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    Bulletin 11-01-2023

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    ARC 7106CEconomic Development Authority[261]Notice of Intended Action

    Proposing rulemaking related to tax credit programs and providing an opportunity for public comment

        The Economic Development Authority (IEDA) hereby proposes to amend Chapter 43, “Hoover Presidential Library Tax Credit,” Chapter 47, “Endow Iowa Tax Credits,” Chapter 48, “Workforce Housing Tax Incentives Program,” and Chapter 116, “Tax Credits for Investments in Certified Innovation Funds,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code sections 15.106A, 15.356, 15E.305 and 15E.364.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code section 15E.364 as amended by 2023 Iowa Acts, House File 703; section 15E.305 as amended by 2023 Iowa Acts, House File 710; and sections 15.353 and 15E.52 as amended by 2023 Iowa Acts, Senate File 575.Purpose and Summary    The proposed rulemaking implements changes to multiple tax credit programs administered by IEDA to conform to 2023 Iowa Acts, House Files 703 and 710 and Senate File 575. The changes in the legislation include:

  • House File 703 extends the availability of the Hoover presidential library tax credit until the end of calendar year 2024.
  • House File 710 increases the allocation of available endow Iowa tax credits from $6 million to $13 million for tax year 2023. House File 710 also changes the applicability of 2022 Iowa Acts, chapter 1002, division VIII, to specify that the change to the maximum amount of tax credits granted to a taxpayer applied to endowment gifts made to an endow Iowa-qualified community foundation on or after January 1, 2023.
  • Senate File 575 changes the workforce housing tax incentives program by adding construction of new dwelling units in urban areas as an eligible project type. Previously, greenfield development was an eligible project type in only small cities.
  • Senate File 575 also changes the innovation investment tax credit by removing the requirement for IEDA to establish a wait list for fiscal years in which the amount of tax credit certificates applied for exceeds the amount allocated. Senate File 575 also extends the authority of IEDA to continue certifying new funds for the innovation fund tax credit until June 30, 2028. Previously, new certifications would have ceased as of June 30, 2023.
    •     The proposed rulemaking would update the rules for each affected program to be consistent with the Iowa Code and, pursuant to Executive Order 10, remove statutory language.Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the IEDA for a waiver of the discretionary provisions, if any, pursuant to 261—Chapter 199. Public Comment     Any interested person may submit written or oral comments concerning this proposed rulemaking. Written or oral comments in response to this rulemaking must be received by the IEDA no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Lisa Connell Iowa Economic Development Authority 1963 Bell Avenue, Suite 200 Des Moines, Iowa 50315 Phone: 515.348.6163 Email: lisa.connell@iowaeda.com Public Hearing     No public hearing is scheduled at this time. As provided in Iowa Code section 17A.4(1)“b,” an oral presentation regarding this rulemaking may be demanded by 25 interested persons, a governmental subdivision, the Administrative Rules Review Committee, an agency, or an association having 25 or more members. Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Amend rule 261—43.3(15E) as follows:

    261—43.3(15E) Authorization of tax credits.       43.3(1)   For tax years beginning on or after January 1, 2021, but before January 1, 20242025, a tax credit shall be allowed against the taxes imposed in Iowa Code chapter 422, subchapters II, III, and V, and in Iowa Code chapter 432, and against the moneys and credits tax imposed in Iowa Code section 533.329, equal to 25 percent of a donor’s charitable donation made on or after July 1, 2021, to the Hoover presidential foundation for the Hoover presidential library and museum renovation project fund.     43.3(2)   A donor shall not claim a tax credit for a donation made during a tax year beginning before January 1, 2021, or after December 31, 20232024.     43.3(3)   No change.

        ITEM 2.    Amend subrule 47.3(3) as follows:    47.3(3)   The aggregate amount of tax credits available under this rule annually is $6 million. For tax credits issued on or before December 31, 2022, the maximum amount of tax credit that may be granted to an individual taxpayer is limited to 5 percent of the aggregate amount available each year. For tax credits issued on or after January 1, 2023, the maximum amount of tax credit that may be granted to an individual taxpayer is limited to $100,000. If the authority receives applications for tax credits in excess of the amount available, the applications shall be prioritized by the date the authority received the applications. Applications received on or before June 30, 2023, will be placed on a waitlist for a subsequent year’s allocation of tax credits if the number of applications exceeds the amount of annual tax credits available. Applications placed on the waitlist shall first be funded in the order listed on the waitlist. Applications received on or after July 1, 2023, in excess of the amount of tax credits available will not be placed on the waitlist and will be denied by the authority. For endowment gifts made on or after June 30, 2023, a taxpayer shall submit an application to the authority for the tax credit no later than 12 months from the date of the donation which qualifies the taxpayer for the tax credit.

        ITEM 3.    Rescind subrule 48.4(1) and adopt the following new subrule in lieu thereof:    48.4(1) Eligible project types.      a.    To receive workforce housing tax incentives pursuant to the program, a proposed housing project shall meet all of the requirements of Iowa Code section 15.353. Projects located in a 100-year floodplain are not eligible.    b.    The authority will determine whether a dwelling unit should be classified as a single-family dwelling unit for the purposes of this subrule. The authority may consider factors such as:    (1)   Whether a unit is separated from other units by a ground-to-roof wall;    (2)   Whether the unit has a separate heating system;    (3)   Whether the unit has an individual meter for public utilities; and    (4)   Whether the unit has other units above or below.

        ITEM 4.    Rescind subrule 116.3(6).

        ITEM 5.    Rescind rule 261—116.6(15E) and adopt the following new rule in lieu thereof:

    261—116.6(15E) Approval, issuance and distribution of investment tax credits.      116.6(1) Approval.  Upon certification and registration by the authority of an innovation fund and approval of the taxpayer’s application, the board will approve the issuance of a tax credit certificate to the applicant.    116.6(2) Preparation of the certificate.  The tax credit certificate shall be in a form approved by the authority and shall contain the taxpayer’s name, address, and tax identification number; the amount of credit; the name of the innovation fund; the year in which the investment was made and any other information that may be required by the department of revenue. In addition, the tax credit certificate shall contain the following statement:Neither the authority nor the board has recommended or approved this investment or passed on the merits or risks of such investment. Investors should rely solely on their own investigation and analysis and seek investment, financial, legal and tax advice before making their own decision regarding investment in this fund.    ARC 7105CEconomic Development Authority[261]Notice of Intended Action

    Proposing rulemaking related to renewable chemical production tax credit program and providing an opportunity for public comment

        The Economic Development Authority (IEDA) hereby proposes to rescind Chapter 81, “Renewable Chemical Production Tax Credit Program,” Iowa Administrative Code, and to adopt a new chapter with the same title.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code sections 15.106A and 15.321.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code sections 15.316 to 15.320 as amended by 2023 Iowa Acts, Senate File 575.Purpose and Summary    Pursuant to Executive Order 10, the IEDA proposes to rescind Chapter 81 relating to the Renewable Chemical Production Tax Credit Program and adopt a new chapter in lieu thereof.     The proposed new chapter incorporates changes to the program in 2023 Iowa Acts, Senate File 575. Changes in the legislation include:

  • The maximum tax credit amount is now $1 million for all businesses. Previously, businesses that have been in operation for more than five years were eligible for a maximum tax credit of $500,000 and businesses in operation for five years or less were eligible for a maximum tax credit of $1 million.
  • The requirement that the IEDA maintains a wait list if demand for credits exceeds the annual allocation is eliminated.
  • A requirement that the IEDA award credits via a competitive process is created.
  • The definition of “building block chemical” is amended to exclude serine, threonine, and lysine. Production of those chemicals will no longer be eligible for a tax credit.
  • The credit will be allowed for renewable chemical production until 2035. Previously, the credit was allowed only for production until 2026.
    •     The proposed new chapter also omits rule language that is duplicative of statutory language and Iowa Department of Revenue (IDR) rules. Other nonsubstantive clarifying updates from the existing chapter are also proposed.     Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the IEDA for a waiver of the discretionary provisions, if any, pursuant to 261—Chapter 199. Public Comment     Any interested person may submit written or oral comments concerning this proposed rulemaking. Written or oral comments in response to this rulemaking must be received by the IEDA no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Lisa Connell Iowa Economic Development Authority 1963 Bell Avenue, Suite 200 Des Moines, Iowa 50315 Phone: 515.348.6163 Email: lisa.connell@iowaeda.com Public Hearing     A public hearing at which persons may present their views orally or in writing will be held as follows: November 28, 2023 9 to 9:30 a.m. 1963 Bell Avenue Des Moines, Iowa Registration information for online participation may be found at www.iowaeda.com/red-tape-review/ December 4, 2023 1:30 to 2 p.m. 1963 Bell Avenue Des Moines, Iowa Registration information for online participation may be found at www.iowaeda.com/red-tape-review/     Persons who wish to make oral comments at a public hearing may be asked to state their names for the record and to confine their remarks to the subject of this proposed rulemaking.     Any persons who intend to attend the public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the IEDA and advise of specific needs. Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Rescind 261—Chapter 81 and adopt the following new chapter in lieu thereof: CHAPTER 81RENEWABLE CHEMICAL PRODUCTION TAX CREDIT PROGRAM

    261—81.1(15) Purpose.  The purpose of this chapter is to encourage development of the renewable chemicals industry and stimulate job growth using the renewable chemical production tax credit program to incentivize new and existing businesses to produce high-value renewable chemicals in Iowa from biomass feedstock.

