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House File 2317 - EnrolledAn Actrelating to state revenue and finance by modifying
individual income tax rates, exemptions, and credits,
corporate income tax rates and credits, credits against the
franchise tax, the insurance premiums tax, and the moneys
and credits tax, and the tax expenditure committee, making
contingent transfers from the taxpayer relief fund, and
including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
DIVISION I
SALE OF CERTAIN QUALIFIED STOCK — NET CAPITAL GAIN EXCLUSION
Section 1. Section 422.7, Code 2022, is amended by adding
the following new subsection:
NEW SUBSECTION. 63. a. Subtract the following percentage
of the net capital gain from the sale or exchange of capital
stock of a qualified corporation for which an election is made
by an employee-owner:
(1) For the tax year beginning in the 2023 calendar year,
thirty-three percent.
(2) For the tax year beginning in the 2024 calendar year,
sixty-six percent.
(3) For tax years beginning on or after January 1, 2025, one
hundred percent.
b. (1) An employee-owner is entitled to make one
irrevocable lifetime election to exclude the net capital
gain from the sale or exchange of capital stock of one
qualified corporation which capital stock was acquired by the
employee-owner while employed and on account of employment by
such qualified corporation.
(2) The election shall apply to all subsequent sales
or exchanges of qualifying capital stock of the elected
corporation within fifteen years of the date of the election,
provided that the subsequent sales or exchanges were of capital
stock in the same qualified corporation and were acquired by
the employee-owner while employed and on account of employment
by such qualified corporation.
(3) The election shall apply to qualifying capital stock
that has been transferred by inter vivos gift from the
employee-owner to the employee-owner’s spouse or to a trust
for the benefit of the employee-owner’s spouse following the
transfer. This subparagraph (3) shall apply to a spouse
only if the spouse was married to the employee-owner on the
date of the sale or exchange or the date of death of the
employee-owner.
-1- (4) If the employee-owner dies after having sold or
exchanged qualifying capital stock without having made an
election under this subsection, the surviving spouse or, if
there is no surviving spouse, the personal representative of
the employee-owner’s estate, may make the election that would
have qualified under this subsection.
(5) The election shall be made in the manner and form
prescribed by the department and shall be included with the
taxpayer’s state income tax return for the taxable year in
which the election is made.
c. For purposes of this subsection:
(1) “Capital stock” means common or preferred stock, either
voting or nonvoting. “Capital stock” does not include stock
rights, stock warrants, stock options, or debt securities.
(2) “Employee-owner” means an individual who owns capital
stock in a qualified corporation for at least ten years, which
capital stock was acquired by the individual while employed and
on account of employment by such corporation for at least ten
cumulative years.
(3) “Personal representative” means the same as defined in
section 633.3, or if there is no such personal representative
appointed, then the person legally authorized to perform
substantially the same functions.
(4) (a) “Qualified corporation” means, with respect to an
employee-owner, a corporation which, at the time of the first
sale or exchange for which an election is made by the employee-
owner under this subsection, meets all of the following
conditions:
(i) The corporation employed individuals in this state for
at least ten years.
(ii) The corporation has had at least five shareholders for
the ten years prior to the first sale or exchange under this
subsection.
(iii) The corporation has had at least two shareholders or
groups of shareholders who are not related for the ten years
-2-prior to the first sale or exchange under this subsection.
Two persons are considered related when, under section 318 of
the Internal Revenue Code, one is a person who owns, directly
or indirectly, capital stock that if directly owned would be
attributed to the other person, or is the brother, sister,
aunt, uncle, cousin, niece, or nephew of the other person who
owns capital stock either directly or indirectly.
(b) “Qualified corporation” includes any member of an Iowa
affiliated group if the Iowa affiliated group includes a member
that has employed individuals in this state for at least ten
years. For purposes of this subparagraph division, “Iowa
affiliated group” means an affiliated group that has made a
valid election to file an Iowa consolidated income tax return
under section 422.37 in the year in which the deduction under
this subsection is claimed. “Member” includes any entity
included in the consolidated return under section 422.37,
subsection 2, for the tax year in which the deduction is
claimed.
(c) “Qualified corporation” also includes any corporation
that was a party to a reorganization that was entirely or
substantially tax free if such reorganization occurred during
or after the employment of the employee-owner.
Sec. 2. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 3. APPLICABILITY. This division of this Act applies to
tax years beginning on or after January 1, 2023.
DIVISION II
RETIRED FARMER LEASE INCOME EXCLUSION
Sec. 4. Section 422.7, Code 2022, is amended by adding the
following new subsection:
NEW SUBSECTION. 21A. a. Subtract, to the extent included,
net income received by an eligible individual pursuant to a
farm tenancy agreement covering real property held by the
eligible individual for ten or more years, if the eligible
individual materially participated in a farming business for
-3-ten or more years.
b. An individual who elects to exclude income received
pursuant to a farm tenancy agreement under this subsection
shall not claim any of the following in the tax year in which
the election is made or in any succeeding year:
(1) The capital gain exclusion under subsection 21.
(2) The beginning farmer tax credit under section 422.11E.
c. Married individuals who file separate state income tax
returns shall allocate their combined annual exclusion limit
to each spouse in the proportion that each spouse’s respective
net income from a farm tenancy agreement bears to the total net
income from a farm tenancy agreement.
d. The department shall establish criteria, by rule,
relating to whether and how a surviving spouse may claim the
income exclusion for which a deceased eligible individual would
have been eligible under this subsection.
e. Net income from a farm tenancy agreement earned,
received, or reported by an entity taxed as a partnership
for federal tax purposes, an S corporation, or a trust or
estate is not eligible for the election and deduction in this
subsection, even if such net income ultimately passes through
to an eligible individual.
f. For purposes of this subsection:
(1) “Eligible individual” means an individual who is
disabled or who is fifty-five years of age or older at the time
the election is made, who no longer materially participates in
a farming business at the time the election is made, and who,
as an owner-lessor, is party to a farm tenancy agreement.
(2) “Farm tenancy agreement” means a written agreement
outlining the rights and obligations of an owner-lessor and a
tenant-lessee where the tenant-lessee has a farm tenancy as
defined in section 562.1A. A “farm tenancy agreement” includes
cash leases, crop share leases, or livestock share leases.
(3) “Farming business” means the production, care, growing,
harvesting, preservation, handling, or storage of crops
-4-or forest or fruit trees; the production, care, feeding,
management, and housing of livestock; or horticulture, all
intended for profit.
(4) “Livestock” means the same as defined in section 717.1.
(5) “Materially participated” means the same as “material
participation” in section 469(h) of the Internal Revenue Code.
Sec. 5. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 6. APPLICABILITY. This division of this Act applies to
tax years beginning on or after January 1, 2023.
DIVISION III
RETIRED FARMER CAPITAL GAIN EXCLUSION
Sec. 7. Section 422.7, subsection 21, Code 2022, is amended
by striking the subsection and inserting in lieu thereof the
following:
21. a. For purposes of this subsection:
(1) “Farming business” means the production, care, growing,
harvesting, preservation, handling, or storage of crops
or forest or fruit trees; the production, care, feeding,
management, and housing of livestock; or horticulture, all for
intended profit.
(2) “Held” shall be determined with reference to the holding
period provisions of section 1223 of the Internal Revenue Code
and the federal regulations pursuant thereto.
(3) “Livestock” means the same as defined in section 717.1.
(4) “Materially participated” means the same as “material
participation” in section 469(h) of the Internal Revenue Code.
(5) (a) “Real property used in a farming business” means
all tracts of land and the improvements and structures located
on such tracts which are in good faith used primarily for
a farming business. Buildings which are primarily used or
intended for human habitation are deemed to be used in a
farming business when the building is located on or adjacent
to the parcel used in the farming business. Land and the
nonresidential improvements and structures located on such land
-5-that shall be considered to be used primarily in a farming
business include but are not limited to land, improvements
or structures used for the storage or maintenance of farm
machinery or equipment, for the drying, storage, handling,
or preservation of agricultural crops, or for the storage of
farm inputs, feed, or manure. Real property used in a farming
business shall also include woodland, wasteland, pastureland,
and idled land used for the conservation of natural resources
including soil and water.
(b) Real property classified as agricultural property for
Iowa property tax purposes, except real property described
in section 441.21, subsection 12, paragraph “a” or “b”,
shall be presumed to be real property used in a farming
business. This presumption is rebuttable by the department by
a preponderance of evidence that the real property did not meet
the requirements of subparagraph division (a).
(6) “Relative” means a person that satisfies one or more of
the following conditions:
(a) The individual is related to the taxpayer by
consanguinity or affinity within the second degree as
determined by common law.
(b) The individual is a lineal descendent of the taxpayer.
For purposes of this subparagraph division, “lineal descendent”
means children of the taxpayer, including legally adopted
children and biological children, stepchildren, grandchildren,
great-grandchildren, and any other lineal descendent of the
taxpayer.
(c) An entity in which an individual who satisfies the
conditions of either subparagraph division (a) or (b) has a
legal or equitable interest as an owner, member, partner, or
beneficiary.
(7) “Retired farmer” means an individual who is disabled
or who is fifty-five years of age or older and who no longer
materially participates in a farming business when an exclusion
and deduction is claimed under this subsection.
-6- b. Subtract the net capital gain from the sale of real
property used in a farming business if one of the following
conditions are satisfied:
(1) The taxpayer has materially participated in a farming
business for a minimum of ten years and has held the real
property used in a farming business for a minimum of ten years.
If the taxpayer is a retired farmer, the taxpayer is considered
to meet the material participation requirement if the taxpayer
materially participated in a farming business for ten years or
more in the aggregate, prior to making an election under this
subsection.
(2) The taxpayer has held the real property used in a
farming business which is sold to a relative of the taxpayer.
c. For a taxpayer who is a retired farmer, subtract the
net capital gain from the sale of cattle or horses held by
the taxpayer for breeding, draft, dairy, or sporting purposes
for a period of twenty-four months or more from the date of
acquisition; but only if the taxpayer materially participated
in the farming business for five of the eight years preceding
the farmer’s retirement or disability and who has sold all or
substantially all of the taxpayer’s interest in the farming
business by the time the election under this paragraph is made.
d. For a taxpayer who is a retired farmer, subtract the net
capital gain from the sale of breeding livestock, other than
cattle and horses, if the livestock is held by the taxpayer for
a period of twelve months or more from the date of acquisition;
but only if the taxpayer materially participated in the farming
business for five of the eight years preceding the farmer’s
retirement or disability and who has sold all or substantially
all of the taxpayer’s interest in the farming business by the
time the election under this paragraph is made.
e. A taxpayer who is a retired farmer may make, subject to
the limitations described in paragraphs “f” and “g”, a single,
lifetime election to exclude all qualifying capital gains under
paragraphs “b”, “c”, and “d”.
-7- f. A taxpayer who is a retired farmer who elects to exclude
capital gains under paragraph “b”, “c”, or “d” shall not claim
the beginning farmer tax credit under section 422.11E or the
exclusion for net income received pursuant to a farm tenancy
agreement in subsection 21A, in the tax year in which this
election is made or in any subsequent year.
g. A taxpayer who is a retired farmer who claims the
beginning farmer tax credit under section 422.11E shall not,
in the same year, make an election under this subsection. A
taxpayer who is a retired farmer and who elects to exclude
the net income received from a farm tenancy agreement under
subsection 21A, shall not, in the same tax year or in any
subsequent tax year, make the election under this subsection.
h. Married individuals who file separate state income tax
returns shall allocate their combined annual net capital gain
exclusion under paragraphs “b”, “c”, and “d” to each spouse in
the proportion that each spouse’s respective net capital gain
bears to the total net capital gain.
i. The department shall establish criteria, by rule,
relating to whether and how a surviving spouse may claim the
income exclusion for which a deceased retired farmer would have
been eligible under this subsection.
Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113,
is repealed.
Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is
repealed.
Sec. 10. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 11. APPLICABILITY.
1. This division of this Act applies to tax years beginning
on or after January 1, 2023.
2. This division of this Act applies to sales consummated on
or after the effective date of this division of this Act, and
sales consummated prior to the effective date of this division
of this Act shall be governed by the law as it existed prior to
-8-the effective date of this division of this Act.
DIVISION IV
INDIVIDUAL INCOME TAX RATES — tax years 2023-2025
Sec. 12. Section 422.5, subsection 3, paragraph b, Code
2022, is amended to read as follows:
b. (1) In lieu of the computation in subsection 1 or
2, or in paragraph “a” of this subsection, if the married
persons’, filing jointly or filing separately on a combined
return, head of household’s, or surviving spouse’s net income
exceeds thirteen thousand five hundred dollars, the regular
tax imposed under this subchapter shall be the lesser of the
maximum alternate state individual income tax rate specified in
subparagraph (2) times the portion of the net income in excess
of thirteen thousand five hundred dollars or the regular tax
liability computed without regard to this sentence. Taxpayers
electing to file separately shall compute the alternate tax
described in this paragraph using the total net income of the
husband and wife spouses. The alternate tax described in this
paragraph does not apply if one spouse elects to carry back or
carry forward the loss as provided in section 422.9, subsection
3.
(2) (a) (i) (A) For the tax year beginning on or after
January 1, 2023, but before January 1, 2024, the alternate tax
rate is 6.00 percent.
