Bill Text: IA SF2398 | 2023-2024 | 90th General Assembly | Introduced
Bill Title: A bill for an act relating to state taxation by modifying alternate and individual income tax rates, and including effective date and retroactive applicability provisions.(Formerly SSB 3038.)
Spectrum: Committee Bill
Status: (Introduced - Dead) 2024-03-01 - Fiscal note. [SF2398 Detail]
Download: Iowa-2023-SF2398-Introduced.html
Senate
File
2398
-
Introduced
SENATE
FILE
2398
BY
COMMITTEE
ON
WAYS
AND
MEANS
(SUCCESSOR
TO
SSB
3038)
A
BILL
FOR
An
Act
relating
to
state
taxation
by
modifying
alternate
and
1
individual
income
tax
rates,
and
including
effective
date
2
and
retroactive
applicability
provisions.
3
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
4
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Section
1.
Section
421.27,
subsection
9,
paragraph
a,
1
subparagraph
(3),
Code
2024,
is
amended
to
read
as
follows:
2
(3)
In
the
case
of
all
other
entities,
including
3
corporations
described
in
section
422.36,
subsection
5
,
and
all
4
other
entities
required
to
file
an
information
return
under
5
section
422.15,
subsection
2
,
the
entity’s
Iowa
net
income
6
after
the
application
of
the
Iowa
business
activity
ratio,
7
if
applicable,
multiplied
by
the
top
income
tax
rate
imposed
8
under
section
422.5A
422.5
for
the
tax
year,
less
any
Iowa
tax
9
credits
available
to
the
entity.
10
Sec.
2.
Section
422.5,
subsection
1,
paragraph
a,
Code
2024,
11
is
amended
to
read
as
follows:
12
a.
A
tax
is
imposed
upon
every
resident
and
nonresident
13
of
the
state
which
tax
shall
be
levied,
collected,
and
paid
14
annually
upon
and
with
respect
to
the
entire
taxable
income
15
as
defined
in
this
subchapter
at
rates
as
provided
in
section
16
422.5A.
the
following
rates:
17
(1)
For
the
tax
year
beginning
on
or
after
January
1,
2024,
18
but
before
January
1,
2025,
a
rate
of
3.65
percent.
19
(2)
For
the
tax
years
beginning
on
or
after
January
1,
2025,
20
a
rate
of
3.50
percent.
21
Sec.
3.
Section
422.5,
subsection
2,
paragraph
b,
Code
2024,
22
is
amended
by
striking
the
paragraph.
23
Sec.
4.
Section
422.5,
subsection
3,
paragraph
b,
Code
2024,
24
is
amended
by
striking
the
paragraph.
25
Sec.
5.
Section
422.5,
subsection
6,
Code
2024,
is
amended
26
by
striking
the
subsection.
27
Sec.
6.
Section
422.16,
subsection
2,
paragraph
e,
Code
28
2024,
is
amended
to
read
as
follows:
29
e.
For
the
purposes
of
this
subsection
,
state
income
tax
30
shall
be
withheld
at
the
highest
rate
for
the
applicable
tax
31
year
described
in
section
422.5A
422.5
from
supplemental
wages
32
of
an
employee
in
those
circumstances
in
which
the
employer
33
treats
the
supplemental
wages
as
wholly
separate
from
regular
34
wages
for
purposes
of
withholding
and
federal
income
tax
is
35
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withheld
from
the
supplemental
wages
under
section
3402(g)
of
1
the
Internal
Revenue
Code.
2
Sec.
7.
Section
422.16B,
subsection
2,
paragraph
a,
Code
3
2024,
is
amended
to
read
as
follows:
4
a.
(1)
A
pass-through
entity
shall
file
a
composite
return
5
on
behalf
of
all
nonresident
members
and
shall
report
and
pay
6
the
income
or
franchise
tax
imposed
under
this
chapter
at
the
7
maximum
state
income
or
franchise
tax
rate
applicable
to
the
8
member
under
section
422.5A
422.5
,
422.33
,
or
422.63
on
the
9
nonresident
members’
distributive
shares
of
the
income
from
the
10
pass-through
entity.