    261—81.2(15) Definitions.  As used in this chapter, unless the context otherwise requires:        "Authority" means the economic development authority created in Iowa Code section 15.105.        "Authority’s website" means the information and related content found at www.iowaeda.com and may include integrated content at affiliate sites.        "Biomass feedstock" means the same as defined in Iowa Code section 15.316(2).        "Board" means the members of the economic development authority board appointed by the governor and in whom the powers of the authority are vested pursuant to Iowa Code section 15.105.        "Building block chemical" means the same as defined in Iowa Code section 15.316(3) as amended by 2023 Iowa Acts, Senate File 575, and also includes benzene, toluene, xylene, ethylbenzene, butanoic acid, hexanoic acid, octanoic acid, pentanoic acid, heptanoic acid, ethylene glycol, and 1,4 butanediol, or such additional molecules as may be included by the authority following the procedure in rule 261—81.8(15).        "Director" means the director of the authority.        "Eligible business" means the same as defined in Iowa Code section 15.316(5).        "Pre-eligibility production threshold" means the same as defined in Iowa Code section 15.316(8).        "Production year" means any calendar year after the year in which the eligible business’s pre-eligibility production threshold was established and in which the eligible business produces renewable chemicals.        "Program" means the renewable chemical production tax credit program administered pursuant to Iowa Code sections 15.315 through 15.322 and this chapter.        "Renewable chemical" means the same as defined in Iowa Code section 15.316(10).

    261—81.3(15) Eligibility requirements.  To be eligible to receive the renewable chemical production tax credit pursuant to the program, a business shall meet all of the eligibility requirements in Iowa Code section 15.317.

    261—81.4(15) Application process and review.      81.4(1)   Applications for tax credits may be submitted to the authority electronically by eligible businesses from February 15 to March 15 of each calendar year. The authority may adjust the annual filing window dates under extenuating circumstances and will provide notice of adjustments on the authority’s website.    81.4(2)   The application shall include all information required by Iowa Code section 15.318(1)“e” and all of the following information:    a.    The name of the qualifying building block chemical produced by the eligible business for which the business is claiming a tax credit.    b.    The amount of renewable chemicals produced in the state from biomass feedstock by the eligible business during the calendar year prior to the year in which the business first qualified as an eligible business under the program.    c.    The city or county where the plant producing renewable chemicals is located.    d.    The type of feedstock used to produce the renewable chemicals.    e.    The date on which the eligible business organized, expanded or located in the state.    f.    Any other information reasonably required by the authority in order to establish and verify the amount of the tax credit under the program.    81.4(3)   Applications will be reviewed and scored on a competitive basis by a review committee established by the authority with relevant expertise and experience. If the authority deems that additional information is needed before reviewing and scoring can be completed, and the authority makes a written request for additional information from the applicant, the applicant must provide the requested information within 30 days of the date that the written request from the authority was made. If an applicant does not provide the requested information within 30 days, the application may be rejected by the authority.    81.4(4)   Applications determined by the authority to be complete and eligible will be reviewed and scored using criteria established by the authority to evaluate the economic impact of an eligible business’s production of renewable chemicals.     81.4(5)   The authority will notify an applicant when the applicant has been approved by the director to receive a tax credit.

    261—81.5(15) Agreement and fees.  An eligible business approved to receive a tax credit shall enter into an agreement and pay applicable fees pursuant to Iowa Code section 15.318(2) as amended by 2023 Iowa Acts, Senate File 575. Eligible businesses must sign the agreement within 60 days of being notified of approval for the tax credit. Upon request by an eligible business, the authority may extend the time period for signing the agreement by an additional 30 days.

    261—81.6(15) Renewable chemical production tax credit.      81.6(1) Calculation of tax credit amount.      a.    An eligible business that has entered into an agreement pursuant to rule 261—81.5(15) may be issued a tax credit certificate in an amount calculated as described in Iowa Code section 15.319(1). For example, if an eligible business produced three million pounds of renewable chemicals during calendar year 2016 and first became an eligible business under this chapter in calendar year 2017, the pre-eligibility production threshold for the business is three million pounds. If the same eligible business produced ten million pounds of renewable chemicals during calendar year 2017, the eligible business could receive a tax credit for the amount produced over the pre-eligibility production threshold, which in this example equals seven million pounds.    b.    If a business has facilities located in more than one state, only those renewable chemicals produced at facilities physically located in the state of Iowa may be counted for the purpose of calculating the tax credit.     c.    If the same eligible business has an ownership or equity interest in multiple facilities at which renewable chemicals are produced, the facilities under common ownership will be considered a single eligible business for purposes of calculating the maximum tax credit amount. In calculating the maximum tax credit amount, only the pro rata share of each eligible business’s ownership in a facility will be attributed to that eligible business.    d.    The maximum amount of tax credit that may be issued under the program to an eligible business for the production of renewable chemicals in a calendar year shall not exceed the amount authorized by Iowa Code section 15.318(3)“a” as amended by 2023 Iowa Acts, Senate File 575.    81.6(2) Eligible business only.  An eligible business shall not receive a tax credit for renewable chemicals produced before the date the business first qualified as an eligible business pursuant to rule 261—81.3(15).    81.6(3) Maximum number of credits.  An eligible business shall not receive more tax credit certificates under the program than specified in Iowa Code section 15.318(3)“d” as amended by 2023 Iowa Acts, Senate File 575. Each tax credit must be applied for separately, and each application will be reviewed independently of past tax credits. Receipt of a tax credit in one year does not guarantee receipt of a tax credit in a subsequent year.    81.6(4) Termination and repayment.  Tax credits may be reduced, terminated, or rescinded pursuant to Iowa Code section 15.318(4).

    261—81.7(15) Claiming the tax credit.      81.7(1) Maximum tax credit claimed.  An eligible business that has entered into an agreement pursuant to rule 261—81.5(15) and been issued a tax credit certificate pursuant to subrule 81.6(1) may claim a tax credit as described in Iowa Code section 15.319(1) as amended by 2023 Iowa Acts, Senate File 575.     81.7(2) Claiming the credit.  To receive the tax credit, an eligible business shall file a claim in accordance with any applicable administrative rules adopted by the department of revenue.

    261—81.8(15) Process to add building block chemicals.      81.8(1) General process.  The authority may add additional molecules to the definition of “building block chemical” in rule 261—81.2(15) pursuant to Iowa Code section 15.316(3) as amended by 2023 Iowa Acts, Senate File 575. The authority may initiate the administrative rulemaking process for the addition of such molecules to this chapter.    81.8(2) Request to include additional molecules.  Any individual or business may request that an additional molecule be added to the definition of “building block chemical” by submitting a written request to the authority. Such requests shall be made in the form prescribed by the authority and may be submitted to the authority between April 1 and May 1 of each calendar year and October 1 and November 1 of each calendar year. The authority may adjust these dates under extenuating circumstances and will provide notice of adjustments on the authority’s website.    81.8(3) Consultation with experts.  Prior to initiating a rulemaking to add molecules to the definition of “building block chemical” in rule 261—81.2(15), the authority shall consult with appropriate experts from Iowa state university, including but not limited to the Iowa state university center for biorenewable chemicals. The authority shall conduct an initial staff review of any requests received by the authority pursuant to subrule 81.8(2). Following the initial staff review, the authority shall consult with the experts at Iowa state university regarding the molecules that the authority believes are consistent with the definitions under this chapter. The experts at Iowa state university shall provide a written recommendation to the authority indicating which chemicals, in the experts’ opinion, meet the definition of “building block chemical” consistent with this chapter.    81.8(4) Initiation of rulemaking proceedings.  Following the consultation and review process set forth in subrule 81.8(3), the authority may initiate the administrative rulemaking process to amend the definition of “building block chemical” to add molecules that the authority, in the authority’s sole discretion, finds to be consistent with the definitions in this chapter.

    261—81.9(15) Additional information.  The authority may at any time request additional information and documentation from an eligible business regarding the operations, job creation, and economic impact of the eligible business, and the authority may use the information in preparing and publishing any reports to be provided to the governor and the general assembly to the extent consistent with Iowa Code section 15.318(5).       These rules are intended to implement Iowa Code sections 15.315 through 15.322 as amended by 2023 Iowa Acts, Senate File 575.     ARC 7104CPharmacy Board[657]Notice of Intended Action

    Proposing rulemaking related to controlled substances and providing an opportunity for public comment

        The Board of Pharmacy hereby proposes to amend Chapter 10, “Controlled Substances,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code section 124.201.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code section 124.201.Purpose and Summary    This proposed rulemaking temporarily adds five substances (novel psychoactive substances (NPS) of the benzodiazepine class, also known as “designer benzodiazepines”) to Schedule I of the Controlled Substances Act in response to similar action taken by the federal Drug Enforcement Administration.  Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Board for a waiver of the discretionary provisions, if any, pursuant to 657—Chapter 34. Public Comment     Any interested person may submit written comments concerning this proposed rulemaking. Written comments in response to this rulemaking must be received by the Board no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Sue Mears Board of Pharmacy 400 S.W. 8th Street, Suite E Des Moines, Iowa 50309 Email: sue.mears@iowa.gov Public Hearing     No public hearing is scheduled at this time. As provided in Iowa Code section 17A.4(1)“b,” an oral presentation regarding this rulemaking may be demanded by 25 interested persons, a governmental subdivision, the Administrative Rules Review Committee, an agency, or an association having 25 or more members. Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Rescind subrule 10.39(2) and adopt the following new subrule in lieu thereof:    10.39(2)   Amend Iowa Code section 124.204(9) by adding the following new paragraphs:    j.    4-(2-chlorophenyl)-2-ethyl-9-methyl-6H-thienol[3,2-f][1,2,4]triazolo[4,3-alpha][1,4]diazepine, its salts, isomers, and salts of isomers. Other name: etizolam.    k.    8-chloro-6-(2-fluorophenyl)-1-methyl-4H-benzo[f][1,2,4]triazolo[4,3-alpha][1,4]diazepine, its salts, isomers, and salts of isomers. Other name: flualprazolam.    l.    6-(2-chlorophenyl)-1-methyl-8-nitro-4H-benzo[f][1,2,4]triazolo[4,3-alpha][1,4]diazepine, its salts, isomers, and salts of isomers. Other name: clonazolam.    m.    8-bromo-6-(2-fluorophenyl)-1-methyl-4H-benzo[f][1,2,4]triazolo[4,3-alpha][1,4]diazepine, its salts, isomers, and salts of isomers. Other name: flubromazolam.    n.    7-chloro-5-(2-chlorophenyl)-1-methyl-1,3-dihydro-2H-benzo[e][1,4]diazepin-2-one, its salts, isomers, and salts of isomers. Other name: diclazepam.    ARC 7109CRevenue Department[701]Notice of Intended Action

