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Senate File 2372 - IntroducedA Bill ForAn Act 1 relating to state taxation and administration by
2modifying sales and use taxes, individual and corporate
3income taxes, the automobile rental excise tax, the
4franchise tax, and the insurance premiums tax, and including
5effective date, applicability, and retroactive applicability
6provisions.
7BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2SALES AND USE TAX ON SERVICES AND EXEMPTIONS
3 Section 1. Section 423.2, subsection 6, paragraph bu, Code
42022, is amended to read as follows:
5bu. Software as a service Cloud computing.
6 Sec. 2. Section 423.2, subsection 6, Code 2022, is amended
7by adding the following new paragraphs:
8 NEW PARAGRAPH. bv. Web hosting.
9 NEW PARAGRAPH. bw. Digital automated services.
10 NEW PARAGRAPH. bx. Scooter rentals.
11 Sec. 3. Section 423.3, subsection 8, paragraph d,
12subparagraph (1), Code 2022, is amended by adding the following
13new subparagraph division:
14 NEW SUBPARAGRAPH DIVISION. (e) A specified digital
15product.
16 Sec. 4. Section 423.3, subsection 47, paragraph a,
17subparagraph (4), Code 2022, is amended by striking the
18subparagraph.
19 Sec. 5. Section 423.3, subsection 68, paragraph c,
20subparagraph (1), subparagraph division (a), Code 2022, is
21amended to read as follows:
22(a) “Clothing” includes but is not limited to the
23following: aprons, household and shop; athletic supporters;
24baby receiving blankets; bathing suits and caps; beach capes
25and coats; belts and suspenders; boots; coats and jackets;
26costumes; diapers (children and adults, including disposable
27diapers); earmuffs; footlets; formal wear; garters and garter
28belts; girdles; gloves and mittens for general use; hats
29and caps; hosiery; insoles for shoes; lab coats; neckties;
30overshoes; pantyhose; rainwear; rubber pants; sandals;
31scarves; shoes and shoelaces; slippers; sneakers; socks and
32stockings; steel-toed shoes; underwear; uniforms, athletic and
33nonathletic; and wedding apparel.
34 Sec. 6. Section 423.3, subsection 104, paragraph a, Code
352022, is amended to read as follows:
-1- 1a. The sales price of specified digital products and of
2prewritten computer software sold, and of enumerated services
3described in section 423.2, subsection 1, paragraph “a”,
4subparagraph (5), or section 423.2, subsection 6, paragraphs
5“bq”, “br”, “bs”, and “bu”, “bv”, and “bw” furnished, to a
6commercial enterprise for use exclusively by the commercial
7enterprise. The use of prewritten computer software, a
8specified digital product, or service fails to qualify as a
9use exclusively by the commercial enterprise if its use for
10noncommercial purposes is more than de minimis.
11 Sec. 7. Section 423.3, subsection 104, paragraph b,
12subparagraph (1), Code 2022, is amended to read as follows:
13(1) “Commercial enterprise” means the same as defined in
14section 423.3, subsection 47, paragraph “d”, subparagraph (1),
15but also includes professions and occupations and includes
16public utilities as defined in section 476.1, subsection 3.
17 Sec. 8. Section 423.3, Code 2022, is amended by adding the
18following new subsections:
19 NEW SUBSECTION. 107. The sales price from the sale of
20period products. For purposes of this subsection, “period
21products” means sanitary napkins or pads, tampons, menstrual
22cups, or other similar items used in connection with the
23menstrual cycle.
24 NEW SUBSECTION. 108. The sales price from the sale of a
25child or adult diaper, whether cloth or disposable.
26 Sec. 9. Section 423.4, subsection 1, paragraph a, Code 2022,
27is amended by adding the following new subparagraphs:
28 NEW SUBPARAGRAPH. (10) A nonprofit facility licensed by
29the state built on or after January 1, 2022, that provides
30residential addiction recovery and emergency shelter services
31for children. For purposes of this subparagraph, “children”
32means the same as “child” as defined in section 234.1.
33 NEW SUBPARAGRAPH. (11) A fair as defined in section 174.1.
34 Sec. 10. REFUNDS. Refunds of taxes, interest, or penalties
35which arise from claims resulting from the enactment of section
-2-1423.4, subsection 1, paragraph “a”, subparagraph (11), in this
2division of this Act, occurring between January 1, 2021, and
3the effective date of this section of this Act shall be limited
4to twenty-five thousand dollars in the aggregate, and shall not
5be allowed unless refund claims are filed by October 1, 2022,
6notwithstanding any other law to the contrary. If the amount
7of the claims totals more than twenty-five thousand dollars
8in the aggregate, the department of revenue shall prorate the
9twenty-five thousand dollars in the aggregate among all the
10claimants’ in relation to the amounts of the claimants valid
11claims.
12 Sec. 11. EFFECTIVE DATE. Except as otherwise provided, this
13division of this Act takes effect January 1, 2023.
14 Sec. 12. EFFECTIVE DATE. The following, being deemed of
15immediate importance, take effect upon enactment:
161. The section of this division of this Act enacting a
17provision allowing for refunds of taxes, interest, or penalties
18which arise from the enactment of section 423.4, subsection 1,
19paragraph “a”, subparagraph (11).
202. The portion of the section of this division of this
21Act enacting section 423.4, subsection 1, paragraph “a”,
22subparagraph (11).
23 Sec. 13. RETROACTIVE APPLICABILITY. The following apply
24retroactively to January 1, 2021:
251. The section of this division of this Act enacting a
26provision allowing for refunds of taxes, interest, or penalties
27which arise from the enactment of section 423.4, subsection 1,
28paragraph “a”, subparagraph (11).
292. The portion of the section of this division of this
30Act enacting section 423.4, subsection 1, paragraph “a”,
31subparagraph (11).
32DIVISION II
33AUTOMOBILE RENTAL EXCISE TAX
34 Sec. 14. Section 423.14A, subsection 1, paragraph b,
35subparagraph (3), Code 2022, is amended by striking the
-3-1subparagraph.
2 Sec. 15. Section 423C.2, subsection 7, Code 2022, is amended
3by striking the subsection.
4 Sec. 16. Section 423C.3, subsection 3, paragraph b, Code
52022, is amended by striking the paragraph.
6 Sec. 17. EFFECTIVE DATE. This division of this Act takes
7effect January 1, 2023.
