House Study Bill 720 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON KAUFMANN) A BILL FOR An Act relating to state taxation by modifying future 1 individual income tax rates, creating processes for 2 reducing the individual income tax rate to zero, reducing 3 future contingent corporate income tax rates, making 4 appropriations, and including effective date, applicability, 5 and retroactive applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5025YC (1) 90 jm/jh

H.F. _____ DIVISION I 1 CREATION OF TAXPAYER RELIEF TRUST FUND, INCOME TAX ELIMINATION 2 FUND AND BOARD 3 Section 1. Section 2.46, Code 2024, is amended by adding the 4 following new subsection: 5 NEW SUBSECTION . 6. Income tax elimination board. Beginning 6 on or after July 1, 2026, and each fiscal year thereafter 7 until the individual income tax is zero, schedule a meeting 8 to examine and discuss the actions taken by the income tax 9 elimination board in the previous fiscal year. 10 Sec. 2. Section 8.54, subsection 1, paragraph b, Code 2024, 11 is amended to read as follows: 12 b. “New revenues” means moneys which are received by the 13 state due to increased tax rates and fees or newly created 14 taxes and fees over and above those moneys which are received 15 due to state taxes and fees which are in effect as of January 16 1 following the December state revenue estimating conference. 17 “New revenues” also includes moneys received by the general fund 18 of the state due to new transfers over and above those moneys 19 received by the general fund of the state due to transfers 20 which are in effect as of January 1 following the December 21 state revenue estimating conference. The department of 22 management shall obtain concurrence from the revenue estimating 23 conference on the eligibility of transfers to the general 24 fund of the state which are to be considered as new revenue 25 in determining the state general fund expenditure limitation. 26 However, “new revenues” does not include transfers to the 27 general fund of the state from the income tax elimination fund 28 pursuant to section 97E.4 that occur during the fiscal year 29 immediately proceeding the fiscal year for which the adjusted 30 revenue estimate is determined. 31 Sec. 3. Section 8.57E, subsection 2, paragraph a, Code 2024, 32 is amended to read as follows: 33 a. Except as otherwise provided in this section , moneys 34 in the taxpayer relief fund shall only be used pursuant to 35 -1- LSB 5025YC (1) 90 jm/jh 1/ 25

H.F. _____ appropriations or transfers made by the general assembly to 1 the taxpayer relief trust fund in section 97E.3 or the income 2 tax elimination fund in section 97E.4 or for tax relief or 3 reductions in income tax rates. 4 Sec. 4. Section 8.57E, Code 2024, is amended by adding the 5 following new subsection: 6 NEW SUBSECTION . 2A. a. On July 1, 2024, there is 7 transferred from the taxpayer relief fund to the income tax 8 elimination fund created in section 97E.4, one hundred million 9 dollars for administrative purposes under chapter 97E. 10 b. On January 1, 2025, there is transferred from the 11 taxpayer relief fund to the taxpayer relief trust fund created 12 in section 97E.3, two billion six hundred million dollars for 13 the purpose of producing investment returns for deposit into 14 the income tax elimination fund. 15 c. For the fiscal year beginning July 1, 2026, and each 16 fiscal year thereafter, there is transferred from the taxpayer 17 relief fund to the taxpayer relief trust fund created in 18 section 97E.3, an amount equal to twenty-five percent of the 19 moneys transferred to the taxpayer relief fund during the 20 preceding fiscal year. 21 Sec. 5. Section 12B.10, subsection 6, Code 2024, is amended 22 by adding the following new paragraphs: 23 NEW PARAGRAPH . o. Investments by the taxpayer relief trust 24 fund established in section 97E.3. 25 NEW PARAGRAPH . p. Investments by the income tax elimination 26 fund established in section 97E.4. 27 Sec. 6. Section 12B.10C, subsection 4, unnumbered paragraph 28 1, Code 2024, is amended to read as follows: 29 The following entities or funds are not subject to this 30 section : 31 Sec. 7. Section 12B.10C, subsection 4, Code 2024, is amended 32 by adding the following new paragraph: 33 NEW PARAGRAPH . l. The taxpayer relief trust fund 34 established in section 97E.3. 35 -2- LSB 5025YC (1) 90 jm/jh 2/ 25