(B) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, the alternate tax rate is 5.70
percent.
(C) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, the alternate tax rate is 5.20
percent.
(ii) This subparagraph division (a) is repealed January 1,
2026.
(b) For tax years beginning on or after January 1, 2026, the
alternate tax rate is 4.40 percent.
Sec. 13. Section 422.5, subsection 3B, paragraph b, Code
-9-2022, is amended to read as follows:
b. (1) In lieu of the computation in subsection 1, 2, or 3,
if the married persons’, filing jointly or filing separately on
a combined return, head of household’s, or surviving spouse’s
net income exceeds thirty-two thousand dollars, the regular
tax imposed under this subchapter shall be the lesser of the
maximum alternate state individual income tax rate specified in
subparagraph (2) times the portion of the net income in excess
of thirty-two thousand dollars or the regular tax liability
computed without regard to this sentence. Taxpayers electing
to file separately shall compute the alternate tax described in
this paragraph using the total net income of the husband and
wife spouses. The alternate tax described in this paragraph
does not apply if one spouse elects to carry back or carry
forward the loss as provided in section 422.9, subsection 3.
(2) (a) (i) (A) For the tax year beginning on or after
January 1, 2023, but before January 1, 2024, the alternate tax
rate is 6.00 percent.
(B) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, the alternate tax rate is 5.70
percent.
(C) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, the alternate tax rate is 5.20
percent.
(ii) This subparagraph division (a) is repealed January 1,
2026.
(b) For tax years beginning on or after January 1, 2026, the
alternate tax rate is 4.40 percent.
Sec. 14. Section 422.5, subsection 6, Code 2022, is amended
to read as follows:
6. a. Upon determination of the latest cumulative inflation
factor, the director shall multiply each dollar amount set
forth in section 422.5A by this cumulative inflation factor,
shall round off the resulting product to the nearest one
dollar, and shall incorporate the result into the income tax
-10-forms and instructions for each tax year.
b. This subsection is repealed on January 1, 2026.
Sec. 15. Section 422.5A, Code 2022, is amended by striking
the section and inserting in lieu thereof the following:
422.5A Tax rates.
1. a. The tax imposed in section 422.5 shall be calculated
using the following rates in the following tax years in the
case of married persons filing jointly:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000 but not exceeding
$60,000, the rate of 4.82 percent.
(c) On taxable income exceeding $60,000 but not exceeding
$150,000, the rate of 5.70 percent.
(d) On taxable income exceeding $150,000, the rate of 6.00
percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000 but not exceeding
$60,000, the rate of 4.82 percent.
(c) On taxable income exceeding $60,000, the rate of 5.70
percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000, the rate of 4.82
percent.
b. The tax imposed in section 422.5 shall be calculated
using the following rates in the following tax years in the
case of any other taxpayer other than married persons filing
-11-jointly:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000 but not exceeding
$30,000, the rate of 4.82 percent.
(c) On taxable income exceeding $30,000 but not exceeding
$75,000, the rate of 5.70 percent.
(d) On taxable income exceeding $75,000, the rate of 6.00
percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000 but not exceeding
$30,000, the rate of 4.82 percent.
(c) On taxable income exceeding $30,000, the rate of 5.70
percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000, the rate of 4.82
percent.
2. This section is repealed January 1, 2026.
Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107,
is repealed.
Sec. 17. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 18. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION V
INDIVIDUAL INCOME TAX — FLAT RATE
Sec. 19. Section 421.27, subsection 9, paragraph a,
-12-subparagraph (3), Code 2022, is amended to read as follows:
(3) In the case of all other entities, including
corporations described in section 422.36, subsection 5, and all
other entities required to file an information return under
section 422.15, subsection 2, the entity’s Iowa net income
after the application of the Iowa business activity ratio,
if applicable, multiplied by the top income tax rate imposed
under section 422.5A 422.5 for the tax year, less any Iowa tax
credits available to the entity.
Sec. 20. Section 422.5, subsection 1, paragraph a, Code
2022, is amended to read as follows:
a. A tax is imposed upon every resident and nonresident
of the state which tax shall be levied, collected, and paid
annually upon and with respect to the entire taxable income
as defined in this subchapter at rates as provided in section
422.5A a rate of three and nine-tenths percent.
Sec. 21. Section 422.16B, subsection 2, paragraph a, Code
2022, is amended to read as follows:
a. (1) A pass-through entity shall file a composite return
on behalf of all nonresident members and shall report and pay
the income or franchise tax imposed under this chapter at the
maximum state income or franchise tax rate applicable to the
member under section 422.5A 422.5, 422.33, or 422.63 on the
nonresident members’ distributive shares of the income from the
pass-through entity.
(2) The tax rate applicable to a tiered pass-through entity
shall be the maximum state income tax rate under section 422.5A
422.5.
Sec. 22. Section 422.25A, subsection 5, paragraph c,
subparagraphs (3), (4), and (5), Code 2022, are amended to read
as follows:
(3) Determine the total distributive share of all final
federal partnership adjustments and positive reallocation
adjustments as modified by this title that are reported to
nonresident individual partners and nonresident fiduciary
-13-partners and allocate and apportion such adjustments as
provided in section 422.33 at the partnership or tiered
partner level, and multiply the resulting amount by the maximum
individual income tax rate pursuant to section 422.5A 422.5 for
the reviewed year.
(4) For the total distributive share of all final federal
partnership adjustments and positive reallocation adjustments
as modified by this title that are reported to tiered partners:
(a) Determine the amount of such adjustments which are of a
type that would be subject to sourcing to Iowa under section
422.8, subsection 2, paragraph “a”, as a nonresident, and then
determine the portion of this amount that would be sourced to
Iowa under those provisions as if the tiered partner were a
nonresident.
(b) Determine the amount of such adjustments which are of
a type that would not be subject to sourcing to Iowa under
section 422.8, subsection 2, paragraph “a”, as a nonresident.
(c) Determine the portion of the amount in subparagraph
division (b) that can be established, as prescribed by the
department by rule, to be properly allocable to indirect
partners that are nonresident partners or other partners not
subject to tax on the adjustments.
(d) Multiply the total of the amounts determined in
subparagraph divisions (a) and (b), reduced by any amount
determined in subparagraph division (c), by the highest
individual income tax rate pursuant to section 422.5A 422.5 for
the reviewed year.
(5) For the total distributive share of all final federal
partnership adjustments and positive reallocation adjustments
as modified by this title that are reported to resident
individual partners and resident fiduciary partners, multiply
that amount by the highest individual income tax rate pursuant
to section 422.5A 422.5 for the reviewed year.
Sec. 23. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2026.
-14- Sec. 24. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2026.
DIVISION VI
Retirement Income
Sec. 25. Section 422.5, subsection 3, paragraph a, Code
2022, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
whose net income, as defined in section 422.7, is thirteen
thousand five hundred dollars or less in the case of married
persons filing jointly or filing separately on a combined
return, heads of household, and surviving spouses or nine
thousand dollars or less in the case of all other persons; but
in the event that the payment of tax under this subchapter
would reduce the net income to less than thirteen thousand five
hundred dollars or nine thousand dollars as applicable, then
the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirteen
thousand five hundred dollars or nine thousand dollars as
applicable. The preceding sentence does not apply to estates
or trusts. For the purpose of this subsection, the entire net
income, including any part of the net income not allocated
to Iowa, shall be taken into account. For purposes of this
subsection, net income includes all amounts of pensions or
other retirement income, except for military retirement pay
excluded under section 422.7, subsection 31A, paragraph “a”, or
section 422.7, subsection 31B, paragraph “a”, received from any
source which is not taxable under this subchapter as a result
of the government pension exclusions in section 422.7, or any
other state law. If the combined net income of a husband and
wife exceeds thirteen thousand five hundred dollars, neither
of them shall receive the benefit of this subsection, and it
is immaterial whether they file a joint return or separate
returns. However, if a husband and wife file separate returns
and have a combined net income of thirteen thousand five
hundred dollars or less, neither spouse shall receive the
-15-benefit of this paragraph, if one spouse has a net operating
loss and elects to carry back or carry forward the loss as
provided in section 422.9, subsection 3. A person who is
claimed as a dependent by another person as defined in section
422.12 shall not receive the benefit of this subsection if
the person claiming the dependent has net income exceeding
thirteen thousand five hundred dollars or nine thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirteen
thousand five hundred dollars or nine thousand dollars as
applicable.
Sec. 26. Section 422.5, subsection 3B, paragraph a, Code
2022, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
who is at least sixty-five years old on December 31 of
the tax year and whose net income, as defined in section
422.7, is thirty-two thousand dollars or less in the case
of married persons filing jointly or filing separately on a
combined return, heads of household, and surviving spouses or
twenty-four thousand dollars or less in the case of all other
persons; but in the event that the payment of tax under this
subchapter would reduce the net income to less than thirty-two
thousand dollars or twenty-four thousand dollars as applicable,
then the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
The preceding sentence does not apply to estates or trusts.
For the purpose of this subsection, the entire net income,
including any part of the net income not allocated to Iowa,
shall be taken into account. For purposes of this subsection,
net income includes all amounts of pensions or other retirement
income, except for military retirement pay excluded under
section 422.7, subsection 31A, paragraph “a”, or section 422.7,
subsection 31B, paragraph “a”, received from any source which is
not taxable under this subchapter as a result of the government
-16-pension exclusions in section 422.7, or any other state law.
If the combined net income of a husband and wife exceeds
thirty-two thousand dollars, neither of them shall receive the
benefit of this subsection, and it is immaterial whether they
file a joint return or separate returns. However, if a husband
and wife file separate returns and have a combined net income
of thirty-two thousand dollars or less, neither spouse shall
receive the benefit of this paragraph, if one spouse has a net
operating loss and elects to carry back or carry forward the
loss as provided in section 422.9, subsection 3. A person
who is claimed as a dependent by another person as defined in
section 422.12 shall not receive the benefit of this subsection
if the person claiming the dependent has net income exceeding
thirty-two thousand dollars or twenty-four thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
Sec. 27. Section 422.7, subsection 31, Code 2022, is amended
to read as follows:
31. a. For a person who is disabled, or is fifty-five years
of age or older, or is the surviving spouse of an individual or
a survivor having an insurable interest in an individual who
would have qualified for the exemption under this subsection
for the tax year, subtract Subtract, to the extent included,
the total amount of received from a governmental or other
pension or retirement pay plan, including, but not limited
to, defined benefit or defined contribution plans, annuities,
individual retirement accounts, plans maintained or contributed
to by an employer, or maintained or contributed to by a
self-employed person as an employer, and deferred compensation
plans or any earnings attributable to the deferred compensation
plans, up to a maximum of six thousand dollars for a person,
other than a husband or wife, who files a separate state income
tax return and up to a maximum of twelve thousand dollars
for a husband and wife who file a joint state income tax
-17-return. However, a surviving spouse who is not disabled or
fifty-five years of age or older can only exclude the amount
of pension or retirement pay received as a result of the death
of the other spouse. A husband and wife filing separate state
income tax returns or separately on a combined state return
are allowed a combined maximum exclusion under this subsection
of up to twelve thousand dollars. The twelve thousand dollar
exclusion shall be allocated to the husband or wife in the
proportion that each spouse’s respective pension and retirement
pay received bears to total combined pension and retirement
pay received received by a person who is disabled, or is
fifty-five years of age or older, or is the surviving spouse of
an individual or is a survivor having an insurable interest in
an individual who would have qualified for the exemption under
this subsection for the tax year.
b. Married taxpayers who file separate state income tax
returns shall allocate their combined annual exclusion amount
to each spouse in the proportion that each spouse’s respective
income received from a pension or retirement plan bears to the
total combined pension or retirement pay received.
c. A taxpayer who is not disabled or fifty-five years of
age or older and who receives pension or retirement pay as a
surviving spouse or as a survivor with an insurable interest
in an individual who would have qualified for the exemption
for the tax year may only exclude the amount received from a
pension or retirement plan in the tax year as a result of the
death of the decedent.
Sec. 28. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 29. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION VII
RESEARCH ACTIVITIES TAX CREDIT
Sec. 30. Section 15.335, subsection 4, paragraph a, Code
2022, is amended to read as follows:
-18- a. In lieu of the credit amount computed in subsection 2,
an eligible business may shall elect to compute the credit
amount for qualified research expenses incurred in this state
in a manner consistent with the alternative simplified credit
described in section 41(c)(4) of the Internal Revenue Code if
the taxpayer elected or was required to use the alternative
simplified credit method for federal income tax purposes for
the same taxable year. The taxpayer may make this election
regardless of the method used for the taxpayer’s federal income
tax. The election made under this paragraph is for the tax
year and the taxpayer may use another or the same method for
any subsequent tax year.
Sec. 31. Section 15.335, subsection 5, Code 2022, is amended
to read as follows:
5. The credit allowed in this section is in addition to
the credit authorized in section 422.10 and section 422.33,
subsection 5. However, if the alternative credit computation
method is used in section 422.10 or section 422.33, subsection
5, the credit allowed in this section shall also be computed
using that method. The regular or alternative credit allowed
in this section shall be computed according to the same claim,
calculation, and refund limitations in section 422.10 and
section 422.33, subsection 5, as applicable, including those
described in section 422.10, subsection 1, paragraph “a”, and
section 422.10, subsection 1, paragraph “b”, subparagraph
(3), and section 422.10, subsection 4, and those described in
section 422.33, subsection 5, paragraph “b”, subparagraph (2),
and section 422.33, subsection 5, paragraphs “e” and “g”.
