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Senate File 576 - IntroducedA Bill ForAn Act 1authorizing future tax contingencies, reducing the
2state inheritance tax rates and providing for the future
3repeal of the state inheritance tax and state qualified
4use inheritance tax, and including effective date and
5retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2FUTURE TAX CHANGES
3 Section 1. 2018 Iowa Acts, chapter 1161, section 133, is
4amended by striking the section and inserting in lieu thereof
5the following:
6SEC. 133. EFFECTIVE DATE. This division of this Act takes
7effect January 1, 2023.
8DIVISION II
9inheritance tax
10 Sec. 2. Section 450.10, Code 2021, is amended by adding the
11following new subsection:
12 NEW SUBSECTION. 7. a. In lieu of each rate of tax imposed
13in subsections 1 through 4, for property passing from the
14estate of a decedent dying on or after January 1, 2021, but
15before January 1, 2022, there shall be imposed a rate of tax
16equal to the applicable tax rate in subsections 1 through 4,
17reduced by twenty-five percent, and rounded to the nearest
18one-hundredth of one percent.
19b. In lieu of each rate of tax imposed in subsections 1
20through 4, for property passing from the estate of a decedent
21dying on or after January 1, 2022, but before January 1, 2023,
22there shall be imposed a rate of tax equal to the applicable
23tax rate in subsections 1 through 4, reduced by fifty percent,
24and rounded to the nearest one-hundredth of one percent.
25c. In lieu of each rate of tax imposed in subsections 1
26through 4, for property passing from the estate of a decedent
27dying on or after January 1, 2023, but before January 1, 2024,
28there shall be imposed a rate of tax equal to the applicable
29tax rate in subsections 1 through 4, reduced by seventy-five
30percent, and rounded to the nearest one-hundredth of one
31percent.
32 Sec. 3. NEW SECTION. 450.98 Tax repealed.
33Effective January 1, 2024, this chapter shall not apply to
34property of estates of decedents dying on or after January 1,
352024. The inheritance tax shall not be imposed under this
-1-1chapter in the event the decedent dies on or after January 1,
22024, and, to this extent, this chapter is repealed.
3 Sec. 4. NEW SECTION. 450B.8 Tax repealed.
4Effective January 1, 2024, this chapter shall not apply to
5property of estates of decedents dying on or after January 1,
62024. The qualified use inheritance tax shall not be imposed
7under this chapter in the event the decedent dies on or after
8January 1, 2024, and, to this extent, this chapter is repealed.
9 Sec. 5. CODE EDITOR DIRECTIVE. The Code editor is directed
10to remove chapters 450 and 450B from the Code and correct
11appropriate references to chapters 450 and 450B and appropriate
12references to the inheritance tax and qualified use inheritance
13tax effective January 1, 2034.
14 Sec. 6. EFFECTIVE DATE. This division of this Act, being
15deemed of immediate importance, takes effect upon enactment.
16 Sec. 7. APPLICABILITY. This division of this Act applies
17retroactively to the estates of decedents dying on or after
18January 1, 2021.
19EXPLANATION
20The inclusion of this explanation does not constitute agreement with
21the explanation’s substance by the members of the general assembly.
22This bill authorizes future tax contingencies and
23proportionally reduces over a three-year period the rates of
24tax applicable to the state inheritance tax, beginning with
25estates of decedents dying on or after January 1, 2021, and
26repeals the state inheritance tax beginning with estates of
27decedents dying on or after January 1, 2024.
28DIVISION I — FUTURE TAX CHANGES. The bill amends 2018 Iowa
29Acts, chapter 1161, section 133 (trigger), by striking the two
30conditions necessary for the trigger to occur, and specifies
31the provisions in 2018 Iowa Acts, chapter 1161, sections
3299-132, take effect January 1, 2023.
33Currently, the two conditions are necessary for the trigger
34to occur include net general fund revenues for the fiscal year
35ending June 30, 2022, equaling or exceeding $8.3146 billion,
-2-1and also equaling or exceeding 104 percent of the net general
2fund revenues for the fiscal year ending June 30, 2021. If
3these two conditions are not satisfied, current law institutes
4the changes for tax years beginning on or after the January 1
5following the first fiscal year for which the two conditions
6do occur. By striking the “trigger”, the bill sets in motion
7numerous tax changes for tax years beginning on or after
8January 1, 2023, described below.
