Bill Text: IA SSB1145 | 2021-2022 | 89th General Assembly | Introduced

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Bill Title: A bill for an act relating to state taxation by authorizing future tax contingencies, excluding certain grants from the computation of net income for the individual or corporate income tax, providing for tax credits and deductions, and including effective date and retroactive applicability provisions.

Spectrum: Committee Bill

Status: (Introduced - Dead) 2021-02-02 - Subcommittee: Dawson, Jochum, and Smith, R. [SSB1145 Detail]

Download: Iowa-2021-SSB1145-Introduced.html

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Senate Study Bill 1145 - Introduced
SENATE/HOUSE FILE _____
BY (PROPOSED GOVERNOR BILL)
A BILL FOR
An Act relating to state taxation by authorizing future tax
contingencies, excluding certain grants from the computation
of net income for the individual or corporate income tax,
providing for tax credits and deductions, and including
effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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DIVISION I
FUTURE TAX CHANGES
Section 1. 2018 Iowa Acts, chapter 1161, section 133, is
amended by striking the section and inserting in lieu thereof
the following:
SEC. 133. EFFECTIVE DATE. This division of this Act takes
effect January 1, 2023.
DIVISION II
INSTALLMENT SALES —— CAPITAL GAINS
Sec. 2. 2018 Iowa Acts, chapter 1161, section 134, is
amended to read as follows:
SEC. 134. APPLICABILITY.
1. This division of this Act applies to tax years beginning
on or after the effective date of this division of this Act.
2. The section of this division of this Act amending section
422.7, subsection 21, as amended by 2019 Iowa Acts, chapter
162, applies to sales consummated on or after the effective
date of this division of this Act, and sales consummated prior
to the effective date of this division of this Act shall be
governed by law as it existed prior to the effective date of
this division of this Act.
DIVISION III
COVID-19 RELATED GRANTS —— TAXATION
Sec. 3. Section 422.7, subsection 62, Code 2021, is amended
to read as follows:
62. a. Subtract, to the extent included, the amount of
any financial assistance qualifying COVID-19 grant provided to
an eligible small issued to an individual or business by the
economic development authority under the Iowa small business
relief grant program created during calendar year 2020 to
provide financial assistance to eligible small businesses
economically impacted by the COVID-19 pandemic , the Iowa
finance authority, or the department of agriculture and land
stewardship .
b. For purposes of this subsection, “qualifying COVID-19
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grant” includes any grant identified by the department by rule
that was issued under a grant program administered by the
economic development authority, Iowa finance authority, or
the department of agriculture and land stewardship to provide
financial assistance to individuals and businesses economically
impacted by the COVID-19 pandemic.
c. The economic development authority, Iowa finance
authority, or the department of agriculture and land
stewardship shall notify the department of any COVID-19 grant
program that may qualify under this subsection in the manner
and form prescribed by the department.
d. This subsection is repealed January 1, 2024, and does not
apply to tax years beginning on or after that date.
Sec. 4. Section 422.35, subsection 30, Code 2021, is amended
to read as follows:
30. a. Subtract, to the extent included, the amount of
any financial assistance qualifying COVID-19 grant provided
to an eligible small issued to a business by the economic
development authority under the Iowa small business relief
grant program created during calendar year 2020 to provide
financial assistance to eligible small businesses economically
impacted by the COVID-19 pandemic , the Iowa finance authority,
or the department of agriculture and land stewardship .
b. For purposes of this subsection, “qualifying COVID-19
grant” includes any grant identified by the department by rule
that was issued under a grant program administered by the
economic development authority, Iowa finance authority, or
the department of agriculture and land stewardship to provide
financial assistance to businesses economically impacted by the
COVID-19 pandemic.
c. The economic development authority, Iowa finance
authority, or the department of agriculture and land
stewardship shall notify the department of any COVID-19 grant
program that may qualify under this subsection in the manner
and form prescribed by the department.
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d. This subsection is repealed January 1, 2024, and does not
apply to tax years beginning on or after that date.
Sec. 5. EFFECTIVE DATE. This division of this Act, being
deemed of immediate importance, takes effect upon enactment.
Sec. 6. RETROACTIVE APPLICABILITY. This division of this
Act applies retroactively to March 23, 2020, for tax years
ending on or after that date.
DIVISION IV
HOOVER PRESIDENTIAL LIBRARY TAX CREDIT
Sec. 7. NEW SECTION . 15E.364 Hoover presidential library
tax credit.
