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House Study Bill 708 - IntroducedA Bill ForAn Act 1relating to the treatment of certain income as a
2foreign dividend for Iowa corporate income tax purposes,
3and modifying the business interest expense deduction for
4Iowa individual and corporate tax purposes and including
5effective date and retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.35, subsection 21, Code 2020, is
2amended to read as follows:
321. Subtract the amount of net foreign dividend income,
4including based upon the percentage of ownership as set forth
5in section 243 of the Internal Revenue Code. Net foreign
6dividend includes subpart F income as defined in section 952
7of the Internal Revenue Code, based upon the percentage of
8ownership as set forth in section 243 of the Internal Revenue
9Code and includes global intangible low-taxed income as defined
10in section 951A of the Internal Revenue Code after applying
11the deduction allowed for global intangible low-taxed income
12allowed under section 250(a)(1)(B) of the Internal Revenue
13Code.
14 Sec. 2. Section 422.7, Code 2020, is amended by adding the
15following new subsection:
16 NEW SUBSECTION. 59. a. Section 163(j) of the Internal
17Revenue Code does not apply in computing net income for state
18tax purposes. If the taxpayer’s federal adjusted gross income
19for the tax year was increased or decreased by reason of the
20application of section 163(j) of the Internal Revenue Code,
21the taxpayer shall recompute net income for state tax purposes
22under rules prescribed by the director.
23b. Paragraph “a” shall not apply during any tax year
24in which the additional first-year depreciation allowance
25authorized in section 168(k) of the Internal Revenue Code
26applies in computing net income for state tax purposes.
27c. For any tax year in which paragraph “a” does not apply,
28a taxpayer shall not be permitted to deduct any amount of
29interest expense paid or accrued in a previous taxable year
30that is allowed as a deduction in the current taxable year by
31reason of the carryforward of disallowed business interest
32provisions of section 163(j)(2) of the Internal Revenue Code,
33if either of the following apply:
34(1) The interest expense was originally paid or accrued
35during a tax year in which paragraph “a” applied.
-1- 1(2) The interest expense was originally paid or accrued
2during a tax year in which the taxpayer was not required to
3file an Iowa return.
4 Sec. 3. Section 422.35, Code 2020, is amended by adding the
5following new subsection:
6 NEW SUBSECTION. 26. a. Section 163(j) of the Internal
7Revenue Code does not apply in computing net income for state
8tax purposes. If the taxpayer’s federal taxable income for
9the tax year was increased or decreased by reason of the
10application of section 163(j) of the Internal Revenue Code,
11the taxpayer shall recompute net income for state tax purposes
12under rules prescribed by the director.
13b. Paragraph “a” shall not apply during any tax year
14in which the additional first-year depreciation allowance
15authorized in section 168(k) of the Internal Revenue Code
16applies in computing net income for state tax purposes.
17c. For any tax year in which paragraph “a” does not apply,
18a taxpayer shall not be permitted to deduct any amount of
19interest expense paid or accrued in a previous taxable year
20that is allowed as a deduction in the current taxable year by
21reason of the carryforward of disallowed business interest
22provisions of section 163(j)(2) of the Internal Revenue Code,
23if either of the following apply:
24(1) The interest expense was originally paid or accrued
25during a tax year in which paragraph “a” applied.
26(2) The interest expense was originally paid or accrued
27during a tax year in which the taxpayer was not required to
28file an Iowa return.
29 Sec. 4. EFFECTIVE DATE. This Act, being deemed of immediate
30importance, takes effect upon enactment.
31 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies
32retroactively to January 1, 2019, for tax years beginning on
33or after that date.
34EXPLANATION
35The inclusion of this explanation does not constitute agreement with
-2-1the explanation’s substance by the members of the general assembly.
2This bill relates to the treatment of certain income as a
3foreign dividend for Iowa corporate income tax purposes, and
4modifies the business expense deduction for Iowa individual and
5corporate tax purposes.
