Bill Text: IA HSB228 | 2013-2014 | 85th General Assembly | Introduced

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Bill Title: A study bill relating to the policy administration of the tax and related laws and related programs by the department of revenue, including administration of income taxes, sales and use taxes, the orderly wind-up and eventual repeal of the Iowa fund of funds program, the replacement taxes task force, a study report related to administrative appeals processes for tax matters, and including effective date and retroactive applicability provisions.

Spectrum: Unknown

Status: (N/A - Dead) 2013-04-09 - Voted - Ways and Means. [HSB228 Detail]

Download: Iowa-2013-HSB228-Introduced.html

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House Study Bill 228 - Introduced
SENATE/HOUSE FILE _____
BY (PROPOSED DEPARTMENT OF
REVENUE BILL)
A BILL FOR
An Act relating to the policy administration of the tax and
related laws and related programs by the department of
revenue, including administration of income taxes, sales
and use taxes, the orderly wind-up and eventual repeal of
the Iowa fund of funds program, the replacement taxes task
force, a study report related to administrative appeals
processes for tax matters, 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
INCOME TAXES
Section 1. Section 2.48, subsection 3, paragraph c,
subparagraph (4), Code 2013, is amended by striking the
subparagraph.
Sec. 2. Section 2.48, subsection 3, paragraph e,
subparagraph (5), Code 2013, is amended by striking the
subparagraph.
Sec. 3. Section 15.119, subsection 2, paragraph c, Code
2013, is amended by striking the paragraph.
Sec. 4. Section 422.5, subsection 1, paragraph j,
subparagraph (2), subparagraph division (a), Code 2013, is
amended to read as follows:
(a) The tax imposed upon the taxable income of a resident
shareholder in an S corporation or of an estate or trust with
a situs in Iowa that is a shareholder in an S corporation,
which S corporation has in effect for the tax year an election
under subchapter S of the Internal Revenue Code and carries
on business within and without the state , may be computed by
reducing the amount determined pursuant to paragraphs “a”
through “i” by the amounts of nonrefundable credits under
this division and by multiplying this resulting amount by a
fraction of which the resident’s or estate’s or trust’s net
income allocated to Iowa, as determined in section 422.8,
subsection 2 , paragraph “b” , is the numerator and the resident’s
or estate’s or trust’s total net income computed under section
422.7 is the denominator. If a resident shareholder , or an
estate or trust with a situs in Iowa that is a shareholder,
has elected to take advantage of this subparagraph (2), and
for the next tax year elects not to take advantage of this
subparagraph, the resident or estate or trust shareholder shall
not reelect to take advantage of this subparagraph for the
three tax years immediately following the first tax year for
which the shareholder elected not to take advantage of this
subparagraph, unless the director consents to the reelection.
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This subparagraph also applies to individuals who are residents
of Iowa for less than the entire tax year.
Sec. 5. Section 422.8, subsection 2, paragraph b,
unnumbered paragraph 1, Code 2013, is amended to read as
follows:
A resident’s income , or the income of an estate or trust with
a situs in Iowa, allocable to Iowa is the income determined
under section 422.7 reduced by items of income and expenses
from an S corporation that carries on business within and
without the state when those items of income and expenses pass
directly to the shareholders under provisions of the Internal
Revenue Code. These items of income and expenses are increased
by the greater of the following:
Sec. 6. Section 422.15, subsection 2, Code 2013, is amended
to read as follows:
2. Every partnership , including limited partnerships
organized under chapter 488 , having a place of business in
the state , doing business in this state, or deriving income
from sources within this state as defined in section 422.33,
subsection 1, shall make a return, stating specifically the net
income and capital gains (or losses) reported on the federal
partnership return, the names and addresses of the partners,
and their respective shares in said amounts.
Sec. 7. Section 422.33, subsections 9 and 27, Code 2013, are
amended by striking the subsections.
Sec. 8. REPEAL. Sections 16.211, 16.212, and 422.11X, Code
2013, are repealed.
Sec. 9. EFFECTIVE UPON ENACTMENT. This division of this
Act, being deemed of immediate importance, takes effect upon
enactment.
