Senate File 2372 - Reprinted SENATE FILE 2372 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3154) (As Amended and Passed by the Senate March 22, 2022 ) A BILL FOR An Act relating to state taxation and administration by 1 modifying sales and use taxes, individual and corporate 2 income taxes, the franchise tax, and the insurance premiums 3 tax, and including effective date, applicability, and 4 retroactive applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 SF 2372 (4) 89 jm/jh/mb

S.F. 2372 DIVISION I 1 SALES AND USE TAX ON SERVICES AND EXEMPTIONS 2 Section 1. Section 423.2, subsection 6, paragraph bu, Code 3 2022, is amended to read as follows: 4 bu. Software as a service Cloud computing . 5 Sec. 2. Section 423.2, subsection 6, Code 2022, is amended 6 by adding the following new paragraphs: 7 NEW PARAGRAPH . bv. Web hosting. 8 NEW PARAGRAPH . bw. Digital automated services. 9 NEW PARAGRAPH . bx. Scooter rentals. 10 Sec. 3. Section 423.2, Code 2022, is amended by adding the 11 following new subsection: 12 NEW SUBSECTION . 13. The department shall adopt rules 13 pursuant to chapter 17A to administer subsection 6, paragraphs 14 “bu” , “bv” , and “bw” . 15 Sec. 4. Section 423.3, subsection 8, paragraph d, 16 subparagraph (1), Code 2022, is amended by adding the following 17 new subparagraph division: 18 NEW SUBPARAGRAPH DIVISION . (e) A specified digital 19 product. 20 Sec. 5. Section 423.3, subsection 47, paragraph a, 21 subparagraph (4), Code 2022, is amended by striking the 22 subparagraph. 23 Sec. 6. Section 423.3, subsection 68, paragraph c, 24 subparagraph (1), subparagraph division (a), Code 2022, is 25 amended to read as follows: 26 (a) “Clothing” includes but is not limited to the 27 following: aprons, household and shop; athletic supporters; 28 baby receiving blankets; bathing suits and caps; beach capes 29 and coats; belts and suspenders; boots; coats and jackets; 30 costumes; diapers (children and adults, including disposable 31 diapers); earmuffs; footlets; formal wear; garters and garter 32 belts; girdles; gloves and mittens for general use; hats 33 and caps; hosiery; insoles for shoes; lab coats; neckties; 34 overshoes; pantyhose; rainwear; rubber pants; sandals; 35 -1- SF 2372 (4) 89 jm/jh/mb 1/ 10

S.F. 2372 scarves; shoes and shoelaces; slippers; sneakers; socks and 1 stockings; steel-toed shoes; underwear; uniforms, athletic and 2 nonathletic; and wedding apparel. 3 Sec. 7. Section 423.3, subsection 104, paragraph a, Code 4 2022, is amended to read as follows: 5 a. The sales price of specified digital products and of 6 prewritten computer software sold, and of enumerated services 7 described in section 423.2, subsection 1 , paragraph “a” , 8 subparagraph (5), or section 423.2, subsection 6 , paragraphs 9 “bq” , “br” , “bs” , and “bu” , “bv” , and “bw” furnished, to a 10 commercial enterprise for use exclusively by the commercial 11 enterprise. The use of prewritten computer software, a 12 specified digital product, or service fails to qualify as a 13 use exclusively by the commercial enterprise if its use for 14 noncommercial purposes is more than de minimis. 15 Sec. 8. Section 423.3, subsection 104, paragraph b, 16 subparagraph (1), Code 2022, is amended to read as follows: 17 (1) “Commercial enterprise” means the same as defined in 18 section 423.3, subsection 47 , paragraph “d” , subparagraph (1), 19 but also includes professions and occupations and includes 20 public utilities as defined in section 476.1, subsection 3 . 21 Sec. 9. Section 423.3, Code 2022, is amended by adding the 22 following new subsections: 23 NEW SUBSECTION . 108. The sales price from the sale of 24 feminine hygiene products. For purposes of this subsection, 25 “feminine hygiene products” means tampons, panty liners, 26 menstrual cups, sanitary napkins, and other similar tangible 27 personal property designed for feminine hygiene in connection 28 with the human menstrual cycle. 29 NEW SUBSECTION . 109. The sales price from the sale of a 30 child or adult diaper, whether cloth or disposable. 31 Sec. 10. Section 423.4, subsection 1, paragraph a, Code 32 2022, is amended by adding the following new subparagraphs: 33 NEW SUBPARAGRAPH . (10) A nonprofit facility licensed by 34 the state built on or after January 1, 2022, that provides 35 -2- SF 2372 (4) 89 jm/jh/mb 2/ 10