    Proposing rulemaking related to retirement income exclusion and providing an opportunity for public comment

        The Revenue Department hereby proposes to amend Chapter 301, “Filing Return and Payment of Tax,” Chapter 302, “Determination of Net Income,” and Chapter 307, “Withholding,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code sections 421.14 and 422.68.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code sections 422.5, 422.7, 422.13 and 422.16.Purpose and Summary    This proposed rulemaking is intended to implement the statutory change to the retirement income exclusion from a partial to a full exclusion for qualifying taxpayers receiving distributions from qualifying plans. This proposed rulemaking identifies certain plans that do and do not qualify for the exclusion as well as defining how survivors with an insurable interest may qualify for the exclusion. This proposed rulemaking also updates what items of income are and are not required to be added back to Iowa taxable income to determine whether a taxpayer has a filing requirement, including eliminating excluded retirement income from the required add backs. Finally, this proposed rulemaking updates rules related to withholding to implement the full exclusion for retirement income described above.Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa beyond that of the legislation it implements. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any, pursuant to rule 701—7.28(17A). Public Comment     Any interested person may submit written or oral comments concerning this proposed rulemaking. Written or oral comments in response to this rulemaking must be received by the Department no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Kurt Konek Department of Revenue Hoover State Office Building P.O. Box 10457 Des Moines, Iowa 50306-3457 Phone: 515.587.0440 Email: kurt.konek@iowa.gov Public Hearing    If requested, a public hearing at which persons may present their views orally or in writing will be held as follows: November 21, 2023 11 a.m. to 12 noon Via video/conference call    Persons who wish to participate in the video/conference call should contact Kurt Konek before 4:30 p.m. on November 21, 2023, to facilitate an orderly hearing. A video link and conference call number will be provided to participants prior to the hearing.     Persons who wish to make oral comments at the public hearing may be asked to state their names for the record and to confine their remarks to the subject of this proposed rulemaking.     Any persons who intend to attend the public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Department and advise of specific needs.Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Amend rule 701—301.1(422) as follows:

    701—301.1(422) Who must file.      301.1(1) Residents of Iowa.      a.    Tax years beginning on or after January 1, 1993Residents under 65 years of age.For each taxable year, every resident of Iowa, except any resident claimed as a dependent on another person’s return, whose net income is greater than $13,500 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household, and surviving spouses or greater than $9,000 in the case of single persons must make, sign, and file a return. Each resident who is claimed as a dependent on another person’s return and whose net income is $4,000 or more, or whose net income is $5,000 or more for tax years beginning on or after January 1, 2001, must make, sign, and file a return. For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax, along with the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), isfederal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover are included in net income to determine if a person must file a return. In addition, for tax years beginning on or after January 1, 2007, the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) for residents who are younger than 65 years of age on December 31 of the tax year is included in net income to determine if a person must file a return.    b.    Tax years beginning on or after January 1, 2007, but before January 1, 2009, for residents 65 years of age or older.For these taxable years, every resident of Iowa, except any resident claimed as a dependent on another person’s return, who is at least 65 years of age or older on December 31 of the tax year, whose net income is greater than $24,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household and surviving spouses or greater than $18,000 in the case of single persons must make, sign, and file a return. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be 65 years of age or older on December 31 of the tax year. Each resident who is claimed as a dependent on another person’s return and whose net income is $5,000 or more must make, sign, and file a return.For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) are included in net income to determine if a person must file a return.    c.    b.    Tax years beginning on or after January 1, 2009, for residentsResidents 65 years of age or older.For each taxable year, every resident of Iowa, except any resident claimed as a dependent on another person’s return, who is at least 65 years of age or older on December 31 of the tax year, whose net income is greater than $32,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household, and surviving spouses or greater than $24,000 in the case of single persons must make, sign, and file a return. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be at least 65 years of age or older on December 31 of the tax year. Each resident who is claimed as a dependent on another person’s return and whose net income is $5,000 or more must make, sign, and file a return.For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3)federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover taken for federal purposes are included in net income to determine if a person must file a return.    301.1(2) Nonresidents of Iowa.      a.    Tax years beginning on or after January 1, 1993Nonresidents under 65 years of age.For each taxable year, every nonresident of Iowa must make, sign, and file an Iowa return if the nonresident has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $13,500 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household, and surviving spouses, (2) has a net income from all sources greater than $9,000 in the case of single persons, or (3) is claimed as a dependent on another person’s return and has a net income from all sources of $4,000 or more or has a net income from all sources of $5,000 or more if the tax year begins on or after January 1, 2001. For purposes of this paragraph, the portion of a lump-sum distribution subject to separate federal tax that is allocable to Iowa is included in net income to determine if the nonresident has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, along with the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), isfederal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover are included in net income to determine if a person must file a return. In addition, for tax years beginning on or after January 1, 2007, the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) for nonresidents who are under 65 years of age on December 31 of the tax year is included in determining net income from all sources to determine if a person must file a return.    b.    Tax years beginning on or after January 1, 2007, but before January 1, 2009, for nonresidents 65 years of age or older.For these taxable years, every nonresident of Iowa must make, sign, and file an Iowa return if the nonresident has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $24,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household and surviving spouses, (2) has a net income from all sources greater than $18,000 in the case of single persons, or (3) is claimed as a dependent on another person’s return and has a net income from all sources of at least $5,000. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be 65 years of age or older on December 31 of the tax year. For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax that is allocable to Iowa is included in net income to determine if the nonresident has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) are included in net income to determine if a person must file a return.    c.    b.    Tax years beginning on or after January 1, 2009, for nonresidentsNonresidents 65 years of age or older.For these taxable years, every nonresident of Iowa must make, sign, and file an Iowa return if the nonresident has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $32,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household, and surviving spouses, (2) has a net income from all sources greater than $24,000 in the case of single persons, or (3) is claimed as a dependent on another person’s return and has a net income from all sources of at least $5,000. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be 65 years of age or older on December 31 of the tax year. For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax that is allocable to Iowa is included in net income to determine if the nonresident has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) areis included in net income to determine if a person must file a return.    d.    Nonresidents with net incomes of less than $1,000 that are subject to Iowa alternative minimum tax.For tax years beginning on or after January 1, 2000, every nonresident of Iowa who has a net income from Iowa sources of less than $1,000 must make, sign, and file a return if the nonresident is subject to Iowa alternative minimum tax.    301.1(3) Part-year residents of Iowa.      a.    Tax years beginning on or after January 1, 1993Part-year residents under 65 years of age.For each taxable year, every part-year resident of Iowa must make, sign, and file a return if the individual has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $13,500 in the case of married persons filing jointly, filing separately on a combined return form or filing separate returns, heads of household, and surviving spouses, (2) has a net income from all sources that is greater than $9,000 in the case of a single person, or (3) is claimed as a dependent on another person’s return and had a net income from all sources of $4,000 or more or has a net income from all sources of $5,000 or more if the tax year begins on or after January 1, 2001. For purposes of this paragraph, the portion of a lump-sum distribution that is allocable to Iowa is included in net income to determine if the person has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, along with the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), isfederal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover are included in net income to determine if a person must file a return. In addition, for tax years beginning on or after January 1, 2007, the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) for part-year residents who are younger than 65 years of age on December 31 of the tax year is included in determining net income from all sources to determine if a person must file a return.    b.    Tax years beginning on or after January 1, 2007, but before January 1, 2009, for nonresidents 65 years of age or older.For these taxable years, every part-year resident of Iowa must make, sign, and file an Iowa return if the part-year resident has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $24,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household and surviving spouses, (2) has a net income from all sources greater than $18,000 in the case of single persons, or (3) is claimed as a dependent on another person’s return and has a net income from all sources of at least $5,000. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be 65 years of age or older on December 31 of the tax year. For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax that is allocable to Iowa is included in net income to determine if the part-year resident has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) are included in net income to determine if a person must file a return.    c.    b.    Tax years beginning on or after January 1, 2009, for part-yearPart-year residents 65 years of age or older.For these taxable years, every part-year resident of Iowa must make, sign, and file an Iowa return if the part-year resident has a net income of $1,000 or more from Iowa sources and meets one or more of the following conditions: (1) has a net income from all sources that is greater than $32,000 in the case of married persons filing jointly, filing separately on a combined return or filing separate returns, heads of household, and surviving spouses, (2) has a net income from all sources greater than $24,000 in the case of single persons, or (3) is claimed as a dependent on another person’s return and has a net income from all sources of at least $5,000. For married persons filing jointly, filing separately on a combined return or filing separate returns, only one spouse is required to be 65 years of age or older on December 31 of the tax year. For purposes of this subrule, the portion of a lump-sum distribution subject to separate federal tax that is allocable to Iowa is included in net income to determine if the part-year resident has sufficient net income from Iowa sources to make and file a return. In determining net income from all sources, the portion of a lump-sum distribution subject to separate federal tax, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3)federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover are included in net income to determine if a person must file a return.    d.    Part-year residents with net incomes of less than $1,000 that are subject to Iowa alternative minimum tax.For tax years beginning on or after January 1, 2000, every part-year resident of Iowa who has a net income from Iowa sources of less than $1,000 must make, sign, and file a return if the part-year resident is subject to Iowa alternative minimum tax.    301.1(4) Returns of the handicappedIncapacity to file a return.  If a taxpayer is physically or mentally unable to make a return, the return shall be made by a duly authorized agent, guardian or other person charged with the care of the person or property of such taxpayer. A power of attorney must accompany a return made by an agent or guardian.    301.1(5) Minimum income requirement.  See rules 701—302.1(422) to 701—302.52(422) and any subsequent rules in 701—Chapter 302 for the computation of net income to determine if a taxpayer meets the minimum filing requirements described in subrules 301.1(1), 301.1(2), and 301.1(3).    301.1(6) Final return.  If a taxpayer has died during the year, see paragraph 301.4(2)“d.”    301.1(7) Returns filed for refund.  A taxpayer whose Iowa source net income or all source net income is less than the amount for which the filing of an Iowa individual income tax return is required must file a return to receive a refund of Iowa income tax withheld or Iowa estimated tax paid in the tax year or to receive a refund from an Iowa refundable tax credit. Refundable tax credits include the child and dependent care credit, the early childhood development tax credit, the research activities credit, the motor vehicle fuel tax credit, the claim of right credit (if elected in accordance with rule 701—300.18(422)), the assistive device credit, the historic preservation and cultural and entertainment district tax credit, the ethanol blended gasoline tax credit, the investment tax credit for value-added agricultural products or biotechnology-related processes, the soy-based cutting tool oil tax credit, the wage-benefit tax credit, the soy-based transformer fluid tax credit, the E-85 gasoline promotion tax credit, the biodiesel blended fuel tax credit, the ethanol promotion tax credit, and the E-15 plus gasoline promotion tax credit.    301.1(8) Returns filed by out-of-state business or out-of-state employee performing disaster and emergency-related work during a disaster response period.  On or after January 1, 2016, see 701—Chapter 276 for filing requirements of an out-of-state business or out-of-state employee as defined in Iowa Code section 29C.24 who enters Iowa to perform disaster and emergency-related work during a disaster response period as those terms are defined in Iowa Code section 29C.24.        This rule is intended to implement Iowa Code sections 422.5 and 422.13.