H.F. _____ NEW PARAGRAPH . m. The income tax elimination trust 1 established in section 97E.4. 2 Sec. 8. Section 97B.1, subsection 1, Code 2024, is amended 3 to read as follows: 4 1. The “Iowa Public Employees’ Retirement System” is 5 established as an independent agency within the executive 6 branch of state government. The Iowa public employees’ 7 retirement system shall administer the retirement system 8 established under this chapter , and beginning July 1, 2024, 9 shall administer chapter 97E . 10 Sec. 9. NEW SECTION . 97E.1 Purpose. 11 The purpose of this chapter is to create and ensure economic 12 vitality and growth for the benefit of future generations of 13 Iowans by setting aside and protecting moneys today in order to 14 responsibly eliminate the individual income tax in the future. 15 Sec. 10. NEW SECTION . 97E.2 Definitions. 16 For the purpose of this chapter and unless otherwise 17 required by the context: 18 1. “Board” means the income tax elimination board. 19 2. “Elimination fund” means the income tax elimination fund. 20 3. “System” means the Iowa public employees’ retirement 21 system as defined in section 97B.1. 22 4. “Trust fund” means the taxpayer relief trust fund. 23 Sec. 11. NEW SECTION . 97E.3 Taxpayer relief trust fund. 24 1. a. Beginning January 1, 2025, a trust fund is created, 25 separate and apart from all other public moneys or funds of 26 this state and the balance in the trust fund shall not be 27 considered part of the balance of the general fund of the 28 state. 29 b. Notwithstanding section 12C.7, subsection 2, interest 30 or earnings on moneys deposited in the trust fund shall be 31 credited to the fund. Notwithstanding section 8.33, moneys 32 credited to the trust fund shall not revert at the close of a 33 fiscal year. 34 2. The trust fund shall consist of all moneys collected by 35 -3- LSB 5025YC (1) 90 jm/jh 3/ 25

H.F. _____ or appropriated or transferred to the trust fund, together with 1 all interest, dividends, and rents, and shall also include all 2 securities or investment income and other assets acquired by 3 and through the use of the moneys belonging to the trust fund 4 and any other moneys that have been paid into the trust fund. 5 3. a. The system is hereby made the custodian of the trust 6 fund, and shall administer the trust fund, and shall hold and 7 disburse the trust fund in accordance with the requirements of 8 this chapter. As custodian, the system shall be authorized to 9 disburse moneys in the fund upon warrants drawn by the director 10 of the department of administrative services pursuant to the 11 order of the system. 12 b. The system shall not select any bank or other third 13 party for the purposes of investment asset safekeeping, other 14 custody, or settlement services without prior consultation with 15 and approval of the board. 16 c. The system, subject to board approval, may execute 17 contracts and agreements with investment advisors, consultants, 18 and investment management and benefit consultant firms in the 19 administration of investments of moneys in the trust fund. 20 4. a. All moneys that are appropriated or otherwise 21 transferred or deposited into the trust fund are appropriated 22 and made available to be used for transfers made to the income 23 tax elimination fund made pursuant to subsection 5. 24 b. The expenses to administer the trust fund shall be as 25 provided in section 97E.5. 26 5. Beginning July 1, 2028, and each July 1 thereafter, five 27 percent of the remaining balance of the trust fund at the close 28 of the preceding fiscal year shall be transferred to the income 29 tax elimination fund created in section 97E.4. 30 6. Moneys in the trust fund, except so much of the trust 31 fund as may be necessary to be kept on hand for the making of 32 disbursements under this chapter, shall be invested by the 33 board in any investments according to the investment policy of 34 the board, and subject to the requirements of chapters 12F, 35 -4- LSB 5025YC (1) 90 jm/jh 4/ 25