Sec. 10. RETROACTIVE APPLICABILITY. The following
provision or provisions of this division of this Act apply
retroactively to January 1, 2013, for tax years beginning on
or after that date:
1. The section of this division of this Act amending section
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422.5.
2. The section of this division of this Act amending section
422.8.
3. The section of this division of this Act amending section
422.15.
DIVISION II
SALES AND USE TAXES
Sec. 11. Section 421.26, Code 2013, is amended to read as
follows:
421.26 Personal liability for tax due.
If a licensee or other person under section 452A.65 , a
retailer or purchaser under chapter 423A , 423B , or 423E , or
section 423.31 or 423.33 , or a retailer or purchaser under
section 423.32 , a user under section 423.34 , or a permit holder
or licensee under section 453A.13 , 453A.16 , or 453A.44 fails
to pay a tax under those sections when due or is subject
to repayment of a sales and use tax refund received under
section 15.331A , an officer of a corporation or association,
notwithstanding section 489.304 , a member or manager of a
limited liability company, or a partner of a partnership,
having control or supervision of or the authority for remitting
the tax payments or receiving sales and use tax refunds
and having a substantial legal or equitable interest in the
ownership of the corporation, association, limited liability
company, or partnership, who has intentionally failed to pay
the tax or whose corporation, association, limited liability
company, or partnership is subject to repayment of a sales and
use tax refund received under section 15.331A, is personally
liable for the payment of the tax, interest, and penalty due
and unpaid or repayment of the sales and use tax refund .
However, this section shall not apply to taxes on accounts
receivable. The dissolution of a corporation, association,
limited liability company, or partnership shall not discharge a
person’s liability for failure to remit the tax due or repay a
sales and use tax refund .
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Sec. 12. Section 423.3, subsection 47, paragraph a,
unnumbered paragraph 1, Code 2013, is amended to read as
follows:
The sales price from the sale or rental of computers,
machinery, and equipment, including replacement parts and
consumable supplies , and materials used to construct or
self-construct computers, machinery, and equipment if such
items are any of the following:
Sec. 13. Section 423.3, subsection 47, paragraph c, Code
2013, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH . (5) Machinery and equipment, including
replacement parts, and materials used to construct or
self-construct computers, machinery, and equipment if such
items are used at a location that is primarily used to conduct
activities that immediately precede the sale of products
directly to the final consumer. This section shall not
apply to activities that are an integrated step in a larger
manufacturing process.
Sec. 14. Section 423.3, subsection 47, paragraph d, Code
2013, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH . (02) “Consumable supplies” means tangible
personal property, other than computers, machinery, equipment,
or raw materials, that is consumed or expended during the
manufacture of other tangible personal property. The term
“consumable supplies” includes but is not limited to oils,
greases, hydraulic fluids, coolants, and lubricants.
Sec. 15. Section 423.3, subsection 47, paragraph d,
subparagraph (4), Code 2013, is amended to read as follows:
(4) “Manufacturer” means as defined in section 428.20 a
person who purchases, receives, or holds personal property
of any description for the purpose of adding to its value by
a process of manufacturing, refining, purifying, combining
of different materials, or by the packing of meats, with a
view to selling the property for gain or profit , but also
includes contract manufacturers. A contract manufacturer is
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a manufacturer that otherwise falls within the definition of
manufacturer under section 428.20 , except that a contract
manufacturer does not sell the tangible personal property
the contract manufacturer processes on behalf of other
manufacturers. A business engaged in activities subsequent
to the extractive process of quarrying or mining, such as
crushing, washing, sizing, or blending of aggregate materials,
is a manufacturer with respect to these activities. A business
primarily engaged in providing personal or professional
services or primarily engaged in the operation of a retail
outlet, including but not limited to a grocery store, home
improvement store, pharmacy, bakery, or restaurant, is not
considered a manufacturer for purposes of this subsection.
Sec. 16. Section 423.3, subsection 47, paragraph d, Code
2013, is amended by adding the following new subparagraph:
NEW SUBPARAGRAPH . (7) (a) “Replacement part” means
tangible personal property that meets all the following
conditions:
(i) The tangible personal property replaces a component of
a computer, machinery, or equipment, which component is capable
of being separated from the computer, machinery, or equipment.