1. For tax years beginning on or after January 1, 2022,
but before January 1, 2025, a tax credit shall be allowed
against the taxes imposed in chapter 422, subchapters II, III,
and V, and in chapter 432, and against the moneys and credits
tax imposed in section 533.329, equal to twenty-five percent
of a person’s donation during the tax year to the Hoover
presidential foundation for the Hoover presidential library and
museum renovation project fund. An individual may claim a tax
credit under this section of a partnership, limited liability
company, S corporation, estate, or trust electing to have
income taxed directly to the individual. The amount claimed
by the individual shall be based upon the pro rata share of the
individual’s earnings from the partnership, limited liability
company, S corporation, estate, or trust.
2. The amount of the donation for which the tax credit is
claimed shall not be deductible in determining taxable income
for state income tax purposes.
3. Any tax credit in excess of the person’s tax liability
for the tax year may be credited to the tax liability for the
following five years or until depleted, whichever occurs first.
A tax credit shall not be carried back to a tax year prior to
the tax year in which the person claims the tax credit.
4. a. The aggregate amount of tax credits authorized
pursuant to this section shall not exceed a total of four
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million dollars.
b. The maximum amount of tax credits granted to a person
shall not exceed five percent of the aggregate amount of tax
credits authorized.
c. Ten percent of the aggregate amount of tax credits
authorized shall be reserved for those donations in amounts
of thirty thousand dollars or less. If any portion of the
reserved tax credits have not been distributed by September 1,
2024, the remaining reserved tax credits shall be available to
any other eligible person.
5. The tax credit shall not be transferable to any other
person.
6. The authority shall develop a system for authorization
of tax credits under this section and shall control the
distribution of all tax credits to persons providing a
donation subject to this section. The authority shall
adopt administrative rules pursuant to chapter 17A for the
qualification and administration of the donations made pursuant
to this section.
7. This section is repealed December 31, 2030.
Sec. 8. NEW SECTION . 422.12O Hoover presidential library
tax credit.
The tax imposed under this subchapter, less the credits
allowed under section 422.12, shall be reduced by Hoover
presidential library tax credit authorized pursuant to section
15E.364.
Sec. 9. Section 422.33, Code 2021, is amended by adding the
following new subsection:
NEW SUBSECTION . 31. The taxes imposed under this subchapter
shall be reduced by a Hoover presidential library tax credit
allowed under section 15E.364.
Sec. 10. Section 422.60, Code 2021, is amended by adding the
following new subsection:
NEW SUBSECTION . 14. The taxes imposed under this subchapter
shall be reduced by a Hoover presidential library tax credit
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allowed under section 15E.364.
Sec. 11. NEW SECTION . 432.12N Hoover presidential library
tax credit.
The taxes imposed under this chapter shall be reduced by a
Hoover presidential library tax credit allowed under section
15E.364.
Sec. 12. Section 533.329, subsection 2, Code 2021, is
amended by adding the following new paragraph:
NEW PARAGRAPH . l. The moneys and credits tax imposed under
this section shall be reduced by a Hoover presidential library
tax credit allowed under section 15E.364.
DIVISION V
FEDERAL PAYCHECK PROTECTION PROGRAM
Sec. 13. FEDERAL PAYCHECK PROTECTION
PROGRAM. Notwithstanding any other provision of the law
to the contrary, for any tax year ending after March 27,
2020, Division N, Tit. II, Subtitle B, §276 of the federal
Consolidated Appropriations Act, 2021, Pub. L. No. 116-260,
applies in computing net income for state tax purposes under
section 422.7 or 422.35.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
This bill relates to state taxation by authorizing future
tax contingencies, excludes certain grants from the computation
of net income for individual or corporate income tax, creates a
new tax credit, and provides for an exemption from the state
sales and use tax.
DIVISION I —— FUTURE TAX CHANGES. The bill amends 2018 Iowa
Acts, chapter 1161, section 133 (trigger), by striking the two
conditions necessary for the trigger to occur, and specifies
the provisions in 2018 Iowa Acts, chapter 1161, sections
99-132, take effect January 1, 2023.
Currently, the two conditions are necessary for the trigger
to occur include net general fund revenues for the fiscal year
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ending June 30, 2022, equaling or exceeding $8.3146 billion,
and also equaling or exceeding 104 percent of the net general
fund revenues for the fiscal year ending June 30, 2021. If
these two conditions are not satisfied, current law institutes
the changes for tax years beginning on or after the January 1
following the first fiscal year for which the two conditions
do occur. By striking the “trigger”, the bill sets in motion
numerous tax changes for tax years beginning on or after
January 1, 2023, described below.