        ITEM 2.    Amend rule 701—301.5(422) as follows:

    701—301.5(422) Payment of tax.      301.5(1) Payment of tax for wage earners.  Withholding of tax on wage earners is required under Iowa Code section 422.16. See 701—Chapter 307.    301.5(2) Payment of tax on income not subject to withholding.  Those taxpayers with income not subject to withholding which will produce a tax liability of $200 or more shall file and pay a declaration of estimated tax. See 701—Chapter 308.    301.5(3) Full estimated payment on original due date.  When an extension is requested as provided by Iowa Code section 422.21, the total amount of estimated tax must be paid on or before the due date for filing the return.    301.5(4) Balance of tax due.  If the computation on the tax return shows additional tax due, it shall be paid in full with the filing of the return.    301.5(5) Payment of tax by uncertified checks.  The department will accept uncertified checks in payment of income taxes, provided the checks are collectible for their full amount without any deduction for exchange or other charges. The date on which the department receives the check will be considered the date of payment, so far as the taxpayer is concerned, unless the check is returned dishonored. If one check is remitted to cover two or more individuals’ taxes, the remittance must be accompanied by a letter of transmittal stating: (a) the name of the drawer of the check; (b) the amount of the check; (c) the amount of any cash, money order or other instrument included in the same remittance; (d) the name of each individual whose tax is to be paid by the remittance; and (e) the amount of payment on account of each individual.    301.5(6) Procedure with respect to dishonored checks.  If any check is returned unpaid, all expenses incidental to the collection thereof will be charged to the taxpayer. If any taxpayer whose check has been returned by the depository bank uncollected should fail at once to make that check good, the director will proceed to collect the tax as though no check has been given. A taxpayer who tenders a certified check in payment for taxes is not relieved from obligation until the check has been paid.    301.5(7) Penalty and interest.  In computing penalty and interest for failing to file a timely return or to pay the tax, refer to 701—Chapter 306.    301.5(8)   Reserved.    301.5(9)   Reserved.    301.5(10) Thirteen thousand five hundred dollar exemption.  For tax years beginning on or after January 1, 1993, allAll taxpayers, except single taxpayers described in subrule 301.4(1), whose net income as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3),federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover is $13,500 or less are exempt from paying Iowa individual income tax subject to the following conditions:    a.    In the case of married taxpayers, the incomes of both spouses are considered in order to determine if the taxpayers qualify for exemption from tax. However, in the case of married taxpayers where one spouse has a net operating loss and the taxpayers file separate Iowa returns or separately on the combined return form, the taxpayers cannot receive the benefit of the exemption from tax if the spouse with the loss elects to carry back or carry forward that loss.    b.    An individual claimed as a dependent on another person’s return with an income of at least $5,000 ($4,000 for tax years beginning in 1993 but before 2001) but not more than $13,500 will be exempt from Iowa tax if:    (1)   The person on whose return the dependent is claimed is filing as a single individual and has a net income of $9,000 or less, or    (2)   The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less.    (3)   The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less.    c.    If the payment of tax would reduce the net income to less than $13,500, the tax shall be reduced to an amount which would allow the taxpayer to retain a net income of $13,500. Example: If a taxpayer’s net income was $13,600 and the computed tax after personal exemptions and other credits was $300, the payment of $300 would reduce the income below $13,500; therefore, the amount of tax is reduced to $100 so the taxpayer can retain a net income of $13,500.    301.5(11) Nine thousand dollar exemption.  For tax years beginning on or after January 1, 1993, singleSingle taxpayers described in subrule 301.4(1) whose net income as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3),federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover is $9,000 or less are exempt from paying Iowa individual income tax subject to the following conditions:    a.    An individual claimed as a dependent on another person’s return with an income of at least $5,000 ($4,000 for tax years beginning in 1993 but before 2001) but not more than $9,000 will be exempt from tax if:    (1)   The person on whose return the dependent is claimed has a net income of $9,000 or less, or    (2)   The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less.    (3)   The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less.    b.    If the payment of tax would reduce the net income to less than $9,000, the tax is reduced to an amount which will allow the taxpayer to retain a net income of $9,000.    301.5(12) Exemptions for taxpayers 65 years of age or older for tax years beginning on or after January 1, 2007, but before January 1, 2009.      a.    All taxpayers except single taxpayers described in subrule 301.4(1) who are 65 years of age or older on December 31 of the tax year and whose net income as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) is $24,000 or less are exempt from paying Iowa individual income tax subject to the conditions set forth below:    (1)   In the case of married taxpayers, the incomes of both spouses are considered in order to determine if the taxpayers qualify for exemption from tax. For purposes of this subrule, only one spouse is required to be 65 years of age or older by December 31 of the tax year. However, in the case of married taxpayers when one spouse has a net operating loss and the taxpayers file separate Iowa returns or separately on the combined return, the taxpayers cannot receive the benefit of the exemption from tax if the spouse with the loss elects to carry back or carry forward that loss.    (2)   An individual claimed as a dependent on another person’s return with an income of at least $5,000, but not more than $24,000, will be exempt from Iowa tax if:
    1. The person on whose return the dependent is claimed is filing as a single individual and has a net income of $9,000 or less ($18,000 or less if the person is 65 years of age or older); or
    2. The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less ($24,000 or less of the combined income of the person and the person’s spouse if at least one spouse is 65 years of age or older); or
    3. The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less ($24,000 or less if the person is 65 years of age or older).
        (3)   If the payment of tax would reduce the net income to less than $24,000, the tax shall be reduced to an amount which would allow the taxpayer to retain a net income of $24,000.        b.    Single taxpayers described in subrule 301.4(1) whose net income, as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3) is $18,000 or less are exempt from paying Iowa individual income tax subject to the conditions set forth in paragraphs “c” and “d” below:    c.    An individual claimed as a dependent on another person’s return with an income of at least $5,000, but not more than $18,000, will be exempt from tax if:    (1)   The person on whose return the dependent is claimed has a net income of $9,000 or less ($18,000 or less if the person is 65 years of age or older); or    (2)   The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less ($24,000 or less of the combined income of the person and the person’s spouse if at least one spouse is 65 years of age or older); or    (3)   The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less ($24,000 or less if the person is 65 years of age or older).    d.    If the payment of tax would reduce the net income to less than $18,000, the tax is reduced to an amount which will allow the taxpayer to retain a net income of $18,000.        301.5(13) Exemptions for taxpayers 65 years of age or older for tax years beginning on or after January 1, 2009.      a.    All taxpayers except single taxpayers described in subrule 301.4(1) who are at least 65 years of age or older on December 31 of the tax year and whose net income as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3)federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover is $32,000 or less are exempt from paying Iowa individual income tax subject to the conditions set forth below:    (1)   In the case of married taxpayers, the incomes of both spouses are considered in order to determine if the taxpayers qualify for exemption from tax. For purposes of this subrule, only one spouse is required to be 65 years of age or older by December 31 of the tax year. However, in the case of married taxpayers when one spouse has a net operating loss and the taxpayers file separate Iowa returns or separately on the combined return form, the taxpayers cannot receive the benefit of the exemption from tax if the spouse with the loss elects to carry back or carry forward that loss.    (2)   An individual claimed as a dependent on another person’s return with an income of at least $5,000, but not more than $32,000, will be exempt from Iowa tax if:
    1. The person on whose return the dependent is claimed is filing as a single individual and has a net income of $9,000 or less ($24,000 or less if the person is 65 years of age or older); or
    2. The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less ($32,000 or less of the combined income of the person and the person’s spouse if at least one spouse is 65 years of age or older); or
    3. The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less ($32,000 or less if the person is 65 years of age or older).
        (3)   If the payment of tax would reduce the net income to less than $32,000, the tax shall be reduced to an amount which would allow the taxpayer to retain a net income of $32,000.        b.    Single taxpayers described in subrule 301.4(1) whose net income, as computed under Iowa Code section 422.7, plus the amount of a lump-sum distribution for which the taxpayer has elected to be separately taxed for federal income tax purposes, the partial exclusion of pension and other retirement benefits described in rule 701—302.47(422), and the phase-out exclusion for social security benefits described in 701—subrule 302.23(3)federal standard or itemized deduction taken on the federal return, the personal exemption allowed for federal purposes, the qualified business income deduction allowed for federal purposes, and any net operating loss carryover is $24,000 or less are exempt from paying Iowa individual income tax subject to the conditions set forth in paragraphs “c” and “d” below:    c.    An individual claimed as a dependent on another person’s return with an income of at least $5,000, but not more than $24,000, will be exempt from tax if:    (1)   The person on whose return the dependent is claimed has a net income of $9,000 or less ($24,000 or less if the person is 65 years of age or older); or    (2)   The person on whose return the dependent is claimed and the person’s spouse have a combined net income of $13,500 or less ($32,000 or less of the combined income of the person and the person’s spouse if at least one spouse is 65 years of age or older); or    (3)   The person on whose return the dependent is claimed is filing as a head of household or as a surviving spouse and has a net income of $13,500 or less ($32,000 or less if the person is 65 years of age or older).    d.    If the payment of tax would reduce the net income to less than $24,000, the tax is reduced to an amount which will allow the taxpayer to retain a net income of $24,000.           This rule is intended to implement Iowa Code section 422.5 as amended by 2006 Iowa Acts, Senate File 2408, and sections 422.16, 422.17, 422.21, 422.24, and 422.25.