Sec. 32. Section 15.335, subsection 8, Code 2022, is amended
to read as follows:
8. a. Any The following percentage of any credit in excess
of the tax liability for the taxable year shall be refunded
with interest in accordance with section 421.60, subsection 2,
paragraph “e”:
(1) For the tax year beginning on or after January 1, 2023,
-19-but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
its final, completed return credited to the tax liability for
the following tax year.
Sec. 33. Section 422.10, subsection 1, paragraph a, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) The credit provided in this section
is claimed on a return filed by the due date for filing the
return, including extensions of time. If timely claimed, the
business shall not increase the credit claim on an amended
return or otherwise unless either of the following apply:
(a) The amended return is filed within six months of the due
date for filing the return which includes extensions of time.
(b) The increase results from an audit or examination by the
internal revenue service or the department.
Sec. 34. Section 422.10, subsection 1, paragraph b, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) For the purpose of calculating
the state’s apportioned share of the qualifying expenditures
for increasing research activities in subparagraph (2), the
following criteria shall apply only to the determination of
qualified research expenditures in this state:
(a) Wages paid to an employee for qualified services,
or contract research expenses paid to a third party for
the performance of qualified research services, shall only
constitute qualified research expenses in this state if the
-20-services are performed in this state, and if the following
conditions are met, as applicable:
(i) For qualified services performed by employees, during
the period of the tax year that the business is engaging in one
or more research projects, a majority of the total services
performed by the employee for the business are directly related
to those research projects.
(ii) For the performance of qualified research services
by a third party, during the period of the business’s tax
year that the third party is performing research services for
the business, a majority of the total services performed by
the person for the third party are directly related to those
research projects of the business.
(b) The substantially all rule for determining qualified
services as described in section 41(b)(2)(B) of the Internal
Revenue Code and Treas.Reg.1.41-2(d)(2) does not apply.
(c) Amounts paid for the right to use computers as described
in section 41(b)(2)(A)(iii) of the Internal Revenue Code shall
not be qualified research expenses in this state.
(d) For tax years beginning on or after January 1, 2023, but
before January 1, 2027, amounts paid for supplies as defined
in section 41(b)(2)(C) of the Internal Revenue Code shall only
constitute qualified research expenses in this state if the
supplies directly relate to research performed in this state
and shall be limited to the following allowable percentages:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, eighty percent of the amounts paid
for supplies directly related to research performed in this
state.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, sixty percent of the amounts paid
for supplies directly related to research performed in this
state.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, forty percent of the amounts
-21-paid for supplies directly related to research performed in
this state.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, twenty percent of the amounts paid
for supplies directly related to research performed in this
state.
(e) For tax years beginning on or after January 1, 2027,
amounts paid for supplies as defined in section 41(b)(2)(C)
of the Internal Revenue Code shall not be qualified research
expenses in this state.
Sec. 35. Section 422.10, subsection 1, paragraphs c and d,
Code 2022, are amended to read as follows:
c. In lieu of the credit amount computed in paragraph “b”,
subparagraph (1), subparagraph division (a), a taxpayer may
shall elect to compute the credit amount for qualified research
expenses incurred in this state in a manner consistent with the
alternative simplified credit described in section 41(c)(4)
of the Internal Revenue Code if the taxpayer elected or was
required to use the alternative simplified credit method for
federal income tax purposes for the same taxable year. The
taxpayer may make this election regardless of the method used
for the taxpayer’s federal income tax. The election made under
this paragraph is for the tax year and the taxpayer may use
another or the same method for any subsequent year.
d. For purposes of the alternate credit computation method
in paragraph “c”, the following criteria shall apply:
(1) Thecredit percentages applicable to qualified research
expenses described in section 41(c)(4)(A) and clause (ii) of
section 41(c)(4)(B) of the Internal Revenue Code are four
and fifty-five hundredths percent and one and ninety-five
hundredths percent, respectively.
(2) Basic research payments and qualified research expenses
shall only include amounts for research conducted in this
state. A taxpayer’s qualified research expenses in this state
and average prior year qualified research expenses in this
-22-state shall be determined in accordance with the criteria in
subsection 1, paragraph “b”, subparagraph (3).
Sec. 36. Section 422.10, subsection 3, paragraph b, Code
2022, is amended to read as follows:
b. For purposes of this section, “basic research payment”
and “qualified research expense” mean the same as defined
for the federal credit for increasing research activities
under section 41 of the Internal Revenue Code, except that
for the alternative simplified credit such amounts are for
research conducted within this state as otherwise described in
subsection 1, paragraph “b”, subparagraph (3), and subsection
1, paragraph “d”, subparagraph (2).
Sec. 37. Section 422.10, subsection 4, Code 2022, is amended
to read as follows:
4. a. (1) Any The following percentage of any credit in
excess of the tax liability imposed by section 422.5 less the
amounts of nonrefundable credits allowed under this subchapter
for the taxable year shall be refunded with interest in
accordance with section 421.60, subsection 2, paragraph “e”:
(a) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety percent.
(b) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, eighty percent.
(c) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, seventy percent.
(d) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, sixty percent.
(2) In lieu of claiming a refund pursuant to this paragraph,
a taxpayer may elect to have the overpayment otherwise eligible
for a refund shown on the taxpayer’s final, completed return
credited to the tax liability for the following taxable year.
b. Commencing with tax years beginning on or after
January 1, 2027, fifty percent of any credit in excess of the
tax liability imposed by section 422.5 less the amounts of
nonrefundable credits allowed under this subchapter for the
-23-taxable year shall be refunded with interest in accordance
with section 421.60, subsection 2, paragraph “e”. In lieu of
claiming a refund, a taxpayer may elect to have the overpayment
otherwise eligible for a refund shown on the taxpayer’s
final, completed return credited to the tax liability for the
following taxable year.
c. In applying the credit in this section against tax
liability and computing the eligible refund amount, the credit
shall be applied after all nonrefundable credits available
to the taxpayer are applied, but before any other refundable
credit available to the taxpayer is applied.
Sec. 38. Section 422.33, subsection 5, paragraph b, Code
2022, is amended to read as follows:
b. (1) The state’s apportioned share of the qualifying
expenditures for increasing research activities is a percent
equal to the ratio of qualified research expenditures in this
state to the total qualified research expenditures.
(2) For the purpose of calculating the state’s apportioned
share of the qualifying expenditures for increasing research
activities in subparagraph (1), the following criteria
shall apply only to the determination of qualified research
expenditures in this state:
(a) Wages paid to an employee for qualified services,
or contract research expenses paid to a third party for
the performance of qualified research services, shall only
constitute qualified research expenses in this state if the
services are performed in this state, and if the following
conditions are met, as applicable:
(i) For qualified services performed by employees, during
the period of the tax year that the business is engaging in one
or more research projects, a majority of the total services
performed by the employee for the business are directly related
to those research projects.
(ii) For the performance of qualified research services
by a third party, during the period of the business’s tax
-24-year that the third party is performing research services for
the business, a majority of the total services performed by
the person for the third party are directly related to those
research projects of the business.
(b) The substantially all rule for determining qualified
services as described in section 41(b)(2)(B) of the Internal
Revenue Code and Treas.Reg.1.41-2(d)(2) does not apply.
(c) Amounts paid for the right to use computers as described
in section 41(b)(2)(A)(iii) of the Internal Revenue Code shall
not be qualified research expenses in this state.
(d) For tax years beginning on or after January 1, 2023, but
before January 1, 2027, amounts paid for supplies as defined
in section 41(b)(2)(C) of the Internal Revenue Code shall only
constitute qualified research expenses in this state if the
supplies directly relate to research performed in this state
and shall be limited to the following allowable percentages:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, eighty percent of the amounts paid
for supplies directly related to research performed in this
state.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, sixty percent of the amounts paid
for supplies directly related to research performed in this
state.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, forty percent of the amounts
paid for supplies directly related to research performed in
this state.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, twenty percent of the amounts paid
for supplies directly related to research performed in this
state.
(e) For tax years beginning on or after January 1, 2027,
amounts paid for supplies as defined in section 41(b)(2)(C)
of the Internal Revenue Code shall not be qualified research
-25-expenses in this state.
Sec. 39. Section 422.33, subsection 5, paragraphs c and d,
Code 2022, are amended to read as follows:
c. In lieu of the credit amount computed in paragraph “a”,
subparagraph (1), a corporation may shall elect to compute
the credit amount for qualified research expenses incurred
in this state in a manner consistent with the alternative
simplified credit described in section 41(c)(4) of the Internal
Revenue Code if the taxpayer elected or was required to use
the alternative simplified credit method for federal income
tax purposes for the same taxable year. The taxpayer may make
this election regardless of the method used for the taxpayer’s
federal income tax. The election made under this paragraph is
for the tax year and the taxpayer may use another or the same
method for any subsequent year.
d. For purposes of the alternate credit computation method
in paragraph “c”, the following criteria shall apply:
(1) Thecredit percentages applicable to qualified research
expenses described in section 41(c)(4)(A) and clause (ii) of
section 41(c)(4)(B) of the Internal Revenue Code are four
and fifty-five hundredths percent and one and ninety-five
hundredths percent, respectively.
(2) Basic research payments and qualified research expenses
shall only include amounts for research conducted in this
state. A taxpayer’s qualified research expenses in this state
and average prior year qualified research expenses in this
state shall be determined in accordance with the rules in
paragraph “b”, subparagraph (2).
Sec. 40. Section 422.33, subsection 5, paragraph e, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) The credit provided in this
subsection is claimed on a return filed by the due date for
filing the return, including extensions of time. If timely
claimed, the business shall not increase the credit claim on
an amended return or otherwise unless either of the following
-26-apply:
(a) The amended return is filed within six months of the due
date for filing the return which includes extensions of time.
(b) The increase results from an audit or examination by the
internal revenue service or the department.
Sec. 41. Section 422.33, subsection 5, paragraph f,
subparagraph (2), Code 2022, is amended to read as follows:
(2) For purposes of this subsection, “basic research
payment” and “qualified research expense” mean the same as
defined for the federal credit for increasing research
activities under section 41 of the Internal Revenue Code,
except that for the alternative simplified credit such amounts
are for research conducted within this state as otherwise
described in paragraph “b”, subparagraph (2), and paragraph “d”,
subparagraph (2).
Sec. 42. Section 422.33, subsection 5, paragraph g, Code
2022, is amended to read as follows:
g. (1) (a) Any The following percentage of the credit
in excess of the tax liability for the taxable year shall
be refunded with interest in accordance with section 421.60,
subsection 2, paragraph “e”:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety percent.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, eighty percent.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, seventy percent.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, sixty percent.
(b) In lieu of claiming a refund pursuant to this
subparagraph, a taxpayer may elect to have the overpayment
otherwise eligible for a refund shown on its final, completed
return credited to the tax liability for the following taxable
year.
(2) Commencing with tax years beginning on or after January
-27-1, 2027, fifty percent of any credit in excess of the tax
liability for the taxable year shall be refunded with interest
in accordance with section 421.60, subsection 2, paragraph “e”.
In lieu of claiming a refund, a taxpayer may elect to have
the overpayment otherwise eligible for a refund shown on its
final, completed return credited to the tax liability for the
following taxable year.
(3) In applying the credit in this subsection against tax
liability and computing the eligible refund amount, the credit
shall be applied after all nonrefundable credits available
to the taxpayer are applied, but before any other refundable
credit available to the taxpayer is applied.
Sec. 43. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 44. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION VIII
OTHER TAX CREDITS
Sec. 45. Section 15.119, subsection 2, paragraph a, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) In allocating tax credits pursuant
to this subsection, the authority shall prioritize issuing
additional research activities tax credits pursuant to section
15.335.
Sec. 46. Section 15.293A, subsection 1, paragraph c,
subparagraph (2), Code 2022, is amended to read as follows:
(2) (a) A tax credit in excess of the taxpayer’s liability
for the tax year is refundable if all of the following
conditions are met:
(a) (i) The taxpayer is an investor making application for
tax credits provided in this section and is an entity organized
under chapter 504 and qualifying under section 501(c)(3) of the
Internal Revenue Code as an organization exempt from federal
income tax under section 501(a) of the Internal Revenue Code.
(b) (ii) The taxpayer establishes during the application
-28-process described in section 15.293B that the requirement in
subparagraph division (a) is satisfied. The authority, when
issuing a certificate to a taxpayer that meets the requirements
in this subparagraph (2), shall indicate on the certificate
that such requirements have been satisfied.
(b) For a tax credit deemed refundable pursuant to
subparagraph division (a), the following percentage of the tax
credit in excess of the taxpayer’s liability for the tax year
is refundable:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, eighty-five percent.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(v) For tax years beginning on or after January 1, 2027,
seventy-five percent.
Sec. 47. Section 15.293A, subsection 2, paragraph d, Code
2022, is amended to read as follows:
d. Tax credit certificates issued under this section may
be transferred to any person or entity, except a tax credit
certificate that is refundable under subsection 1, paragraph
“c”, subparagraph (2), shall not be transferable. Within
ninety days of transfer, the transferee shall submit the
transferred tax credit certificate to the department of revenue
along with a statement containing the transferee’s name, tax
identification number, and address, the denomination that each
replacement tax credit certificate is to carry, and any other
information required by the department of revenue.
