Bill Text: IA SF2043 | 2013-2014 | 85th General Assembly | Introduced
Bill Title: A bill for an act providing an exemption from the computation of net income for the individual income tax of net capital gain from the sale or exchange of qualified capital stock and including effective date and retroactive applicability provisions.
Spectrum: Partisan Bill (Republican 11-0)
Status: (Introduced - Dead) 2014-01-27 - Subcommittee, Bolkcom, Dotzler, and Feenstra. S.J. 134. [SF2043 Detail]
Download: Iowa-2013-SF2043-Introduced.html
Senate
File
2043
-
Introduced
SENATE
FILE
2043
BY
SINCLAIR
,
ZAUN
,
CHAPMAN
,
GREINER
,
GUTH
,
CHELGREN
,
BREITBACH
,
WHITVER
,
SCHNEIDER
,
GARRETT
,
and
SEGEBART
A
BILL
FOR
An
Act
providing
an
exemption
from
the
computation
of
net
1
income
for
the
individual
income
tax
of
net
capital
gain
2
from
the
sale
or
exchange
of
qualified
capital
stock
and
3
including
effective
date
and
retroactive
applicability
4
provisions.
5
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
6
TLSB
5024XS
(4)
85
mm/sc
S.F.
2043
Section
1.
Section
422.7,
subsection
21,
paragraph
a,
1
subparagraph
(2),
Code
2014,
is
amended
to
read
as
follows:
2
(2)
For
purposes
of
this
paragraph
subsection
,
“lineal
3
descendant”
means
children
of
the
taxpayer,
including
legally
4
adopted
children
and
biological
children,
stepchildren,
5
grandchildren,
great-grandchildren,
and
any
other
lineal
6
descendants
of
the
taxpayer.
7
Sec.
2.
Section
422.7,
subsection
21,
Code
2014,
is
amended
8
by
adding
the
following
new
paragraph:
9
NEW
PARAGRAPH
.
f.
(1)
Net
capital
gain
from
the
sale
or
10
exchange
of
capital
stock
of
a
qualified
corporation
for
which
11
an
election
is
made
by
an
employee-owner.
12
(2)
(a)
An
employee-owner
is
entitled
to
make
one
13
irrevocable
lifetime
election
to
exclude
the
net
capital
14
gain
from
the
sale
or
exchange
of
capital
stock
of
one
15
qualified
corporation
which
capital
stock
was
acquired
by
the
16
employee-owner
on
account
of
employment
by
such
qualified
17
corporation
and
while
employed
by
such
qualified
corporation.
18
(b)
The
election
shall
also
apply
to
all
subsequent
sales
or
19
exchanges
of
the
elected
capital
stock,
provided
it
is
capital
20
stock
in
the
same
qualified
corporation
and
was
acquired
by
21
the
employee-owner
on
account
of
employment
by
such
qualified
22
corporation
and
while
employed
by
such
qualified
corporation.
23
(c)
(i)
The
election
shall
apply
to
transfers
of
the
24
capital
stock
by
inter
vivos
gift
from
the
employee-owner
to
25
the
employee-owner’s
spouse
or
lineal
descendants,
or
to
a
26
trust
for
the
benefit
of
the
employee-owner’s
spouse
or
lineal
27
descendants.
This
subparagraph
subdivision
(i)
shall
apply
to
28
a
spouse
only
if
the
spouse
was
married
to
the
employee-owner
29
on
the
date
of
the
sale
or
exchange
of
the
capital
stock
or
the
30
date
of
death
of
the
employee-owner.
31
(ii)
If
after
transferring
the
capital
stock
by
inter
32
vivos
gift
as
provided
in
subparagraph
subdivision
(i),
33
the
employee-owner
dies
without
making
an
election,
the
34
surviving
spouse
or,
if
there
is
no
surviving
spouse,
the
35
-1-
LSB
5024XS
(4)
85
mm/sc
1/
4
S.F.
2043
personal
representative
of
the
employee-owner’s
estate
may
1
make
the
election
that
would
have
qualified
under
subparagraph
2
subdivision
(i).
3
(d)
The
election
shall
be
made
by
including
a
written
4
statement
with
the
taxpayer’s
state
income
tax
return
for
5
the
taxable
year
in
which
the
election
is
made.
The
written
6
statement
shall
identify
the
qualified
corporation
that
issued
7
the
capital
stock,
the
grounds
for
the
election
under
this
8
paragraph
“f”
,
a
statement
that
the
taxpayer
elects
to
have
this
9
paragraph
“f”
apply,
and
any
other
information
required
by
the
10
department.
The
department
shall
provide
appropriate
forms
11
for
making
elections
and
reporting
exclusions
pursuant
to
this
12
paragraph
“f”
.
13
(3)
For
purposes
of
this
paragraph:
14
(a)
“Capital
stock”
means
common
or
preferred
stock,
either
15
voting
or
nonvoting.
“Capital
stock”
does
not
include
stock
16
rights,
stock
warrants,
stock
options,
or
debt
securities.
17
(b)
“Employee-owner”
means
an
individual
who
owns
capital
18
stock
in
a
qualified
corporation,
which
capital
stock
was
19
acquired
by
the
individual
on
account
of
employment
by
such
20
qualified
corporation
and
while
employed
by
such
corporation.
21
(c)
“Personal
representative”
means
the
same
as
defined
in
22
section
633.3,
or
if
there
is
no
such
personal
representative
23
appointed,
then
the
person
legally
authorized
to
perform
24
substantially
the
same
functions.