INDIVIDUAL INCOME TAX. The tax changes include reducing the
number of individual income tax brackets from nine to four, and
modifying the taxable income amounts and tax rates as follows:
Income over: But not over: Tax Rate:
1) $0 $6,000 4.40%
2) $6,000 $30,000 4.82%
3) $30,000 $75,000 5.70%
4) $75,000 6.50%
For a married couple filing a joint return, the taxable
income amounts in each bracket above are doubled. Also, the
taxable income amounts in each bracket above will be indexed to
inflation and increased in future tax years, beginning in the
tax year following the 2023 tax year.
INDIVIDUAL INCOME TAX CALCULATION. Under current law, the
starting point for computing the Iowa individual income tax is
federal adjusted gross income before the net operating loss
deduction, which is generally a taxpayer’s gross income minus
several deductions. From that point, Iowa requires several
adjustments and then provides taxpayers with a deduction
for federal income taxes paid, and the option to deduct a
standard deduction or itemized deductions. The bill changes
the starting point for computing the individual income tax
to federal taxable income, which includes all deductions and
adjustments taken at the federal level in computing tax,
including a standard deduction or itemized deductions, and the
qualified business income deduction allowed for certain income
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earned from a pass-through entity. Because the starting point
changes to federal taxable income, and federal law does not
provide for the filing status of married filing separately
on a combined return, the bill repeals that filing status
option for Iowa tax purposes. Because net operating loss is
no longer calculated at the state level, the bill requires a
taxpayer to add back any federal net operating loss deduction
carried over from a taxable year beginning prior to the 2023
tax year, but allows taxpayers to deduct any remaining Iowa net
operating loss from a prior taxable year. The bill repeals the
individual alternative minimum tax (AMT), allows an individual
to claim any remaining AMT credit against the individual’s
regular tax liability for the 2023 tax year, and then repeals
the AMT credit in the tax year following the 2023 tax year.
The bill repeals most Iowa-specific deductions, exemptions,
and adjustments currently available when computing net income
and taxable income under Iowa law, including the Iowa optional
standard deduction and all itemized deductions, and the ability
to deduct federal income taxes, except for a one-year phase
out in the 2023 tax year for taxes paid, or refunds received,
that relate to a prior year. The bill maintains the add-back
for income from securities that are federally exempt but not
state-exempt, and for bonus depreciation amounts. The bill
maintains the general pension exclusion and the deduction
for income from federal securities. The bill maintains the
deduction for contributions to the Iowa 529 plan, the Iowa ABLE
plan, a first-time homebuyer savings account, and an individual
development account. The bill also maintains the deductions
for military pension income, military active duty pay, social
security retirement benefits, certain payments received for
providing unskilled in-home health care, certain amounts
received from the veterans trust fund, victim compensation
awards, biodiesel production refunds, certain wages paid
to individuals with disabilities or individuals previously
convicted of a felony, certain organ donations, and Segal
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AmeriCorps education award payments. The bill modifies the
existing deduction for health insurance payments in Code
section 422.7(29) to make the deduction only applicable to
taxpayers who are at least 65 years old and who have net
income below $100,000. The bill also modifies the existing
capital gain deduction in Code section 422.7(21) to restrict
the deduction to the sale of real property used in farming
businesses by permitting the taxpayer to take the deduction
if either of the following apply: the taxpayer materially
participated in the farming business for at least 10 years and
held the real property for at least 10 years; or the taxpayer
sold the real property to a relative. The bill expands the
definition of “relative” to include an entity in which a
relative of the taxpayer has a legal or equitable interest in
the entity as an owner, member, partner, or beneficiary. The
bill provides a new deduction for any income of an employee
resulting from the payment by an employer, whether paid to
the employee or a lender, of principal or interest on the
employee’s qualified education loan. The bill also modifies
the calculation of net income for purposes of the alternate
tax calculation in Code section 422.5(3) and (3B), and the tax
return filing thresholds in Code section 422.13, to require
that any amount of itemized deduction, standard deduction,
personal exemption deduction, or qualified business income
deduction that was allowed in computing federal taxable income
shall be added back.
CORPORATE INCOME TAX AND FRANCHISE TAX CALCULATION. Under
current law, the starting point for calculating the corporate
income tax and franchise tax is federal taxable income before
the net operating loss deduction, because net operating loss is
calculated at the state level. The bill repeals the separate
calculation of net operating loss at the state level. As a
result, the bill requires taxpayers to add back any federal
net operating loss deduction carried over from a taxable year
beginning prior to the trigger year, but allows taxpayers to
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deduct any remaining Iowa net operating loss from a prior
taxable year. The bill also repeals most Iowa-specific
deductions, exemptions, and adjustments currently available
when computing net income and taxable income under Iowa law.