Sec. 48. Section 15E.305, subsection 2, paragraph a, Code
2022, is amended to read as follows:
a. The maximum amount of tax credits granted to a taxpayer
shall not exceed five percent one hundred thousand dollars of
-29-the aggregate amount of tax credits authorized.
Sec. 49. Section 15.331C, subsection 1, Code 2022, is
amended to read as follows:
1. a. An eligible business may claim a tax credit in an
amount equal to the sales and use taxes paid by a third-party
developer under chapter 423 for gas, electricity, water, or
sewer utility services, goods, wares, or merchandise, or
on services rendered, furnished, or performed to or for a
contractor or subcontractor and used in the fulfillment of a
written contract relating to the construction or equipping of
a facility of the eligible business. Taxes attributable to
intangible property and furniture and furnishings shall not
be included, but taxes attributable to racks, shelving, and
conveyor equipment to be used in a warehouse or distribution
center shall be included. Any credit in excess of the tax
liability for the tax year may be credited to the tax liability
for the following seven years or until depleted, whichever
occurs earlier. An eligible business may elect to receive a
refund as a refund the following percentage of all or a portion
of an unused any tax credit in excess of the tax liability as
follows:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following seven years or until depleted,
-30-whichever occurs earlier.
Sec. 50. Section 404A.2, subsection 4, Code 2022, is amended
to read as follows:
4. a. For a tax credit claimed by an eligible taxpayer
or a transferee for qualified rehabilitation projects
with agreements entered into on or after July 1, 2014, the
following percentage of any credit in excess of the taxpayer’s
tax liability for the tax year may be refunded or, at the
taxpayer’s election, credited to the taxpayer’s tax liability
for the following five years or until depleted, whichever is
earlier:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following five tax years or until depleted,
whichever is earlier.
c. A tax credit shall not be carried back to a tax year
prior to the tax year in which the taxpayer redeems the tax
credit. As used in this subsection, “taxpayer” includes
an eligible taxpayer or a person transferred a tax credit
certificate pursuant to subsection 3.
Sec. 51. Section 422.12N, Code 2022, is amended by adding
the following new subsections:
NEW SUBSECTION. 6. This section does not apply to a
geothermal heat pump installation occurring after December 31,
-31-2023.
NEW SUBSECTION. 7. This section is repealed January 1,
2034.
Sec. 52. Section 422.33, subsection 9, paragraph a, Code
2022, is amended to read as follows:
a. (1) The taxes imposed under this subchapter shall be
reduced by an assistive device tax credit. A small business
purchasing, renting, or modifying an assistive device or making
workplace modifications for an individual with a disability
who is employed or will be employed by the small business is
eligible, subject to availability of credits, to receive this
assistive device tax credit which is equal to fifty percent of
the first five thousand dollars paid during the tax year for
the purchase, rental, or modification of the assistive device
or for making the workplace modifications. Any The following
percentage of any credit in excess of the tax liability shall
be refunded with interest in accordance with section 421.60,
subsection 2, paragraph “e”, as follows:
(a) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(b) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(c) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(d) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(e) For tax years beginning on or after January 1, 2027,
seventy-five percent.
(2) In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following tax year. If the small business
elects to take the assistive device tax credit, the small
business shall not deduct for Iowa tax purposes any amount of
the cost of an assistive device or workplace modifications
-32-which is deductible for federal income tax purposes.
Sec. 53. PRESERVATION OF EXISTING RIGHTS. This division
of this Act is not intended to and shall not limit, modify, or
otherwise adversely affect any amount of tax credit issued,
awarded, or allowed prior to January 1, 2023, nor shall it
limit, modify, or otherwise adversely affect a taxpayer’s right
to claim or redeem a tax credit issued, awarded, or allowed
prior to January 1, 2023, including but not limited to any tax
credit carryforward amount.
Sec. 54. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 55. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION IX
CORPORATE INCOME TAX RATES — ADJUSTMENTS
Sec. 56. Section 422.33, subsection 1, Code 2022, is amended
to read as follows:
1. a. A tax is imposed annually upon each corporation doing
business in this state, or deriving income from sources within
this state, in an amount computed by applying the following
rates of taxation to the net income received by the corporation
during the income year:
a. (1) On the first twenty-five thousand dollars of taxable
income, or any part thereof, the rate of six percent for tax
years beginning prior to January 1, 2021, and the rate of
five and one-half percent for tax years beginning on or after
January 1, 2021.
b. (2) On taxable income between twenty-five thousand
dollars and one hundred thousand dollars or any part thereof,
the rate of eight percent for tax years beginning prior to
January 1, 2021, and the rate of five and one-half percent for
tax years beginning on or after January 1, 2021.
c. (3) On taxable income between one hundred thousand
dollars and two hundred fifty thousand dollars or any part
thereof, the rate of ten percent for tax years beginning prior
-33-to January 1, 2021, and the rate of nine percent for tax years
beginning on or after January 1, 2021.
d. (4) On taxable income of two hundred fifty thousand
dollars or more, the rate of twelve percent for tax years
beginning prior to January 1, 2021, and the rate of nine
and eight-tenths percent for tax years beginning on or after
January 1, 2021.
b. (1) (a) Notwithstanding paragraph “a”, the department
of management and the department of revenue shall determine
corporate income tax rates as provided in this paragraph. A
tax rate in this subsection shall remain in effect until the
tax rate is adjusted pursuant to this paragraph.
(b) By November 1, 2022, and by November 1 each year
thereafter, the department of management shall determine the
net corporate income tax receipts for the fiscal year preceding
the determination date. If net corporate income tax receipts
for the preceding fiscal year exceed seven hundred million
dollars, the department of revenue shall adjust and apply new
corporate income tax rates as provided in subparagraph (2).
(2) (a) If a determination has been made that net
corporate income tax receipts for the preceding fiscal year
exceeded seven hundred million dollars, the department of
revenue shall adjust the tax rates specified in paragraph “a”,
subparagraphs (3) and (4), and apply the adjusted rates for tax
years beginning on or after the next January 1 following the
determination date.
(b) (i) The tax rates subject to adjustment shall be
adjusted in such a way that when combined with all the other
rates specified in paragraph “a”, the tax rates would have
generated net corporate income tax receipts that equal seven
hundred million dollars in the preceding fiscal year.
(ii) When adjusting the tax rates, the tax rates shall be
adjusted as follows:
(A) The tax rate in effect that corresponds with the
specified tax rate in paragraph “a”, subparagraph (4),
-34-shall first be adjusted but not below the tax rate in effect
that corresponds with the specified rate in paragraph “a”,
subparagraph (3).
(B) If after the adjustment in subparagraph part (A) is
made, and an additional adjustment is necessary, the tax rates
that correspond with the rates specified in paragraph “a”,
subparagraphs (3) and (4), shall be adjusted on an equal basis.
(iii) The tax rates adjusted pursuant to this paragraph
shall not be adjusted below five and one-half percent.
(iv) The tax rates, when adjusted, shall be rounded down to
the nearest one-tenth of one percent.
(3) If a tax rate is adjusted pursuant to this paragraph,
the director of revenue shall cause an advisory notice
containing the new corporate tax rates to be published in the
Iowa administrative bulletin and on the internet site of the
department of revenue. The calculation and publication of the
adjusted tax rate by the director of revenue is exempt from
chapter 17A, and shall be submitted for publication by the
first December 31 following the determination date to adjust
the tax rates.
DIVISION X
CORPORATE INCOME TAX — flat rate
Sec. 57. Section 422.33, subsection 1, Code 2022, is amended
by striking the subsection and inserting in lieu thereof the
following:
1. A tax is imposed annually upon each corporation doing
business in this state, or deriving income from sources within
this state, in an amount computed by applying the rate of
five and one-half percent to the net income received by the
corporation during the income year.
Sec. 58. CONTINGENT EFFECTIVE DATE. This division of
this Act takes effect on the first January 1 after each rate
of taxation on the net income received by a corporation is
equalized to equal five and one-half percent pursuant to
section 422.33, subsection 1, paragraph “b”, as amended by this
-35-Act. The director of revenue shall inform the Code editor upon
the occurrence of this contingency.
Sec. 59. APPLICABILITY. This division of this Act applies
to tax years beginning on or after the effective date of this
division of this Act.
DIVISION XI
TAX EXPENDITURE COMMITTEE
Sec. 60. Section 2.45, subsection 5, Code 2022, is amended
by striking the subsection.
Sec. 61. Section 2.48, subsections 1 and 2, Code 2022,
are amended by striking the subsections and inserting in lieu
thereof the following:
1. As used in this section, “tax expenditure” means an
exclusion from the operation or collection of a tax imposed in
this state. Tax expenditures include tax credits, exemptions,
deductions, and rebates. Tax expenditures also include sales
tax refunds issued pursuant to section 423.3 or 423.4.
2. a. (1) The department administering a tax expenditure
described in subsection 3 shall engage in a review of the
tax expenditure based upon the schedule in subsection 3. If
multiple departments administer the tax expenditure, the
departments shall cooperate in the review.
(2) The review shall consist of evaluating any tax
expenditure described in subsection 3 and assess its equity,
simplicity, competitiveness, public purpose, adequacy,
and extent of conformance with the original purpose of the
legislation that enacted the tax expenditure, as those issues
pertain to taxation in Iowa.
b. (1) The department shall file a report detailing the
review with the general assembly no later than December 15 of
the year the credit is scheduled to be reviewed in subsection
3.
(2) The report may include recommendations for better
aligning tax expenditures with the original intent of the
legislation that enacted the tax expenditure.
-36- Sec. 62. Section 2.48, subsection 3, unnumbered paragraph
1, Code 2022, is amended to read as follows:
The committee applicable department shall review the
following tax expenditures and incentives according to the
following schedule:
Sec. 63. Section 2.48, subsection 4, Code 2022, is amended
to read as follows:
4. Subsequent additional review. A tax expenditure or
incentive reviewed pursuant to subsection 3 shall be reviewed
again not more than five years after the tax expenditure or
incentive was most recently reviewed.
DIVISION XII
TAXPAYER RELIEF FUND CONTINGENT TRANSFERS
Sec. 64. Section 8.54, subsection 5, Code 2022, is amended
to read as follows:
5. a. For fiscal years in which it is anticipated that
the distribution of moneys from the Iowa economic emergency
fund in accordance with section 8.55, subsection 2, will result
in moneys being transferred to the general fund of the state,
the original state general fund expenditure limitation amount
provided for in subsection 3 shall be readjusted to include the
amount of moneys anticipated to be so transferred.
b. For fiscal years in which it is anticipated that moneys
will be transferred from the taxpayer relief fund to the
general fund of the state in accordance with section 8.57E,
subsection 2, paragraph “b”, the original state general fund
expenditure limitation amount provided for in subsection 3
shall be readjusted to include the amount of moneys anticipated
to be so transferred. This paragraph is repealed on the date
that section 8.57E, subsection 2, paragraph “b”, is repealed.
Sec. 65. Section 8.57E, subsection 2, Code 2022, is amended
to read as follows:
2. a. Moneys Except as otherwise provided in this section,
moneys in the taxpayer relief fund shall only be used pursuant
to appropriations or transfers made by the general assembly
-37-for tax relief, including but not limited to increases in
the general retirement income exclusion under section 422.7,
subsection 31, or reductions in income tax rates.
b. (1) For the fiscal year beginning July 1, 2023, and for
each fiscal year thereafter, if the actual net revenue for the
general fund of the state for the fiscal year plus the amount
transferred to the general fund of the state under section
8.55, subsection 2, paragraph “b”, for the fiscal year, if
any, is less than one hundred three and one-half percent of
the actual net revenue for the general fund of the state for
the prior fiscal year, there is transferred from the taxpayer
relief fund to the general fund of the state an amount equal to
the difference or the remaining balance of the taxpayer relief
fund, whichever is lower, subject to subparagraph (2).
(2) The transfer made under subparagraph (1) shall not
exceed an amount necessary to increase the ending balance
of the general fund of the state for the fiscal year to one
percent of the adjusted revenue estimate, as defined in section
8.54, for the fiscal year.
(3) This paragraph is repealed on the date the remaining
balance of the taxpayer relief fund is transferred to the
general fund of the state under subparagraph (1).
______________________________
PAT GRASSLEY
Speaker of the House
______________________________
JAKE CHAPMAN
President of the Senate
I hereby certify that this bill originated in the House and
is known as House File 2317, Eighty-ninth General Assembly.
______________________________
MEGHAN NELSON
Chief Clerk of the House
Approved _______________, 2022
-38-______________________________
KIM REYNOLDS
Governor
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individual income tax rates, exemptions, and credits,
corporate income tax rates and credits, credits against the
franchise tax, the insurance premiums tax, and the moneys
and credits tax, and the tax expenditure committee, making
contingent transfers from the taxpayer relief fund, and
including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
DIVISION I
SALE OF CERTAIN QUALIFIED STOCK — NET CAPITAL GAIN EXCLUSION
Section 1. Section 422.7, Code 2022, is amended by adding
the following new subsection:
NEW SUBSECTION. 63. a. Subtract the following percentage
of the net capital gain from the sale or exchange of capital
stock of a qualified corporation for which an election is made
by an employee-owner:
(1) For the tax year beginning in the 2023 calendar year,
thirty-three percent.