        ITEM 3.    Amend rule 701—302.47(422) as follows:

    701—302.47(422) Partial exclusionExclusion of pensions and other retirement benefits for disabled individuals, individuals who are 55 years of age or older, surviving spouses, and survivors.  For tax years beginning on or after January 1, 19952023, an individual who is disabled, is 55 years of age or older, is a surviving spouse, or is a survivor with an insurable interest in an individual who would have qualified for the exclusion is eligible for a partialan exclusion of retirement benefits received in the tax year. For tax years beginning on or after January 1, 2001, the partial exclusion of retirement benefits received in the tax year is increased up to a maximum of $6,000 for a person other than a husband or wife who files a separate state return and up to a maximum of $12,000 for a husband and wife who file a joint Iowa return. For tax years beginning on or after January 1, 1998, the partial exclusion of retirement benefits received in the tax year was increased up to a maximum of $5,000 for a person, other than a husband or wife who files a separate state income tax return, and up to a maximum of $10,000 for a husband and wife who file a joint state income tax return. A husband and wife filing separate state income tax returns or separately on a combined state return are allowed a combined exclusion of retirement benefits of up to a maximum of $10,000 for tax years beginning in 1998, 1999 and 2000 and a combined exclusion of up to a maximum of $12,000 for tax years beginning on or after January 1, 2001. The $10,000 or $12,000 exclusion shall be allocated to the husband and wife in the proportion that each spouse’s respective pension and retirement benefits received bear to the total combined pension and retirement benefits received by both spouses. See rule 701—302.80(422) for the exclusion of military retirement pay for tax years beginning on or after January 1, 2014and rule 701—302.23(422) for the exclusion of Social Security benefits.For tax years beginning on or after January 1, 1995, but prior to January 1, 1998, the retirement income exclusion was up to $3,000 for single individuals, up to $3,000 for each married person filing a separate Iowa return, up to $3,000 for each married person filing separately on the combined return form, and up to $6,000 for married taxpayers filing joint Iowa returns. For example, a married couple elected to file separately on the combined return form and both spouses were 55 years of age or older. One spouse had $2,000 in pension income that could be excluded, since the pension income was $3,000 or less. The other spouse had $6,000 in pension income and could exclude $3,000 of that income due to the retirement income exclusion. This second spouse could not exclude an additional $1,000 of the up to $3,000 retirement income exclusion that was not used by the other spouse.    302.47(1) Retirement income.      a.    Qualifying retirement income.Generally, distributions from documented retirement plans meeting the qualification requirements in the Internal Revenue Code qualify for the retirement income exclusion. The following is a nonexclusive list of plans that qualify for the retirement income exclusion:    (1)   Traditional individual retirement account (IRA) authorized under Internal Revenue Code Section 408(a).    (2)   Roth individual retirement account (Roth IRA) authorized under Internal Revenue Code Section 408A.    (3)   Roth conversion income.    (4)   Simplified employee pension individual retirement arrangement (SEP-IRA) defined in Internal Revenue Code Section 408(k).    (5)   Savings incentive match plan for employees (SIMPLE IRA) defined under Internal Revenue Code Section 408(p).    (6)   Qualified deferred compensation plans including those authorized under Internal Revenue Code Sections 401(k) and 457(b).    (7)   A defined benefit plan, pension plan, profit-sharing plan, or stock bonus plan qualified under Internal Revenue Code Section 401 including IPERS and employee stock ownership plans (ESOPs).    (8)   Keogh plans or HR 10 plans.    (9)   Eligible combined plans described in Internal Revenue Code Section 414(x).    b.    Retirement income that does not qualify.Generally, distributions from retirement plans that do not meet the qualification requirements in the Internal Revenue Code do not qualify for the retirement income exclusion. The following nonexclusive list of plans do not qualify for the retirement income exclusion:    (1)   Nonqualified deferred compensation plans described in Internal Revenue Code Section 409A.    (2)   Nonqualified annuities.    302.47(2) Survivors having an insurable interest.      a.    Insurable interest.“Insurable interest” is a term used in life insurance which also applies to this rule and is defined to be “suchmeans an interest in the life of the person insured, arising from the relations of the party obtaining the insurance, either as credit of or surety for the assuredinsured, or from the ties of blood or marriage to himthe insured, as would justify a reasonable expectation of advantage or benefit from the continuance of histhe lifeof the insured.” Warnock v. Davis, 104 U.S. 775, 779, 26 L.Ed. 924; Connecticut Mut. Life Ins. Co. v. Luchs, 2 S.Ct. 949, 952, 108 U.S. 498, 27 L.Ed. 800; Appeal of Corson, 6 A. 213, 215, 113 Pa. 438, 57 Am. Rep. 479; Adams’ Adm’r v. Reed, Ky., 36 S.W. 568, 570; Trinity College v. Travelers’ Co., 18 S.E. 175, 176, 113 N.C. 244, 22 L.R.A. 291; Opitz v. Karel, 95 N.W. 948, 951, 118 Wis. 527, 62 L.R.A. 982. It is not necessary that the expectation of advantage or profit should always be capable of pecuniary estimation, for a parent has an insurable interest in the life of his child, and a child in the life of his parent, a husband in the life of his wife, and a wife in the life of her husband. The natural affection in cases of this kind is considered as more powerful, as operating the more efficaciously, to protect the life of the insured than any other consideration, but in all cases there must be a reasonable ground, founded on relations to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Warnock v. Davis, 104 U.S. 775, 26 L.Ed. 924; Appeal of Corson, 6 A. 213, 215, 113 Pa. 438, 57 Am. Rep. 479; Connecticut Mut. Life Ins. Co. v. Luchs, 2 S.Ct. 949, 952, 108 U.S. 498, 27 L.Ed. 800.For purposes of this rule, the term “insurable interest” applies to a beneficiary receiving retirement benefits due to the death of a decedent under the same circumstances as if the beneficiary were receiving life insurance benefits as a result of the death of the decedent. Case law related to an insurable interest in the life insurance context is relevant in determining whether a beneficiary is a survivor with an insurable interest.     b.    Survivors with an insurable interest must be natural persons.Only natural persons may be a survivor with an insurable interest for purposes of this exclusion.    c.    Parties deemed to have an insurable interest by relationship.Some relationships are deemed so close that the individual will have an insurable interest in the decedent. These are spouses in each others’ lives, parents in the lives of their children, and children in the lives of their parents.    d.    Individuals other than close relations may be a survivor with an insurable interest.Individuals other than those with a relationship with the decedent described in paragraph 302.47(2)“b” must establish that they had a pecuniary interest in the continuation of the life of the decedent at the time of death to be considered a survivor with an insurable interest. The beneficiary has the burden of proof to show that the beneficiary had a reasonable expectation of an advantage or benefit that the beneficiary would have received with the continuance of the life of the decedent. Being named a beneficiary of the retirement plan alone does not establish that an individual is a survivor with an insurable interest.For purposes of this rule, the term “insurable interest” will be considered to apply to a beneficiary receiving retirement benefits due to the death of a pensioner or annuitant under the same circumstances as if the beneficiary were receiving life insurance benefits as a result of the death of the pensioner or annuitant.For purposes of this rule, the term “survivor” is a person other than the surviving spouse of an annuitant or pensioner who is receiving the annuity or pension benefits because the person was a beneficiary of the pensioner or annuitant at the time of death of the pensioner or annuitant. In addition, in order for this person to qualify for the partial exclusion of pensions or retirement benefits, this survivor must have had an insurable interest in the pensioner or annuitant at the time of death of the annuitant or pensioner.A survivor other than the surviving spouse will be considered to have an insurable interest in the pensioner or annuitant if the survivor is a son, daughter, mother, or father of the annuitant or pensioner. The relationship of these individuals to the pensioner or annuitant is considered to be so close that no separate pecuniary or monetary interest between the pensioner or annuitant and any of these relatives must be established.A survivor may include relatives of the pensioner or annuitant other than those relatives that were mentioned above. However, before any of these relatives can be considered to be a survivor for purposes of this rule, the relative must have had some pecuniary interest in the continuation of the life of the pensioner or annuitant. That is, the relative must establish a relationship with the pensioner or annuitant that shows there was a reasonable expectation of an advantage or benefit which the person would have received with the continuance of the life of the pensioner or annuitant.The fact that a niece of the pensioner or annuitant was named beneficiary of an uncle’s pension where the uncle had no closer relatives does not in itself establish that the niece had an insurable interest in the pension benefits, if the niece was not receiving monetary benefits or the niece did not have some special relationship to the uncle at the time of the uncle’s death.If a grandson was receiving college tuition regularly from his grandfather and received the grandfather’s pension as a beneficiary of the grandfather after the grandfather’s death, the grandson would be deemed to have an insurable interest in the benefits and would be eligible for the partial retirement benefit exclusion.A person who is not related to the pensioner or annuitant, such as a partner in a business or a creditor, may have an insurable interest in the pensioner or annuitant. However, the burden of proof is on a nonrelated person to show that the person had an insurable interest in the pensioner or the annuitant at the time of death of the pensioner or annuitant.There are numerous court cases which deal with whether a person had established an insurable interest in the life of an individual that was insured. These cases may be used as a guideline to determine whether or not a person receiving a pension or annuity due to the death of an annuitant or pensioner had an insurable interest in the annuitant or pensioner at the time of death of the pensioner or annuitant. Thus, if a person would have met criteria for an insurable interest for purposes of an interest in a person’s life insurance policy, the person would also be considered to be qualified for an insurable interest in a pensioner or annuitant.Retirement benefits subject to the retirement income exclusion include, but are not limited to: benefits from defined benefit or defined contribution pension and annuity plans, benefits from annuities, incomes from individual retirement accounts, benefits from pension or annuity plans contributed by an employer or maintained or contributed by a self-employed person and benefits and earnings from deferred compensation plans. However, the exclusion does not apply to social security benefits. A surviving spouse who is not disabled or is not 55 years of age or older can only exclude retirement benefits received as a result of the death of the other spouse and on the basis that the deceased spouse would have been eligible for the exclusion in the tax year. In order for a survivor other than the surviving spouse to qualify for the partial exclusion of retirement benefits, the survivor must have received the retirement benefits as a result of the death of a pensioner or annuitant who would have qualified for the exclusion in the tax year on the basis of age or disability. In addition, the survivor other than the surviving spouse would have had to have an insurable interest in the pensioner or annuitant at the time of the death of the pensioner or annuitant.    302.47(3) Disabled individuals.  For purposes of this rule, a disabled individual is a person who is receiving benefits as a result of retirement from employment or self-employment due to disability. In addition, a person is considered to be a disabled individual if the individual is determined to be disabled in accordance with criteria established by the Social Security Administration or other federal or state governmental agency.Note that the pension or other retirement benefits that are excluded from taxation for certain individuals are to be considered as a part of net income for purposes of determining whether or not a particular individual’s income is low enough to exempt that taxpayer from tax. In addition, the pension or other retirement benefits that are excluded from taxation for certain individuals are to be considered as a part of net income for the alternative tax computation, which is available to all taxpayers except those taxpayers filing as single individuals.Finally, the pension or other retirement benefits are to be considered as a part of net income for individuals using the single filing status whose tax liabilities are limited so the liabilities cannot reduce the person’s net income plus exempt benefits below $9,000, or below $18,000 for taxpayers 65 years of age or older for the 2007 and 2008 tax years, or below $24,000 for taxpayers 65 years of age or older for the 2009 and subsequent tax years.       This rule is intended to implement Iowa Code sections 422.5 and 422.7.