The bill maintains the add-back for income from securities
that are federally exempt but not state exempt, and for bonus
depreciation amounts. The bill maintains the deductions for
income from federal securities, for foreign dividend and
subpart F income, for certain wages paid to individuals with
disabilities or individuals previously convicted of a felony,
and for biodiesel production refunds.
DIVISION II —— INSTALLMENT SALES —— CAPITAL GAINS.
Currently, the capital gain individual income tax deduction is
governed by Code section 422.7(21). The capital gain deduction
in Code section 422.7(21) is amended when the trigger occurs
in 2018 Iowa Acts, chapter 1161, section 113. The capital
gain deduction in 2018 Iowa Acts, chapter 1161, section 113,
was further amended by 2019 Iowa Acts, chapter 162. Division
I of the bill removes the triggers and specifies that 2018
Iowa Acts, chapter 1161, sections 99 through 132, take effect
January 1, 2023, including the changes to the capital gain
deduction mentioned above. The bill specifies that for
sales occurring on or after January 1, 2023, the capital gain
deduction is governed by 2019 Iowa Acts, chapter 162, and
for sales occurring prior to January 1, 2023, the capital
gain deduction is governed by existing law in Code section
422.7(21).
DIVISION III —— COVID-19 RELATED GRANTS —— TAXATION. The
bill excludes from the calculation of Iowa individual and
corporate income tax any qualifying COVID-19 grant issued to an
individual or business by the economic development authority,
the Iowa finance authority, or the department of agriculture
and land stewardship.
Under the bill, a “qualifying COVID-19 grant” includes
any grant identified by the department of revenue by rule
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that was issued under a grant program administered by the
economic development authority, Iowa finance authority, or
the department of agriculture and land stewardship to provide
financial assistance to individuals and businesses economically
impacted by the COVID-19 pandemic.
Under current law, financial assistance grants provided to
small businesses by the economic development authority under
the Iowa small business COVID-19 relief grant program are
excluded from the calculation of Iowa individual and corporate
income tax.
The COVID-19 grant income tax exclusion provided in the bill
is repealed on January 1, 2024, and does not apply to tax years
beginning on or after that date.
The division takes effect upon enactment and applies
retroactively to March 23, 2020, for tax years ending on or
after that date.
DIVISION IV —— HOOVER PRESIDENTIAL LIBRARY TAX CREDIT. The
bill creates a Hoover presidential library tax credit available
against the individual, corporate, franchise, insurance
premium, and moneys and credits taxes.
The amount of the credit shall equal 25 percent of a
person’s donation during a tax year to the Hoover presidential
foundation for the Hoover presidential library and museum
renovation project fund, an organization exempt from federal
taxation.
The bill specifies that the amount of the donation for which
the tax credit is claimed shall not be deductible for state
income tax purposes.
A credit provided in the bill in excess of tax liability is
not refundable but the excess for the tax year may be credited
to a person’s tax liability for the following five years or
until depleted, whichever occurs first. The tax credit shall
not be carried back to a tax year prior to the tax year in which
the person claims the tax credit.
The aggregate amount of tax credits authorized pursuant to
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the bill shall not exceed $4 million.
The maximum amount of tax credits granted to a person shall
not exceed 5 percent of the aggregate amount of tax credits
authorized under the bill.
The bill provides that 10 percent of the aggregate amount of
tax credits authorized shall be reserved for those donations
in amounts of $30,000 or less. If any portion of the reserved
tax credits have not been distributed by September 1, 2024, the
remaining reserved tax credits shall be available to any other
eligible person.
The bill prohibits the transfer of the credit to any other
person.
The bill requires the economic development authority
to develop a system for authorization of tax credits and
shall control the distribution of all tax credits to persons
providing a donation subject to this Code section.
The bill applies to tax years beginning on or after January
1, 2022, but before January 1, 2025.
The tax credit is repealed December 31, 2030, to account for
the carryforward of any excess credit that may be credited to
the person’s tax liability for up to five years.
DIVISION V —— FEDERAL PAYCHECK PROTECTION PROGRAM. Under
current law, for the tax year 2020 and later, Iowa law fully
conforms with the federal treatment of forgiven paycheck
protection program loans and excludes such amounts from net
income and allows certain deductions for business expenses
paid using those loans. For fiscal-year filers who received
paycheck protection program loans during the 2019 tax year,
current law excludes such amounts from net income, but does
not allow certain deductions for business expenses paid using
those loans. The bill fully conforms with federal law for
those fiscal-year filers who previously were excluded from such
conformity and allows such filers to take business expense
deductions using federal paycheck protection program loan
proceeds that were forgiven.
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