(2) For the tax year beginning in the 2024 calendar year,
sixty-six percent.
(3) For tax years beginning on or after January 1, 2025, one
hundred percent.
b. (1) An employee-owner is entitled to make one
irrevocable lifetime election to exclude the net capital
gain from the sale or exchange of capital stock of one
qualified corporation which capital stock was acquired by the
employee-owner while employed and on account of employment by
such qualified corporation.
(2) The election shall apply to all subsequent sales
or exchanges of qualifying capital stock of the elected
corporation within fifteen years of the date of the election,
provided that the subsequent sales or exchanges were of capital
stock in the same qualified corporation and were acquired by
the employee-owner while employed and on account of employment
by such qualified corporation.
(3) The election shall apply to qualifying capital stock
that has been transferred by inter vivos gift from the
employee-owner to the employee-owner’s spouse or to a trust
for the benefit of the employee-owner’s spouse following the
transfer. This subparagraph (3) shall apply to a spouse
only if the spouse was married to the employee-owner on the
date of the sale or exchange or the date of death of the
employee-owner.
-1- (4) If the employee-owner dies after having sold or
exchanged qualifying capital stock without having made an
election under this subsection, the surviving spouse or, if
there is no surviving spouse, the personal representative of
the employee-owner’s estate, may make the election that would
have qualified under this subsection.
(5) The election shall be made in the manner and form
prescribed by the department and shall be included with the
taxpayer’s state income tax return for the taxable year in
which the election is made.
c. For purposes of this subsection:
(1) “Capital stock” means common or preferred stock, either
voting or nonvoting. “Capital stock” does not include stock
rights, stock warrants, stock options, or debt securities.
(2) “Employee-owner” means an individual who owns capital
stock in a qualified corporation for at least ten years, which
capital stock was acquired by the individual while employed and
on account of employment by such corporation for at least ten
cumulative years.
(3) “Personal representative” means the same as defined in
section 633.3, or if there is no such personal representative
appointed, then the person legally authorized to perform
substantially the same functions.
(4) (a) “Qualified corporation” means, with respect to an
employee-owner, a corporation which, at the time of the first
sale or exchange for which an election is made by the employee-
owner under this subsection, meets all of the following
conditions:
(i) The corporation employed individuals in this state for
at least ten years.
(ii) The corporation has had at least five shareholders for
the ten years prior to the first sale or exchange under this
subsection.
(iii) The corporation has had at least two shareholders or
groups of shareholders who are not related for the ten years
-2-prior to the first sale or exchange under this subsection.
Two persons are considered related when, under section 318 of
the Internal Revenue Code, one is a person who owns, directly
or indirectly, capital stock that if directly owned would be
attributed to the other person, or is the brother, sister,
aunt, uncle, cousin, niece, or nephew of the other person who
owns capital stock either directly or indirectly.
(b) “Qualified corporation” includes any member of an Iowa
affiliated group if the Iowa affiliated group includes a member
that has employed individuals in this state for at least ten
years. For purposes of this subparagraph division, “Iowa
affiliated group” means an affiliated group that has made a
valid election to file an Iowa consolidated income tax return
under section 422.37 in the year in which the deduction under
this subsection is claimed. “Member” includes any entity
included in the consolidated return under section 422.37,
subsection 2, for the tax year in which the deduction is
claimed.
(c) “Qualified corporation” also includes any corporation
that was a party to a reorganization that was entirely or
substantially tax free if such reorganization occurred during
or after the employment of the employee-owner.
Sec. 2. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 3. APPLICABILITY. This division of this Act applies to
tax years beginning on or after January 1, 2023.
DIVISION II
RETIRED FARMER LEASE INCOME EXCLUSION
Sec. 4. Section 422.7, Code 2022, is amended by adding the
following new subsection:
NEW SUBSECTION. 21A. a. Subtract, to the extent included,
net income received by an eligible individual pursuant to a
farm tenancy agreement covering real property held by the
eligible individual for ten or more years, if the eligible
individual materially participated in a farming business for
-3-ten or more years.
b. An individual who elects to exclude income received
pursuant to a farm tenancy agreement under this subsection
shall not claim any of the following in the tax year in which
the election is made or in any succeeding year:
(1) The capital gain exclusion under subsection 21.
(2) The beginning farmer tax credit under section 422.11E.
c. Married individuals who file separate state income tax
returns shall allocate their combined annual exclusion limit
to each spouse in the proportion that each spouse’s respective
net income from a farm tenancy agreement bears to the total net
income from a farm tenancy agreement.
d. The department shall establish criteria, by rule,
relating to whether and how a surviving spouse may claim the
income exclusion for which a deceased eligible individual would
have been eligible under this subsection.
e. Net income from a farm tenancy agreement earned,
received, or reported by an entity taxed as a partnership
for federal tax purposes, an S corporation, or a trust or
estate is not eligible for the election and deduction in this
subsection, even if such net income ultimately passes through
to an eligible individual.
f. For purposes of this subsection:
(1) “Eligible individual” means an individual who is
disabled or who is fifty-five years of age or older at the time
the election is made, who no longer materially participates in
a farming business at the time the election is made, and who,
as an owner-lessor, is party to a farm tenancy agreement.
(2) “Farm tenancy agreement” means a written agreement
outlining the rights and obligations of an owner-lessor and a
tenant-lessee where the tenant-lessee has a farm tenancy as
defined in section 562.1A. A “farm tenancy agreement” includes
cash leases, crop share leases, or livestock share leases.
(3) “Farming business” means the production, care, growing,
harvesting, preservation, handling, or storage of crops
-4-or forest or fruit trees; the production, care, feeding,
management, and housing of livestock; or horticulture, all
intended for profit.
(4) “Livestock” means the same as defined in section 717.1.
(5) “Materially participated” means the same as “material
participation” in section 469(h) of the Internal Revenue Code.
Sec. 5. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 6. APPLICABILITY. This division of this Act applies to
tax years beginning on or after January 1, 2023.
DIVISION III
RETIRED FARMER CAPITAL GAIN EXCLUSION
Sec. 7. Section 422.7, subsection 21, Code 2022, is amended
by striking the subsection and inserting in lieu thereof the
following:
21. a. For purposes of this subsection:
(1) “Farming business” means the production, care, growing,
harvesting, preservation, handling, or storage of crops
or forest or fruit trees; the production, care, feeding,
management, and housing of livestock; or horticulture, all for
intended profit.
(2) “Held” shall be determined with reference to the holding
period provisions of section 1223 of the Internal Revenue Code
and the federal regulations pursuant thereto.
(3) “Livestock” means the same as defined in section 717.1.
(4) “Materially participated” means the same as “material
participation” in section 469(h) of the Internal Revenue Code.
(5) (a) “Real property used in a farming business” means
all tracts of land and the improvements and structures located
on such tracts which are in good faith used primarily for
a farming business. Buildings which are primarily used or
intended for human habitation are deemed to be used in a
farming business when the building is located on or adjacent
to the parcel used in the farming business. Land and the
nonresidential improvements and structures located on such land
-5-that shall be considered to be used primarily in a farming
business include but are not limited to land, improvements
or structures used for the storage or maintenance of farm
machinery or equipment, for the drying, storage, handling,
or preservation of agricultural crops, or for the storage of
farm inputs, feed, or manure. Real property used in a farming
business shall also include woodland, wasteland, pastureland,
and idled land used for the conservation of natural resources
including soil and water.
(b) Real property classified as agricultural property for
Iowa property tax purposes, except real property described
in section 441.21, subsection 12, paragraph “a” or “b”,
shall be presumed to be real property used in a farming
business. This presumption is rebuttable by the department by
a preponderance of evidence that the real property did not meet
the requirements of subparagraph division (a).
(6) “Relative” means a person that satisfies one or more of
the following conditions:
(a) The individual is related to the taxpayer by
consanguinity or affinity within the second degree as
determined by common law.
(b) The individual is a lineal descendent of the taxpayer.
For purposes of this subparagraph division, “lineal descendent”
means children of the taxpayer, including legally adopted
children and biological children, stepchildren, grandchildren,
great-grandchildren, and any other lineal descendent of the
taxpayer.
(c) An entity in which an individual who satisfies the
conditions of either subparagraph division (a) or (b) has a
legal or equitable interest as an owner, member, partner, or
beneficiary.
(7) “Retired farmer” means an individual who is disabled
or who is fifty-five years of age or older and who no longer
materially participates in a farming business when an exclusion
and deduction is claimed under this subsection.
-6- b. Subtract the net capital gain from the sale of real
property used in a farming business if one of the following
conditions are satisfied:
(1) The taxpayer has materially participated in a farming
business for a minimum of ten years and has held the real
property used in a farming business for a minimum of ten years.
If the taxpayer is a retired farmer, the taxpayer is considered
to meet the material participation requirement if the taxpayer
materially participated in a farming business for ten years or
more in the aggregate, prior to making an election under this
subsection.
(2) The taxpayer has held the real property used in a
farming business which is sold to a relative of the taxpayer.
c. For a taxpayer who is a retired farmer, subtract the
net capital gain from the sale of cattle or horses held by
the taxpayer for breeding, draft, dairy, or sporting purposes
for a period of twenty-four months or more from the date of
acquisition; but only if the taxpayer materially participated
in the farming business for five of the eight years preceding
the farmer’s retirement or disability and who has sold all or
substantially all of the taxpayer’s interest in the farming
business by the time the election under this paragraph is made.
d. For a taxpayer who is a retired farmer, subtract the net
capital gain from the sale of breeding livestock, other than
cattle and horses, if the livestock is held by the taxpayer for
a period of twelve months or more from the date of acquisition;
but only if the taxpayer materially participated in the farming
business for five of the eight years preceding the farmer’s
retirement or disability and who has sold all or substantially
all of the taxpayer’s interest in the farming business by the
time the election under this paragraph is made.
e. A taxpayer who is a retired farmer may make, subject to
the limitations described in paragraphs “f” and “g”, a single,
lifetime election to exclude all qualifying capital gains under
paragraphs “b”, “c”, and “d”.
-7- f. A taxpayer who is a retired farmer who elects to exclude
capital gains under paragraph “b”, “c”, or “d” shall not claim
the beginning farmer tax credit under section 422.11E or the
exclusion for net income received pursuant to a farm tenancy
agreement in subsection 21A, in the tax year in which this
election is made or in any subsequent year.
g. A taxpayer who is a retired farmer who claims the
beginning farmer tax credit under section 422.11E shall not,
in the same year, make an election under this subsection. A
taxpayer who is a retired farmer and who elects to exclude
the net income received from a farm tenancy agreement under
subsection 21A, shall not, in the same tax year or in any
subsequent tax year, make the election under this subsection.
h. Married individuals who file separate state income tax
returns shall allocate their combined annual net capital gain
exclusion under paragraphs “b”, “c”, and “d” to each spouse in
the proportion that each spouse’s respective net capital gain
bears to the total net capital gain.
i. The department shall establish criteria, by rule,
relating to whether and how a surviving spouse may claim the
income exclusion for which a deceased retired farmer would have
been eligible under this subsection.
Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113,
is repealed.
Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is
repealed.
Sec. 10. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 11. APPLICABILITY.
1. This division of this Act applies to tax years beginning
on or after January 1, 2023.
2. This division of this Act applies to sales consummated on
or after the effective date of this division of this Act, and
sales consummated prior to the effective date of this division
of this Act shall be governed by the law as it existed prior to
-8-the effective date of this division of this Act.
DIVISION IV
INDIVIDUAL INCOME TAX RATES — tax years 2023-2025
Sec. 12. Section 422.5, subsection 3, paragraph b, Code
2022, is amended to read as follows:
b. (1) In lieu of the computation in subsection 1 or
2, or in paragraph “a” of this subsection, if the married
persons’, filing jointly or filing separately on a combined
return, head of household’s, or surviving spouse’s net income
exceeds thirteen thousand five hundred dollars, the regular
tax imposed under this subchapter shall be the lesser of the
maximum alternate state individual income tax rate specified in
subparagraph (2) times the portion of the net income in excess
of thirteen thousand five hundred dollars or the regular tax
liability computed without regard to this sentence. Taxpayers
electing to file separately shall compute the alternate tax
described in this paragraph using the total net income of the
husband and wife spouses. The alternate tax described in this
paragraph does not apply if one spouse elects to carry back or
carry forward the loss as provided in section 422.9, subsection
3.
(2) (a) (i) (A) For the tax year beginning on or after
January 1, 2023, but before January 1, 2024, the alternate tax
rate is 6.00 percent.
(B) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, the alternate tax rate is 5.70
percent.
(C) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, the alternate tax rate is 5.20
percent.
(ii) This subparagraph division (a) is repealed January 1,
2026.
(b) For tax years beginning on or after January 1, 2026, the
alternate tax rate is 4.40 percent.