H.F. _____ 12H, 12J, and 12K, and the earnings therefrom shall be credited 1 to the fund. 2 7. After the individual income tax rate is adjusted to zero 3 pursuant to section 422.5B, any moneys remaining in the fund 4 shall be transferred to the general fund of the state in the 5 same fiscal year. 6 Sec. 12. NEW SECTION . 97E.4 Income tax elimination fund. 7 1. Commencing July 1, 2024, an income tax elimination fund 8 is created separate and apart from all other public moneys or 9 funds of this state and the balance of the elimination fund 10 shall not be considered part of the balance of the general fund 11 of the state. 12 2. a. The elimination fund shall consist of all moneys 13 transferred to the elimination fund pursuant to section 97E.3 14 or appropriated to or otherwise collected by the elimination 15 fund for the purpose of reducing the individual income tax to 16 zero. 17 b. Notwithstanding section 12C.7, subsection 2, interest or 18 earnings on moneys deposited in the income tax elimination fund 19 shall be credited to the elimination fund. Notwithstanding 20 section 8.33, moneys credited to the income tax elimination 21 fund shall not revert at the close of a fiscal year. 22 3. a. The system is hereby made custodian of the 23 elimination fund, and shall administer the elimination fund, 24 and shall hold and disburse the fund in accordance with the 25 requirements of this chapter. As custodian, the system shall 26 be authorized to disburse moneys in the elimination fund 27 upon warrants drawn by the director of the department of 28 administrative services pursuant to the order of the system. 29 b. The system shall not select any bank or other third 30 party for the purposes of investment asset safekeeping, other 31 custody, or settlement services without prior consultation with 32 and approval of the board. 33 c. The system, subject to board approval, may execute 34 contracts and agreements with investment advisors, consultants, 35 -5- LSB 5025YC (1) 90 jm/jh 5/ 25

H.F. _____ and investment management and benefit consultant firms in the 1 administration of investments of moneys in the elimination 2 fund. 3 4. a. All moneys that are appropriated or otherwise 4 transferred or deposited into the elimination fund are 5 appropriated and made available to be used for transfers to the 6 general fund as provided in section 422.5B. 7 b. The expenses to administer the elimination fund shall be 8 as provided in section 97E.5. 9 5. Moneys in the elimination fund, except so much of the 10 elimination fund as may be necessary to be kept on hand for the 11 making of disbursements under this section, shall be invested 12 by the board in investments authorized for the Iowa public 13 employees’ retirement system in section 97B.7A, and subject to 14 the requirements of chapters 12F, 12H, 12J, and 12K, and the 15 earnings therefrom shall be credited to the fund. 16 6. After the individual income tax rate is adjusted to 17 zero pursuant to section 422.5B, any moneys remaining in the 18 elimination fund shall be transferred to the general fund of 19 the state in the same fiscal year. 20 Sec. 13. NEW SECTION . 97E.5 Expenses. 21 1. The investment management and administrative expenses 22 for the trust fund and elimination fund shall be charged 23 against the investment income of the elimination fund. 24 2. The total expenses for investment management and 25 administration of the trust fund and elimination fund shall not 26 exceed two million dollars in the aggregate per year. 27 Sec. 14. NEW SECTION . 97E.6 Income tax elimination board. 28 1. Beginning July 1, 2024, a board is established. The 29 duties of the board are to establish and implement policy in 30 matters relating to the investment of the trust fund and the 31 elimination fund. The board shall be the trustee of the trust 32 fund and the elimination fund. 33 2. a. At least annually the board shall have a public 34 meeting and review the investment policies and procedures used 35 -6- LSB 5025YC (1) 90 jm/jh 6/ 25

H.F. _____ by the board and system. Following the review and a public 1 meeting, the board shall, pursuant to the requirements of 2 section 97E.7, and in consultation with the chief investment 3 officer of the system and other relevant personnel of the 4 system, establish an investment policy and goal statement that 5 shall direct the investment activities concerning each fund. 6 b. The board shall review and approve, prior to the 7 execution of a contract with the system, the hiring of each 8 investment manager and investment consultant outside of state 9 government. 10 c. The board shall review and approve the selection of any 11 bank used by the system pursuant to this chapter. 12 3. a. The board shall consist of eleven members, including 13 seven voting members and four nonvoting members. 14 b. (1) The voting members shall be as follows: 15 (a) Four public members, appointed by the governor who 16 each have substantial experience in institutional investments, 17 institutional finance, or other business management. 18 (b) Two public members, appointed by the governor who are 19 citizens of the state. 20 (c) The director of the department of management. 21 (2) A voting member shall not hold other office or position 22 under the laws of this state, or any other state or territory 23 or of the United States. 24 c. The nonvoting members of the board shall be two state 25 representatives, one appointed by the speaker of the house of 26 representatives and one by the minority leader of the house, 27 and two state senators, one appointed by the majority leader of 28 the senate and one by the minority leader of the senate. 29 d. Four voting members of the board shall constitute a 30 quorum. 31 e. The four members who have substantial institutional 32 investment experience or substantial institutional financial 33 experience shall be paid actual expenses incurred as a member 34 and shall receive a per diem as specified in section 7E.6 35 -7- LSB 5025YC (1) 90 jm/jh 7/ 25