(ii) The tangible personal property performs the same or
similar function as the component it replaced.
(iii) The tangible personal property restores the computer,
machinery, or equipment to its original operating condition, or
upgrades or improves the efficiency of the computer, machinery,
or equipment.
(b) “Replacement part” does not include a consumable
supply or a jig, die, tool, or other device that is used in
conjunction with machinery or equipment and that is specially
designed for use in manufacturing specific products and that
may be used interchangeably and intermittently on a particular
machine or piece of equipment.
DIVISION III
IOWA FUND OF FUNDS
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Sec. 17. Section 15E.62, Code 2013, is amended by adding the
following new subsections:
NEW SUBSECTION . 03. “Creditor” means a person, including
an assignee of or successor to such person, who extends credit
or makes a loan to the Iowa fund of funds or to a designated
investor, and includes any person who refinances such credit
or loan.
NEW SUBSECTION . 04. “Fund documents” means all agreements
relating to matters under the purview of this division VII
entered into prior to the effective date of this division of
this Act between or among the state, the Iowa fund of funds, a
fund allocation manager or similar manager, the Iowa capital
investment corporation, the board, a creditor, a designated
investor, and a private seed or venture capital partnership,
and includes other documents having the same force and effect
between or among such parties, as any of the foregoing may be
amended, modified, restated, or replaced from time to time.
Sec. 18. Section 15E.65, subsection 2, paragraph h, Code
2013, is amended to read as follows:
h. Fifty years after the organization of the Iowa fund
of funds As soon as practicable after the effective date
of this division of this Act , the Iowa capital investment
corporation , in conjunction with the department of revenue,
the board, and the attorney general, shall wind up the Iowa
fund of funds pursuant to section 15E.72 and shall cause the
Iowa fund of funds to be liquidated with all of its assets
distributed to its owners in accordance with the provisions of
its organizational documents and in accordance with the fund
documents . In liquidating such assets, the capital investment
corporation, the department of revenue, the board, and the
attorney general shall act with prudence and caution in order
to minimize costs and fees and to preserve investment assets to
the extent reasonably possible.
Sec. 19. NEW SECTION . 15E.72 Program wind-up and future
repeal.
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1. Findings. The general assembly finds that the Iowa fund
of funds program established pursuant to this division has
not fulfilled the purposes described in section 15E.61 to the
extent necessary to justify the fifty-year timeframe for the
program that was originally envisioned in this division VII and
that an early and orderly wind-up of the program is desirable.
2. Organization of additional funds prohibited.
Notwithstanding section 15E.65, an Iowa fund of funds shall not
be organized on or after the effective date of this division
of this Act.
3. New investments by the fund of funds prohibited.
Notwithstanding section 15E.65, the Iowa fund of funds shall
not make new investments in private seed and venture capital
partnerships or entities on or after the effective date of this
division of this Act except as required by the fund documents.
4. New investments by designated investors prohibited.
a. Except as provided in paragraph “b” , and notwithstanding
any other provision in this division VII, a designated investor
shall not invest in the Iowa fund of funds on or after the
effective date of this division of this Act.
b. Notwithstanding the prohibition in paragraph “a” , a
designated investor may invest in the Iowa fund of funds on or
after the effective date of this division of this Act to the
extent such investment is required by the fund documents. In
addition, the director of revenue, with the approval of the
attorney general, may authorize additional investment in the
Iowa fund of funds but only if such an investment is necessary
to preserve fund assets, repay creditors, pay taxes, or
otherwise effectuate an orderly wind-up of the program pursuant
to this section.
5. Issuance, verification, and redemption of new certificates
prohibited.
a. Except as provided in paragraph “b” , and notwithstanding
any other provision in this division VII, the board shall not
issue, verify, or redeem a certificate or a related tax credit
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on or after the effective date of this division of this Act.
b. Notwithstanding the prohibition in paragraph “a” , the
board may issue, redeem, or verify a certificate or a related
tax credit under any of the following conditions:
(1) The board is required to do so under the terms of the
fund documents.
