ 9

H.F. 478 a. “Eligible individual” means, with respect to a tax year, 1 an individual who makes and files an individual income tax 2 return pursuant to section 422.13. “Eligible individual” does 3 not include an estate or trust, or an individual for whom an 4 individual income tax return was not timely filed, including 5 extensions. 6 b. “Unclaimed tax credit” means, with respect to a tax 7 year, the aggregate amount by which the Iowa taxpayers trust 8 fund tax credits that were eligible to be claimed by eligible 9 individuals, if any, exceeds the Iowa taxpayers trust fund tax 10 credits actually claimed by eligible individuals, if any. 11 2. The taxes imposed under this division, less the credits 12 allowed under this division except the credits for withheld 13 tax and estimated tax paid in section 422.16, shall be reduced 14 by an Iowa taxpayers trust fund tax credit to an eligible 15 individual for the tax year beginning January 1 immediately 16 preceding July 1 of any fiscal year during which a transfer, if 17 any, is made from the taxpayers trust fund in section 8.57E to 18 the Iowa taxpayers trust fund tax credit fund created in this 19 section. 20 3. The credit shall be equal to the quotient of the amount 21 transferred to the Iowa taxpayers trust fund tax credit fund in 22 the applicable fiscal year, divided by the number of eligible 23 individuals for the tax year immediately preceding the tax year 24 for which the credit in this section is allowed, as determined 25 by the director of revenue in accordance with this section, 26 rounded down to the nearest whole dollar. The department of 27 revenue shall draft the income tax form for any tax year in 28 which a credit will be allowed under this section to provide 29 the information and space necessary for eligible individuals to 30 claim the credit. 31 4. Any credit in excess of the taxpayer’s liability for the 32 tax year is not refundable and shall not be credited to the tax 33 liability for any following year or carried back to a tax year 34 prior to the tax year in which the taxpayer claims the credit. 35 -5- HF 478 (3) 85 mm/sc/md 5/ 9

H.F. 478 5. a. There is established within the state treasury under 1 the control of the department an Iowa taxpayers trust fund 2 tax credit fund consisting of any moneys transferred by the 3 general assembly by law from the taxpayers trust fund created 4 in section 8.57E for purposes of the credit provided in this 5 section. For the fiscal year beginning July 1, 2013, and for 6 each fiscal year thereafter, the department shall transfer 7 from the Iowa taxpayers trust fund tax credit fund to the 8 general fund of the state, the lesser of the balance of the 9 Iowa taxpayers trust fund tax credit fund or an amount of money 10 equal to the Iowa taxpayers trust fund tax credits claimed in 11 that fiscal year, if any. Any moneys in the Iowa taxpayers 12 trust fund tax credit fund which represent unclaimed tax 13 credits shall immediately revert to the taxpayers trust fund 14 created in section 8.57E. Interest or earnings on moneys in 15 the Iowa taxpayers trust fund tax credit fund shall be credited 16 to the taxpayers trust fund created in section 8.57E. 17 b. The moneys transferred to the general fund of the state 18 in accordance with this subsection shall not be considered new 19 revenues for purposes of the state general fund expenditure 20 limitation under section 8.54 but instead as replacement of 21 a like amount included in the expenditure limitation for the 22 fiscal year in which the transfer is made. 23 DIVISION IV 24 CONFORMING CHANGES 25 Sec. 9. Section 68A.102, subsection 21, Code 2013, is 26 amended to read as follows: 27 21. “State income tax liability” means either the state 28 individual income tax imposed under section 422.5 , less the 29 amounts of nonrefundable credits allowed under chapter 422, 30 division II , or the alternative base income tax imposed under 31 section 422.5A if applicable . 32 Sec. 10. Section 257.21, unnumbered paragraph 2, Code 2013, 33 is amended to read as follows: 34 The instructional support income surtax shall be imposed on 35 -6- HF 478 (3) 85 mm/sc/md 6/ 9

