Senate Study Bill 1013 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON FEENSTRA) A BILL FOR An Act updating the Code references to the Internal Revenue 1 Code and decoupling from certain federal bonus depreciation 2 provisions, and including effective date and retroactive 3 applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1935XC (1) 87 mm/sc

S.F. _____ DIVISION I 1 INTERNAL REVENUE CODE REFERENCES 2 Section 1. Section 15.335, subsection 7, paragraph b, Code 3 2017, is amended to read as follows: 4 b. For purposes of this section , “Internal Revenue Code” 5 means the Internal Revenue Code in effect on January 1, 2015 6 2017 . 7 Sec. 2. Section 422.3, subsection 5, Code 2017, is amended 8 to read as follows: 9 5. “Internal Revenue Code” means the Internal Revenue Code 10 of 1954, prior to the date of its redesignation as the Internal 11 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 12 the Internal Revenue Code of 1986 as amended to and including 13 January 1, 2015 2017 . 14 Sec. 3. Section 422.9, subsection 2, paragraph i, Code 2017, 15 is amended to read as follows: 16 i. The deduction for state sales and use taxes is allowable 17 only if the taxpayer elected to deduct the state sales and use 18 taxes in lieu of state income taxes under section 164 of the 19 Internal Revenue Code. A deduction for state sales and use 20 taxes is not allowed if the taxpayer has taken the deduction 21 for state income taxes or claimed the standard deduction under 22 section 63 of the Internal Revenue Code. This paragraph 23 applies to taxable years beginning after December 31, 2003, and 24 before January 1, 2008, and to taxable years beginning after 25 December 31, 2009 , and before January 1, 2015 . 26 Sec. 4. Section 422.10, subsection 3, paragraph b, Code 27 2017, is amended to read as follows: 28 b. For purposes of this section , “Internal Revenue Code” 29 means the Internal Revenue Code in effect on January 1, 2015 30 2017 . 31 Sec. 5. Section 422.11L, subsection 6, Code 2017, is amended 32 to read as follows: 33 6. For purposes of this section, “Internal Revenue Code” 34 means the Internal Revenue Code of 1954, prior to the date of 35 -1- LSB 1935XC (1) 87 mm/sc 1/ 5

S.F. _____ its redesignation as the Internal Revenue Code of 1986 by the 1 Tax Reform Act of 1986, or means the Internal Revenue Code of 2 1986 as amended to and including January 1, 2016 2017 . 3 Sec. 6. Section 422.32, subsection 1, paragraph h, Code 4 2017, is amended to read as follows: 5 h. “Internal Revenue Code” means the Internal Revenue Code 6 of 1954, prior to the date of its redesignation as the Internal 7 Revenue Code of 1986 by the Tax Reform Act of 1986, or means 8 the Internal Revenue Code of 1986 as amended to and including 9 January 1, 2015 2017 . 10 Sec. 7. Section 422.33, subsection 5, paragraph e, 11 subparagraph (2), Code 2017, is amended to read as follows: 12 (2) For purposes of this subsection , “Internal Revenue Code” 13 means the Internal Revenue Code in effect on January 1, 2015 14 2017 . 15 Sec. 8. EFFECTIVE UPON ENACTMENT. This division of this 16 Act, being deemed of immediate importance, takes effect upon 17 enactment. 18 Sec. 9. RETROACTIVE APPLICABILITY. This division of this 19 Act applies retroactively to January 1, 2016, for tax years 20 beginning on or after that date. 21 DIVISION II 22 BONUS DEPRECIATION 23 Sec. 10. Section 422.7, subsection 39A, unnumbered 24 paragraph 1, Code 2017, is amended to read as follows: 25 The additional first-year depreciation allowance authorized 26 in section 168(k) of the Internal Revenue Code, as enacted by 27 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 28 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 29 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 30 114-113, §143, does not apply in computing net income for 31 state tax purposes. If the taxpayer has taken the additional 32 first-year depreciation allowance for purposes of computing 33 federal adjusted gross income, then the taxpayer shall make the 34 following adjustments to federal adjusted gross income when 35 -2- LSB 1935XC (1) 87 mm/sc 2/ 5