9INDIVIDUAL INCOME TAX. The tax changes include reducing the
10number of individual income tax brackets from nine to four, and
11modifying the taxable income amounts and tax rates as follows:
12Income over:But not over:Tax Rate:
131)$0$6,0004.40%
142)$6,000$30,0004.82%
153)$30,000$75,0005.70%
164)$75,0006.50%
17For a married couple filing a joint return, the taxable
18income amounts in each bracket above are doubled. Also, the
19taxable income amounts in each bracket above will be indexed to
20inflation and increased in future tax years, beginning in the
21tax year following the 2023 tax year.
22INDIVIDUAL INCOME TAX CALCULATION. Under current law, the
23starting point for computing the Iowa individual income tax is
24federal adjusted gross income before the net operating loss
25deduction, which is generally a taxpayer’s gross income minus
26several deductions. From that point, Iowa requires several
27adjustments and then provides taxpayers with a deduction
28for federal income taxes paid, and the option to deduct a
29standard deduction or itemized deductions. The bill changes
30the starting point for computing the individual income tax
31to federal taxable income, which includes all deductions and
32adjustments taken at the federal level in computing tax,
33including a standard deduction or itemized deductions, and the
34qualified business income deduction allowed for certain income
35earned from a pass-through entity. Because the starting point
-3-1changes to federal taxable income, and federal law does not
2provide for the filing status of married filing separately
3on a combined return, the bill repeals that filing status
4option for Iowa tax purposes. Because net operating loss is
5no longer calculated at the state level, the bill requires a
6taxpayer to add back any federal net operating loss deduction
7carried over from a taxable year beginning prior to the 2023
8tax year, but allows taxpayers to deduct any remaining Iowa net
9operating loss from a prior taxable year. The bill repeals the
10individual alternative minimum tax (AMT), allows an individual
11to claim any remaining AMT credit against the individual’s
12regular tax liability for the 2023 tax year, and then repeals
13the AMT credit in the tax year following the 2023 tax year.
14The bill repeals most Iowa-specific deductions, exemptions,
15and adjustments currently available when computing net income
16and taxable income under Iowa law, including the Iowa optional
17standard deduction and all itemized deductions, and the ability
18to deduct federal income taxes, except for a one-year phase
19out in the 2023 tax year for taxes paid, or refunds received,
20that relate to a prior year. The bill maintains the add-back
21for income from securities that are federally exempt but not
22state-exempt, and for bonus depreciation amounts. The bill
23maintains the general pension exclusion and the deduction
24for income from federal securities. The bill maintains the
25deduction for contributions to the Iowa 529 plan, the Iowa ABLE
26plan, a first-time homebuyer savings account, and an individual
27development account. The bill also maintains the deductions
28for military pension income, military active duty pay, social
29security retirement benefits, certain payments received for
30providing unskilled in-home health care, certain amounts
31received from the veterans trust fund, victim compensation
32awards, biodiesel production refunds, certain wages paid
33to individuals with disabilities or individuals previously
34convicted of a felony, certain organ donations, and Segal
35AmeriCorps education award payments. The bill modifies the
-4-1existing deduction for health insurance payments in Code
2section 422.7(29) to make the deduction only applicable to
3taxpayers who are at least 65 years old and who have net
4income below $100,000. The bill also modifies the existing
5capital gain deduction in Code section 422.7(21) to restrict
6the deduction to the sale of real property used in farming
7businesses by permitting the taxpayer to take the deduction
8if either of the following apply: the taxpayer materially
9participated in the farming business for at least 10 years and
10held the real property for at least 10 years; or the taxpayer
11sold the real property to a relative. The bill expands the
12definition of “relative” to include an entity in which a
13relative of the taxpayer has a legal or equitable interest in
14the entity as an owner, member, partner, or beneficiary. The
15bill provides a new deduction for any income of an employee
16resulting from the payment by an employer, whether paid to
17the employee or a lender, of principal or interest on the
18employee’s qualified education loan. The bill also modifies
19the calculation of net income for purposes of the alternate
20tax calculation in Code section 422.5(3) and (3B), and the tax
21return filing thresholds in Code section 422.13, to require
22that any amount of itemized deduction, standard deduction,
23personal exemption deduction, or qualified business income
24deduction that was allowed in computing federal taxable income
25shall be added back.