8DIVISION III
9MANUFACTURED FOOD — SALES TAX EXEMPTION
10 Sec. 18. Section 423.3, subsection 49, Code 2022, is amended
11to read as follows:
1249. a. The sales price from the sale of carbon dioxide
13in a liquid, solid, or gaseous form, electricity, steam, and
14other taxable services and the lease or rental of tangible
15personal property when used by a manufacturer of food products
16 to primarily produce marketable food products for human
17consumption food or food ingredients, including but not
18limited to treatment of material to change its form, context,
19or condition, in order to produce the food product or food
20ingredients, maintenance of quality or integrity of the
21food product or food ingredients, changing or maintenance of
22temperature levels necessary to avoid spoilage or to hold the
23food product or food ingredients in marketable condition,
24maintenance of environmental conditions necessary for the safe
25or efficient use of machinery and material used to produce
26the food product or food ingredients, sanitation and quality
27control activities, formation of packaging, placement into
28shipping containers, and movement of the material or food
29product or food ingredients until shipment from the building
30of manufacture.
31b. For purposes of this subsection, “food or food
32ingredients” means the same as “food and food ingredients” as
33defined in subsection 57, paragraph “d”, and includes tangible
34personal property that could be sold for ingestion or chewing
35by humans but is sold for another use.
-4-1 Sec. 19. REFUNDS. Refunds of taxes, interest, or penalties
2which arise from the enactment of this division of this Act,
3for sales or services occurring between January 1, 2019, and
4the effective date of this division of this Act, shall be
5limited to one hundred thousand dollars in the aggregate for
6any calendar year in which claims are eligible for a refund and
7shall not be allowed unless refund claims are filed by October
81, 2022, notwithstanding any other law to the contrary. If the
9amount of claims totals more than one hundred thousand dollars
10in the aggregate for any calendar year in which claims are
11eligible for a refund, the department of revenue shall prorate
12the one hundred thousand dollars in the aggregate among all the
13claimants for that particular calendar year in relation to the
14amounts of the claimants’ valid claims.
15 Sec. 20. EFFECTIVE DATE. This division of this Act, being
16deemed of immediate importance, takes effect upon enactment.
17 Sec. 21. RETROACTIVE APPLICABILITY. This division of this
18Act applies retroactively to January 1, 2019.
19DIVISION IV
20National guard Pay
21 Sec. 22. Section 422.7, Code 2022, is amended by adding the
22following new subsection:
23 NEW SUBSECTION. 42B. Subtract, to the extent included, up
24to twenty thousand dollars of pay received by the taxpayer for
25service pursuant to 32 U.S.C. §502.
26 Sec. 23. APPLICABILITY. This division of this Act applies
27to tax years beginning on or after January 1, 2023.
28DIVISION V
29NET OPERATING LOSS DEDUCTION
30 Sec. 24. Section 422.7, unnumbered paragraph 1, Code 2022,
31is amended to read as follows:
32The term “net income” means the adjusted gross income before
33the net operating loss deduction taxable income as properly
34computed for federal income tax purposes under section 63
35of the Internal Revenue Code before the net operating loss
-5-1deduction, with the following adjustments:
2 Sec. 25. Section 422.9, Code 2022, is amended by striking
3the section and inserting in lieu thereof the following:
4422.9 Carryforward of Iowa net operating loss — deduction.
51. If, after applying all of the adjustments provided for in
6section 422.7 and the allocation provisions of section 422.8,
7and subject to the modifications provided in section 172(d)
8of the Internal Revenue Code, the taxable income results in
9a net operating loss, such Iowa net operating loss, if any,
10shall be carried forward and such carryforward amounts shall be
11available as a deduction under this subsection in future years.
122. The deduction allowed under subsection 1 shall be
13calculated by subtracting the sum of the following from net
14income:
15a. The aggregate amount of net operating losses arising in
16taxable years beginning before January 1, 2023, carried to such
17taxable year.
18b. The lesser of the aggregate amount of net operating
19losses arising in taxable years beginning after December 31,
202022, carried to such taxable year, or eighty percent of the
21excess of taxable income, if any, computed without regard to
22the deductions under this section and, to the extent included
23in the Iowa net income calculation, sections 199A and 250 of
24the Internal Revenue Code, over the amount determined under
25paragraph “a”.
26 Sec. 26. Section 422.35, subsection 11, Code 2022, is
27amended by striking the subsection and inserting in lieu
28thereof the following:
2911. a. If, after applying all of the adjustments provided
30for in this section and the allocation and apportionment
31provisions of section 422.33, the Iowa taxable income results
32in a net operating loss, such Iowa net operating loss shall
33be carried forward and such carryforward amounts shall be
34available as a deduction under this subsection in future years.
35b. For the current year subtract the sum of the following,
-6-1to the extent available, any net operating loss carryforward
2amount as follows:
3(1) The aggregate amount of net operating losses arising in
4taxable years beginning before January 1, 2023, carried to such
5taxable year.
6(2) The lesser of the aggregate amount of net operating
7losses arising in taxable years beginning after December 31,
82022, carried to such taxable year, or eighty percent of the
9excess of taxable income, if any, computed without regard to
10the deductions under this subsection to the extent included in
11the Iowa net income calculation, section 250 of the Internal
12Revenue Code, over the amount determined under subparagraph
13(1).
14c. Any portion of a net operating loss which was sustained
15from that portion of the trade or business carried on outside
16the state of Iowa shall not be deducted.
17d. The deductions described in this subsection are allowed
18subject to the requirement that a corporation affected by the
19allocation provisions of section 422.33 shall be permitted to
20deduct only that portion of the deductions for net operating
21loss that is fairly and equitably allocable to Iowa, under
22rules prescribed by the director.
23 Sec. 27. REPEAL. 2018 Iowa Acts, chapter 1161, sections
24108, 109, 120, 128, and 129, are repealed.
25 Sec. 28. EFFECTIVE DATE. This division of this Act takes
26effect January 1, 2023.
27 Sec. 29. APPLICABILITY. This division of this Act applies
28to tax years beginning on or after January 1, 2023.