S.F. _____ computing net income for state tax purposes: 1 Sec. 11. Section 422.35, subsection 19A, unnumbered 2 paragraph 1, Code 2017, is amended to read as follows: 3 The additional first-year depreciation allowance authorized 4 in section 168(k) of the Internal Revenue Code, as enacted by 5 Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub. L. 6 No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 7 112-240, §331, and Pub. L. No. 113-295, §125, and Pub. L. No. 8 114-113, §143, does not apply in computing net income for 9 state tax purposes. If the taxpayer has taken the additional 10 first-year depreciation allowance for purposes of computing 11 federal taxable income, then the taxpayer shall make the 12 following adjustments to federal taxable income when computing 13 net income for state tax purposes: 14 Sec. 12. EFFECTIVE UPON ENACTMENT. This division of this 15 Act, being deemed of immediate importance, takes effect upon 16 enactment. 17 Sec. 13. RETROACTIVE APPLICABILITY. This division of this 18 Act applies retroactively to January 1, 2016, for tax years 19 ending on or after that date. 20 EXPLANATION 21 The inclusion of this explanation does not constitute agreement with 22 the explanation’s substance by the members of the general assembly. 23 Under current law with the exception of the solar energy 24 system credit in Code section 422.llL, Iowa Code references 25 to the Internal Revenue Code include the Internal Revenue 26 Code in effect on January 1, 2015, meaning federal income tax 27 revisions made by Congress in 2015 and 2016 are not applicable 28 for Iowa tax purposes for 2016 or beyond. This bill updates 29 the Iowa Code references to the Internal Revenue Code to make 30 those 2015 and 2016 federal income tax revisions applicable 31 for Iowa income tax purposes, and decouples with certain bonus 32 depreciation provisions. 33 DIVISION I —— INTERNAL REVENUE CODE REFERENCES. The 34 division amends Code sections 422.3 and 422.32, general 35 -3- LSB 1935XC (1) 87 mm/sc 3/ 5

S.F. _____ definition sections in the chapter of the Code that governs 1 corporate and individual income tax and the franchise tax 2 on financial institutions, to update the references to the 3 Internal Revenue Code. 4 The division amends Code sections 15.335, 422.10, and 422.33 5 to update the references to the Internal Revenue Code for the 6 state research activities credit for individuals, corporations, 7 and corporations participating in certain economic development 8 programs to include the federal changes to the research 9 activities credit and the alternative simplified research 10 activities credit. 11 The division amends Code section 422.11L to update the 12 reference to the Internal Revenue Code for the state solar 13 energy system credit to include federal changes made in 2016 14 to the federal residential energy efficient property credit 15 and the federal energy credit. This reference to the Internal 16 Revenue Code already includes federal changes made in 2015 to 17 these federal credits (see 2016 Iowa Acts, ch. 1128, §4, 20, 18 and ch. 1138, §40-41). 19 Code section 422.9 provides individuals a deduction from 20 net income for state sales and use taxes if the individual 21 chose to deduct sales and use tax in lieu of state income taxes 22 or the standard deduction for federal income tax purposes. 23 This deduction was set to expire under both federal and Iowa 24 law for tax years beginning on or after January 1, 2015. The 25 federal Protecting Americans from Tax Hikes Act of 2015 made 26 the federal deduction permanent. The division allows the Iowa 27 deduction and makes it permanent for tax years beginning on or 28 after January 1, 2016. 29 Division I takes effect upon enactment and applies 30 retroactively to January 1, 2016, for tax years beginning on 31 or after that date. 32 DIVISION II —— BONUS DEPRECIATION. The division decouples, 33 for Iowa income tax purposes, from the federal additional 34 first-year depreciation allowance in section 168(k) of the 35 -4- LSB 1935XC (1) 87 mm/sc 4/ 5

S.F. _____ Internal Revenue Code (bonus depreciation) which was modified 1 and extended through 2019 by the federal Protecting Americans 2 from Tax Hikes Act of 2015. By decoupling, taxpayers who claim 3 bonus depreciation for federal tax purposes are required to 4 add such depreciation amounts back to Iowa net income, but are 5 then allowed under existing state law to deduct the amount of 6 depreciation that would otherwise be allowable under federal 7 law, without regard to the bonus depreciation allowance. 8 Division II takes effect upon enactment and applies 9 retroactively to January 1, 2016, for tax years ending on or 10 after that date. 11 -5- LSB 1935XC (1) 87 mm/sc 5/ 5