        ITEM 4.    Amend rule 701—302.80(422) as follows:

    701—302.80(422) Exemption for military retirement pay.  For tax years beginning on or after January 1, 2014, retirementRetirement pay received by taxpayers from the federal government for military service performed in the armed forces, armed forces reserves, or national guard is exempt from state income tax. In addition, amounts received by a surviving spouse, former spouse, or other beneficiary of a taxpayer who served in the armed forces, armed forces reserves, or national guard under the Survivor Benefit Plan are also exempt from state income tax for tax years beginning on or after January 1, 2014. The retirement pay is only deductible to the extent it is included in the taxpayer’s federal adjusted grosstaxable income.    302.80(1) Coordination with pension exclusion.  The exclusion of retirement pay is in addition to the partial exclusion, provided in rule 701—302.47(422), of pensions and other retirement benefits for disabled individuals, individuals who are 55 years of age or older, surviving spouses and survivors. In addition, taxpayers whodo not qualify for the exclusion in rule 701—302.47(422) and who receive retirement pay under federal law that combines retirement pay for both uniformed service and the federal civil service retirement system or federal employees’ retirement system must prorate the retirement pay based on years of service.    302.80(2) Coordination with filing threshold and alternate tax.  The military retirement pay is excluded from the calculation of income used to determine whether an Iowa income tax return is required to be filed pursuant to 701—subrules 301.1(1) and 301.5(10) through 301.5(13). In addition, the military retirement pay is excluded from the calculation of the special tax computation for all low-income taxpayers except single taxpayers pursuant to rule 701—301.9(422) and is excluded from the calculation of the special tax computation for taxpayers who are 65 years of age or older under rule 701—301.15(422).    302.80(3) Iowa withholding.  The amount of military retirement pay is excluded from the calculation of payments used to determine whether Iowa tax should be withheld from pension and annuity payments as determined pursuant to 701—subrule 307.3(4).       This rule is intended to implement Iowa Code sections 422.5 and 422.7 as amended by 2014 Iowa Acts, Senate File 303.