29DIVISION VI
30CHANGES TO SALE OF CERTAIN QUALIFIED STOCK PROVISIONS
31 Sec. 30. Section 422.7, subsection 63, paragraph c,
32subparagraph (2), as enacted by 2022 Iowa Acts, House File
332317, section 1, is amended to read as follows:
34(2) “Employee-owner” means an individual who owns capital
35stock in a qualified corporation for at least ten years, which
-7-1capital stock was acquired by the individual while employed and
2on account of employment by such any qualified corporation for
3at least ten cumulative years.
4 Sec. 31. Section 422.7, subsection 63, paragraph c,
5subparagraph (4), subparagraph division (b), as enacted by 2022
6Iowa Acts, House File 2317, section 1, is amended to read as
7follows:
8(b) “Qualified corporation” includes any member of an Iowa
9affiliated group if the Iowa affiliated group includes a member
10that has employed individuals in this state for at least ten
11years. For purposes of this subparagraph division, “Iowa
12affiliated group” means an affiliated group that has made is
13eligible to make a valid election to file an Iowa consolidated
14income tax return under section 422.37 in the year in which
15the deduction under this subsection is claimed. “Member”
16includes any entity that is eligible to be included in the a
17 consolidated return under section 422.37, subsection 2, for the
18tax year in which the deduction is claimed.
19 Sec. 32. EFFECTIVE DATE. This division of this Act takes
20effect January 1, 2023.
21 Sec. 33. APPLICABILITY. This division of this Act applies
22to tax years beginning on or after January 1, 2023.
23DIVISION VII
24FRANCHISE TAX
25 Sec. 34. Section 422.63, Code 2022, is amended to read as
26follows:
27422.63 Amount of tax.
281. The franchise tax is imposed annually in an amount equal
29to five the percent specified in subsection 2 of the net income
30received or accrued during the taxable year. If the net income
31of the financial institution is derived from its business
32carried on entirely within the state, the tax shall be imposed
33on the entire net income, but if the business is carried on
34partly within and partly without the state, the portion of net
35income reasonably attributable to the business within the state
-8-1shall be specifically allocated or equitably apportioned within
2and without the state under rules of the director.
32. a. For tax years beginning prior to January 1, 2023,
4five percent.
5b. For tax years beginning on or after January 1, 2023, but
6before January 1, 2024, four and four-fifths percent.
7c. For tax years beginning on or after January 1, 2024, but
8before January 1, 2025, four and three-fifths percent.
9d. For tax years beginning on or after January 1, 2025, but
10before January 1, 2026, four and two-fifths percent.
11e. For tax years beginning on or after January 1, 2026, but
12before January 1, 2027, four and one-fifth percent.
13f. For tax years beginning on or after January 1, 2027,
14three and nine-tenths percent.
15DIVISION VIII
16INSURANCE PREMIUMS TAX
17 Sec. 35. Section 432.1, subsection 2, Code 2022, is amended
18to read as follows:
192. The “applicable percent” for purposes of subsection 1 of
20this section and section 432.2 is the following:
21a. For calendar years beginning before the 2003 calendar
22year, two percent.
23b. For the 2003 calendar year, one and three-fourths
24percent.
25c. For the 2004 calendar year, one and one-half percent.
26d. For the 2005 calendar year, one and one-fourth percent.
27e. For the 2006 and subsequent calendar years year through
28the 2022 calendar year, one percent.
29f. For the 2023 calendar year, ninety-five hundredths of one
30percent.
31g. For the 2024 and subsequent calendar years, nine-tenths
32of one percent.
33 Sec. 36. Section 432.1, subsection 4, Code 2022, is amended
34to read as follows:
354. The “applicable percent” for purposes of subsection 3 is
-9-1the following:
2a. For calendar years beginning before the 2004 calendar
3year, two percent.
4b. For the 2004 calendar year, one and three-fourths
5percent.
6c. For the 2005 calendar year, one and one-half percent.
7d. For the 2006 calendar year, one and one-fourth percent.
8e. For the 2007 and subsequent calendar years year through
9the 2022 calendar year, one percent.
10f. For the 2023 calendar year, ninety-five hundredths of one
11percent.
12g. For the 2024 and subsequent calendar years, nine-tenths
13of one percent.
14EXPLANATION
15The inclusion of this explanation does not constitute agreement with
16the explanation’s substance by the members of the general assembly.
17This bill relates to state taxation and administration by
18modifying sales and use taxes, individual and corporate income
19taxes, the automobile rental excise tax, the franchise tax, and
20the insurance premium tax.
21DIVISION I — SALES AND USE TAX ON SERVICES AND EXEMPTIONS.
22 The bill strikes “software as a service” and substitutes “cloud
23computing” as a service for purposes of imposing sales tax.
24The bill makes the following services subject to the sales tax:
25web hosting, digital automated services, and scooter. However,
26the bill exempts web hosting and digital automated services
27from the sales tax when furnished to a commercial enterprise
28for use exclusively by the commercial enterprise.
29The bill exempts “specified digital products” from the sales
30tax when used in agricultural production.
31The bill strikes the sales and use tax exemption on the
32sales price from the sale or rental of computer or computer
33peripherals by an insurance company, financial institution, or
34commercial enterprise.
35The bill exempts from the sales tax the sale of period
-10-1products and child and adult diapers. Period products are
2defined in the bill.
3The bill strikes “professions and occupations” from
4the definition of “commercial enterprise” in Code section
5423.3(104) thus making sales to professions and occupations
6related to prewritten software, specified digital services,
7and other services subject to the sales tax. The bill expands
8the definition of “commercial enterprise” to include a “public
9utility” as defined in Code section 476.1(3). As a result, the
10sales price of specified digital products, prewritten computer
11software, and other enumerated digital and computer services
12furnished to a public utility are exempt from the sales tax, if
13exclusively used by the public utility.
14Currently, a “designated exempt entity” may apply to the
15department of revenue, under certain circumstances, for the
16refund of sales or use tax upon the sales price of all sales
17of building materials, supplies, equipment, or from services
18furnished to a contractor, used in the performance of a written
19contract with the designated exempt entity.
20The bill makes a nonprofit facility licensed by the state
21built on or after January 1, 2022, a designated exempt entity,
22if the facility provides residential addiction recovery and
23emergency shelter services for children under 18 years of age
24and certain young adults.
25The bill also makes a county or district fair a designated
26exempt entity. This provision takes effect upon enactment and
27applies retroactively to January 1, 2021. The bill allows for
28refunds of taxes, interest, or penalties arising from claims
29resulting from the enactment of the bill. The bill limits the
30refund amount to $25,000 in the aggregate.