6FOREIGN DIVIDEND INCOME. Federal law includes in a
7taxpayer’s gross income global intangible low-taxed income
8(GILTI) as defined in section 951A of the Internal Revenue
9Code, subject to a deduction equal to 50 percent of the
10corporation’s GILTI under section 250(a)(1)(B) of the Internal
11Revenue Code. The amendment to Code section 422.35(21) directs
12corporate taxpayers to treat the taxpayer’s net GILTI amount as
13a foreign dividend for Iowa income tax purposes, meaning the
14taxpayer qualifies for the same dividends received deduction
15that applies to subpart F income and other foreign dividends.
16BUSINESS INTEREST EXPENSE DEDUCTION. The federal Tax Cuts
17and Jobs Act (TCJA) created a new limitation on the deduction
18of business interest expense for tax years beginning on or
19after January 1, 2018. Currently, the state couples with
20federal law limiting the deduction of business interest expense
21for tax years beginning on or after January 1, 2019.
22The bill decouples, for Iowa individual and corporate income
23tax purposes, from the federal limitation on deduction of
24business interest expenses for tax years beginning on or after
25January 1, 2019.
26The decoupling from the federal limitation on deduction
27of business interest expense does not apply during any tax
28year in which the additional first-year depreciation allowance
29authorized in section 168(k) of the Internal Revenue Code
30(bonus depreciation) applies in computing net income for state
31tax purposes.
32For any tax year in which a taxpayer is not permitted to
33deduct any amount of interest expense paid or accrued in a
34previous taxable year due to the allowance of the additional
35first-year depreciation, the bill prohibits the deduction of
-3-1any amount of interest expense paid or accrued in a previous
2taxable year in the current taxable year by reason of the
3carryforward of disallowed business interest provisions of
4section 163(j)(2) of the Internal Revenue Code, if either of
5the following apply: the interest expense was originally paid
6or accrued during a tax year in which there was a decoupling
7from the federal limitation on business expense, or the
8interest expense was originally paid or accrued during a tax
9year in which the taxpayer was not required to file an Iowa
10return.
11EFFECTIVE DATE AND APPLICABILITY. The bill takes effect
12upon enactment, and applies retroactively to January 1, 2019,
13for tax years beginning on or after that date.
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2foreign dividend for Iowa corporate income tax purposes,
3and modifying the business interest expense deduction for
4Iowa individual and corporate tax purposes and including
5effective date and retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.35, subsection 21, Code 2020, is
2amended to read as follows:
321. Subtract the amount of net foreign dividend income,
4including based upon the percentage of ownership as set forth
5in section 243 of the Internal Revenue Code. Net foreign
6dividend includes subpart F income as defined in section 952
7of the Internal Revenue Code, based upon the percentage of
8ownership as set forth in section 243 of the Internal Revenue
9Code and includes global intangible low-taxed income as defined
10in section 951A of the Internal Revenue Code after applying
11the deduction allowed for global intangible low-taxed income
12allowed under section 250(a)(1)(B) of the Internal Revenue
13Code.
14 Sec. 2. Section 422.7, Code 2020, is amended by adding the
15following new subsection:
16 NEW SUBSECTION. 59. a. Section 163(j) of the Internal
17Revenue Code does not apply in computing net income for state
18tax purposes. If the taxpayer’s federal adjusted gross income
19for the tax year was increased or decreased by reason of the
20application of section 163(j) of the Internal Revenue Code,
21the taxpayer shall recompute net income for state tax purposes
22under rules prescribed by the director.
23b. Paragraph “a” shall not apply during any tax year
24in which the additional first-year depreciation allowance
25authorized in section 168(k) of the Internal Revenue Code
26applies in computing net income for state tax purposes.
27c. For any tax year in which paragraph “a” does not apply,
28a taxpayer shall not be permitted to deduct any amount of
29interest expense paid or accrued in a previous taxable year
30that is allowed as a deduction in the current taxable year by
31reason of the carryforward of disallowed business interest
32provisions of section 163(j)(2) of the Internal Revenue Code,
33if either of the following apply:
34(1) The interest expense was originally paid or accrued
35during a tax year in which paragraph “a” applied.
-1- 1(2) The interest expense was originally paid or accrued
2during a tax year in which the taxpayer was not required to
3file an Iowa return.