26CORPORATE INCOME TAX AND FRANCHISE TAX CALCULATION. Under
27current law, the starting point for calculating the corporate
28income tax and franchise tax is federal taxable income before
29the net operating loss deduction, because net operating loss is
30calculated at the state level. The bill repeals the separate
31calculation of net operating loss at the state level. As a
32result, the bill requires taxpayers to add back any federal
33net operating loss deduction carried over from a taxable year
34beginning prior to the trigger year, but allows taxpayers to
35deduct any remaining Iowa net operating loss from a prior
-5-1taxable year. The bill also repeals most Iowa-specific
2deductions, exemptions, and adjustments currently available
3when computing net income and taxable income under Iowa law.
4The bill maintains the add-back for income from securities
5that are federally exempt but not state exempt, and for bonus
6depreciation amounts. The bill maintains the deductions for
7income from federal securities, for foreign dividend and
8subpart F income, for certain wages paid to individuals with
9disabilities or individuals previously convicted of a felony,
10and for biodiesel production refunds.
11DIVISION II — INHERITANCE TAX. For decedents dying on or
12after January 1, 2021, but before January 1, 2022, the rates
13of tax applicable to the state inheritance tax are reduced 25
14percent. For decedents dying on or after January 1, 2022, but
15before January 1, 2023, the rates of tax applicable to the
16state inheritance tax are reduced 50 percent. For decedents
17dying on or after January 1, 2023, but before January 1, 2024,
18the rates of tax applicable to the state inheritance tax are
19reduced 75 percent.
20The bill then repeals the state inheritance tax and the state
21qualified use inheritance tax effective January 1, 2024, for
22property of estates of decedents dying on or after January 1,
232024. Inheritance tax will not be imposed on any property in
24the event of the death of an individual on or after January 1,
252024. The bill directs the Code editor to remove Code chapters
26450 (inheritance tax) and 450B (qualified use inheritance tax)
27from the Code effective January 1, 2034.
28The division takes effect upon enactment and applies
29retroactively to the estates of decedents dying on or after
30January 1, 2021.
-6-jm/jh
2state inheritance tax rates and providing for the future
3repeal of the state inheritance tax and state qualified
4use inheritance tax, and including effective date and
5retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2FUTURE TAX CHANGES
3 Section 1. 2018 Iowa Acts, chapter 1161, section 133, is
4amended by striking the section and inserting in lieu thereof
5the following:
6SEC. 133. EFFECTIVE DATE. This division of this Act takes
7effect January 1, 2023.
8DIVISION II
9inheritance tax
10 Sec. 2. Section 450.10, Code 2021, is amended by adding the
11following new subsection:
12 NEW SUBSECTION. 7. a. In lieu of each rate of tax imposed
13in subsections 1 through 4, for property passing from the
14estate of a decedent dying on or after January 1, 2021, but
15before January 1, 2022, there shall be imposed a rate of tax
16equal to the applicable tax rate in subsections 1 through 4,
17reduced by twenty-five percent, and rounded to the nearest
18one-hundredth of one percent.
19b. In lieu of each rate of tax imposed in subsections 1
20through 4, for property passing from the estate of a decedent
21dying on or after January 1, 2022, but before January 1, 2023,
22there shall be imposed a rate of tax equal to the applicable
23tax rate in subsections 1 through 4, reduced by fifty percent,
24and rounded to the nearest one-hundredth of one percent.
25c. In lieu of each rate of tax imposed in subsections 1
26through 4, for property passing from the estate of a decedent
27dying on or after January 1, 2023, but before January 1, 2024,
28there shall be imposed a rate of tax equal to the applicable
29tax rate in subsections 1 through 4, reduced by seventy-five
30percent, and rounded to the nearest one-hundredth of one
31percent.
32 Sec. 3. NEW SECTION. 450.98 Tax repealed.
33Effective January 1, 2024, this chapter shall not apply to
34property of estates of decedents dying on or after January 1,
352024. The inheritance tax shall not be imposed under this
-1-1chapter in the event the decedent dies on or after January 1,
22024, and, to this extent, this chapter is repealed.
