2006 Iowa Legislative Summaries

CORPORATE & INDIVIDUAL INCOME & FRANCHISE TAXES

HF 2461: Update Of References To The Internal Revenue Code

HF 2461 A: Income Tax Deduction For Alternative Fuel Motor Vehicles

HF 2465: Determination Of The Holding Period For The Capital Gains Exclusion

HF 2708: Individual Income Tax Checkoffs

HF 2731: Targeted Jobs Withholding Tax Credit For Funding Improvements In Certain Urban Renewal Areas

HF 2754 A: Ethanol Blended Gasoline Tax Credit

HF 2754 B: Ethanol Promotion Tax Credit

HF 2754 C: E-85 Gasoline Promotion Tax Credit

HF 2754 D: Biodiesel Blended Fuel Tax Credit

HF 2782 A: Determination Of Benefits Under The Wage Benefits Tax Credit

HF 2782 B: Corporation Income Tax Nexus For A Distribution Facility

HF 2782 C: Iowa Utilities Board And Consumer Advocate Building Bonds

HF 2791: Endow Iowa Tax Credit

HF 2794 B: Reference To Nonrefundable Credits In The Definition Of Individual Income Tax Liability In Various Sections Of The Iowa Code

HF 2794 F: Reference To Checkoffs In The Individual Income Tax Portion Of The Iowa Code

HF 2794 G: Head Of Household Status

HF 2794 H: Capital Gain Exclusion From Sale Of A Business

HF 2794 I: Reference To Tax Credits In Chapters 422, 432 and 533 Of The Iowa Code

HF 2794 J: Franchise Tax Credit

HF 2794 K: Alternative Minimum Tax Credit Technical Changes

HF 2794 L: Determination Of Marital Status For Individual Income Tax Purposes

HF 2794 N: Early Childhood Development Tax Credit

HF 2794 O: Alternative Minimum Tax For Franchise Tax

SF 2056: Interest Income From Honey Creek Premier Destination Park Bonds

SF 2217: Assistive Device Tax Credit

SF 2268 A: Tax Credits For Agricultural Assets Transferred To Beginning Farmers

SF 2312: Income Tax Exclusions For Injured Veterans Grant Program

SF 2399 A: Wind Energy Production Tax Credit

SF 2399 B: Renewable Energy Tax Credit

SF 2402 A: Soy-Based Transformer Fluid Tax Credit

SF 2408 A: Filing Thresholds For Individual Taxpayers 65 Years Of Age Or Older

SF 2408 B: Alternate Tax For Individual Taxpayers 65 Years Of Age Or Older

SF 2408 C: Phase-Out Of Taxation Of Social Security Benefits

SF 2409: School Tuition Organization Tax Credit

 

PROPERTY TAXES

HF 2633: Recycling Property Tax Exemption

HF 2751: Military Service Property Tax Exemption

HF 2792 C: Dwelling Unit Property Tax Exemption

HF 2794 D: Tax Exemption For Annexed Property

HF 2794 E: Revenue Laws Publication & Distribution Repeal

HF 2794 DD: Homestead Tax Credit (Community Land Trust)

HF 2794 EE: City/County Airport Property Tax Exemption

HF 2794 FF: Car Wash Property Tax Exemption

HF 2794 GG: Notice Of Property Assessment Appeal Board Protest

HF 2797 A: Property Tax Credit Funding

HF 2797 B: Property Assessment Appeal Board

HF 2797 C: Notice Of Protest/Appeal To School District

SF 2391: Concrete/Asphalt Facilities Property Tax Exemption

SF 2402 C: Replacement Tax Reimbursement (Soy-Based Transformer Fluid)

 

SALES & USE TAX

HF 864 A: Designated Exempt Entity Collaborative Educational Facility

HF 864 B: The Collaborative Educational Facility The Pappajohn Educational Center

HF 2794 P: Medicaid Service Providers Exempt From Sales/Use Tax

HF 2794 Q: Expanding the Casual Sales Exemption

HF 2794 R: Clarifying The Exemption In Favor Of Fuel Used In Processing

HF 2794 S: Services On Vessels Amended Exemption From Sales/Use Tax

HF 2794 T: New Sales Tax Exemption For Bullion, Coins, And Currency

HF 2794 U: Business Transfer Of Vehicle Amended Exemption From Sales/Use Tax

HF 2794 V: Vehicle Trade-In Credit For A Dealer Criteria For Credit

HF 2794 W: Iowa Seller Assistance For Streamlined Participants

HF 2794 X: Representatives To The Streamlined Agreement Governing Board

HF 2794 Y: Iowa Streamlined Sales Tax Advisory Council

HF 2794 Z: Change Related To Event Sponsor’s Liability For Sales Tax

HF 2794 AA: Sampling Agreement For Estimated Tax

HF 2794 JJ: Redefining The Term “Bundled Service Contract”

HF 2794 KK: Changes In The Taxation Of Products With Multiple Points Of Use

HF 2794 LL: Telecommunications Service Sourcing And Prepaid Wireless Calling Service

HF 2794 MM: “Good Faith Requirement” For Sellers Not Registered Under The Streamlined Sales And Use Tax Act