25
(d)
(i)
“Qualified
corporation”
means
a
corporation
26
which,
at
the
time
of
the
first
sale
or
exchange
for
which
an
27
election
is
made
under
this
paragraph
“f”
,
meets
the
following
28
conditions:
29
(A)
The
corporation
has
been
in
existence
and
actively
doing
30
business
in
this
state
for
at
least
ten
years.
31
(B)
The
corporation
has
at
least
five
shareholders.
32
(C)
The
corporation
has
at
least
two
shareholders
or
33
groups
of
shareholders
who
are
not
related.
Two
persons
are
34
considered
related
when,
under
section
318
of
the
Internal
35
-2-
LSB
5024XS
(4)
85
mm/sc
2/
4
S.F.
2043
Revenue
Code,
one
is
a
person
who
owns,
directly
or
indirectly,
1
capital
stock
that
if
directly
owned
would
be
attributed
to
the
2
other
person,
or
is
the
brother,
sister,
aunt,
uncle,
cousin,
3
niece,
or
nephew
of
the
other
person
who
owns
capital
stock
4
either
directly
or
indirectly.
5
(ii)
A
qualified
corporation
shall
include
any
member
6
of
an
affiliated
group,
as
defined
in
section
422.32,
if
the
7
affiliated
group
includes
a
member
that
has
been
in
existence
8
and
actively
doing
business
in
this
state
for
at
least
ten
9
years.
10
(iii)
A
qualified
corporation
shall
include
any
corporation
11
that
was
a
party
to
a
reorganization
that
was
entirely
or
12
substantially
tax
free
if
such
reorganization
occurred
during
13
or
after
the
employment
of
the
employee-owner.
14
Sec.
3.
EFFECTIVE
UPON
ENACTMENT.
This
Act,
being
deemed
of
15
immediate
importance,
takes
effect
upon
enactment.
16
Sec.
4.
RETROACTIVE
APPLICABILITY.
This
Act
applies
17
retroactively
to
January
1,
2014,
for
tax
years
beginning
on
18
or
after
that
date.
19
EXPLANATION
20
The
inclusion
of
this
explanation
does
not
constitute
agreement
with
21
the
explanation’s
substance
by
the
members
of
the
general
assembly.
22
This
bill
grants
an
employee-owner,
as
defined
in
the
23
bill,
one
irrevocable
lifetime
election
to
exclude
from
state
24
individual
income
tax
the
net
capital
gain
from
the
sale
or
25
exchange
of
the
capital
stock
of
one
qualified
corporation.
26
Several
requirements
must
be
met
for
capital
stock
to
qualify
27
as
capital
stock
of
a
qualified
corporation.
First,
the
28
stock
must
be
either
voting
or
nonvoting,
common
or
preferred
29
stock.
Stock
rights,
stock
warrants,
stock
options,
and
debt
30
securities
do
not
qualify.
Second,
the
corporation
that
issued
31
the
stock
must
be
in
existence
and
actively
doing
business
32
in
Iowa
for
at
least
10
years.
A
corporation
that
is
part
33
of
an
affiliated
group
will
qualify
if
the
affiliated
group
34
includes
a
member
that
has
been
in
existence
and
actively
doing
35
-3-
LSB
5024XS
(4)
85
mm/sc
3/
4
S.F.
2043
business
in
Iowa
for
at
least
10
years.
Third,
the
corporation
1
that
issued
the
stock
must
have
at
least
five
shareholders,
2
two
of
whom
must
not
be
related.
Fourth,
the
stock
must
have
3
been
acquired
by
the
employee-owner
on
account
of
employment
4
with
the
corporation
and
while
employed
by
the
corporation.
A
5
corporation
will
qualify
if
it
is
a
party
to
a
reorganization
6
that
was
entirely
or
substantially
tax
free
as
long
as
the
7
reorganization
occurred
during
or
after
the
employee-owner’s
8
employment.
9
The
election
shall
also
apply
to
all
subsequent
sales
of
the
10
elected
capital
stock,
provided
it
is
capital
stock
in
the
same
11
qualified
corporation
and
was
acquired
by
the
employee-owner
12
on
account
of
employment
by
the
corporation
and
while
employed
13
by
the
corporation.
14
The
bill
provides
that
the
election
applies
to
transfers
of
15
the
capital
stock
by
inter
vivos
gift
from
the
employee-owner
16
to
a
spouse
or
lineal
descendant,
or
to
a
trust
for
the
benefit
17
of
the
employee-owner’s
spouse
or
lineal
descendant.
The
18
election
will
apply
to
a
spouse
only
if
the
spouse
was
married
19
to
the
employee-owner
on
the
date
of
the
sale
or
the
date
of
the
20
employee-owner’s
death.
21
If,
after
making
a
valid
inter
vivos
transfer
of
stock
that
22
meets
all
the
requirements
for
an
election,
an
employee-owner
23
dies
without
making
an
election,
the
surviving
spouse,
or
if
24
there
is
no
surviving
spouse,
the
personal
representative
of
25
the
employee-owner’s
estate
may
make
the
election.
26
An
election
is
made
by
including
a
written
statement
27
containing
certain
required
information,
as
specified
in
the
28
bill,
with
the
taxpayer’s
Iowa
income
tax
return
for
the
29
taxable
year
in
which
the
election
is
made.
The
department
of
30
revenue
is
required
to
provide
appropriate
forms
for
making
31
elections
and
reporting
exclusions.
32
The
bill
takes
effect
upon
enactment
and
applies
33
retroactively
to
January
1,
2014,
for
tax
years
beginning
on
34
or
after
that
date.
35
-4-
LSB
5024XS
(4)
85
mm/sc
4/
4