31Except as otherwise provided, the division takes effect
32January 1, 2023.
33DIVISION II — AUTOMOBILE RENTAL EXCISE TAX. The bill
34repeals an exception for the collection of the automobile
35rental excise tax of a person or an affiliate of a person who
-11-1owns, operates, or controls an automobile peer-to-peer sharing
2marketplace.
3This division takes effect January 1, 2023.
4DIVISION III — MANUFACTURED FOOD — SALES TAX EXEMPTION.
5 The bill exempts from the sales tax the sales of certain items
6and services used by a manufacturer to primarily produce food
7or food ingredients, including the lease or rental of tangible
8personal property used to primarily produce such food or food
9ingredients.
10The bill defines “food or food ingredients” to mean the same
11as defined in Code section 423.3(57)(d) and includes tangible
12personal property that could be sold for ingestion or chewing
13by humans but is sold for another use.
14Under current law, in order to receive the sales tax
15exemption the items or services must be used to produce
16marketable food products for human consumption.
17By operation of Code section 423.6, an item exempt from the
18imposition of the sales tax is also exempt from the use tax
19imposed in Code section 423.5.
20The bill requires refunds of taxes, interest, or penalties
21arising from claims resulting from the enactment of the bill
22for sales or services occurring between January 1, 2019, and
23the effective date of the bill to be filed prior to October
241, 2022. Refunds of taxes, interest, or penalties shall not
25exceed $100,000 in the aggregate in any calendar year in which
26claims are eligible for a refund. If the amount of claims
27totals more than $100,000 in the aggregate for any calendar
28year in which claims are eligible for a refund, the department
29of revenue shall prorate the $100,000 in the aggregate among
30all the claimants for that particular calendar year.
31This division takes effect upon enactment and applies
32retroactively to January 1, 2019.
33DIVISION IV — NATIONAL GUARD PAY. The bill exempts from the
34individual income tax up to $20,000 of pay received by a member
35of the national guard for any required drills, field exercises,
-12-1or in the performance of any other orders under 32 U.S.C. §502.
2This division applies to tax years beginning on or after
3January 1, 2023.
4DIVISION V — NET OPERATING LOSS DEDUCTION. For tax years
5beginning on or after January 1, 2023, 2018 Iowa Acts, chapter
61161, sections 120, 128, and 129, are set to go into effect,
7which provide that a net operating loss will no longer be
8calculated at the state level for individual and corporate
9income taxpayers, as applicable, and requires such taxpayers
10to add back any federal net operating loss deduction carried
11over from a tax year beginning prior to January 1, 2023, but
12such taxpayers are allowed to deduct any remaining Iowa net
13operating loss from a prior taxable year. The net operating
14loss deduction remains available to taxpayers at the federal
15level.
16The bill strikes the provisions in 2018 Iowa Acts, chapter
171161, disallowing a separate net operating loss calculation
18at the state level and creates an Iowa net operating loss
19calculation.
20INDIVIDUAL INCOME TAXPAYERS. For individual income
21taxpayers, under the Iowa net operating loss deduction
22calculation, the taxpayer subtracts the net operating loss
23carryforward amount from net income calculated as follows: the
24sum of the aggregate amount of net operating losses arising
25in taxable years beginning before January 1, 2023, carried to
26such taxable year, and the lesser of the aggregate amount of
27net operating losses arising in taxable years beginning after
28December 31, 2022, carried to such taxable year, or 80 percent
29of the excess of taxable income, without regard to certain
30deductions.
31CORPORATE INCOME TAXPAYERS. For corporate income taxpayers,
32under the Iowa net operating loss deduction calculation, the
33taxpayer subtracts the net operating loss carryforward amount
34from net income as follows: the sum of the aggregate amount
35of net operating losses arising in taxable years beginning
-13-1before January 1, 2023, carried to such taxable year, and the
2lesser of the aggregate amount of net operating losses arising
3in taxable years beginning after December 31, 2022, carried
4to such taxable year, or 80 percent of the excess of taxable
5income, without regard to certain deductions.
6The bill provides that the portion of a net operating loss
7which was sustained from that portion of the trade or business
8carried on outside the state of Iowa shall not be deducted.
9The bill provides that a taxpayer is only permitted to deduct
10the portion of the deduction for net operating loss that is
11fairly and equitably allocable to Iowa, under rules prescribed
12by the director or revenue.
13EFFECTIVE DATE AND APPLICABILITY. This division takes
14effect January 1, 2023, and applies to tax years beginning on
15or after that date.
16DIVISION VI — CHANGES TO SALE OF CERTAIN QUALIFIED STOCK
17PROVISIONS. The bill makes changes to provisions related to
18the sale of certain qualified stock in 2022 Iowa Acts, House
19File 2317, as enacted. 2022 Iowa Acts, House File 2317,
20grants an employee-owner one irrevocable lifetime election
21to exclude from state individual income tax the net capital
22gain from the state of the capital stock on one qualified
23corporation. The bill expands the definition of “qualified
24corporation” to include any “member” of an Iowa affiliate group
25if the affiliated group is eligible to make a valid election
26to file an Iowa consolidated income tax return under Code
27section 422.37 in the year the qualified stock sale deduction
28is made. The bill expands the definition of “member” under
29the definition of “qualified corporation” in 2022 Iowa Acts,
30House File 2317, to include any entity that is eligible to be
31included in a consolidated return under Code section 422.37(2)
32if an election is made to file a consolidated return.
33This division takes effect January 1, 2023, and applies to
34tax years beginning on or after that date.
35DIVISION VII — FRANCHISE TAX. The bill phases in a
-14-1reduction of the current franchise tax of 5 percent of net
2income as follows: Commencing with the tax years beginning
3during the 2023 calendar year, 4.80 percent; for tax years
4beginning during the 2024 calendar year, 4.60 percent; for tax
5years beginning during the 2025 calendar year, 4.40 percent;
6for tax years beginning during the 2026 calendar year, 4.20
7percent; and for all tax years beginning on or after January
81, 2027, 3.90 percent.
9DIVISION VIII — INSURANCE PREMIUMS TAX. The bill reduces
10the insurance premiums tax on the gross amount of premiums
11received by an insurance company from 1 percent to .95 percent
12in calendar year 2023, and from .95 percent to .90 percent for
13the 2024 calendar year and subsequent calendar years.