H.F. 478 the state individual income tax for the calendar year during 1 which the school’s budget year begins, or for a taxpayer’s 2 fiscal year ending during the second half of that calendar year 3 and after the date the board adopts a resolution to participate 4 in the program or the first half of the succeeding calendar 5 year, and shall be imposed on all individuals residing in the 6 school district on the last day of the applicable tax year. As 7 used in this section , “state individual income tax” means either 8 the taxes computed under section 422.5 , less the amounts of 9 nonrefundable credits allowed under chapter 422, division II , 10 except for the Iowa taxpayers trust fund tax credit allowed 11 under section 422.11E, or the tax computed under section 422.5A 12 if applicable . 13 Sec. 11. Section 422.16, subsection 8, Code 2013, is amended 14 to read as follows: 15 8. An employer or withholding agent shall be liable for 16 the payment of the tax required to be deducted and withheld 17 or the amount actually deducted, whichever is greater, under 18 subsections 1 and 12 of this section ; and any amount deducted 19 and withheld as tax under subsections 1 and 12 of this section 20 during any calendar year upon the wages of any employee, 21 nonresident, or other person shall be allowed as a credit to 22 the employee, nonresident, or other person against the tax 23 imposed by section 422.5 , or section 422.5A if applicable , 24 irrespective of whether or not such tax has been, or will 25 be, paid over by the employer or withholding agent to the 26 department as provided by this chapter . 27 Sec. 12. Section 422.21, subsection 1, Code 2013, is amended 28 to read as follows: 29 1. Returns shall be in the form the director prescribes, 30 and shall be filed with the department on or before the last 31 day of the fourth month after the expiration of the tax year. 32 However, cooperative associations as defined in section 6072(d) 33 of the Internal Revenue Code shall file their returns on or 34 before the fifteenth day of the ninth month following the 35 -7- HF 478 (3) 85 mm/sc/md 7/ 9

H.F. 478 close of the taxable year and nonprofit corporations subject 1 to the unrelated business income tax imposed by section 2 422.33, subsection 1A , shall file their returns on or before 3 the fifteenth day of the fifth month following the close of 4 the taxable year. If, under the Internal Revenue Code, a 5 corporation is required to file a return covering a tax period 6 of less than twelve months, the state return shall be for the 7 same period and is due forty-five days after the due date of 8 the federal tax return, excluding any extension of time to 9 file. In case of sickness, absence, or other disability, or 10 if good cause exists, the director may allow further time for 11 filing returns. The director shall cause to be prepared blank 12 forms for the returns and shall cause them to be distributed 13 throughout the state and to be furnished upon application, 14 but failure to receive or secure the form does not relieve 15 the taxpayer from the obligation of making a return that is 16 required. The department may as far as consistent with the 17 Code draft income tax forms to conform to the income tax 18 forms of the internal revenue department of the United States 19 government. Each return by a taxpayer upon whom a tax is 20 imposed by section 422.5 or 422.5A shall show the county of the 21 residence of the taxpayer. 22 Sec. 13. Section 422D.2, Code 2013, 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 except as provided in section 298.14 . The reason for imposing 33 the surtax and the amount needed shall be set out in the 34 ordinance. The surtax rate shall be set to raise only the 35 -8- HF 478 (3) 85 mm/sc/md 8/ 9

H.F. 478 amount needed. For purposes of this section , “state individual 1 income tax” means either the tax computed under section 422.5 , 2 less the amounts of nonrefundable credits allowed under chapter 3 422, division II , except for the Iowa taxpayers trust fund tax 4 credit allowed under section 422.11E, or the tax computed under 5 section 422.5A if applicable . 6 DIVISION V 7 IMPLEMENTATION 8 Sec. 14. EFFECTIVE UPON ENACTMENT. This Act, being deemed 9 of immediate importance, takes effect upon enactment. 10 Sec. 15. 1. Except as provided in subsection 2, this 11 Act applies retroactively to January 1, 2013, for tax years 12 beginning on or after that date. 13 2. The following provisions of this Act apply retroactively 14 to July 1, 2012, to moneys attributed to fiscal years beginning 15 on or after July 1, 2012: 16 a. The section of this Act amending section 8.54. 17 b. The section of this Act amending section 8.55. 18 c. The section of this Act amending section 8.57E. 19 d. The section of this Act amending section 8.58. 20 -9- HF 478 (3) 85 mm/sc/md 9/ 9