(2) The issuance, redemption, or verification is deemed
necessary by the director of revenue and the attorney general
in order to arrange new financing terms with a creditor.
(3) The issuance, redemption, or verification is deemed
necessary by the director of revenue and the attorney general
to preserve fund assets, repay creditors, or otherwise
effectuate an orderly wind-up of the program pursuant to this
section.
6. New fund allocation managers prohibited.
a. Notwithstanding any other provision in this division
VII, the Iowa capital investment corporation shall not have
authority to solicit, select, terminate, or change a fund
allocation manager or similar manager on or after the effective
date of this division of this Act.
b. On or after the effective date of this division of this
Act, all decisions pertaining to relationships with a fund
allocation manager or similar manager selected prior to the
effective date of this division of this Act shall be made
by the director of revenue with the approval of the attorney
general. This subsection shall not be construed to impair the
terms of the fund documents.
7. Pledging of certificates prohibited.
a. Except as provided in paragraph “b” , and notwithstanding
any other provision of law to the contrary, a certificate and
a related tax credit issued by the board shall not be pledged
by a designated investor as security for a loan on or after the
effective date of this division of this Act.
b. Notwithstanding the prohibition in paragraph “a” , a
certificate and related tax credit issued by the board may
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be pledged by a designated investor as security for a loan
to the extent such pledge is required by the fund documents.
In addition, the board, with the approval of the director of
revenue and the attorney general, may authorize a certificate
and related tax credit to be pledged as security for a loan but
only if such a pledge is necessary to arrange new financing
terms with a creditor or to repay creditors for moneys loaned
to a designated investor.
8. Rural and small business loan guarantees prohibited.
Notwithstanding any other provision in this division VII
to the contrary, the Iowa capital investment corporation
shall not make rural and small business loan guarantees or
otherwise administer a program to provide loan guarantees and
other related credit enhancements on loans to rural and small
business borrowers within the state of Iowa on or after the
effective date of this division of this Act.
9. Iowa capital investment corporation purposes amended.
Notwithstanding section 15E.64, on or after the effective date
of this division of this Act, the purposes of the Iowa capital
investment corporation shall be to comply with its obligations
under the fund documents and to assist the board, the director
of revenue, and the attorney general in effectuating the
orderly wind-up of the Iowa fund of funds. In effectuating
such a wind-up, the Iowa capital investment corporation shall
comply with all reasonable requests by the board, the director
of revenue, the attorney general, or the auditor of state.
10. Use of revolving fund prohibited.
a. Notwithstanding section 15E.65, subsection 2, paragraph
“a” , on or after the effective date of this division of this
Act, all investment returns received by the Iowa capital
investment corporation that are in excess of those payable to
designated investors shall be deposited in the general fund of
the state.
b. This subsection shall not be construed to impair the
terms of the fund documents. It is the intent of the general
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assembly that this subsection only applies in the event that
there are investment returns in excess of those necessary to
repay creditors and designated investors under the terms of the
fund documents.
11. Preservation of existing rights. This section is not
intended to and shall not limit, modify, or otherwise adversely
affect the fund documents, including any certificate or related
tax credit issued before the effective date of this division
of this Act.
12. Future repeal. This division VII is repealed upon the
occurrence of one of the following, whichever is earlier:
a. The expiration or termination of all fund documents. The
director of revenue shall notify the Iowa Code editor upon the
occurrence of this condition.
b. December 31, 2027.
Sec. 20. EFFECTIVE UPON ENACTMENT. This division of this
Act, being deemed of immediate importance, takes effect upon
enactment.
DIVISION IV
REPLACEMENT TAXES
Sec. 21. Section 437A.15, subsection 7, paragraph b, Code
2013, is amended to read as follows:
b. The task force shall study the effects of the replacement
tax on local taxing authorities, local taxing districts,
consumers, and taxpayers through January 1, 2013 2016 . If the
task force recommends modifications to the replacement tax that
will further the purposes of tax neutrality for local taxing
authorities, local taxing districts, taxpayers, and consumers,
consistent with the stated purposes of this chapter , the
department of management shall transmit those recommendations
to the general assembly.