-15-jm/jh
2modifying sales and use taxes, individual and corporate
3income taxes, the automobile rental excise tax, the
4franchise tax, and the insurance premiums tax, and including
5effective date, applicability, and retroactive applicability
6provisions.
7BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1DIVISION I
2SALES AND USE TAX ON SERVICES AND EXEMPTIONS
3 Section 1. Section 423.2, subsection 6, paragraph bu, Code
42022, is amended to read as follows:
5bu. Software as a service Cloud computing.
6 Sec. 2. Section 423.2, subsection 6, Code 2022, is amended
7by adding the following new paragraphs:
8 NEW PARAGRAPH. bv. Web hosting.
9 NEW PARAGRAPH. bw. Digital automated services.
10 NEW PARAGRAPH. bx. Scooter rentals.
11 Sec. 3. Section 423.3, subsection 8, paragraph d,
12subparagraph (1), Code 2022, is amended by adding the following
13new subparagraph division:
14 NEW SUBPARAGRAPH DIVISION. (e) A specified digital
15product.
16 Sec. 4. Section 423.3, subsection 47, paragraph a,
17subparagraph (4), Code 2022, is amended by striking the
18subparagraph.
19 Sec. 5. Section 423.3, subsection 68, paragraph c,
20subparagraph (1), subparagraph division (a), Code 2022, is
21amended to read as follows:
22(a) “Clothing” includes but is not limited to the
23following: aprons, household and shop; athletic supporters;
24baby receiving blankets; bathing suits and caps; beach capes
25and coats; belts and suspenders; boots; coats and jackets;
26costumes; diapers (children and adults, including disposable
27diapers); earmuffs; footlets; formal wear; garters and garter
28belts; girdles; gloves and mittens for general use; hats
29and caps; hosiery; insoles for shoes; lab coats; neckties;
30overshoes; pantyhose; rainwear; rubber pants; sandals;
31scarves; shoes and shoelaces; slippers; sneakers; socks and
32stockings; steel-toed shoes; underwear; uniforms, athletic and
33nonathletic; and wedding apparel.
34 Sec. 6. Section 423.3, subsection 104, paragraph a, Code
352022, is amended to read as follows:
-1- 1a. The sales price of specified digital products and of
2prewritten computer software sold, and of enumerated services
3described in section 423.2, subsection 1, paragraph “a”,
4subparagraph (5), or section 423.2, subsection 6, paragraphs
5“bq”, “br”, “bs”, and “bu”, “bv”, and “bw” furnished, to a
6commercial enterprise for use exclusively by the commercial
7enterprise. The use of prewritten computer software, a
8specified digital product, or service fails to qualify as a
9use exclusively by the commercial enterprise if its use for
10noncommercial purposes is more than de minimis.
11 Sec. 7. Section 423.3, subsection 104, paragraph b,
12subparagraph (1), Code 2022, is amended to read as follows:
13(1) “Commercial enterprise” means the same as defined in
14section 423.3, subsection 47, paragraph “d”, subparagraph (1),
15but also includes professions and occupations and includes
16public utilities as defined in section 476.1, subsection 3.
17 Sec. 8. Section 423.3, Code 2022, is amended by adding the
18following new subsections:
19 NEW SUBSECTION. 107. The sales price from the sale of
20period products. For purposes of this subsection, “period
21products” means sanitary napkins or pads, tampons, menstrual
22cups, or other similar items used in connection with the
23menstrual cycle.
24 NEW SUBSECTION. 108. The sales price from the sale of a
25child or adult diaper, whether cloth or disposable.
26 Sec. 9. Section 423.4, subsection 1, paragraph a, Code 2022,
27is amended by adding the following new subparagraphs:
28 NEW SUBPARAGRAPH. (10) A nonprofit facility licensed by
29the state built on or after January 1, 2022, that provides
30residential addiction recovery and emergency shelter services
31for children. For purposes of this subparagraph, “children”
32means the same as “child” as defined in section 234.1.
33 NEW SUBPARAGRAPH. (11) A fair as defined in section 174.1.
34 Sec. 10. REFUNDS. Refunds of taxes, interest, or penalties
35which arise from claims resulting from the enactment of section
-2-1423.4, subsection 1, paragraph “a”, subparagraph (11), in this
2division of this Act, occurring between January 1, 2021, and
3the effective date of this section of this Act shall be limited
4to twenty-five thousand dollars in the aggregate, and shall not
5be allowed unless refund claims are filed by October 1, 2022,
6notwithstanding any other law to the contrary. If the amount
7of the claims totals more than twenty-five thousand dollars
8in the aggregate, the department of revenue shall prorate the
9twenty-five thousand dollars in the aggregate among all the
10claimants’ in relation to the amounts of the claimants valid
11claims.
12 Sec. 11. EFFECTIVE DATE. Except as otherwise provided, this
13division of this Act takes effect January 1, 2023.
14 Sec. 12. EFFECTIVE DATE. The following, being deemed of
15immediate importance, take effect upon enactment:
161. The section of this division of this Act enacting a
17provision allowing for refunds of taxes, interest, or penalties
18which arise from the enactment of section 423.4, subsection 1,
19paragraph “a”, subparagraph (11).
202. The portion of the section of this division of this
21Act enacting section 423.4, subsection 1, paragraph “a”,
22subparagraph (11).
23 Sec. 13. RETROACTIVE APPLICABILITY. The following apply
24retroactively to January 1, 2021:
251. The section of this division of this Act enacting a
26provision allowing for refunds of taxes, interest, or penalties
27which arise from the enactment of section 423.4, subsection 1,
28paragraph “a”, subparagraph (11).
292. The portion of the section of this division of this
30Act enacting section 423.4, subsection 1, paragraph “a”,
31subparagraph (11).
32DIVISION II
33AUTOMOBILE RENTAL EXCISE TAX
34 Sec. 14. Section 423.14A, subsection 1, paragraph b,
35subparagraph (3), Code 2022, is amended by striking the
-3-1subparagraph.
2 Sec. 15. Section 423C.2, subsection 7, Code 2022, is amended
3by striking the subsection.
4 Sec. 16. Section 423C.3, subsection 3, paragraph b, Code
52022, is amended by striking the paragraph.
6 Sec. 17. EFFECTIVE DATE. This division of this Act takes
7effect January 1, 2023.