S.F. 2372 residential addiction recovery and emergency shelter services 1 for children. For purposes of this subparagraph, “children” 2 means the same as “child” as defined in section 234.1. 3 NEW SUBPARAGRAPH . (11) A fair as defined in section 174.1. 4 Sec. 11. REFUNDS. Refunds of taxes, interest, or penalties 5 which arise from claims resulting from the enactment of section 6 423.4, subsection 1, paragraph “a”, subparagraph (11), in this 7 division of this Act, occurring between January 1, 2021, and 8 the effective date of this section of this Act shall be limited 9 to twenty-five thousand dollars in the aggregate, and shall not 10 be allowed unless refund claims are filed by October 1, 2022, 11 notwithstanding any other law to the contrary. If the amount 12 of the claims totals more than twenty-five thousand dollars 13 in the aggregate, the department of revenue shall prorate the 14 twenty-five thousand dollars in the aggregate among all the 15 claimants’ in relation to the amounts of the claimants valid 16 claims. 17 Sec. 12. EFFECTIVE DATE. Except as otherwise provided, this 18 division of this Act takes effect January 1, 2023. 19 Sec. 13. EFFECTIVE DATE. The following takes effect January 20 1, 2024: 21 The section of this division of this Act amending section 22 423.3, subsection 47, paragraph “a”, subparagraph (4). 23 Sec. 14. EFFECTIVE DATE. The following, being deemed of 24 immediate importance, take effect upon enactment: 25 1. The section of this division of this Act enacting a 26 provision allowing for refunds of taxes, interest, or penalties 27 which arise from the enactment of section 423.4, subsection 1, 28 paragraph “a”, subparagraph (11). 29 2. The portion of the section of this division of this 30 Act enacting section 423.4, subsection 1, paragraph “a”, 31 subparagraph (11). 32 Sec. 15. RETROACTIVE APPLICABILITY. The following apply 33 retroactively to January 1, 2021: 34 1. The section of this division of this Act enacting a 35 -3- SF 2372 (4) 89 jm/jh/mb 3/ 10

S.F. 2372 provision allowing for refunds of taxes, interest, or penalties 1 which arise from the enactment of section 423.4, subsection 1, 2 paragraph “a”, subparagraph (11). 3 2. The portion of the section of this division of this 4 Act enacting section 423.4, subsection 1, paragraph “a”, 5 subparagraph (11). 6 DIVISION II 7 MANUFACTURED FOOD —— SALES TAX EXEMPTION 8 Sec. 16. Section 423.3, subsection 49, Code 2022, is amended 9 to read as follows: 10 49. a. The sales price from the sale of carbon dioxide 11 in a liquid, solid, or gaseous form, electricity, steam, and 12 other taxable services and the lease or rental of tangible 13 personal property when used by a manufacturer of food products 14 to primarily produce marketable food products for human 15 consumption food or food ingredients , including but not 16 limited to treatment of material to change its form, context, 17 or condition, in order to produce the food product or food 18 ingredients , maintenance of quality or integrity of the 19 food product or food ingredients , changing or maintenance of 20 temperature levels necessary to avoid spoilage or to hold the 21 food product or food ingredients in marketable condition, 22 maintenance of environmental conditions necessary for the safe 23 or efficient use of machinery and material used to produce 24 the food product or food ingredients , sanitation and quality 25 control activities, formation of packaging, placement into 26 shipping containers, and movement of the material or food 27 product or food ingredients until shipment from the building 28 of manufacture. 29 b. For purposes of this subsection, “food or food 30 ingredients” means the same as “food and food ingredients” as 31 defined in subsection 57, paragraph “d” , and includes tangible 32 personal property that could be sold for ingestion or chewing 33 by humans but is sold for another use. 34 Sec. 17. REFUNDS. Refunds of taxes, interest, or penalties 35 -4- SF 2372 (4) 89 jm/jh/mb 4/ 10