H.F. _____ for each day of service not exceeding forty days per year. 1 Legislative members shall be paid the per diem and expenses 2 specified in section 2.10, for each day of service. The per 3 diem and expenses of the legislative members shall be paid 4 from funds appropriated under section 2.12. The two remaining 5 public members and the director of the department of management 6 shall be paid actual expenses incurred as members of the board 7 and such performance as members of the board shall not affect 8 benefits such as salary, vacation accrual, or a leave of 9 absence for sickness or injury. 10 f. The appointive terms of the members appointed by the 11 governor are for six-year staggered terms whose initial terms 12 shall be designated by the governor beginning and ending as 13 provided in section 69.19. If there is a vacancy in the 14 membership of the board for one of the members appointed by 15 the governor, the governor has the power of appointment. 16 Gubernatorial appointees to this board are subject to 17 confirmation by the senate. 18 4. a. Prior to any rule or policy adopted by the board, 19 the board shall notify the fiscal committee of the legislative 20 council the content of any rule or policy by electronic means, 21 and shall provide the fiscal committee at least ten days to 22 comment on the rule or policy before adopting the rule or 23 policy. 24 b. Beginning on or after July 1, 2026, and each fiscal year 25 thereafter, the board shall report to the fiscal committee of 26 the legislative council including the investment decisions, 27 transfers, and any other actions taken by the board in the 28 previous fiscal year. 29 Sec. 15. NEW SECTION . 97E.7 Investment and management of 30 funds —— standards —— immunity. 31 1. In establishing the investment policy of the trust fund 32 and elimination fund and providing for the separate investment 33 of each fund, the system and board shall do the following: 34 a. Exercise the judgment and care, under the circumstances 35 -8- LSB 5025YC (1) 90 jm/jh 8/ 25

H.F. _____ then prevailing, which persons of prudence, discretion, and 1 intelligence exercise in the management of their own affairs, 2 not for the purpose of speculation, but with regard to the 3 permanent disposition of the funds, considering the probable 4 income, as well as the probable safety, of their capital. 5 b. Give appropriate consideration to those facts and 6 circumstances that the system and board know or should know 7 are relevant to the particular investment or investment policy 8 involved, including the role the investment plays in the total 9 value of each fund. 10 c. For the purposes of this subsection, appropriate 11 consideration includes a determination that the particular 12 investment or investment policy is reasonably designed to 13 further the purposes of each fund, taking into consideration 14 the risk of loss and the opportunity for gain or income 15 associated with the investment or investment policy and 16 consideration of the following factors as they relate to each 17 fund: 18 (1) The composition of the fund with regard to 19 diversification. 20 (2) The liquidity and current return of the investments in 21 the fund relative to the anticipated cash flow requirements of 22 the fund. 23 (3) The projected return of the investments relative to the 24 funding objectives of the fund. 25 2. Within the limitations of the investment standards 26 prescribed in this section, the system may acquire and retain 27 every kind of property and every kind of investment which 28 persons of prudence, discretion, and intelligence acquire or 29 retain for their own account. Consistent with this section, 30 investments shall be made in a manner that will enhance 31 the economy of this state, and in particular, will result 32 in increased employment of the residents of this state. 33 Investments of moneys in each fund are not subject to sections 34 73.15 through 73.21. 35 -9- LSB 5025YC (1) 90 jm/jh 9/ 25