8DIVISION III
9MANUFACTURED FOOD — SALES TAX EXEMPTION
10 Sec. 18. Section 423.3, subsection 49, Code 2022, is amended
11to read as follows:
1249. a. The sales price from the sale of carbon dioxide
13in a liquid, solid, or gaseous form, electricity, steam, and
14other taxable services and the lease or rental of tangible
15personal property when used by a manufacturer of food products
16 to primarily produce marketable food products for human
17consumption food or food ingredients, including but not
18limited to treatment of material to change its form, context,
19or condition, in order to produce the food product or food
20ingredients, maintenance of quality or integrity of the
21food product or food ingredients, changing or maintenance of
22temperature levels necessary to avoid spoilage or to hold the
23food product or food ingredients in marketable condition,
24maintenance of environmental conditions necessary for the safe
25or efficient use of machinery and material used to produce
26the food product or food ingredients, sanitation and quality
27control activities, formation of packaging, placement into
28shipping containers, and movement of the material or food
29product or food ingredients until shipment from the building
30of manufacture.
31b. For purposes of this subsection, “food or food
32ingredients” means the same as “food and food ingredients” as
33defined in subsection 57, paragraph “d”, and includes tangible
34personal property that could be sold for ingestion or chewing
35by humans but is sold for another use.
-4-1 Sec. 19. REFUNDS. Refunds of taxes, interest, or penalties
2which arise from the enactment of this division of this Act,
3for sales or services occurring between January 1, 2019, and
4the effective date of this division of this Act, shall be
5limited to one hundred thousand dollars in the aggregate for
6any calendar year in which claims are eligible for a refund and
7shall not be allowed unless refund claims are filed by October
81, 2022, notwithstanding any other law to the contrary. If the
9amount of claims totals more than one hundred thousand dollars
10in the aggregate for any calendar year in which claims are
11eligible for a refund, the department of revenue shall prorate
12the one hundred thousand dollars in the aggregate among all the
13claimants for that particular calendar year in relation to the
14amounts of the claimants’ valid claims.
15 Sec. 20. EFFECTIVE DATE. This division of this Act, being
16deemed of immediate importance, takes effect upon enactment.
17 Sec. 21. RETROACTIVE APPLICABILITY. This division of this
18Act applies retroactively to January 1, 2019.
19DIVISION IV
20National guard Pay
21 Sec. 22. Section 422.7, Code 2022, is amended by adding the
22following new subsection:
23 NEW SUBSECTION. 42B. Subtract, to the extent included, up
24to twenty thousand dollars of pay received by the taxpayer for
25service pursuant to 32 U.S.C. §502.
26 Sec. 23. APPLICABILITY. This division of this Act applies
27to tax years beginning on or after January 1, 2023.
28DIVISION V
29NET OPERATING LOSS DEDUCTION
30 Sec. 24. Section 422.7, unnumbered paragraph 1, Code 2022,
31is amended to read as follows:
32The term “net income” means the adjusted gross income before
33the net operating loss deduction taxable income as properly
34computed for federal income tax purposes under section 63
35of the Internal Revenue Code before the net operating loss
-5-1deduction, with the following adjustments:
2 Sec. 25. Section 422.9, Code 2022, is amended by striking
3the section and inserting in lieu thereof the following:
4422.9 Carryforward of Iowa net operating loss — deduction.
51. If, after applying all of the adjustments provided for in
6section 422.7 and the allocation provisions of section 422.8,
7and subject to the modifications provided in section 172(d)
8of the Internal Revenue Code, the taxable income results in
9a net operating loss, such Iowa net operating loss, if any,
10shall be carried forward and such carryforward amounts shall be
11available as a deduction under this subsection in future years.
122. The deduction allowed under subsection 1 shall be
13calculated by subtracting the sum of the following from net
14income:
15a. The aggregate amount of net operating losses arising in
16taxable years beginning before January 1, 2023, carried to such
17taxable year.
18b. The lesser of the aggregate amount of net operating
19losses arising in taxable years beginning after December 31,
202022, carried to such taxable year, or eighty percent of the
21excess of taxable income, if any, computed without regard to
22the deductions under this section and, to the extent included
23in the Iowa net income calculation, sections 199A and 250 of
24the Internal Revenue Code, over the amount determined under
25paragraph “a”.
26 Sec. 26. Section 422.35, subsection 11, Code 2022, is
27amended by striking the subsection and inserting in lieu
28thereof the following:
2911. a. If, after applying all of the adjustments provided
30for in this section and the allocation and apportionment
31provisions of section 422.33, the Iowa taxable income results
32in a net operating loss, such Iowa net operating loss shall
33be carried forward and such carryforward amounts shall be
34available as a deduction under this subsection in future years.
35b. For the current year subtract the sum of the following,
-6-1to the extent available, any net operating loss carryforward
2amount as follows:
3(1) The aggregate amount of net operating losses arising in
4taxable years beginning before January 1, 2023, carried to such
5taxable year.
6(2) The lesser of the aggregate amount of net operating
7losses arising in taxable years beginning after December 31,
82022, carried to such taxable year, or eighty percent of the
9excess of taxable income, if any, computed without regard to
10the deductions under this subsection to the extent included in
11the Iowa net income calculation, section 250 of the Internal
12Revenue Code, over the amount determined under subparagraph
13(1).
14c. Any portion of a net operating loss which was sustained
15from that portion of the trade or business carried on outside
16the state of Iowa shall not be deducted.
17d. The deductions described in this subsection are allowed
18subject to the requirement that a corporation affected by the
19allocation provisions of section 422.33 shall be permitted to
20deduct only that portion of the deductions for net operating
21loss that is fairly and equitably allocable to Iowa, under
22rules prescribed by the director.
23 Sec. 27. REPEAL. 2018 Iowa Acts, chapter 1161, sections
24108, 109, 120, 128, and 129, are repealed.
25 Sec. 28. EFFECTIVE DATE. This division of this Act takes
26effect January 1, 2023.
27 Sec. 29. APPLICABILITY. This division of this Act applies
28to tax years beginning on or after January 1, 2023.
29DIVISION VI
30CHANGES TO SALE OF CERTAIN QUALIFIED STOCK PROVISIONS
31 Sec. 30. Section 422.7, subsection 63, paragraph c,
32subparagraph (2), as enacted by 2022 Iowa Acts, House File
332317, section 1, is amended to read as follows:
34(2) “Employee-owner” means an individual who owns capital
35stock in a qualified corporation for at least ten years, which
-7-1capital stock was acquired by the individual while employed and
2on account of employment by such any qualified corporation for
3at least ten cumulative years.