S.F. 2372 which arise from the enactment of this division of this Act, 1 for sales or services occurring between January 1, 2019, and 2 the effective date of this division of this Act, shall be 3 limited to one hundred thousand dollars in the aggregate for 4 any calendar year in which claims are eligible for a refund and 5 shall not be allowed unless refund claims are filed by October 6 1, 2022, notwithstanding any other law to the contrary. If the 7 amount of claims totals more than one hundred thousand dollars 8 in the aggregate for any calendar year in which claims are 9 eligible for a refund, the department of revenue shall prorate 10 the one hundred thousand dollars in the aggregate among all the 11 claimants for that particular calendar year in relation to the 12 amounts of the claimants’ valid claims. 13 Sec. 18. EFFECTIVE DATE. This division of this Act, being 14 deemed of immediate importance, takes effect upon enactment. 15 Sec. 19. RETROACTIVE APPLICABILITY. This division of this 16 Act applies retroactively to January 1, 2019. 17 DIVISION III 18 NATIONAL GUARD PAY 19 Sec. 20. Section 422.7, Code 2022, is amended by adding the 20 following new subsection: 21 NEW SUBSECTION . 42B. Subtract, to the extent included, up 22 to twenty thousand dollars of pay received by the taxpayer for 23 service pursuant to 32 U.S.C. §502. 24 Sec. 21. APPLICABILITY. This division of this Act applies 25 to tax years beginning on or after January 1, 2023. 26 DIVISION IV 27 NET OPERATING LOSS DEDUCTION 28 Sec. 22. Section 422.7, unnumbered paragraph 1, Code 2022, 29 is amended to read as follows: 30 The term “net income” means the adjusted gross income before 31 the net operating loss deduction taxable income as properly 32 computed for federal income tax purposes under section 63 33 of the Internal Revenue Code before the net operating loss 34 deduction , with the following adjustments: 35 -5- SF 2372 (4) 89 jm/jh/mb 5/ 10

S.F. 2372 Sec. 23. Section 422.7, Code 2022, is amended by adding the 1 following new subsection: 2 NEW SUBSECTION . 6. a. For tax years beginning in the 2023 3 calendar year, subtract the amount of federal income taxes 4 paid during the tax year to the extent payment is for a tax 5 year beginning prior to January 1, 2023, and add any federal 6 income tax refunds received during the tax year to the extent 7 the federal income tax was deducted for a tax year beginning 8 prior to January 1, 2023. Where married persons who have filed 9 a joint federal income tax return file separately for state tax 10 purposes, such total shall be divided between them according 11 to the portion of the total paid by each. Federal income taxes 12 paid for a tax year in which an Iowa return was not required to 13 be filed shall not be subtracted. 14 b. Notwithstanding any other provision of law to the 15 contrary, amounts subtracted or added pursuant to this 16 subsection shall not be included in the calculation of net 17 income for purposes of section 422.5, subsection 3 or 3B, or 18 section 422.13. 19 c. This subsection is repealed January 1, 2028. 20 Sec. 24. Section 422.9, Code 2022, is amended by striking 21 the section and inserting in lieu thereof the following: 22 422.9 Carryforward of Iowa net operating loss —— deduction. 23 1. If, after applying all of the adjustments provided for in 24 section 422.7 and the allocation provisions of section 422.8, 25 and subject to the modifications provided in section 172(d) 26 of the Internal Revenue Code, the taxable income results in 27 a net operating loss, such Iowa net operating loss, if any, 28 shall be carried forward and such carryforward amounts shall be 29 available as a deduction under this subsection in future years. 30 2. The deduction allowed under subsection 1 shall be 31 calculated by subtracting the sum of the following from net 32 income: 33 a. The aggregate amount of net operating losses arising in 34 taxable years beginning before January 1, 2023, carried to such 35 -6- SF 2372 (4) 89 jm/jh/mb 6/ 10

S.F. 2372 taxable year. 1 b. The lesser of the aggregate amount of net operating 2 losses arising in taxable years beginning after December 31, 3 2022, carried to such taxable year, or eighty percent of the 4 excess of taxable income, if any, computed without regard to 5 the deductions under this section and, to the extent included 6 in the Iowa net income calculation, sections 199A and 250 of 7 the Internal Revenue Code, over the amount determined under 8 paragraph “a” . 9 Sec. 25. Section 422.35, subsection 11, Code 2022, is 10 amended by striking the subsection and inserting in lieu 11 thereof the following: 12 11. a. If, after applying all of the adjustments provided 13 for in this section and the allocation and apportionment 14 provisions of section 422.33, the Iowa taxable income results 15 in a net operating loss, such Iowa net operating loss shall 16 be carried forward and such carryforward amounts shall be 17 available as a deduction under this subsection in future years. 18 b. For the current year subtract the sum of the following, 19 to the extent available, any net operating loss carryforward 20 amount as follows: 21 (1) The aggregate amount of net operating losses arising in 22 taxable years beginning before January 1, 2023, carried to such 23 taxable year. 24 (2) The lesser of the aggregate amount of net operating 25 losses arising in taxable years beginning after December 31, 26 2022, carried to such taxable year, or eighty percent of the 27 excess of taxable income, if any, computed without regard to 28 the deductions under this subsection to the extent included in 29 the Iowa net income calculation, section 250 of the Internal 30 Revenue Code, over the amount determined under subparagraph 31 (1). 32 c. Any portion of a net operating loss which was sustained 33 from that portion of the trade or business carried on outside 34 the state of Iowa shall not be deducted. 35 -7- SF 2372 (4) 89 jm/jh/mb 7/ 10