H.F. _____ 3. Except as provided in subsection 6, if there is loss 1 to either fund, the system, the employees of the system, 2 the members of the board severally, and the board are not 3 personally liable, and the loss shall be charged against the 4 appropriate fund. There is appropriated from the appropriate 5 fund the amount required to cover a loss. 6 4. In managing the investment of either fund, the system, in 7 accordance with the investment policy established by the board, 8 is authorized to do the following: 9 a. To sell any securities or other property in either 10 fund and reinvest the proceeds when such action may be deemed 11 advisable by the system for the protection of the applicable 12 fund or the preservation of the value of the investment. 13 Such sale of securities or other property of either fund and 14 reinvestment shall only be made in accordance with policies 15 of the board in the manner and to the extent provided in this 16 chapter. 17 b. To subscribe for the purchase of securities for future 18 delivery in anticipation of future income. The securities 19 shall be paid for by anticipated income or from funds from the 20 sale of securities or other property held by the applicable 21 fund. 22 c. To pay for securities directed to be purchased upon 23 the receipt of the purchasing bank’s paid statement or paid 24 confirmation of purchase. 25 5. In the administration of the investment of moneys in 26 each fund, employees of the system and members of the board 27 may travel outside the state for the purpose of meeting with 28 investment firms and consultants and attending conferences and 29 meetings to fulfill their fiduciary responsibilities. 30 6. The system, employees of the system, the board, the 31 members of the board, and the treasurer of state are not 32 personally liable for actions or omissions under this chapter 33 that do not involve malicious or wanton misconduct even if 34 those actions or omissions violate the standards established in 35 -10- LSB 5025YC (1) 90 jm/jh 10/ 25

H.F. _____ this section. 1 Sec. 16. NEW SECTION . 422.5B Reduction of individual income 2 tax rates. 3 1. For tax years beginning on or after January 1, 2029, 4 and notwithstanding the individual income tax rate in section 5 422.5, the department of revenue shall determine the individual 6 income tax rate as provided in this section. The tax rate 7 in effect in section 422.5 shall remain in effect until the 8 rate is adjusted pursuant to subsection 2. A rate adjusted in 9 subsection 2 shall remain in effect until the rate is adjusted 10 again pursuant to this section. 11 2. a. Before November 1, 2028, and before November 1 12 each year thereafter, until the individual income tax rate is 13 adjusted to zero, the department of management shall determine 14 the amount of money available in the income tax elimination 15 fund in section 97E.4, and the net individual income tax 16 receipts at the close of the preceding fiscal year. The amount 17 available in the income tax elimination fund and the net tax 18 receipts shall be provided to the department of revenue for the 19 calculation in paragraph “b” . 20 b. By November 1, 2028, and by November 1 each year 21 thereafter, the department of revenue shall adjust the 22 individual income tax rate as provided in this paragraph if all 23 of the following apply: 24 (1) The amount of net sales and use tax revenue collected by 25 the state during the most recent October 1 through September 30 26 calculation period is greater than one hundred three percent 27 of the net sales and use tax revenue collected during the 28 immediately preceding calculation period covering the same 29 months. 30 (2) The rate is able to be adjusted downward at least 31 one-tenth of one percent in such a way that the proposed 32 adjusted rate would have generated an amount equal to the net 33 individual income tax receipts generated from the rate in the 34 preceding fiscal year less any transfer amount from the income 35 -11- LSB 5025YC (1) 90 jm/jh 11/ 25

H.F. _____ tax elimination fund in section 97E.4. 1 (3) There is at least one hundred fifty percent of the 2 amount to be transferred to the general fund pursuant to 3 subsection 3 available in the income tax elimination fund in 4 section 97E.4. 5 c. If a determination is made by the department of revenue 6 that the rate is subject to adjustment, the department of 7 revenue shall adjust the rate specified in section 422.5, or if 8 the rate has been previously adjusted, adjust the previously 9 adjusted rate. 10 3. If an adjustment is made pursuant to subsection 2, one 11 hundred fifty percent of the amount of moneys in the income tax 12 elimination fund used in the calculation in subsection 2 shall 13 be transferred to the general fund of the state in the fiscal 14 year the rate is adjusted. 15 4. If a rate is adjusted pursuant to subsection 2, the 16 director of revenue shall cause an advisory notice containing 17 the new individual income tax rate to be published in the 18 Iowa administrative bulletin and on the internet site of the 19 department of revenue. The calculation and publication of the 20 adjusted tax rate by the director of revenue is exempt from 21 chapter 17A, and shall be submitted for publication by the 22 first December 31 following the determination date to adjust 23 the rate. 24 DIVISION II 25 INDIVIDUAL INCOME TAX RATES 26 Sec. 17. Section 421.27, subsection 9, paragraph a, 27 subparagraph (3), Code 2024, is amended to read as follows: 28 (3) In the case of all other entities, including 29 corporations described in section 422.36, subsection 5 , and all 30 other entities required to file an information return under 31 section 422.15, subsection 2 , the entity’s Iowa net income 32 after the application of the Iowa business activity ratio, if 33 applicable, multiplied by the top income tax rate imposed under 34 section 422.5 or 422.5A , as applicable, for the tax year, less 35 -12- LSB 5025YC (1) 90 jm/jh 12/ 25