Sec. 13. Section 422.5, subsection 3B, paragraph b, Code
-9-2022, is amended to read as follows:
b. (1) In lieu of the computation in subsection 1, 2, or 3,
if the married persons’, filing jointly or filing separately on
a combined return, head of household’s, or surviving spouse’s
net income exceeds thirty-two thousand dollars, the regular
tax imposed under this subchapter shall be the lesser of the
maximum alternate state individual income tax rate specified in
subparagraph (2) times the portion of the net income in excess
of thirty-two thousand dollars or the regular tax liability
computed without regard to this sentence. Taxpayers electing
to file separately shall compute the alternate tax described in
this paragraph using the total net income of the husband and
wife spouses. The alternate tax described in this paragraph
does not apply if one spouse elects to carry back or carry
forward the loss as provided in section 422.9, subsection 3.
(2) (a) (i) (A) For the tax year beginning on or after
January 1, 2023, but before January 1, 2024, the alternate tax
rate is 6.00 percent.
(B) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, the alternate tax rate is 5.70
percent.
(C) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, the alternate tax rate is 5.20
percent.
(ii) This subparagraph division (a) is repealed January 1,
2026.
(b) For tax years beginning on or after January 1, 2026, the
alternate tax rate is 4.40 percent.
Sec. 14. Section 422.5, subsection 6, Code 2022, is amended
to read as follows:
6. a. Upon determination of the latest cumulative inflation
factor, the director shall multiply each dollar amount set
forth in section 422.5A by this cumulative inflation factor,
shall round off the resulting product to the nearest one
dollar, and shall incorporate the result into the income tax
-10-forms and instructions for each tax year.
b. This subsection is repealed on January 1, 2026.
Sec. 15. Section 422.5A, Code 2022, is amended by striking
the section and inserting in lieu thereof the following:
422.5A Tax rates.
1. a. The tax imposed in section 422.5 shall be calculated
using the following rates in the following tax years in the
case of married persons filing jointly:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000 but not exceeding
$60,000, the rate of 4.82 percent.
(c) On taxable income exceeding $60,000 but not exceeding
$150,000, the rate of 5.70 percent.
(d) On taxable income exceeding $150,000, the rate of 6.00
percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000 but not exceeding
$60,000, the rate of 4.82 percent.
(c) On taxable income exceeding $60,000, the rate of 5.70
percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026:
(a) On taxable income from 0 through $12,000, the rate of
4.40 percent.
(b) On taxable income exceeding $12,000, the rate of 4.82
percent.
b. The tax imposed in section 422.5 shall be calculated
using the following rates in the following tax years in the
case of any other taxpayer other than married persons filing
-11-jointly:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000 but not exceeding
$30,000, the rate of 4.82 percent.
(c) On taxable income exceeding $30,000 but not exceeding
$75,000, the rate of 5.70 percent.
(d) On taxable income exceeding $75,000, the rate of 6.00
percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000 but not exceeding
$30,000, the rate of 4.82 percent.
(c) On taxable income exceeding $30,000, the rate of 5.70
percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026:
(a) On taxable income from 0 through $6,000, the rate of
4.40 percent.
(b) On taxable income exceeding $6,000, the rate of 4.82
percent.
2. This section is repealed January 1, 2026.
Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107,
is repealed.
Sec. 17. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 18. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION V
INDIVIDUAL INCOME TAX — FLAT RATE
Sec. 19. Section 421.27, subsection 9, paragraph a,
-12-subparagraph (3), Code 2022, is amended to read as follows:
(3) In the case of all other entities, including
corporations described in section 422.36, subsection 5, and all
other entities required to file an information return under
section 422.15, subsection 2, the entity’s Iowa net income
after the application of the Iowa business activity ratio,
if applicable, multiplied by the top income tax rate imposed
under section 422.5A 422.5 for the tax year, less any Iowa tax
credits available to the entity.
Sec. 20. Section 422.5, subsection 1, paragraph a, Code
2022, is amended to read as follows:
a. A tax is imposed upon every resident and nonresident
of the state which tax shall be levied, collected, and paid
annually upon and with respect to the entire taxable income
as defined in this subchapter at rates as provided in section
422.5A a rate of three and nine-tenths percent.
Sec. 21. Section 422.16B, subsection 2, paragraph a, Code
2022, is amended to read as follows:
a. (1) A pass-through entity shall file a composite return
on behalf of all nonresident members and shall report and pay
the income or franchise tax imposed under this chapter at the
maximum state income or franchise tax rate applicable to the
member under section 422.5A 422.5, 422.33, or 422.63 on the
nonresident members’ distributive shares of the income from the
pass-through entity.
(2) The tax rate applicable to a tiered pass-through entity
shall be the maximum state income tax rate under section 422.5A
422.5.
Sec. 22. Section 422.25A, subsection 5, paragraph c,
subparagraphs (3), (4), and (5), Code 2022, are amended to read
as follows:
(3) Determine the total distributive share of all final
federal partnership adjustments and positive reallocation
adjustments as modified by this title that are reported to
nonresident individual partners and nonresident fiduciary
-13-partners and allocate and apportion such adjustments as
provided in section 422.33 at the partnership or tiered
partner level, and multiply the resulting amount by the maximum
individual income tax rate pursuant to section 422.5A 422.5 for
the reviewed year.
(4) For the total distributive share of all final federal
partnership adjustments and positive reallocation adjustments
as modified by this title that are reported to tiered partners:
(a) Determine the amount of such adjustments which are of a
type that would be subject to sourcing to Iowa under section
422.8, subsection 2, paragraph “a”, as a nonresident, and then
determine the portion of this amount that would be sourced to
Iowa under those provisions as if the tiered partner were a
nonresident.
(b) Determine the amount of such adjustments which are of
a type that would not be subject to sourcing to Iowa under
section 422.8, subsection 2, paragraph “a”, as a nonresident.
(c) Determine the portion of the amount in subparagraph
division (b) that can be established, as prescribed by the
department by rule, to be properly allocable to indirect
partners that are nonresident partners or other partners not
subject to tax on the adjustments.
(d) Multiply the total of the amounts determined in
subparagraph divisions (a) and (b), reduced by any amount
determined in subparagraph division (c), by the highest
individual income tax rate pursuant to section 422.5A 422.5 for
the reviewed year.
(5) For the total distributive share of all final federal
partnership adjustments and positive reallocation adjustments
as modified by this title that are reported to resident
individual partners and resident fiduciary partners, multiply
that amount by the highest individual income tax rate pursuant
to section 422.5A 422.5 for the reviewed year.
Sec. 23. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2026.
-14- Sec. 24. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2026.
DIVISION VI
Retirement Income
Sec. 25. Section 422.5, subsection 3, paragraph a, Code
2022, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
whose net income, as defined in section 422.7, is thirteen
thousand five hundred dollars or less in the case of married
persons filing jointly or filing separately on a combined
return, heads of household, and surviving spouses or nine
thousand dollars or less in the case of all other persons; but
in the event that the payment of tax under this subchapter
would reduce the net income to less than thirteen thousand five
hundred dollars or nine thousand dollars as applicable, then
the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirteen
thousand five hundred dollars or nine thousand dollars as
applicable. The preceding sentence does not apply to estates
or trusts. For the purpose of this subsection, the entire net
income, including any part of the net income not allocated
to Iowa, shall be taken into account. For purposes of this
subsection, net income includes all amounts of pensions or
other retirement income, except for military retirement pay
excluded under section 422.7, subsection 31A, paragraph “a”, or
section 422.7, subsection 31B, paragraph “a”, received from any
source which is not taxable under this subchapter as a result
of the government pension exclusions in section 422.7, or any
other state law. If the combined net income of a husband and
wife exceeds thirteen thousand five hundred dollars, neither
of them shall receive the benefit of this subsection, and it
is immaterial whether they file a joint return or separate
returns. However, if a husband and wife file separate returns
and have a combined net income of thirteen thousand five
hundred dollars or less, neither spouse shall receive the
-15-benefit of this paragraph, if one spouse has a net operating
loss and elects to carry back or carry forward the loss as
provided in section 422.9, subsection 3. A person who is
claimed as a dependent by another person as defined in section
422.12 shall not receive the benefit of this subsection if
the person claiming the dependent has net income exceeding
thirteen thousand five hundred dollars or nine thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirteen
thousand five hundred dollars or nine thousand dollars as
applicable.
Sec. 26. Section 422.5, subsection 3B, paragraph a, Code
2022, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
who is at least sixty-five years old on December 31 of
the tax year and whose net income, as defined in section
422.7, is thirty-two thousand dollars or less in the case
of married persons filing jointly or filing separately on a
combined return, heads of household, and surviving spouses or
twenty-four thousand dollars or less in the case of all other
persons; but in the event that the payment of tax under this
subchapter would reduce the net income to less than thirty-two
thousand dollars or twenty-four thousand dollars as applicable,
then the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
The preceding sentence does not apply to estates or trusts.
For the purpose of this subsection, the entire net income,
including any part of the net income not allocated to Iowa,
shall be taken into account. For purposes of this subsection,
net income includes all amounts of pensions or other retirement
income, except for military retirement pay excluded under
section 422.7, subsection 31A, paragraph “a”, or section 422.7,
subsection 31B, paragraph “a”, received from any source which is
not taxable under this subchapter as a result of the government
-16-pension exclusions in section 422.7, or any other state law.
If the combined net income of a husband and wife exceeds
thirty-two thousand dollars, neither of them shall receive the
benefit of this subsection, and it is immaterial whether they
file a joint return or separate returns. However, if a husband
and wife file separate returns and have a combined net income
of thirty-two thousand dollars or less, neither spouse shall
receive the benefit of this paragraph, if one spouse has a net
operating loss and elects to carry back or carry forward the
loss as provided in section 422.9, subsection 3. A person
who is claimed as a dependent by another person as defined in
section 422.12 shall not receive the benefit of this subsection
if the person claiming the dependent has net income exceeding
thirty-two thousand dollars or twenty-four thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
Sec. 27. Section 422.7, subsection 31, Code 2022, is amended
to read as follows:
31. a. For a person who is disabled, or is fifty-five years
of age or older, or is the surviving spouse of an individual or
a survivor having an insurable interest in an individual who
would have qualified for the exemption under this subsection
for the tax year, subtract Subtract, to the extent included,
the total amount of received from a governmental or other
pension or retirement pay plan, including, but not limited
to, defined benefit or defined contribution plans, annuities,
individual retirement accounts, plans maintained or contributed
to by an employer, or maintained or contributed to by a
self-employed person as an employer, and deferred compensation
plans or any earnings attributable to the deferred compensation
plans, up to a maximum of six thousand dollars for a person,
other than a husband or wife, who files a separate state income
tax return and up to a maximum of twelve thousand dollars
for a husband and wife who file a joint state income tax
-17-return. However, a surviving spouse who is not disabled or
fifty-five years of age or older can only exclude the amount
of pension or retirement pay received as a result of the death
of the other spouse. A husband and wife filing separate state
income tax returns or separately on a combined state return
are allowed a combined maximum exclusion under this subsection
of up to twelve thousand dollars. The twelve thousand dollar
exclusion shall be allocated to the husband or wife in the
proportion that each spouse’s respective pension and retirement
pay received bears to total combined pension and retirement
pay received received by a person who is disabled, or is
fifty-five years of age or older, or is the surviving spouse of
an individual or is a survivor having an insurable interest in
an individual who would have qualified for the exemption under
this subsection for the tax year.
b. Married taxpayers who file separate state income tax
returns shall allocate their combined annual exclusion amount
to each spouse in the proportion that each spouse’s respective
income received from a pension or retirement plan bears to the
total combined pension or retirement pay received.
c. A taxpayer who is not disabled or fifty-five years of
age or older and who receives pension or retirement pay as a
surviving spouse or as a survivor with an insurable interest
in an individual who would have qualified for the exemption
for the tax year may only exclude the amount received from a
pension or retirement plan in the tax year as a result of the
death of the decedent.
Sec. 28. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 29. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION VII
RESEARCH ACTIVITIES TAX CREDIT
Sec. 30. Section 15.335, subsection 4, paragraph a, Code
2022, is amended to read as follows:
-18- a. In lieu of the credit amount computed in subsection 2,
an eligible business may shall elect to compute the credit
amount for qualified research expenses incurred in this state
in a manner consistent with the alternative simplified credit
described in section 41(c)(4) of the Internal Revenue Code if
the taxpayer elected or was required to use the alternative
simplified credit method for federal income tax purposes for
the same taxable year. The taxpayer may make this election
regardless of the method used for the taxpayer’s federal income
tax. The election made under this paragraph is for the tax
year and the taxpayer may use another or the same method for
any subsequent tax year.
Sec. 31. Section 15.335, subsection 5, Code 2022, is amended
to read as follows:
5. The credit allowed in this section is in addition to
the credit authorized in section 422.10 and section 422.33,
subsection 5. However, if the alternative credit computation
method is used in section 422.10 or section 422.33, subsection
5, the credit allowed in this section shall also be computed
using that method. The regular or alternative credit allowed
in this section shall be computed according to the same claim,
calculation, and refund limitations in section 422.10 and
section 422.33, subsection 5, as applicable, including those
described in section 422.10, subsection 1, paragraph “a”, and
section 422.10, subsection 1, paragraph “b”, subparagraph
(3), and section 422.10, subsection 4, and those described in
section 422.33, subsection 5, paragraph “b”, subparagraph (2),
and section 422.33, subsection 5, paragraphs “e” and “g”.