4 Sec. 3. Section 422.35, Code 2020, is amended by adding the
5following new subsection:
6 NEW SUBSECTION. 26. a. Section 163(j) of the Internal
7Revenue Code does not apply in computing net income for state
8tax purposes. If the taxpayer’s federal taxable income for
9the tax year was increased or decreased by reason of the
10application of section 163(j) of the Internal Revenue Code,
11the taxpayer shall recompute net income for state tax purposes
12under rules prescribed by the director.
13b. Paragraph “a” shall not apply during any tax year
14in which the additional first-year depreciation allowance
15authorized in section 168(k) of the Internal Revenue Code
16applies in computing net income for state tax purposes.
17c. For any tax year in which paragraph “a” does not apply,
18a taxpayer shall not be permitted to deduct any amount of
19interest expense paid or accrued in a previous taxable year
20that is allowed as a deduction in the current taxable year by
21reason of the carryforward of disallowed business interest
22provisions of section 163(j)(2) of the Internal Revenue Code,
23if either of the following apply:
24(1) The interest expense was originally paid or accrued
25during a tax year in which paragraph “a” applied.
26(2) The interest expense was originally paid or accrued
27during a tax year in which the taxpayer was not required to
28file an Iowa return.
29 Sec. 4. EFFECTIVE DATE. This Act, being deemed of immediate
30importance, takes effect upon enactment.
31 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies
32retroactively to January 1, 2019, for tax years beginning on
33or after that date.
34EXPLANATION
35The inclusion of this explanation does not constitute agreement with
-2-1the explanation’s substance by the members of the general assembly.
2This bill relates to the treatment of certain income as a
3foreign dividend for Iowa corporate income tax purposes, and
4modifies the business expense deduction for Iowa individual and
5corporate tax purposes.
6FOREIGN DIVIDEND INCOME. Federal law includes in a
7taxpayer’s gross income global intangible low-taxed income
8(GILTI) as defined in section 951A of the Internal Revenue
9Code, subject to a deduction equal to 50 percent of the
10corporation’s GILTI under section 250(a)(1)(B) of the Internal
11Revenue Code. The amendment to Code section 422.35(21) directs
12corporate taxpayers to treat the taxpayer’s net GILTI amount as
13a foreign dividend for Iowa income tax purposes, meaning the
14taxpayer qualifies for the same dividends received deduction
15that applies to subpart F income and other foreign dividends.
16BUSINESS INTEREST EXPENSE DEDUCTION. The federal Tax Cuts
17and Jobs Act (TCJA) created a new limitation on the deduction
18of business interest expense for tax years beginning on or
19after January 1, 2018. Currently, the state couples with
20federal law limiting the deduction of business interest expense
21for tax years beginning on or after January 1, 2019.
22The bill decouples, for Iowa individual and corporate income
23tax purposes, from the federal limitation on deduction of
24business interest expenses for tax years beginning on or after
25January 1, 2019.
26The decoupling from the federal limitation on deduction
27of business interest expense does not apply during any tax
28year in which the additional first-year depreciation allowance
29authorized in section 168(k) of the Internal Revenue Code
30(bonus depreciation) applies in computing net income for state
31tax purposes.
32For any tax year in which a taxpayer is not permitted to
33deduct any amount of interest expense paid or accrued in a
34previous taxable year due to the allowance of the additional
35first-year depreciation, the bill prohibits the deduction of
-3-1any amount of interest expense paid or accrued in a previous
2taxable year in the current taxable year by reason of the
3carryforward of disallowed business interest provisions of
4section 163(j)(2) of the Internal Revenue Code, if either of
5the following apply: the interest expense was originally paid
6or accrued during a tax year in which there was a decoupling
7from the federal limitation on business expense, or the
8interest expense was originally paid or accrued during a tax
9year in which the taxpayer was not required to file an Iowa
10return.
11EFFECTIVE DATE AND APPLICABILITY. The bill takes effect
12upon enactment, and applies retroactively to January 1, 2019,
13for tax years beginning on or after that date.
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