4 Sec. 31. Section 422.7, subsection 63, paragraph c,
5subparagraph (4), subparagraph division (b), as enacted by 2022
6Iowa Acts, House File 2317, section 1, is amended to read as
7follows:
8(b) “Qualified corporation” includes any member of an Iowa
9affiliated group if the Iowa affiliated group includes a member
10that has employed individuals in this state for at least ten
11years. For purposes of this subparagraph division, “Iowa
12affiliated group” means an affiliated group that has made is
13eligible to make a valid election to file an Iowa consolidated
14income tax return under section 422.37 in the year in which
15the deduction under this subsection is claimed. “Member”
16includes any entity that is eligible to be included in the a
17 consolidated return under section 422.37, subsection 2, for the
18tax year in which the deduction is claimed.
19 Sec. 32. EFFECTIVE DATE. This division of this Act takes
20effect January 1, 2023.
21 Sec. 33. APPLICABILITY. This division of this Act applies
22to tax years beginning on or after January 1, 2023.
23DIVISION VII
24FRANCHISE TAX
25 Sec. 34. Section 422.63, Code 2022, is amended to read as
26follows:
27422.63 Amount of tax.
281. The franchise tax is imposed annually in an amount equal
29to five the percent specified in subsection 2 of the net income
30received or accrued during the taxable year. If the net income
31of the financial institution is derived from its business
32carried on entirely within the state, the tax shall be imposed
33on the entire net income, but if the business is carried on
34partly within and partly without the state, the portion of net
35income reasonably attributable to the business within the state
-8-1shall be specifically allocated or equitably apportioned within
2and without the state under rules of the director.
32. a. For tax years beginning prior to January 1, 2023,
4five percent.
5b. For tax years beginning on or after January 1, 2023, but
6before January 1, 2024, four and four-fifths percent.
7c. For tax years beginning on or after January 1, 2024, but
8before January 1, 2025, four and three-fifths percent.
9d. For tax years beginning on or after January 1, 2025, but
10before January 1, 2026, four and two-fifths percent.
11e. For tax years beginning on or after January 1, 2026, but
12before January 1, 2027, four and one-fifth percent.
13f. For tax years beginning on or after January 1, 2027,
14three and nine-tenths percent.
15DIVISION VIII
16INSURANCE PREMIUMS TAX
17 Sec. 35. Section 432.1, subsection 2, Code 2022, is amended
18to read as follows:
192. The “applicable percent” for purposes of subsection 1 of
20this section and section 432.2 is the following:
21a. For calendar years beginning before the 2003 calendar
22year, two percent.
23b. For the 2003 calendar year, one and three-fourths
24percent.
25c. For the 2004 calendar year, one and one-half percent.
26d. For the 2005 calendar year, one and one-fourth percent.
27e. For the 2006 and subsequent calendar years year through
28the 2022 calendar year, one percent.
29f. For the 2023 calendar year, ninety-five hundredths of one
30percent.
31g. For the 2024 and subsequent calendar years, nine-tenths
32of one percent.
33 Sec. 36. Section 432.1, subsection 4, Code 2022, is amended
34to read as follows:
354. The “applicable percent” for purposes of subsection 3 is
-9-1the following:
2a. For calendar years beginning before the 2004 calendar
3year, two percent.
4b. For the 2004 calendar year, one and three-fourths
5percent.
6c. For the 2005 calendar year, one and one-half percent.
7d. For the 2006 calendar year, one and one-fourth percent.
8e. For the 2007 and subsequent calendar years year through
9the 2022 calendar year, one percent.
10f. For the 2023 calendar year, ninety-five hundredths of one
11percent.
12g. For the 2024 and subsequent calendar years, nine-tenths
13of one percent.
14EXPLANATION
15The inclusion of this explanation does not constitute agreement with
16the explanation’s substance by the members of the general assembly.
17This bill relates to state taxation and administration by
18modifying sales and use taxes, individual and corporate income
19taxes, the automobile rental excise tax, the franchise tax, and
20the insurance premium tax.
21DIVISION I — SALES AND USE TAX ON SERVICES AND EXEMPTIONS.
22 The bill strikes “software as a service” and substitutes “cloud
23computing” as a service for purposes of imposing sales tax.
24The bill makes the following services subject to the sales tax:
25web hosting, digital automated services, and scooter. However,
26the bill exempts web hosting and digital automated services
27from the sales tax when furnished to a commercial enterprise
28for use exclusively by the commercial enterprise.
29The bill exempts “specified digital products” from the sales
30tax when used in agricultural production.
31The bill strikes the sales and use tax exemption on the
32sales price from the sale or rental of computer or computer
33peripherals by an insurance company, financial institution, or
34commercial enterprise.
35The bill exempts from the sales tax the sale of period
-10-1products and child and adult diapers. Period products are
2defined in the bill.
3The bill strikes “professions and occupations” from
4the definition of “commercial enterprise” in Code section
5423.3(104) thus making sales to professions and occupations
6related to prewritten software, specified digital services,
7and other services subject to the sales tax. The bill expands
8the definition of “commercial enterprise” to include a “public
9utility” as defined in Code section 476.1(3). As a result, the
10sales price of specified digital products, prewritten computer
11software, and other enumerated digital and computer services
12furnished to a public utility are exempt from the sales tax, if
13exclusively used by the public utility.
14Currently, a “designated exempt entity” may apply to the
15department of revenue, under certain circumstances, for the
16refund of sales or use tax upon the sales price of all sales
17of building materials, supplies, equipment, or from services
18furnished to a contractor, used in the performance of a written
19contract with the designated exempt entity.
20The bill makes a nonprofit facility licensed by the state
21built on or after January 1, 2022, a designated exempt entity,
22if the facility provides residential addiction recovery and
23emergency shelter services for children under 18 years of age
24and certain young adults.
25The bill also makes a county or district fair a designated
26exempt entity. This provision takes effect upon enactment and
27applies retroactively to January 1, 2021. The bill allows for
28refunds of taxes, interest, or penalties arising from claims
29resulting from the enactment of the bill. The bill limits the
30refund amount to $25,000 in the aggregate.