Sec. 32. Section 15.335, subsection 8, Code 2022, is amended
to read as follows:
8. a. Any The following percentage of any credit in excess
of the tax liability for the taxable year shall be refunded
with interest in accordance with section 421.60, subsection 2,
paragraph “e”:
(1) For the tax year beginning on or after January 1, 2023,
-19-but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
its final, completed return credited to the tax liability for
the following tax year.
Sec. 33. Section 422.10, subsection 1, paragraph a, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) The credit provided in this section
is claimed on a return filed by the due date for filing the
return, including extensions of time. If timely claimed, the
business shall not increase the credit claim on an amended
return or otherwise unless either of the following apply:
(a) The amended return is filed within six months of the due
date for filing the return which includes extensions of time.
(b) The increase results from an audit or examination by the
internal revenue service or the department.
Sec. 34. Section 422.10, subsection 1, paragraph b, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) For the purpose of calculating
the state’s apportioned share of the qualifying expenditures
for increasing research activities in subparagraph (2), the
following criteria shall apply only to the determination of
qualified research expenditures in this state:
(a) Wages paid to an employee for qualified services,
or contract research expenses paid to a third party for
the performance of qualified research services, shall only
constitute qualified research expenses in this state if the
-20-services are performed in this state, and if the following
conditions are met, as applicable:
(i) For qualified services performed by employees, during
the period of the tax year that the business is engaging in one
or more research projects, a majority of the total services
performed by the employee for the business are directly related
to those research projects.
(ii) For the performance of qualified research services
by a third party, during the period of the business’s tax
year that the third party is performing research services for
the business, a majority of the total services performed by
the person for the third party are directly related to those
research projects of the business.
(b) The substantially all rule for determining qualified
services as described in section 41(b)(2)(B) of the Internal
Revenue Code and Treas.Reg.1.41-2(d)(2) does not apply.
(c) Amounts paid for the right to use computers as described
in section 41(b)(2)(A)(iii) of the Internal Revenue Code shall
not be qualified research expenses in this state.
(d) For tax years beginning on or after January 1, 2023, but
before January 1, 2027, amounts paid for supplies as defined
in section 41(b)(2)(C) of the Internal Revenue Code shall only
constitute qualified research expenses in this state if the
supplies directly relate to research performed in this state
and shall be limited to the following allowable percentages:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, eighty percent of the amounts paid
for supplies directly related to research performed in this
state.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, sixty percent of the amounts paid
for supplies directly related to research performed in this
state.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, forty percent of the amounts
-21-paid for supplies directly related to research performed in
this state.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, twenty percent of the amounts paid
for supplies directly related to research performed in this
state.
(e) For tax years beginning on or after January 1, 2027,
amounts paid for supplies as defined in section 41(b)(2)(C)
of the Internal Revenue Code shall not be qualified research
expenses in this state.
Sec. 35. Section 422.10, subsection 1, paragraphs c and d,
Code 2022, are amended to read as follows:
c. In lieu of the credit amount computed in paragraph “b”,
subparagraph (1), subparagraph division (a), a taxpayer may
shall elect to compute the credit amount for qualified research
expenses incurred in this state in a manner consistent with the
alternative simplified credit described in section 41(c)(4)
of the Internal Revenue Code if the taxpayer elected or was
required to use the alternative simplified credit method for
federal income tax purposes for the same taxable year. The
taxpayer may make this election regardless of the method used
for the taxpayer’s federal income tax. The election made under
this paragraph is for the tax year and the taxpayer may use
another or the same method for any subsequent year.
d. For purposes of the alternate credit computation method
in paragraph “c”, the following criteria shall apply:
(1) Thecredit percentages applicable to qualified research
expenses described in section 41(c)(4)(A) and clause (ii) of
section 41(c)(4)(B) of the Internal Revenue Code are four
and fifty-five hundredths percent and one and ninety-five
hundredths percent, respectively.
(2) Basic research payments and qualified research expenses
shall only include amounts for research conducted in this
state. A taxpayer’s qualified research expenses in this state
and average prior year qualified research expenses in this
-22-state shall be determined in accordance with the criteria in
subsection 1, paragraph “b”, subparagraph (3).
Sec. 36. Section 422.10, subsection 3, paragraph b, Code
2022, is amended to read as follows:
b. For purposes of this section, “basic research payment”
and “qualified research expense” mean the same as defined
for the federal credit for increasing research activities
under section 41 of the Internal Revenue Code, except that
for the alternative simplified credit such amounts are for
research conducted within this state as otherwise described in
subsection 1, paragraph “b”, subparagraph (3), and subsection
1, paragraph “d”, subparagraph (2).
Sec. 37. Section 422.10, subsection 4, Code 2022, is amended
to read as follows:
4. a. (1) Any The following percentage of any credit in
excess of the tax liability imposed by section 422.5 less the
amounts of nonrefundable credits allowed under this subchapter
for the taxable year shall be refunded with interest in
accordance with section 421.60, subsection 2, paragraph “e”:
(a) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety percent.
(b) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, eighty percent.
(c) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, seventy percent.
(d) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, sixty percent.
(2) In lieu of claiming a refund pursuant to this paragraph,
a taxpayer may elect to have the overpayment otherwise eligible
for a refund shown on the taxpayer’s final, completed return
credited to the tax liability for the following taxable year.
b. Commencing with tax years beginning on or after
January 1, 2027, fifty percent of any credit in excess of the
tax liability imposed by section 422.5 less the amounts of
nonrefundable credits allowed under this subchapter for the
-23-taxable year shall be refunded with interest in accordance
with section 421.60, subsection 2, paragraph “e”. In lieu of
claiming a refund, a taxpayer may elect to have the overpayment
otherwise eligible for a refund shown on the taxpayer’s
final, completed return credited to the tax liability for the
following taxable year.
c. In applying the credit in this section against tax
liability and computing the eligible refund amount, the credit
shall be applied after all nonrefundable credits available
to the taxpayer are applied, but before any other refundable
credit available to the taxpayer is applied.
Sec. 38. Section 422.33, subsection 5, paragraph b, Code
2022, is amended to read as follows:
b. (1) The state’s apportioned share of the qualifying
expenditures for increasing research activities is a percent
equal to the ratio of qualified research expenditures in this
state to the total qualified research expenditures.
(2) For the purpose of calculating the state’s apportioned
share of the qualifying expenditures for increasing research
activities in subparagraph (1), the following criteria
shall apply only to the determination of qualified research
expenditures in this state:
(a) Wages paid to an employee for qualified services,
or contract research expenses paid to a third party for
the performance of qualified research services, shall only
constitute qualified research expenses in this state if the
services are performed in this state, and if the following
conditions are met, as applicable:
(i) For qualified services performed by employees, during
the period of the tax year that the business is engaging in one
or more research projects, a majority of the total services
performed by the employee for the business are directly related
to those research projects.
(ii) For the performance of qualified research services
by a third party, during the period of the business’s tax
-24-year that the third party is performing research services for
the business, a majority of the total services performed by
the person for the third party are directly related to those
research projects of the business.
(b) The substantially all rule for determining qualified
services as described in section 41(b)(2)(B) of the Internal
Revenue Code and Treas.Reg.1.41-2(d)(2) does not apply.
(c) Amounts paid for the right to use computers as described
in section 41(b)(2)(A)(iii) of the Internal Revenue Code shall
not be qualified research expenses in this state.
(d) For tax years beginning on or after January 1, 2023, but
before January 1, 2027, amounts paid for supplies as defined
in section 41(b)(2)(C) of the Internal Revenue Code shall only
constitute qualified research expenses in this state if the
supplies directly relate to research performed in this state
and shall be limited to the following allowable percentages:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, eighty percent of the amounts paid
for supplies directly related to research performed in this
state.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, sixty percent of the amounts paid
for supplies directly related to research performed in this
state.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, forty percent of the amounts
paid for supplies directly related to research performed in
this state.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, twenty percent of the amounts paid
for supplies directly related to research performed in this
state.
(e) For tax years beginning on or after January 1, 2027,
amounts paid for supplies as defined in section 41(b)(2)(C)
of the Internal Revenue Code shall not be qualified research
-25-expenses in this state.
Sec. 39. Section 422.33, subsection 5, paragraphs c and d,
Code 2022, are amended to read as follows:
c. In lieu of the credit amount computed in paragraph “a”,
subparagraph (1), a corporation may shall elect to compute
the credit amount for qualified research expenses incurred
in this state in a manner consistent with the alternative
simplified credit described in section 41(c)(4) of the Internal
Revenue Code if the taxpayer elected or was required to use
the alternative simplified credit method for federal income
tax purposes for the same taxable year. The taxpayer may make
this election regardless of the method used for the taxpayer’s
federal income tax. The election made under this paragraph is
for the tax year and the taxpayer may use another or the same
method for any subsequent year.
d. For purposes of the alternate credit computation method
in paragraph “c”, the following criteria shall apply:
(1) Thecredit percentages applicable to qualified research
expenses described in section 41(c)(4)(A) and clause (ii) of
section 41(c)(4)(B) of the Internal Revenue Code are four
and fifty-five hundredths percent and one and ninety-five
hundredths percent, respectively.
(2) Basic research payments and qualified research expenses
shall only include amounts for research conducted in this
state. A taxpayer’s qualified research expenses in this state
and average prior year qualified research expenses in this
state shall be determined in accordance with the rules in
paragraph “b”, subparagraph (2).
Sec. 40. Section 422.33, subsection 5, paragraph e, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) The credit provided in this
subsection is claimed on a return filed by the due date for
filing the return, including extensions of time. If timely
claimed, the business shall not increase the credit claim on
an amended return or otherwise unless either of the following
-26-apply:
(a) The amended return is filed within six months of the due
date for filing the return which includes extensions of time.
(b) The increase results from an audit or examination by the
internal revenue service or the department.
Sec. 41. Section 422.33, subsection 5, paragraph f,
subparagraph (2), Code 2022, is amended to read as follows:
(2) For purposes of this subsection, “basic research
payment” and “qualified research expense” mean the same as
defined for the federal credit for increasing research
activities under section 41 of the Internal Revenue Code,
except that for the alternative simplified credit such amounts
are for research conducted within this state as otherwise
described in paragraph “b”, subparagraph (2), and paragraph “d”,
subparagraph (2).
Sec. 42. Section 422.33, subsection 5, paragraph g, Code
2022, is amended to read as follows:
g. (1) (a) Any The following percentage of the credit
in excess of the tax liability for the taxable year shall
be refunded with interest in accordance with section 421.60,
subsection 2, paragraph “e”:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety percent.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, eighty percent.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, seventy percent.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, sixty percent.
(b) In lieu of claiming a refund pursuant to this
subparagraph, a taxpayer may elect to have the overpayment
otherwise eligible for a refund shown on its final, completed
return credited to the tax liability for the following taxable
year.
(2) Commencing with tax years beginning on or after January
-27-1, 2027, fifty percent of any credit in excess of the tax
liability for the taxable year shall be refunded with interest
in accordance with section 421.60, subsection 2, paragraph “e”.
In lieu of claiming a refund, a taxpayer may elect to have
the overpayment otherwise eligible for a refund shown on its
final, completed return credited to the tax liability for the
following taxable year.
(3) In applying the credit in this subsection against tax
liability and computing the eligible refund amount, the credit
shall be applied after all nonrefundable credits available
to the taxpayer are applied, but before any other refundable
credit available to the taxpayer is applied.
Sec. 43. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 44. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION VIII
OTHER TAX CREDITS
Sec. 45. Section 15.119, subsection 2, paragraph a, Code
2022, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH. (3) In allocating tax credits pursuant
to this subsection, the authority shall prioritize issuing
additional research activities tax credits pursuant to section
15.335.
Sec. 46. Section 15.293A, subsection 1, paragraph c,
subparagraph (2), Code 2022, is amended to read as follows:
(2) (a) A tax credit in excess of the taxpayer’s liability
for the tax year is refundable if all of the following
conditions are met:
(a) (i) The taxpayer is an investor making application for
tax credits provided in this section and is an entity organized
under chapter 504 and qualifying under section 501(c)(3) of the
Internal Revenue Code as an organization exempt from federal
income tax under section 501(a) of the Internal Revenue Code.
(b) (ii) The taxpayer establishes during the application
-28-process described in section 15.293B that the requirement in
subparagraph division (a) is satisfied. The authority, when
issuing a certificate to a taxpayer that meets the requirements
in this subparagraph (2), shall indicate on the certificate
that such requirements have been satisfied.
(b) For a tax credit deemed refundable pursuant to
subparagraph division (a), the following percentage of the tax
credit in excess of the taxpayer’s liability for the tax year
is refundable:
(i) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(ii) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(iii) For the tax year beginning on or after January 1,
2025, but before January 1, 2026, eighty-five percent.
(iv) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(v) For tax years beginning on or after January 1, 2027,
seventy-five percent.
Sec. 47. Section 15.293A, subsection 2, paragraph d, Code
2022, is amended to read as follows:
d. Tax credit certificates issued under this section may
be transferred to any person or entity, except a tax credit
certificate that is refundable under subsection 1, paragraph
“c”, subparagraph (2), shall not be transferable. Within
ninety days of transfer, the transferee shall submit the
transferred tax credit certificate to the department of revenue
along with a statement containing the transferee’s name, tax
identification number, and address, the denomination that each
replacement tax credit certificate is to carry, and any other
information required by the department of revenue.