        ITEM 5.    Amend subrule 307.1(2) as follows:    307.1(2) Withholding on pensions, annuities and other nonwage payments to Iowa residents.  State income tax is required to be withheld from payments of pensions, annuities, supplemental unemployment benefits and sick pay benefits and other nonwage income payments made to Iowa residents in those circumstances mentioned in the following paragraphs. This subrule covers those nonwage payments described in Sections 3402(o), 3402(p), 3402(s), 3405(a), 3405(b), and 3405(c) of the Internal Revenue Code. This includes, but is not limited to, payments from profit-sharing plans, stock bonus plans, deferred compensation plans, individual retirement accounts, lump-sum distributions from qualified retirement plans, other retirement plans, and annuities, endowments and life insurance contracts issued by life insurance companies. These payments are subject to Iowa withholding tax if they are also subject to federal withholding tax. However, no state income tax withholding is required from nonwage payments to residents to the extent those payments are not subject to state income tax. See paragraph 307.1(2)“h” for threshold amounts for withholding from payments of pensions, annuities, individual retirement accounts, deferred compensation plans, and other retirement incomes which are made on or after January 1, 2001. In the case of some nonwage payments to residents, such as payments of pensions and annuities, no state income tax is required to be withheld if no federal income tax is being withheld from the payments of the pensions and annuities. The rate of withholding on the nonwage payments described in this subrule is 5 percent of the payment amounts or 5 percent of the taxable amounts unless specified otherwise.For purposes of this subrule, an individual receiving nonwage payments will be considered to be an Iowa resident and subject to this subrule if the individual’s permanent residence is in Iowa. The fact that a nonwage payment is deposited in a recipient’s account in a financial institution located outside Iowa does not mean that the recipient’s permanent residence is established in the place where the financial institution is situated.Payers of pension and annuity benefits and other nonwage payments have the option of either withholding Iowa income tax from these payments on the basis of tables and formulas included in the Iowa withholding tax guide of the department of revenue or withholding Iowa income tax from these payments at the rate of 5 percent. State income tax is required to be withheld by payers in situations when federal income tax is being withheld from the nonwage payments.    a.    Withholding from pension and annuity payments to residents.Withholding of state income tax is required from payments of pensions and annuities to Iowa residents to the extent that the recipients of the payments have not filed with the payers of the benefits election forms which specify that no federal income tax is to be withheld. Therefore, state income tax is to be withheld when federal income tax is being withheld from the pensions or annuities. See paragraph 307.1(2)“h” for threshold amounts for withholding from payments of pensions, annuities, and other retirement incomes which are made on or after January 1, 2001.However, although Iowa income tax is ordinarily required to be withheld from pension and annuity payments made to Iowa residents if federal income tax is being withheld from the payments, no state income tax is required to be withheld if pension and annuity payments are not subject to Iowa income tax, as in the case of railroad retirement benefits which are exempt from Iowa income tax by a provision of federal lawor retirement distributions subject to the retirement income exclusion described in rule 701—302.47(422).    b.    Withholding from payments to residents from profit-sharing plans, stock bonus plans, deferred compensation plans, individual retirement accounts and from annuities, endowments and life insurance contracts issued by life insurance companies.Payments to Iowa residents from profit-sharing plans, stock bonus plans, deferred compensation plans, individual retirement accounts and payments from life insurance companies for contracts for annuities, endowments or life insurance benefits are subject to withholding of state income tax if federal income tax is withheld from the benefits. However, no state income tax is to be withheld from the income tax payments described above to the extent those income tax payments are exempt from Iowa income tax. See paragraph 307.1(2)“h” for thresholds for withholding from payments of pensions, annuities, individual retirement accounts, deferred compensation plans, and other retirement incomes which are made on or after January 1, 2001.Rule 701—302.47(422) provides more information about the retirement income exclusion.In cases where the recipients elect withholding of state income tax from the income payments, the payers are to withhold from the payments at a rate of 5 percent on the taxable portion of the payment, if that can be determined by the payer or on the entire income payment if the payer does not know how much of the payment is taxable. Once a recipient makes an election for state income tax withholding, that election will remain in effect until a later election is made.    c.    Withholding from payments to residents for supplemental unemployment compensation benefits and sick pay benefits.Income payments made for supplemental unemployment compensation benefits described in Section 3402(o)(2)(a) of the Internal Revenue Code and for sick pay benefits are subject to withholding of state income tax. In the case of supplemental unemployment compensation benefits, those benefits are treated as wages for purposes of state income tax withholding. Therefore, state income tax should be withheld from these payments when federal income tax is withheld. The amount of state income tax withholding should be determined by the withholding tables provided in the Iowa employers’ “Withholding Tax Guide.”In the case of state income tax withholding for sick pay benefits paid by third-party payers in accordance with Section 3402(o)(1) of the Internal Revenue Code, state income tax is to be withheld from the benefits by the payer only if state income tax withholding is requested by the payee of the benefits. However, payees of sick pay benefits should probably not request withholding from the benefits if the payees are eligible for the disability income exclusion authorized in Iowa Code section 422.7 and described in rule 701—302.22(422). If withholding is requested by the payee, the withholding should be done at a 5 percent rate on the sick pay benefits. Once withholding is started, it should continue until such time as the payee requests that no state income tax be withheld. For sick pay benefits not paid by third-party payers, state income tax is required to be withheld since federal income tax is required to be withheld.    d.    Voluntary state income tax withholding from unemployment benefit payments.Recipients of unemployment benefit payments described in Section 3402(p)(2) of the Internal Revenue Code may elect to have state income tax withheld from the benefit payments at a rate of 5 percent. An individual’s election to have state income tax withheld from unemployment benefits is separate from any election to have federal income tax withheld from the benefits.    e.    Withholding on lump-sum distributions from qualified retirement plans.For lump-sum distribution payments from qualified retirement plans made to Iowa residents, state income tax is required to be withheld under the conditions described in this paragraph. No state income tax is required to be withheld from a lump-sum distribution payment to an Iowa resident in a situation where the payment is not subject to Iowa income tax. See paragraph 307.1(2)“h” for thresholds for withholding on lump-sum distributions issued on or after January 1, 2001.Rule 701—302.47(422) provides more information about the retirement income exclusion. Iowa income tax is to be withheld from a lump-sum distribution made to an Iowa resident to the extent that federal income tax is being withheld from the distribution. The rate of withholding of state income tax from the lump-sum distribution is 5 percent from the total distribution or 5 percent from the taxable amount if that amount is known by the payer. Note that in the case of a lump-sum distribution, the Iowa income tax imposed on the taxable amount of the distribution is 25 percent of the federal income tax on the distribution.    f.    Withholding of state income tax from nonwage payments to residents on the basis of tax tables and tax formulas.State income tax from the nonwage payments made to Iowa residents may be withheld on the basis of formulas and tables included in the Iowa withholding tax guide of the department of revenue. See paragraph 307.1(2)“h” for threshold amounts for withholding from payments of pensions, annuities, individual retirement accounts, deferred compensation plans, and other retirement incomes which are made on or after January 1, 2001. When state income tax is being withheld based upon the formulas or tables in the withholding guide, the amounts of the nonwage payments are treated as wage payments for purposes of the tables or the formulas.The frequency of the nonwage payments determines which of the withholding tables to use or the number of pay periods in the calendar year to use in the formula. For example, if the nonwage payment is made on a monthly basis, the monthly wage bracket withholding table should be utilized for withholding or 12 should be utilized in the formula to indicate that there will be 12 nonwage payments in the year.The payers of nonwage payments should withhold state income tax from the nonwage payments to Iowa residents when federal income tax is being withheld from the nonwage payments. The payers should withhold from the nonwage payments to Iowa residents from tables or the formulas in the Iowa withholding guide on the basis of the number of withholding exemptions claimed on Form IA W-4 which has been completed by the payees of the payments. However, if a payee of a nonwage payment has not completed an IA W-4 form (Iowa employee’s withholding allowance certificate) by the time a nonwage payment is to be made by the payer of the nonwage payment, the payer is to withhold state income tax on the basis that the payee has claimed one withholding allowance or exemption.In a situation when a payee of a nonwage payment completes Form IA W-4 and claims exemption from state income tax withholding when federal income tax is being withheld from the nonwage payment, the payer of the nonwage payment should withhold state income tax using one withholding allowance or exemption unless the payee has verified exemption from state income tax.    g.    Withholding on distributions from qualified retirement plans that are not directly rolled over.StateOther than distributions to payees who qualify for the retirement income exclusion, state income tax is to be withheld at a rate of 5 percent from the gross amount or taxable amount if known by the payer of the distribution made to Iowa residents if the distributions are not transferred directly to an IRA, Section 403(a) annuity or another qualified retirement plan. The distributions that are subject to state income tax withholding are those distributions that are subject to 20 percent withholding for federal income tax purposes. See paragraph 307.1(2)“h” for thresholds for withholding from payments of pensions, annuities, individual retirement accounts, deferred compensation plans, and other retirement plans which are made on or after January 1, 2001.Rule 701—302.47(422) provides more information about the retirement income exclusion.    h.    Withholding from distributions made on or after January 1, 2001, from pensions, annuities, individual retirement accounts, deferred compensation plans, and other retirement plans.Effective for distributions made on or after January 1, 2001, from pension plans, annuities, individual retirement accounts, deferred compensation plans, and other retirement plans, state income tax is generally required to be withheld from the distributions when federal income tax is being withheld from the distributions, unless one of the exceptions for withholding in this paragraph applies. For purposes of this paragraph, the term “pensions and other retirement plans” includes all distributions of retirement benefits covered by the partial exemption described in rule 701—302.47(422).State income tax is not required to be withheld from a distribution from a pension or other retirement plan if the distribution is an income which is not subject to Iowa income tax, such as a distribution of railroad retirement benefits. State income tax is also not required to be withheld from a pension plan or other retirement plan if the amount of the distribution is $500 per month or less or if the taxable amount is $500 or less and the person receiving the distribution is eligible for the partial exemption of retirement benefits described in rule 701—302.47(422), if the state taxable amount can be determined by the payee of the distribution. There is also no requirement for withholding state income tax from a pension or other retirement plan if the distribution is $1,000 per month or less or if the taxable amount is $1,000 or less and the person receiving the distribution is eligible for the partial exemption of retirement benefits described in rule 701—302.47(422) and that person has indicated an intention to file a joint state income tax return for the year in which the distribution is made. In instances where the distribution amount or the taxable amount is more than $500 per month but less than $6,000 for the year, no state income tax will be required to be withheld, if the person receiving the distribution is eligible for the partial exemption of retirement benefits.Finally, there is no requirement for withholding from a lump-sum payment from a qualified retirement plan if the lump-sum payment is $6,000 or less, the recipient is eligible for the partial exemption of distributions from pensions and other retirement plans, and the lump-sum payment is the only distribution from the retirement plan in the year.

        ITEM 6.    Amend rule 701—307.1(422), implementation sentence, as follows:       This rule is intended to implement Iowa Code sections 96.3, 99B.2199B.8, 99D.16, 99E.19, 99F.18,99G.31, 422.5, 422.7, and 422.16.

        ITEM 7.    Amend subrule 307.3(5) as follows:    307.3(5) Iowa W-4P—withholding certificate for pension or annuity payments.      a.    For payments made from pension plans, annuity plans, individual retirement accounts, or deferred compensation plans to residents of Iowa, payers of these retirement benefits are to use Form IA W-4P for withholding of state income tax from the benefits. Generally, state income tax is required to be withheld from payments of distributions from the retirement incomes described above when federal income tax is being withheld from the payments. However, no state income tax is required to be withheld to the extent the monthly payment amount is $500 or less or the taxable amount per month is $500 or less if the payee is eligible for the retirement benefits exclusion described in rule 701—302.47(422). In addition, no state income tax is required to be withheld to the extent the monthly payment amount is $1,000 or less or the taxable amount per month is $1,000 or less if the payee is married and eligible for the retirement benefits exclusion described in rule 701—302.47(422).Iowa income tax withholding is not required on payments of distributions from qualifying retirement plans if the payee is eligible for the retirement income exclusion described in rule 701—302.47(422). However, withholding at a rate of 5 percent is required if the payee is not eligible for the retirement income exclusion or if the distribution is from a plan that does not qualify for the retirement income exclusion.    b.    Form IA W-4P is available from the department for payers of retirement benefits that intend to withhold at a rate of 5 percent from the payment amount or taxable payment amount after the $6,000 to $12,000 exclusion is considered. Note that the $6,000 to $12,000 exclusion is to be allocated to all retirement benefit payments made in the year and not just the first $6,000 to $12,000 in payments made in the year to an individual. If an individual receives retirement benefits and has not completed Form IA W-4P, the payer is directed to withhold Iowa income tax from the retirement benefit payment after a $6,000 exclusion is allowed on an annual basis.    c.    b.    Payers of retirement benefitstaxable in Iowa that want to use withholding formulas or tables to withhold state income tax instead of at the 5 percent rate may design their own IA W-4P withholding certificate form without approval of the department.    d.    The payers are not responsible for improper choices made by a payee in completion of the IA W-4P. However, payers cannot accept a request for exemption from the withholding of state income tax made by a payee if federal income tax is being withheld unless the payee is eligible for exemption from withholding.    ARC 7107CWorkforce Development Board and Workforce Development Center Administration Division[877]Notice of Intended Action