DIVISION V
STUDY REPORT
Sec. 22. ADMINISTRATIVE APPEALS PROCESS FOR TAX MATTERS
AND NEW TAX APPEAL BOARD —— REPORT. The department of
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revenue, in consultation with the department of management
and other interested stakeholders, shall study the
independence, effectiveness, and fairness of the state’s
current administrative appeals processes for tax matters and
shall make recommendations for changes, if necessary, and
shall additionally study the desirability, practicality, and
feasibility of replacing components of these processes with
a new consolidated and independent administrative appeals
board for tax matters within the executive branch to resolve
disputes between the department of revenue and taxpayers. The
department of revenue shall prepare and file a report detailing
its findings and recommendations with the chairpersons and
ranking members of the ways and means committees of the senate
and the house of representatives and with the legislative
services agency by January 8, 2014.
EXPLANATION
This bill relates to the policy administration of the
tax and related laws of the department of revenue, including
the administration of income taxes, sales and use taxes, the
orderly wind-up and eventual repeal of the Iowa fund of funds
program, a study report related to the current administrative
appeals process for tax matters and the possible creation of
a new tax appeal board.
DIVISION I —— INCOME TAXES. The division amends the
allocation of income provisions in Code sections 422.5 and
422.8 to provide that an estate or trust with a situs in Iowa
that is a shareholder in an S corporation is eligible to claim
the S corporation apportionment credit.
The division amends the income tax return filing
requirements for partnerships in Code section 422.15. Under
current law, partnerships are required to file an Iowa return
if they have a place of business in the state. The division
provides that partnerships are required to file an Iowa return
if they are doing business in the state, or are deriving income
from sources within this state. “Income from sources within
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this state” means income from real, tangible, or intangible
property located or having a situs in this state.
The division repeals the assistive device tax credit
available for the corporate income tax in Code section 422.33
and repeals the disaster recovery housing project tax credit
for the individual and corporate income tax in Code sections
16.211 and 16.212, and makes various conforming amendments to
remove references to these credits throughout the Code.
The division takes effect upon enactment and the provisions
amending Code sections 422.5, 422.8, and 422.15 apply
retroactively to January 1, 2013, for tax years beginning on
or after that date.
DIVISION II —— SALES AND USE TAXES. The division amends Code
section 421.16, which relates to the imposition of personal
liability against officers of corporations or associations,
members or managers of limited liability companies, or partners
of partnerships, for certain taxes if the individual has
control or supervision of or the authority for remitting the
taxes and a substantial equitable interest in the ownership of
the business. The division provides that personal liability
can also be asserted against these individuals for repayment
of a sales and use tax refund received by a business under Code
section 15.331A, which repayment can occur when a business
fails to meet its contractual obligations under the economic
development authority’s enterprise zone program or high quality
jobs program.
The division makes several amendments to the sales tax
exemption in Code section 423.3(47) for the purchase or rental
of certain items used in processing by a manufacturer. First,
the sales tax exemption is amended to include consumable
supplies. “Consumable supplies” is defined as tangible
personal property that is consumed or expended during the
manufacture of other tangible personal property, and includes
but is not limited to oils, greases, hydraulic fluids,
coolants, and lubricants.
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Second, the sales tax exemption is amended to exclude
machinery and equipment, including replacement parts, and
materials used to self-construct those items, if such items
are used at a location which is primarily used to conduct
activities that immediately precede the sale of products
directly to the final consumer. However, this exclusion does
not apply to activities that are an integrated step in a
larger manufacturing process. Third, the sales tax exemption
adds the language of the definition of “manufacturer” in
Code section 428.20, and strikes the reference to that Code
section. The definition of “manufacturer” is further amended
to exclude a business primarily engaged in providing personal
or professional services or primarily engaged in the operation
of a retail outlet, including but not limited to a grocery
store, home improvement store, pharmacy, bakery, or restaurant.
Finally, “replacement part” is defined for purposes of the
sales tax exemption to mean tangible personal property that
is not a consumable supply, not a jig, die, tool, or other
device that is used in conjunction with machinery or equipment,
and that is specially designed for use in manufacturing
specific products and that may be used interchangeably and
intermittently on a particular machine or piece of equipment,
and which further meets the conditions of being property that
replaces a separate component of a computer, machinery, or
equipment, performs the same function as that component, and
restores or improves the computer, machinery, or equipment.