Sec. 48. Section 15E.305, subsection 2, paragraph a, Code
2022, is amended to read as follows:
a. The maximum amount of tax credits granted to a taxpayer
shall not exceed five percent one hundred thousand dollars of
-29-the aggregate amount of tax credits authorized.
Sec. 49. Section 15.331C, subsection 1, Code 2022, is
amended to read as follows:
1. a. An eligible business may claim a tax credit in an
amount equal to the sales and use taxes paid by a third-party
developer under chapter 423 for gas, electricity, water, or
sewer utility services, goods, wares, or merchandise, or
on services rendered, furnished, or performed to or for a
contractor or subcontractor and used in the fulfillment of a
written contract relating to the construction or equipping of
a facility of the eligible business. Taxes attributable to
intangible property and furniture and furnishings shall not
be included, but taxes attributable to racks, shelving, and
conveyor equipment to be used in a warehouse or distribution
center shall be included. Any credit in excess of the tax
liability for the tax year may be credited to the tax liability
for the following seven years or until depleted, whichever
occurs earlier. An eligible business may elect to receive a
refund as a refund the following percentage of all or a portion
of an unused any tax credit in excess of the tax liability as
follows:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following seven years or until depleted,
-30-whichever occurs earlier.
Sec. 50. Section 404A.2, subsection 4, Code 2022, is amended
to read as follows:
4. a. For a tax credit claimed by an eligible taxpayer
or a transferee for qualified rehabilitation projects
with agreements entered into on or after July 1, 2014, the
following percentage of any credit in excess of the taxpayer’s
tax liability for the tax year may be refunded or, at the
taxpayer’s election, credited to the taxpayer’s tax liability
for the following five years or until depleted, whichever is
earlier:
(1) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(2) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(3) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(4) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(5) For tax years beginning on or after January 1, 2027,
seventy-five percent.
b. In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following five tax years or until depleted,
whichever is earlier.
c. A tax credit shall not be carried back to a tax year
prior to the tax year in which the taxpayer redeems the tax
credit. As used in this subsection, “taxpayer” includes
an eligible taxpayer or a person transferred a tax credit
certificate pursuant to subsection 3.
Sec. 51. Section 422.12N, Code 2022, is amended by adding
the following new subsections:
NEW SUBSECTION. 6. This section does not apply to a
geothermal heat pump installation occurring after December 31,
-31-2023.
NEW SUBSECTION. 7. This section is repealed January 1,
2034.
Sec. 52. Section 422.33, subsection 9, paragraph a, Code
2022, is amended to read as follows:
a. (1) The taxes imposed under this subchapter shall be
reduced by an assistive device tax credit. A small business
purchasing, renting, or modifying an assistive device or making
workplace modifications for an individual with a disability
who is employed or will be employed by the small business is
eligible, subject to availability of credits, to receive this
assistive device tax credit which is equal to fifty percent of
the first five thousand dollars paid during the tax year for
the purchase, rental, or modification of the assistive device
or for making the workplace modifications. Any The following
percentage of any credit in excess of the tax liability shall
be refunded with interest in accordance with section 421.60,
subsection 2, paragraph “e”, as follows:
(a) For the tax year beginning on or after January 1, 2023,
but before January 1, 2024, ninety-five percent.
(b) For the tax year beginning on or after January 1, 2024,
but before January 1, 2025, ninety percent.
(c) For the tax year beginning on or after January 1, 2025,
but before January 1, 2026, eighty-five percent.
(d) For the tax year beginning on or after January 1, 2026,
but before January 1, 2027, eighty percent.
(e) For tax years beginning on or after January 1, 2027,
seventy-five percent.
(2) In lieu of claiming a refund, a taxpayer may elect to
have the overpayment otherwise eligible for a refund shown on
the taxpayer’s final, completed return credited to the tax
liability for the following tax year. If the small business
elects to take the assistive device tax credit, the small
business shall not deduct for Iowa tax purposes any amount of
the cost of an assistive device or workplace modifications
-32-which is deductible for federal income tax purposes.
Sec. 53. PRESERVATION OF EXISTING RIGHTS. This division
of this Act is not intended to and shall not limit, modify, or
otherwise adversely affect any amount of tax credit issued,
awarded, or allowed prior to January 1, 2023, nor shall it
limit, modify, or otherwise adversely affect a taxpayer’s right
to claim or redeem a tax credit issued, awarded, or allowed
prior to January 1, 2023, including but not limited to any tax
credit carryforward amount.
Sec. 54. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
Sec. 55. APPLICABILITY. This division of this Act applies
to tax years beginning on or after January 1, 2023.
DIVISION IX
CORPORATE INCOME TAX RATES — ADJUSTMENTS
Sec. 56. Section 422.33, subsection 1, Code 2022, is amended
to read as follows:
1. a. A tax is imposed annually upon each corporation doing
business in this state, or deriving income from sources within
this state, in an amount computed by applying the following
rates of taxation to the net income received by the corporation
during the income year:
a. (1) On the first twenty-five thousand dollars of taxable
income, or any part thereof, the rate of six percent for tax
years beginning prior to January 1, 2021, and the rate of
five and one-half percent for tax years beginning on or after
January 1, 2021.
b. (2) On taxable income between twenty-five thousand
dollars and one hundred thousand dollars or any part thereof,
the rate of eight percent for tax years beginning prior to
January 1, 2021, and the rate of five and one-half percent for
tax years beginning on or after January 1, 2021.
c. (3) On taxable income between one hundred thousand
dollars and two hundred fifty thousand dollars or any part
thereof, the rate of ten percent for tax years beginning prior
-33-to January 1, 2021, and the rate of nine percent for tax years
beginning on or after January 1, 2021.
d. (4) On taxable income of two hundred fifty thousand
dollars or more, the rate of twelve percent for tax years
beginning prior to January 1, 2021, and the rate of nine
and eight-tenths percent for tax years beginning on or after
January 1, 2021.
b. (1) (a) Notwithstanding paragraph “a”, the department
of management and the department of revenue shall determine
corporate income tax rates as provided in this paragraph. A
tax rate in this subsection shall remain in effect until the
tax rate is adjusted pursuant to this paragraph.
(b) By November 1, 2022, and by November 1 each year
thereafter, the department of management shall determine the
net corporate income tax receipts for the fiscal year preceding
the determination date. If net corporate income tax receipts
for the preceding fiscal year exceed seven hundred million
dollars, the department of revenue shall adjust and apply new
corporate income tax rates as provided in subparagraph (2).
(2) (a) If a determination has been made that net
corporate income tax receipts for the preceding fiscal year
exceeded seven hundred million dollars, the department of
revenue shall adjust the tax rates specified in paragraph “a”,
subparagraphs (3) and (4), and apply the adjusted rates for tax
years beginning on or after the next January 1 following the
determination date.
(b) (i) The tax rates subject to adjustment shall be
adjusted in such a way that when combined with all the other
rates specified in paragraph “a”, the tax rates would have
generated net corporate income tax receipts that equal seven
hundred million dollars in the preceding fiscal year.
(ii) When adjusting the tax rates, the tax rates shall be
adjusted as follows:
(A) The tax rate in effect that corresponds with the
specified tax rate in paragraph “a”, subparagraph (4),
-34-shall first be adjusted but not below the tax rate in effect
that corresponds with the specified rate in paragraph “a”,
subparagraph (3).
(B) If after the adjustment in subparagraph part (A) is
made, and an additional adjustment is necessary, the tax rates
that correspond with the rates specified in paragraph “a”,
subparagraphs (3) and (4), shall be adjusted on an equal basis.
(iii) The tax rates adjusted pursuant to this paragraph
shall not be adjusted below five and one-half percent.
(iv) The tax rates, when adjusted, shall be rounded down to
the nearest one-tenth of one percent.
(3) If a tax rate is adjusted pursuant to this paragraph,
the director of revenue shall cause an advisory notice
containing the new corporate tax rates to be published in the
Iowa administrative bulletin and on the internet site of the
department of revenue. The calculation and publication of the
adjusted tax rate by the director of revenue is exempt from
chapter 17A, and shall be submitted for publication by the
first December 31 following the determination date to adjust
the tax rates.
DIVISION X
CORPORATE INCOME TAX — flat rate
Sec. 57. Section 422.33, subsection 1, Code 2022, is amended
by striking the subsection and inserting in lieu thereof the
following:
1. A tax is imposed annually upon each corporation doing
business in this state, or deriving income from sources within
this state, in an amount computed by applying the rate of
five and one-half percent to the net income received by the
corporation during the income year.
Sec. 58. CONTINGENT EFFECTIVE DATE. This division of
this Act takes effect on the first January 1 after each rate
of taxation on the net income received by a corporation is
equalized to equal five and one-half percent pursuant to
section 422.33, subsection 1, paragraph “b”, as amended by this
-35-Act. The director of revenue shall inform the Code editor upon
the occurrence of this contingency.
Sec. 59. APPLICABILITY. This division of this Act applies
to tax years beginning on or after the effective date of this
division of this Act.
DIVISION XI
TAX EXPENDITURE COMMITTEE
Sec. 60. Section 2.45, subsection 5, Code 2022, is amended
by striking the subsection.
Sec. 61. Section 2.48, subsections 1 and 2, Code 2022,
are amended by striking the subsections and inserting in lieu
thereof the following:
1. As used in this section, “tax expenditure” means an
exclusion from the operation or collection of a tax imposed in
this state. Tax expenditures include tax credits, exemptions,
deductions, and rebates. Tax expenditures also include sales
tax refunds issued pursuant to section 423.3 or 423.4.
2. a. (1) The department administering a tax expenditure
described in subsection 3 shall engage in a review of the
tax expenditure based upon the schedule in subsection 3. If
multiple departments administer the tax expenditure, the
departments shall cooperate in the review.
(2) The review shall consist of evaluating any tax
expenditure described in subsection 3 and assess its equity,
simplicity, competitiveness, public purpose, adequacy,
and extent of conformance with the original purpose of the
legislation that enacted the tax expenditure, as those issues
pertain to taxation in Iowa.
b. (1) The department shall file a report detailing the
review with the general assembly no later than December 15 of
the year the credit is scheduled to be reviewed in subsection
3.
(2) The report may include recommendations for better
aligning tax expenditures with the original intent of the
legislation that enacted the tax expenditure.
-36- Sec. 62. Section 2.48, subsection 3, unnumbered paragraph
1, Code 2022, is amended to read as follows:
The committee applicable department shall review the
following tax expenditures and incentives according to the
following schedule:
Sec. 63. Section 2.48, subsection 4, Code 2022, is amended
to read as follows:
4. Subsequent additional review. A tax expenditure or
incentive reviewed pursuant to subsection 3 shall be reviewed
again not more than five years after the tax expenditure or
incentive was most recently reviewed.
DIVISION XII
TAXPAYER RELIEF FUND CONTINGENT TRANSFERS
Sec. 64. Section 8.54, subsection 5, Code 2022, is amended
to read as follows:
5. a. For fiscal years in which it is anticipated that
the distribution of moneys from the Iowa economic emergency
fund in accordance with section 8.55, subsection 2, will result
in moneys being transferred to the general fund of the state,
the original state general fund expenditure limitation amount
provided for in subsection 3 shall be readjusted to include the
amount of moneys anticipated to be so transferred.
b. For fiscal years in which it is anticipated that moneys
will be transferred from the taxpayer relief fund to the
general fund of the state in accordance with section 8.57E,
subsection 2, paragraph “b”, the original state general fund
expenditure limitation amount provided for in subsection 3
shall be readjusted to include the amount of moneys anticipated
to be so transferred. This paragraph is repealed on the date
that section 8.57E, subsection 2, paragraph “b”, is repealed.
Sec. 65. Section 8.57E, subsection 2, Code 2022, is amended
to read as follows:
2. a. Moneys Except as otherwise provided in this section,
moneys in the taxpayer relief fund shall only be used pursuant
to appropriations or transfers made by the general assembly
-37-for tax relief, including but not limited to increases in
the general retirement income exclusion under section 422.7,
subsection 31, or reductions in income tax rates.
b. (1) For the fiscal year beginning July 1, 2023, and for
each fiscal year thereafter, if the actual net revenue for the
general fund of the state for the fiscal year plus the amount
transferred to the general fund of the state under section
8.55, subsection 2, paragraph “b”, for the fiscal year, if
any, is less than one hundred three and one-half percent of
the actual net revenue for the general fund of the state for
the prior fiscal year, there is transferred from the taxpayer
relief fund to the general fund of the state an amount equal to
the difference or the remaining balance of the taxpayer relief
fund, whichever is lower, subject to subparagraph (2).
(2) The transfer made under subparagraph (1) shall not
exceed an amount necessary to increase the ending balance
of the general fund of the state for the fiscal year to one
percent of the adjusted revenue estimate, as defined in section
8.54, for the fiscal year.
(3) This paragraph is repealed on the date the remaining
balance of the taxpayer relief fund is transferred to the
general fund of the state under subparagraph (1).
______________________________
PAT GRASSLEY
Speaker of the House
______________________________
JAKE CHAPMAN
President of the Senate
I hereby certify that this bill originated in the House and
is known as House File 2317, Eighty-ninth General Assembly.
______________________________
MEGHAN NELSON
Chief Clerk of the House
Approved _______________, 2022
-38-______________________________
KIM REYNOLDS
Governor
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