31Except as otherwise provided, the division takes effect
32January 1, 2023.
33DIVISION II — AUTOMOBILE RENTAL EXCISE TAX. The bill
34repeals an exception for the collection of the automobile
35rental excise tax of a person or an affiliate of a person who
-11-1owns, operates, or controls an automobile peer-to-peer sharing
2marketplace.
3This division takes effect January 1, 2023.
4DIVISION III — MANUFACTURED FOOD — SALES TAX EXEMPTION.
5 The bill exempts from the sales tax the sales of certain items
6and services used by a manufacturer to primarily produce food
7or food ingredients, including the lease or rental of tangible
8personal property used to primarily produce such food or food
9ingredients.
10The bill defines “food or food ingredients” to mean the same
11as defined in Code section 423.3(57)(d) and includes tangible
12personal property that could be sold for ingestion or chewing
13by humans but is sold for another use.
14Under current law, in order to receive the sales tax
15exemption the items or services must be used to produce
16marketable food products for human consumption.
17By operation of Code section 423.6, an item exempt from the
18imposition of the sales tax is also exempt from the use tax
19imposed in Code section 423.5.
20The bill requires refunds of taxes, interest, or penalties
21arising from claims resulting from the enactment of the bill
22for sales or services occurring between January 1, 2019, and
23the effective date of the bill to be filed prior to October
241, 2022. Refunds of taxes, interest, or penalties shall not
25exceed $100,000 in the aggregate in any calendar year in which
26claims are eligible for a refund. If the amount of claims
27totals more than $100,000 in the aggregate for any calendar
28year in which claims are eligible for a refund, the department
29of revenue shall prorate the $100,000 in the aggregate among
30all the claimants for that particular calendar year.
31This division takes effect upon enactment and applies
32retroactively to January 1, 2019.
33DIVISION IV — NATIONAL GUARD PAY. The bill exempts from the
34individual income tax up to $20,000 of pay received by a member
35of the national guard for any required drills, field exercises,
-12-1or in the performance of any other orders under 32 U.S.C. §502.
2This division applies to tax years beginning on or after
3January 1, 2023.
4DIVISION V — NET OPERATING LOSS DEDUCTION. For tax years
5beginning on or after January 1, 2023, 2018 Iowa Acts, chapter
61161, sections 120, 128, and 129, are set to go into effect,
7which provide that a net operating loss will no longer be
8calculated at the state level for individual and corporate
9income taxpayers, as applicable, and requires such taxpayers
10to add back any federal net operating loss deduction carried
11over from a tax year beginning prior to January 1, 2023, but
12such taxpayers are allowed to deduct any remaining Iowa net
13operating loss from a prior taxable year. The net operating
14loss deduction remains available to taxpayers at the federal
15level.
16The bill strikes the provisions in 2018 Iowa Acts, chapter
171161, disallowing a separate net operating loss calculation
18at the state level and creates an Iowa net operating loss
19calculation.
20INDIVIDUAL INCOME TAXPAYERS. For individual income
21taxpayers, under the Iowa net operating loss deduction
22calculation, the taxpayer subtracts the net operating loss
23carryforward amount from net income calculated as follows: the
24sum of the aggregate amount of net operating losses arising
25in taxable years beginning before January 1, 2023, carried to
26such taxable year, and the lesser of the aggregate amount of
27net operating losses arising in taxable years beginning after
28December 31, 2022, carried to such taxable year, or 80 percent
29of the excess of taxable income, without regard to certain
30deductions.
31CORPORATE INCOME TAXPAYERS. For corporate income taxpayers,
32under the Iowa net operating loss deduction calculation, the
33taxpayer subtracts the net operating loss carryforward amount
34from net income as follows: the sum of the aggregate amount
35of net operating losses arising in taxable years beginning
-13-1before January 1, 2023, carried to such taxable year, and the
2lesser of the aggregate amount of net operating losses arising
3in taxable years beginning after December 31, 2022, carried
4to such taxable year, or 80 percent of the excess of taxable
5income, without regard to certain deductions.
6The bill provides that the portion of a net operating loss
7which was sustained from that portion of the trade or business
8carried on outside the state of Iowa shall not be deducted.
9The bill provides that a taxpayer is only permitted to deduct
10the portion of the deduction for net operating loss that is
11fairly and equitably allocable to Iowa, under rules prescribed
12by the director or revenue.
13EFFECTIVE DATE AND APPLICABILITY. This division takes
14effect January 1, 2023, and applies to tax years beginning on
15or after that date.
16DIVISION VI — CHANGES TO SALE OF CERTAIN QUALIFIED STOCK
17PROVISIONS. The bill makes changes to provisions related to
18the sale of certain qualified stock in 2022 Iowa Acts, House
19File 2317, as enacted. 2022 Iowa Acts, House File 2317,
20grants an employee-owner one irrevocable lifetime election
21to exclude from state individual income tax the net capital
22gain from the state of the capital stock on one qualified
23corporation. The bill expands the definition of “qualified
24corporation” to include any “member” of an Iowa affiliate group
25if the affiliated group is eligible to make a valid election
26to file an Iowa consolidated income tax return under Code
27section 422.37 in the year the qualified stock sale deduction
28is made. The bill expands the definition of “member” under
29the definition of “qualified corporation” in 2022 Iowa Acts,
30House File 2317, to include any entity that is eligible to be
31included in a consolidated return under Code section 422.37(2)
32if an election is made to file a consolidated return.
33This division takes effect January 1, 2023, and applies to
34tax years beginning on or after that date.
35DIVISION VII — FRANCHISE TAX. The bill phases in a
-14-1reduction of the current franchise tax of 5 percent of net
2income as follows: Commencing with the tax years beginning
3during the 2023 calendar year, 4.80 percent; for tax years
4beginning during the 2024 calendar year, 4.60 percent; for tax
5years beginning during the 2025 calendar year, 4.40 percent;
6for tax years beginning during the 2026 calendar year, 4.20
7percent; and for all tax years beginning on or after January
81, 2027, 3.90 percent.
9DIVISION VIII — INSURANCE PREMIUMS TAX. The bill reduces
10the insurance premiums tax on the gross amount of premiums
11received by an insurance company from 1 percent to .95 percent
12in calendar year 2023, and from .95 percent to .90 percent for
13the 2024 calendar year and subsequent calendar years.
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