S.F. 2372 d. The deductions described in this subsection are allowed 1 subject to the requirement that a corporation affected by the 2 allocation provisions of section 422.33 shall be permitted to 3 deduct only that portion of the deductions for net operating 4 loss that is fairly and equitably allocable to Iowa, under 5 rules prescribed by the director. 6 Sec. 26. REPEAL. 2018 Iowa Acts, chapter 1161, sections 7 108, 109, 120, 128, and 129, are repealed. 8 Sec. 27. EFFECTIVE DATE. This division of this Act takes 9 effect January 1, 2023. 10 Sec. 28. APPLICABILITY. This division of this Act applies 11 to tax years beginning on or after January 1, 2023. 12 DIVISION V 13 FRANCHISE TAX 14 Sec. 29. Section 422.63, Code 2022, is amended to read as 15 follows: 16 422.63 Amount of tax. 17 1. The franchise tax is imposed annually in an amount equal 18 to five the percent specified in subsection 2 of the net income 19 received or accrued during the taxable year. If the net income 20 of the financial institution is derived from its business 21 carried on entirely within the state, the tax shall be imposed 22 on the entire net income, but if the business is carried on 23 partly within and partly without the state, the portion of net 24 income reasonably attributable to the business within the state 25 shall be specifically allocated or equitably apportioned within 26 and without the state under rules of the director. 27 2. a. For tax years beginning prior to January 1, 2023, 28 five percent. 29 b. For tax years beginning on or after January 1, 2023, but 30 before January 1, 2024, four and four-fifths percent. 31 c. For tax years beginning on or after January 1, 2024, but 32 before January 1, 2025, four and three-fifths percent. 33 d. For tax years beginning on or after January 1, 2025, but 34 before January 1, 2026, four and two-fifths percent. 35 -8- SF 2372 (4) 89 jm/jh/mb 8/ 10

S.F. 2372 e. For tax years beginning on or after January 1, 2026, but 1 before January 1, 2027, four and one-fifth percent. 2 f. For tax years beginning on or after January 1, 2027, 3 three and nine-tenths percent. 4 DIVISION VI 5 INSURANCE PREMIUMS TAX 6 Sec. 30. Section 432.1, subsection 2, Code 2022, is amended 7 to read as follows: 8 2. The “applicable percent” for purposes of subsection 1 of 9 this section and section 432.2 is the following: 10 a. For calendar years beginning before the 2003 calendar 11 year, two percent. 12 b. For the 2003 calendar year, one and three-fourths 13 percent. 14 c. For the 2004 calendar year, one and one-half percent. 15 d. For the 2005 calendar year, one and one-fourth percent. 16 e. For the 2006 and subsequent calendar years year through 17 the 2022 calendar year , one percent. 18 f. For the 2023 calendar year, ninety-five hundredths of one 19 percent. 20 g. For the 2024 and subsequent calendar years, nine-tenths 21 of one percent. 22 Sec. 31. Section 432.1, subsection 4, Code 2022, is amended 23 to read as follows: 24 4. The “applicable percent” for purposes of subsection 3 is 25 the following: 26 a. For calendar years beginning before the 2004 calendar 27 year, two percent. 28 b. For the 2004 calendar year, one and three-fourths 29 percent. 30 c. For the 2005 calendar year, one and one-half percent. 31 d. For the 2006 calendar year, one and one-fourth percent. 32 e. For the 2007 and subsequent calendar years year through 33 the 2022 calendar year , one percent. 34 f. For the 2023 calendar year, ninety-five hundredths of one 35 -9- SF 2372 (4) 89 jm/jh/mb 9/ 10