    Proposing rulemaking related to regional industry sector partnerships and providing an opportunity for public comment

        The Workforce Development Board and Workforce Development Center Administration Division hereby proposes to amend Chapter 7, “Iowa Workforce Investment Act Program,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code chapter 17A and Iowa Code section 84A.15 as transferred by 2023 Iowa Acts, Senate File 514.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code chapter 17A and Iowa Code section 84A.15 as transferred by 2023 Iowa Acts, Senate File 514.Purpose and Summary    As part of the Workforce Development Department’s review of rules under Executive Order 10, the Department identified several instances where current rule 877—7.25(260H) duplicates statutory language and uses restrictive terms. Therefore, this rule is proposed to be rescinded.Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any. Public Comment     Any interested person may submit written or oral comments concerning this proposed rulemaking. Written or oral comments in response to this rulemaking must be received by the Department no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Brooke Axiotis Iowa Workforce Development 1000 East Grand Avenue Des Moines, Iowa 50319 Phone: 515.802.9425 Email: brooke.axiotis@iwd.iowa.gov Public Hearing     A public hearing at which persons may present their views orally or in writing will be held as follows: November 21, 2023 10 to 11 a.m. Capitol View Room 1000 East Grand Avenue Des Moines, Iowa    Persons who wish to make oral comments at the public hearing may be asked to state their names for the record and to confine their remarks to the subject of this proposed rulemaking.     Any persons who intend to attend the public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Department and advise of specific needs by calling 515.414.6800 or via email at april.stotz@iowa.gov at least 48 hours prior to the hearing date. Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Rescind and reserve rule 877—7.25(260H).    ARC 7108CWorkforce Development Board and Workforce Development Center Administration Division[877]Notice of Intended Action

    Proposing rulemaking related to work-based learning and providing an opportunity for public comment

        The Workforce Development Board and Workforce Development Center Administration Division hereby proposes to rescind Chapter 31, “Statewide Work-Based Learning Intermediary Network,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is proposed under the authority provided in Iowa Code chapter 17A and Iowa Code section 84A.16 as transferred by 2023 Iowa Acts, Senate File 514.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code chapter 17A and Iowa Code section 84A.16 as transferred by 2023 Iowa Acts, Senate File 514.Purpose and Summary    As part of the Workforce Development Department’s review of rules under Executive Order 10, the Department identified several instances where the current chapter duplicates statutory language and uses restrictive terms. Therefore, Chapter 31 is proposed to be rescinded.Fiscal Impact     This rulemaking has no fiscal impact to the State of Iowa. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any. Public Comment     Any interested person may submit written or oral comments concerning this proposed rulemaking. Written or oral comments in response to this rulemaking must be received by the Department no later than 4:30 p.m. on November 21, 2023. Comments should be directed to: Brooke Axiotis Iowa Workforce Development 1000 East Grand Avenue Des Moines, Iowa 50319 Phone: 515.802.9425 Email: brooke.axiotis@iwd.iowa.gov Public Hearing     A public hearing at which persons may present their views orally or in writing will be held as follows: November 21, 2023 9 to 10 a.m. Capitol View Room 1000 East Grand Avenue Des Moines, IA     Persons who wish to make oral comments at the public hearing may be asked to state their names for the record and to confine their remarks to the subject of this proposed rulemaking.     Any persons who intend to attend the public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Department and advise of specific needs by calling 515.414.6800 or via email at april.stotz@iowa.gov at least 48 hours prior to the hearing date. Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).    The following rulemaking action is proposed:

        ITEM 1.    Rescind and reserve 877—Chapter 31.    ARC 7103CRevenue Department[701]Adopted and Filed

    Rulemaking related to capital gain exclusion

        The Revenue Department hereby amends Chapter 302, “Determination of Net Income,” Iowa Administrative Code.Legal Authority for Rulemaking    This rulemaking is adopted under the authority provided in Iowa Code sections 421.14 and 422.68.State or Federal Law Implemented    This rulemaking implements, in whole or in part, Iowa Code section 422.7.Purpose and Summary    Pursuant to Part IV of Executive Order 10, the Department was directed to propose Notice of Intended Action ARC 7051C to implement, in part, 2022 Iowa Acts, House File 2317. The Department now adopts this rulemaking to provide guidance as to how and when an employee-owner may make an election to exclude capital gain from the sale of qualifying capital stock in a qualifying corporation. The legislation allowed employee-owners of a qualified corporation to exclude the capital gain from the sale of qualifying capital stock.Public Comment and Changes to Rulemaking    Notice of Intended Action for this rulemaking was published in the Iowa Administrative Bulletin on July 26, 2023, as ARC 7051C.     A comment was received asking questions about how the deduction worked. These questions were already covered by the statute or rule and were answered directly.    No changes from the Notice have been made.Adoption of Rulemaking    This rulemaking was adopted by the Department on October 4, 2023.Fiscal Impact     This rulemaking has no known fiscal impact to the State of Iowa beyond that of the legislation it is intended to implement. The Department projects that the stock capital gain income tax exclusion will reduce tax liability and General Fund revenue by the following amounts: FY 2024 = $4.0 million; FY 2025 = $7.6 million; FY 2026 = $10.3 million; FY 2027 = $9.0 million; FY 2028 = $9.5 million. Fiscal impacts beyond FY 2028 are projected to continue, increasing each year at the rate of inflation. Jobs Impact    After analysis and review of this rulemaking, no impact on jobs has been found.Waivers    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any, pursuant to rule 701—7.28(17A).Review by Administrative Rules Review Committee    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).Effective Date    This rulemaking will become effective on December 6, 2023.    The following rulemaking action is adopted:

        ITEM 1.    Adopt the following new rule 701—302.41(422):

    701—302.41(422) Capital gain exclusion for elected employee-owned stock in a qualified corporation.      302.41(1) In general.  Employee-owners may make a single, irrevocable lifetime election to exclude from net income the net capital gain from the sale or exchange of capital stock from a qualified corporation at the following rates:    a.    For tax years beginning in the 2023 calendar year, 33 percent.    b.    For tax years beginning in the 2024 calendar year, 66 percent.    c.    For tax years beginning on or after January 1, 2025, 100 percent.    302.41(2) Definitions.  Unless otherwise indicated in this rule or required by the context, all words and phrases used in this rule that are defined under Iowa Code section 422.7(43) shall have the same meaning as provided to them under that Iowa Code section.    302.41(3) Qualifying for the exclusion.  For the employee-owner’s sale or exchange to qualify for the exclusion in this rule, the capital stock must be acquired by the employee-owner while employed and on account of employment with a qualified corporation.    a.    While employed.The capital stock must have been acquired while the employee-owner was employed by the qualifying corporation. Capital stock received as compensation is acquired by the employee-owner while employed. Capital stock acquired from a stock right, stock warrant, or stock option is only acquired by the employee-owner while employed if such right, warrant, or option is exercised while the employee-owner is employed by the qualifying corporation.    b.    On account of employment.For capital stock to have been acquired on account of employment, the employee-owner must have acquired the capital stock in a manner only available to employees of the qualified corporation. Capital stock acquired at formation in exchange for capital contribution is not acquired on account of employment.    c.    Holding period.To qualify for the exclusion, the employee-owner must own the capital stock for at least ten cumulative years. If the employee-owner owns any capital stock in the qualified corporation for at least ten cumulative years, then every share of the employee-owner’s capital stock in that qualified corporation is considered to meet the holding period requirement. For stock rights, stock warrants, or stock options, the holding period does not begin until the right, warrant, or option is exercised.    302.41(4) Electing capital stock for exclusion.      a.    General rule.The employee-owner shall make the election to exclude capital gain from the sale of capital stock of a qualified corporation on a form prescribed by the department with the employee-owner’s original Iowa income tax return for the tax year in which the election is made. The form shall be available on the department’s website. To qualify for the exclusion, the employee-owner must include all information required by the form.    b.    Election when sale or exchange takes place over multiple transactions.The election applies to all subsequent sales or exchanges of capital stock of the same qualified corporation of which the initial election was made, within 15 years of the date the election was made. The employee-owner shall include the form prescribed by the department with the employee-owner’s Iowa income tax return when claiming the exclusion for a subsequent sale or exchange.    c.    The election can only be made once.An employee-owner may only make one lifetime election to exclude the qualifying capital stock of a single qualifying corporation under this rule. The election is irrevocable once made.    302.41(5) Election by a party other than the employee-owner.      a.    Election upon death of the employee-owner.If the employee-owner dies after having sold or exchanged qualifying capital stock without having made an election, the surviving spouse or, if there is no surviving spouse, the personal representative of the employee-owner’s estate may make a qualifying election in the manner described in subrule 302.41(4) for the tax year in which the employee-owner died.    b.    Inter vivos transfer of qualifying capital stock.After the election described in this rule has been made, the election applies to capital stock transferred from the employee-owner to the employee-owner’s spouse as an inter vivos gift or to an inter vivos trust primarily for the benefit of the employee-owner’s spouse. Capital stock transferred through a will or testamentary trust does not qualify for this exclusion. The election only applies 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.       This rule is intended to implement Iowa Code section 422.7.        [Filed 10/4/23, effective 12/6/23][Published 11/1/23]Editor’s Note: For replacement pages for IAC, see IAC Supplement 11/1/23.
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