H.F. _____ any Iowa tax credits available to the entity. 1 Sec. 18. Section 422.5, subsection 1, paragraph a, Code 2 2024, is amended to read as follows: 3 a. (1) A tax is imposed upon every resident and nonresident 4 of the state which tax shall be levied, collected, and paid 5 annually upon and with respect to the entire taxable income 6 as defined in this subchapter at rates as provided in section 7 422.5A . This subparagraph is repealed January 1, 2026. 8 (2) Commencing with tax years beginning on or after January 9 1, 2026, but before January 1, 2027, a tax is imposed upon 10 every resident and nonresident of the state which tax shall 11 be levied, collected, and paid annually upon and with respect 12 to the entire taxable income as defined in this subchapter at 13 a rate of three and seven hundred seventy-five thousandths 14 percent. 15 (3) Commencing with tax years beginning on or after January 16 1, 2027, a tax is imposed upon every resident and nonresident 17 of the state which tax shall be levied, collected, and paid 18 annually upon and with respect to the entire taxable income as 19 defined in this subchapter at a rate of three and sixty-five 20 hundredths percent. 21 Sec. 19. Section 422.5A, subsection 1, paragraph a, 22 subparagraphs (2) and (3), Code 2024, are amended to read as 23 follows: 24 (2) For the tax year beginning on or after January 1, 2024, 25 but before January 1, 2025: 26 (a) On taxable income from 0 through $12,000 $12,420 , the 27 rate of 4.40 3.90 percent. 28 (b) On taxable income exceeding $12,000 $12,420 but not 29 exceeding $60,000 $62,100 , the rate of 4.82 percent. 30 (c) On taxable income exceeding $60,000 $62,100 , the rate of 31 5.70 percent. 32 (3) For the tax year beginning on or after January 1, 2025, 33 but before January 1, 2026: 34 (a) On taxable income from 0 through $12,000 $25,000 , the 35 -13- LSB 5025YC (1) 90 jm/jh 13/ 25

H.F. _____ rate of 4.40 3.90 percent. 1 (b) On taxable income exceeding $12,000 $25,000 , the rate of 2 4.82 percent. 3 Sec. 20. Section 422.5A, subsection 1, paragraph b, 4 subparagraphs (2) and (3), Code 2024, are amended to read as 5 follows: 6 (2) For the tax year beginning on or after January 1, 2024, 7 but before January 1, 2025: 8 (a) On taxable income from 0 through $6,000 $6,210 , the rate 9 of 4.40 3.90 percent. 10 (b) On taxable income exceeding $6,000 $6,120 but not 11 exceeding $30,000 $31,050 , the rate of 4.82 percent. 12 (c) On taxable income exceeding $30,000 $31,050 , the rate of 13 5.70 percent. 14 (3) For the tax year beginning on or after January 1, 2025, 15 but before January 1, 2026: 16 (a) On taxable income from 0 through $6,000 $12,500 , the 17 rate of 4.40 3.90 percent. 18 (b) On taxable income exceeding $6,000 $12,500 , the rate of 19 4.82 percent. 20 Sec. 21. Section 422.16, subsection 2, paragraph e, Code 21 2024, is amended to read as follows: 22 e. For the purposes of this subsection , state income tax 23 shall be withheld at the highest rate described in section 24 422.5 or 422.5A , as applicable, from supplemental wages of an 25 employee in those circumstances in which the employer treats 26 the supplemental wages as wholly separate from regular wages 27 for purposes of withholding and federal income tax is withheld 28 from the supplemental wages under section 3402(g) of the 29 Internal Revenue Code. 30 Sec. 22. Section 422.16B, subsection 2, paragraph a, Code 31 2024, is amended to read as follows: 32 a. (1) A pass-through entity shall file a composite return 33 on behalf of all nonresident members and shall report and pay 34 the income or franchise tax imposed under this chapter at the 35 -14- LSB 5025YC (1) 90 jm/jh 14/ 25