11
(2)
The
tax
rate
applicable
to
a
tiered
pass-through
entity
12
shall
be
the
maximum
state
income
tax
rate
under
section
422.5A
13
422.5
.
14
Sec.
8.
Section
422.16C,
subsection
4,
paragraph
a,
Code
15
2024,
is
amended
to
read
as
follows:
16
a.
A
taxpayer
making
an
election
under
this
section
shall
17
be
subject
to
tax
in
an
amount
equal
to
the
maximum
rate
for
18
the
applicable
tax
year
under
section
422.5A
422.5
,
imposed
19
against
the
taxable
income
of
the
taxpayer
for
the
taxable
20
year
properly
determined
under
this
chapter
and
allocated
21
and
apportioned
to
the
state
under
the
rules
adopted
by
the
22
department.
The
tax
shall
be
due
with
the
taxpayer’s
return
23
required
under
this
chapter
.
24
Sec.
9.
Section
422.16C,
subsection
5,
paragraph
a,
25
subparagraph
(2),
Code
2024,
is
amended
to
read
as
follows:
26
(2)
The
difference
between
one
hundred
percent
and
the
27
highest
individual
income
tax
rate
in
effect
for
the
tax
year.
28
Sec.
10.
Section
422.21,
subsection
5,
Code
2024,
is
amended
29
to
read
as
follows:
30
5.
The
director
shall
determine
for
the
2023
calendar
year
31
and
each
subsequent
calendar
year
the
annual
and
cumulative
32
inflation
factors
for
each
calendar
year
to
be
applied
to
tax
33
years
beginning
on
or
after
January
1
of
that
calendar
year.
34
The
director
shall
compute
the
new
dollar
amounts
as
specified
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to
be
adjusted
in
section
422.5
by
the
latest
cumulative
1
inflation
factor
and
round
off
the
result
to
the
nearest
one
2
dollar.
The
annual
and
cumulative
inflation
factors
determined
3
by
the
director
are
not
rules
as
defined
in
section
17A.2,
4
subsection
11
.
5
Sec.
11.
Section
422.25A,
subsection
5,
paragraph
c,
6
subparagraphs
(3),
(4),
and
(5),
Code
2024,
are
amended
to
read
7
as
follows:
8
(3)
Determine
the
total
distributive
share
of
all
final
9
federal
partnership
adjustments
and
positive
reallocation
10
adjustments
as
modified
by
this
title
that
are
reported
to
11
nonresident
individual
partners
and
nonresident
fiduciary
12
partners
and
allocate
and
apportion
such
adjustments
as
13
provided
in
section
422.33
at
the
partnership
or
tiered
partner
14
level,
and
multiply
the
resulting
amount
by
the
maximum
highest
15
individual
income
tax
rate
pursuant
to
section
422.5A
for
the
16
reviewed
year.
17
(4)
For
the
total
distributive
share
of
all
final
federal
18
partnership
adjustments
and
positive
reallocation
adjustments
19
as
modified
by
this
title
that
are
reported
to
tiered
partners:
20
(a)
Determine
the
amount
of
such
adjustments
which
are
of
a
21
type
that
would
be
subject
to
sourcing
to
Iowa
under
section
22
422.8,
subsection
2
,
paragraph
“a”
,
as
a
nonresident,
and
then
23
determine
the
portion
of
this
amount
that
would
be
sourced
to
24
Iowa
under
those
provisions
as
if
the
tiered
partner
were
a
25
nonresident.
26
(b)
Determine
the
amount
of
such
adjustments
which
are
of
27
a
type
that
would
not
be
subject
to
sourcing
to
Iowa
under
28
section
422.8,
subsection
2
,
paragraph
“a”
,
as
a
nonresident.
29
(c)
Determine
the
portion
of
the
amount
in
subparagraph
30
division
(b)
that
can
be
established,
as
prescribed
by
the
31
department
by
rule,
to
be
properly
allocable
to
indirect
32
partners
that
are
nonresident
partners
or
other
partners
not
33
subject
to
tax
on
the
adjustments.