3 Sec. 4. NEW SECTION. 450B.8 Tax repealed.
4Effective January 1, 2024, this chapter shall not apply to
5property of estates of decedents dying on or after January 1,
62024. The qualified use inheritance tax shall not be imposed
7under this chapter in the event the decedent dies on or after
8January 1, 2024, and, to this extent, this chapter is repealed.
9 Sec. 5. CODE EDITOR DIRECTIVE. The Code editor is directed
10to remove chapters 450 and 450B from the Code and correct
11appropriate references to chapters 450 and 450B and appropriate
12references to the inheritance tax and qualified use inheritance
13tax effective January 1, 2034.
14 Sec. 6. EFFECTIVE DATE. This division of this Act, being
15deemed of immediate importance, takes effect upon enactment.
16 Sec. 7. APPLICABILITY. This division of this Act applies
17retroactively to the estates of decedents dying on or after
18January 1, 2021.
19EXPLANATION
20The inclusion of this explanation does not constitute agreement with
21the explanation’s substance by the members of the general assembly.
22This bill authorizes future tax contingencies and
23proportionally reduces over a three-year period the rates of
24tax applicable to the state inheritance tax, beginning with
25estates of decedents dying on or after January 1, 2021, and
26repeals the state inheritance tax beginning with estates of
27decedents dying on or after January 1, 2024.
28DIVISION I — FUTURE TAX CHANGES. The bill amends 2018 Iowa
29Acts, chapter 1161, section 133 (trigger), by striking the two
30conditions necessary for the trigger to occur, and specifies
31the provisions in 2018 Iowa Acts, chapter 1161, sections
3299-132, take effect January 1, 2023.
33Currently, the two conditions are necessary for the trigger
34to occur include net general fund revenues for the fiscal year
35ending June 30, 2022, equaling or exceeding $8.3146 billion,
-2-1and also equaling or exceeding 104 percent of the net general
2fund revenues for the fiscal year ending June 30, 2021. If
3these two conditions are not satisfied, current law institutes
4the changes for tax years beginning on or after the January 1
5following the first fiscal year for which the two conditions
6do occur. By striking the “trigger”, the bill sets in motion
7numerous tax changes for tax years beginning on or after
8January 1, 2023, described below.
9INDIVIDUAL INCOME TAX. The tax changes include reducing the
10number of individual income tax brackets from nine to four, and
11modifying the taxable income amounts and tax rates as follows:
12Income over:But not over:Tax Rate:
131)$0$6,0004.40%
142)$6,000$30,0004.82%
153)$30,000$75,0005.70%
164)$75,0006.50%
17For a married couple filing a joint return, the taxable
18income amounts in each bracket above are doubled. Also, the
19taxable income amounts in each bracket above will be indexed to
20inflation and increased in future tax years, beginning in the
21tax year following the 2023 tax year.
22INDIVIDUAL INCOME TAX CALCULATION. Under current law, the
23starting point for computing the Iowa individual income tax is
24federal adjusted gross income before the net operating loss
25deduction, which is generally a taxpayer’s gross income minus
26several deductions. From that point, Iowa requires several
27adjustments and then provides taxpayers with a deduction
28for federal income taxes paid, and the option to deduct a
29standard deduction or itemized deductions. The bill changes
30the starting point for computing the individual income tax
31to federal taxable income, which includes all deductions and
32adjustments taken at the federal level in computing tax,
33including a standard deduction or itemized deductions, and the
34qualified business income deduction allowed for certain income
35earned from a pass-through entity. Because the starting point
-3-1changes to federal taxable income, and federal law does not
2provide for the filing status of married filing separately
3on a combined return, the bill repeals that filing status
4option for Iowa tax purposes. Because net operating loss is
5no longer calculated at the state level, the bill requires a
6taxpayer to add back any federal net operating loss deduction
7carried over from a taxable year beginning prior to the 2023
8tax year, but allows taxpayers to deduct any remaining Iowa net
9operating loss from a prior taxable year. The bill repeals the
10individual alternative minimum tax (AMT), allows an individual
11to claim any remaining AMT credit against the individual’s
12regular tax liability for the 2023 tax year, and then repeals
13the AMT credit in the tax year following the 2023 tax year.