H.F. _____ maximum state income or franchise tax rate applicable to the 1 member under section 422.5, 422.5A, 422.33 , or 422.63 on the 2 nonresident members’ distributive shares of the income from the 3 pass-through entity. 4 (2) The tax rate applicable to a tiered pass-through entity 5 shall be the maximum state income tax rate under section 422.5 6 or 422.5A , as applicable . 7 Sec. 23. Section 422.16C, subsection 4, paragraph a, Code 8 2024, is amended to read as follows: 9 a. A taxpayer making an election under this section shall 10 be subject to tax in an amount equal to the maximum rate under 11 section 422.5 or 422.5A, as applicable, imposed against the 12 taxable income of the taxpayer for the taxable year properly 13 determined under this chapter and allocated and apportioned to 14 the state under the rules adopted by the department. The tax 15 shall be due with the taxpayer’s return required under this 16 chapter . 17 Sec. 24. Section 422.25A, subsection 5, paragraph c, 18 subparagraphs (3), (4), and (5), Code 2024, are amended to read 19 as follows: 20 (3) Determine the total distributive share of all final 21 federal partnership adjustments and positive reallocation 22 adjustments as modified by this title that are reported to 23 nonresident individual partners and nonresident fiduciary 24 partners and allocate and apportion such adjustments as 25 provided in section 422.33 at the partnership or tiered 26 partner level, and multiply the resulting amount by the maximum 27 individual income tax rate pursuant to section 422.5 or 422.5A , 28 as applicable, for the reviewed year. 29 (4) For the total distributive share of all final federal 30 partnership adjustments and positive reallocation adjustments 31 as modified by this title that are reported to tiered partners: 32 (a) Determine the amount of such adjustments which are of a 33 type that would be subject to sourcing to Iowa under section 34 422.8, subsection 2 , paragraph “a” , as a nonresident, and then 35 -15- LSB 5025YC (1) 90 jm/jh 15/ 25

H.F. _____ determine the portion of this amount that would be sourced to 1 Iowa under those provisions as if the tiered partner were a 2 nonresident. 3 (b) Determine the amount of such adjustments which are of 4 a type that would not be subject to sourcing to Iowa under 5 section 422.8, subsection 2 , paragraph “a” , as a nonresident. 6 (c) Determine the portion of the amount in subparagraph 7 division (b) that can be established, as prescribed by the 8 department by rule, to be properly allocable to indirect 9 partners that are nonresident partners or other partners not 10 subject to tax on the adjustments. 11 (d) Multiply the total of the amounts determined in 12 subparagraph divisions (a) and (b), reduced by any amount 13 determined in subparagraph division (c), by the highest 14 individual income tax rate pursuant to section 422.5 or 422.5A , 15 as applicable, for the reviewed year. 16 (5) For the total distributive share of all final federal 17 partnership adjustments and positive reallocation adjustments 18 as modified by this title that are reported to resident 19 individual partners and resident fiduciary partners, multiply 20 that amount by the highest individual income tax rate pursuant 21 to section 422.5 or 422.5A , as applicable, for the reviewed 22 year. 23 Sec. 25. REPEAL. 2022 Iowa Acts, chapter 1002, sections 19, 24 20, 21, 22, 23, and 24, are repealed. 25 Sec. 26. RETROACTIVE APPLICABILITY. The following apply 26 retroactively to January 1, 2024, for tax years beginning on 27 or after that date: 28 1. The portion of the section of this division of this 29 Act amending section 422.5A, subsection 1, paragraph “a”, 30 subparagraph (2). 31 2. The portion of the section of this division of this 32 Act amending section 422.5A, subsection 1, paragraph “b”, 33 subparagraph (2). 34 DIVISION III 35 -16- LSB 5025YC (1) 90 jm/jh 16/ 25