DIVISION III —— IOWA FUND OF FUNDS. The division provides
for an orderly wind-up and eventual repeal of the Iowa fund
of funds program in accordance with the provisions of its
organizational documents and with the terms of the fund
documents. “Fund documents” is defined as all the agreements
entered into prior to the effective date of the division
between or among the state, the Iowa fund of funds, a fund
allocation manager or similar manager, the Iowa capital
investment corporation, the board, a creditor (as defined in
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the division), a designated investor, and a private seed or
venture capital partnership, and includes other documents
having the same force and effect between or among such parties
as any of the foregoing may be amended, modified, restated, or
replaced from time to time. The division creates a new Code
section 15E.72 that will govern the wind-up and repeal.
The division prohibits a new Iowa fund of funds from being
organized and prohibits any new investments from being made by
the existing Iowa fund of funds in private seed and venture
capital partnerships or entities except as required by the
fund documents. The division prohibits a new investment by
a designated investor in the Iowa fund of funds unless it is
required by the fund documents or the director of revenue and
attorney general determine such an investment is necessary to
preserve fund assets, repay creditors, pay taxes, or otherwise
effectuate an orderly wind-up of the program. The division
prohibits the Iowa capital investment board from issuing,
redeeming, or verifying a certificate or related tax credit
unless the board is required to do so under the terms of the
fund documents, unless it is deemed necessary by the director
of revenue and the attorney general in order to arrange new
financing with a creditor, or unless it is deemed necessary by
the director of revenue and the attorney general to preserve
fund assets, repay creditors, or otherwise effectuate an
orderly wind-up of the program.
The division prohibits the Iowa capital investment
corporation from soliciting, selecting, terminating, or
changing a fund allocation manager or similar manager. All
decisions pertaining to relationships with a fund allocation
manager will now be made by the director of revenue with the
approval of the attorney general.
The division prohibits a certificate and related tax credit
from being pledged as security for a loan unless such a pledge
is required by the fund documents or unless the director of
revenue and the attorney general authorize such a pledge to be
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made because it is necessary to arrange new financing terms
with a creditor or repay creditors for moneys loaned to a
designated investor.
The division prohibits the Iowa capital investment
corporation from making rural and small business loan
guarantees or from otherwise administering a program to provide
such loan guarantees or related credit enhancements on loans to
rural and small business borrowers.
The division amends the purposes of the Iowa capital
investment corporation to provide that its purpose shall be
to comply with its obligations under the fund documents and
to assist the Iowa capital investment board, the director of
revenue, and the attorney general in effectuating an orderly
wind-up of the Iowa fund of funds and in doing so shall comply
with all reasonable requests of these entities or the auditor
of state.
The division prohibits the Iowa capital investment
corporation from depositing returns in excess of those payable
to designated investors in a revolving fund and instead
mandates that those amounts be deposited in the general fund of
the state. This requirement shall not be construed to impair
the terms of the fund documents.
The division provides that new Code section 15E.72 is not
intended to and shall not limit, modify, or otherwise adversely
affect the fund documents, including certificates and related
tax credits issued before the effective date of the division.
Finally, the division provides that the Iowa fund of funds is
repealed upon the earlier of December 31, 2027, or the date all
fund documents expire.
The division takes effect upon enactment.
DIVISION IV —— REPLACEMENT TAXES. The division extends
through January 1, 2016, the replacement tax task force which
expired on January 1, 2013.
DIVISION V —— STUDY REPORT. The division establishes a
report to be prepared and filed by the department of revenue.
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The department of revenue, in consultation with the department
of management and other interested stakeholders, shall study
the current administrative appeals processes for tax matters
and make recommendations for changes if necessary, and also
study the possibility of creating a new consolidated tax
appeal board. The report detailing any recommended changes
or findings shall be filed with the chairperson and ranking
members of the ways and means committees of the senate and the
house of representatives and with the legislative services
agency by January 8, 2014.
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