14The bill repeals most Iowa-specific deductions, exemptions,
15and adjustments currently available when computing net income
16and taxable income under Iowa law, including the Iowa optional
17standard deduction and all itemized deductions, and the ability
18to deduct federal income taxes, except for a one-year phase
19out in the 2023 tax year for taxes paid, or refunds received,
20that relate to a prior year. The bill maintains the add-back
21for income from securities that are federally exempt but not
22state-exempt, and for bonus depreciation amounts. The bill
23maintains the general pension exclusion and the deduction
24for income from federal securities. The bill maintains the
25deduction for contributions to the Iowa 529 plan, the Iowa ABLE
26plan, a first-time homebuyer savings account, and an individual
27development account. The bill also maintains the deductions
28for military pension income, military active duty pay, social
29security retirement benefits, certain payments received for
30providing unskilled in-home health care, certain amounts
31received from the veterans trust fund, victim compensation
32awards, biodiesel production refunds, certain wages paid
33to individuals with disabilities or individuals previously
34convicted of a felony, certain organ donations, and Segal
35AmeriCorps education award payments. The bill modifies the
-4-1existing deduction for health insurance payments in Code
2section 422.7(29) to make the deduction only applicable to
3taxpayers who are at least 65 years old and who have net
4income below $100,000. The bill also modifies the existing
5capital gain deduction in Code section 422.7(21) to restrict
6the deduction to the sale of real property used in farming
7businesses by permitting the taxpayer to take the deduction
8if either of the following apply: the taxpayer materially
9participated in the farming business for at least 10 years and
10held the real property for at least 10 years; or the taxpayer
11sold the real property to a relative. The bill expands the
12definition of “relative” to include an entity in which a
13relative of the taxpayer has a legal or equitable interest in
14the entity as an owner, member, partner, or beneficiary. The
15bill provides a new deduction for any income of an employee
16resulting from the payment by an employer, whether paid to
17the employee or a lender, of principal or interest on the
18employee’s qualified education loan. The bill also modifies
19the calculation of net income for purposes of the alternate
20tax calculation in Code section 422.5(3) and (3B), and the tax
21return filing thresholds in Code section 422.13, to require
22that any amount of itemized deduction, standard deduction,
23personal exemption deduction, or qualified business income
24deduction that was allowed in computing federal taxable income
25shall be added back.
26CORPORATE INCOME TAX AND FRANCHISE TAX CALCULATION. Under
27current law, the starting point for calculating the corporate
28income tax and franchise tax is federal taxable income before
29the net operating loss deduction, because net operating loss is
30calculated at the state level. The bill repeals the separate
31calculation of net operating loss at the state level. As a
32result, the bill requires taxpayers to add back any federal
33net operating loss deduction carried over from a taxable year
34beginning prior to the trigger year, but allows taxpayers to
35deduct any remaining Iowa net operating loss from a prior
-5-1taxable year. The bill also repeals most Iowa-specific
2deductions, exemptions, and adjustments currently available
3when computing net income and taxable income under Iowa law.
4The bill maintains the add-back for income from securities
5that are federally exempt but not state exempt, and for bonus
6depreciation amounts. The bill maintains the deductions for
7income from federal securities, for foreign dividend and
8subpart F income, for certain wages paid to individuals with
9disabilities or individuals previously convicted of a felony,
10and for biodiesel production refunds.
11DIVISION II — INHERITANCE TAX. For decedents dying on or
12after January 1, 2021, but before January 1, 2022, the rates
13of tax applicable to the state inheritance tax are reduced 25
14percent. For decedents dying on or after January 1, 2022, but
15before January 1, 2023, the rates of tax applicable to the
16state inheritance tax are reduced 50 percent. For decedents
17dying on or after January 1, 2023, but before January 1, 2024,
18the rates of tax applicable to the state inheritance tax are
19reduced 75 percent.
20The bill then repeals the state inheritance tax and the state
21qualified use inheritance tax effective January 1, 2024, for
22property of estates of decedents dying on or after January 1,
232024. Inheritance tax will not be imposed on any property in
24the event of the death of an individual on or after January 1,
252024. The bill directs the Code editor to remove Code chapters
26450 (inheritance tax) and 450B (qualified use inheritance tax)
27from the Code effective January 1, 2034.
28The division takes effect upon enactment and applies
29retroactively to the estates of decedents dying on or after
30January 1, 2021.
-6-jm/jh