H.F. _____ FUTURE CONTINGENT CORPORATE INCOME TAX RATE 1 Sec. 27. Section 422.33, subsection 1, paragraph b, 2 subparagraph (2), subparagraph division (b), subparagraph 3 subdivision (iii), Code 2024, is amended to read as follows: 4 (iii) The tax rates adjusted pursuant to this paragraph 5 shall not be adjusted below five and one-half four and 6 nine-tenths percent. 7 DIVISION IV 8 FUTURE CODE EDITING OF INTERNAL REFERENCES 9 Sec. 28. Section 421.27, subsection 9, paragraph a, 10 subparagraph (3), as amended by this Act, is amended to read 11 as follows: 12 (3) In the case of all other entities, including 13 corporations described in section 422.36, subsection 5 , and all 14 other entities required to file an information return under 15 section 422.15, subsection 2 , the entity’s Iowa net income 16 after the application of the Iowa business activity ratio, if 17 applicable, multiplied by the top income tax rate imposed under 18 section 422.5 or 422.5A, as applicable, for the tax year, less 19 any Iowa tax credits available to the entity. 20 Sec. 29. Section 422.5, subsection 1, paragraph a, as 21 amended by this Act, is amended to read as follows: 22 a. (1) A tax is imposed upon every resident and nonresident 23 of the state which tax shall be levied, collected, and paid 24 annually upon and with respect to the entire taxable income 25 as defined in this subchapter at rates as provided in section 26 422.5A . This subparagraph is repealed January 1, 2026. 27 (2) (1) Commencing with tax years beginning on or after 28 January 1, 2026, but before January 1, 2027, a tax is imposed 29 upon every resident and nonresident of the state which tax 30 shall be levied, collected, and paid annually upon and with 31 respect to the entire taxable income as defined in this 32 subchapter at a rate of three and seven hundred seventy-five 33 thousandths percent. 34 (3) (2) Commencing with tax years beginning on or after 35 -17- LSB 5025YC (1) 90 jm/jh 17/ 25

H.F. _____ January 1, 2027, a tax is imposed upon every resident and 1 nonresident of the state which tax shall be levied, collected, 2 and paid annually upon and with respect to the entire taxable 3 income as defined in this subchapter at a rate of three and 4 sixty-five hundredths percent. 5 Sec. 30. Section 422.16, subsection 2, paragraph e, as 6 amended by this Act, is amended to read as follows: 7 e. For the purposes of this subsection , state income tax 8 shall be withheld at the highest applicable rate described in 9 section 422.5 or 422.5A, as applicable, from supplemental wages 10 of an employee in those circumstances in which the employer 11 treats the supplemental wages as wholly separate from regular 12 wages for purposes of withholding and federal income tax is 13 withheld from the supplemental wages under section 3402(g) of 14 the Internal Revenue Code. 15 Sec. 31. Section 422.16B, subsection 2, paragraph a, as 16 amended by this Act, is amended to read as follows: 17 a. (1) A pass-through entity shall file a composite return 18 on behalf of all nonresident members and shall report and pay 19 the income or franchise tax imposed under this chapter at the 20 maximum state income or franchise tax rate applicable to the 21 member under section 422.5, 422.5A, 422.33 , or 422.63 on the 22 nonresident members’ distributive shares of the income from the 23 pass-through entity. 24 (2) The tax rate applicable to a tiered pass-through entity 25 shall be the maximum state income tax rate applicable under 26 section 422.5 or 422.5A, as applicable . 27 Sec. 32. Section 422.16C, subsection 4, paragraph a, as 28 amended by this Act, is amended to read as follows: 29 a. A taxpayer making an election under this section shall 30 be subject to tax in an amount equal to the maximum applicable 31 rate under section 422.5 or 422.5A, as applicable, imposed 32 against the taxable income of the taxpayer for the taxable 33 year properly determined under this chapter and allocated 34 and apportioned to the state under the rules adopted by the 35 -18- LSB 5025YC (1) 90 jm/jh 18/ 25