34
(d)
Multiply
the
total
of
the
amounts
determined
in
35
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subparagraph
divisions
(a)
and
(b),
reduced
by
any
amount
1
determined
in
subparagraph
division
(c),
by
the
highest
2
individual
income
tax
rate
pursuant
to
section
422.5A
for
the
3
reviewed
year.
4
(5)
For
the
total
distributive
share
of
all
final
federal
5
partnership
adjustments
and
positive
reallocation
adjustments
6
as
modified
by
this
title
that
are
reported
to
resident
7
individual
partners
and
resident
fiduciary
partners,
multiply
8
that
amount
by
the
highest
individual
income
tax
rate
pursuant
9
to
section
422.5A
for
the
reviewed
year.
10
Sec.
12.
REPEAL.
2022
Iowa
Acts,
chapter
1002,
sections
19,
11
20,
21,
22,
23,
and
24,
are
repealed.
12
Sec.
13.
REPEAL.
2023
Iowa
Acts,
chapter
115,
sections
20
13
and
21,
are
repealed.
14
Sec.
14.
REPEAL.
Section
422.5A,
Code
2024,
is
repealed.
15
Sec.
15.
RATE
OF
WITHHOLDING.
Notwithstanding
any
other
16
provision
of
law
to
the
contrary,
for
tax
years
beginning
on
17
or
after
January
1,
2024,
any
required
rate
of
withholding
18
shall
not
be
higher
than
the
rate
for
the
applicable
tax
year
19
pursuant
to
section
422.5
as
amended
by
this
Act.
20
Sec.
16.
EFFECTIVE
DATE.
This
Act,
being
deemed
of
21
immediate
importance,
takes
effect
upon
enactment.
22
Sec.
17.
RETROACTIVE
APPLICABILITY.
This
Act
applies
23
retroactively
to
January
1,
2024,
for
tax
years
beginning
on
24
or
after
that
date.
25
EXPLANATION
26
The
inclusion
of
this
explanation
does
not
constitute
agreement
with
27
the
explanation’s
substance
by
the
members
of
the
general
assembly.
28
This
bill
relates
to
state
taxation
by
modifying
alternate
29
and
individual
income
tax
rates.
30
The
bill
strikes
the
graduated
individual
income
tax
rates
31
that
go
into
effect
in
tax
years
2024
and
2025,
and
establishes
32
new
individual
income
tax
flat
rates
beginning
in
tax
years
on
33
or
after
January
1,
2024.
34
The
bill
establishes
the
individual
income
tax
flat
rate
for
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the
tax
year
beginning
January
1,
2024,
but
before
January
1,
1
2025,
at
3.65
percent.
2
The
bill
establishes
the
individual
income
tax
flat
rate
for
3
the
tax
years
beginning
on
or
after
January
1,
2025,
at
3.50
4
percent.
Under
current
law,
the
individual
income
tax
flat
5
rate
of
3.90
percent
goes
into
effect
for
tax
years
beginning
6
on
or
after
January
1,
2026.
7
The
bill
strikes
references
to
calculating
the
latest
8
cumulative
inflation
factor
in
Code
section
422.5(6)
and
Code
9
section
422.21(5)
due
to
removing
income
tax
brackets
and
10
establishing
the
individual
income
tax
flat
rate
commencing
11
with
tax
years
beginning
on
or
after
January
1,
2024.
12
The
bill
repeals
the
alternate
individual
income
tax
rates.
13
The
alternate
income
tax
rate
is
available
for
a
taxpayer
whose
14
income
marginally
exceeds
the
individual
income
tax
filing
15
thresholds
in
Code
sections
422.5(2)
and
(3),
and
is
used
to
16
calculate
income
tax
owed.
17
The
bill
takes
effect
upon
enactment
and
applies
18
retroactively
to
tax
years
beginning
on
or
after
January
1,
19
2024.
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