HF 2794 NN: Changes In Relief From Liability Offered To Sellers Registered Under The Streamlined Sales And Use Tax Act

HF 2794 OO: Changes To Relief From Liability For Sellers And Service Providers

SF 2268 B: Retroactive Additions To The Sales Tax Exemption For “Farm Equipment”

SF 2390: New Exemption For Central Office Equipment

SF 2398: New Sales Tax Exemption In Favor Of Solar Energy Equipment

SF 2402 B: Soy-Based Transformer Fluid Sales Tax Refund

 

MOTOR FUEL

HF 2754 E: Renewable Fuel

 

LOCAL OPTION AND SCHOOL LOCAL OPTION SALES TAXES

HF 2792 A: Local Option Tax Expenditure Limitation

HF 2792 B: Local Option Tax Secure An Advanced Vision For Education Fund 50% Distribution

HF 2794 BB: LOST And Contiguous Cities In Contiguous Counties

HF 2794 CC: Contiguous Cities Agreement For LOST

 

MISCELLANEOUS

HF 2332: Child Support Recovery, Income Withholding, And Information Sharing Order

HF 2521: Centralized Collections

HF 2543: State Board Of Tax Review Chapter 422 Division Update

HF 2794 A: Issuance Of Replacement Tax Credit Certificates

HF 2794 C: Recorder Collection Of Fees For Land Records Management

HF 2794 M: Offset Of Liabilities By Department Of Administrative Services

HF 2794 HH: County Real Estate Electronic Government Advisory Committee

HF 2794 II: County Land Record Information System Additional Provisions

SF 2316: Electronic Filing Of Rules

SF 2330: Excise Tax On Touchplay Proceeds

 

DESIGNATED EXEMPT ENTITY COLLABORATIVE EDUCATIONAL FACILITY

Prior Law

Iowa Code section 423.3(80) provided an exemption from Iowa sales tax for building materials, supplies and equipment purchased for use in a construction contract by a “designated exempt entity”. A designated exempt entity was defined as an entity that is set forth in Iowa Code section 423.4(1).

New Provisions

This bill expands who qualifies as a “designated exempt entity” by adding a new subsection to Iowa Code section 423.4. The new designated exempt entity is the owner of the collaborative educational facility with various qualifications.

Section Amended

Section 1 of House File 864 amends Iowa Code section 423.3, subsection 80, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 864-A

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THE COLLABORATIVE EDUCATIONAL FACILITY - THE PAPPAJOHN EDUCATIONAL CENTER

Prior Law

No exemption for a Collaborative Educational Facility.

 New Provisions

The sale of goods, wares, merchandise or services purchased in the fulfillment of a written construction contract for the original construction, additions, or modifications to a building or structure used as part of a “collaborative educational facility”. In addition, the owner of a “collaborative educational facility” may apply for a refund of sales or use tax previously paid on such items in the original construction, additions or modifications prior to the effective date of this legislation.

To be qualified as a “collaborative educational facility”, the following criteria must be met:

  1. The construction contract for the erection of the building or structure must be entered into on or after April 1, 2003;
  2. The building or structure must be located within the corporate city limits in Iowa with a population in excess of 195,000 residents;
  3. The sole purpose of the building or structure is to provide facilities for a collaborative of public and private educational institutions that provide education to students; and
  4. The owner of the building or structure is a nonprofit corporation governed by Iowa Code chapters 504 or 504A, which is exempt from federal income tax pursuant to IRC 501(a). 

For an owner to obtain a refund of tax already paid on exempt purchases, the following criteria must be met:

  1. The contract for construction of the building or structure must be entered into on or after April 1, 2003;
  2. The building or structure must be in the corporate limits of a city in the state with a population in excess of 195,000;
  3. The sole purpose of the building or structure is to provide facilities for a collaborative of public and private educational institutions that provide education to students;
  4. The owner of the building or structure is a nonprofit corporation governed by Iowa Code chapters 504 or 504A which is exempt from federal income tax pursuant to IRC 501(a);
  5. All refund claims must be submitted to the department not more than one year after final settlement of the construction contract and on a department approved refund claim form; and
  6. Refund claims for tax on the original construction of the building or structure must occur between April 1, 2003, and June 30, 2005, and a refund claim for items used during the time period of original construction must be filed with the department on or before June 30, 2006. 

This new exemption also provides that the contractor must file with the owner of the collaborative educational facility a sworn statement regarding the amount of goods, wares, merchandise or services, used in the construction contracts and how much sales or use tax was paid on these items. 

Sections Amended

Section 2 of House File 864 amends Iowa Code section 423.3, Code 2005, by adding a new subsection 85 (exemption provision). Section 3 of House File 864 amends Iowa Code section 423.4, Code 2005, by adding new subsection 4 (refund provision). 

Effective Date

Section 2 of this bill which involves the exemption from sales tax became effective on February 17, 2006, and retroactively applied to April 1, 2003. The remaining sections of this bill are effective July 1, 2006.

06 HF 864-B

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CHILD SUPPORT RECOVERY, INCOME WITHHOLDING, AND INFORMATION SHARING ORDER

Prior Law

Child Support Recovery Unit of the Department of Human Services handles the administration and processing of child support disbursement payments. There were no criminal penalties for failure to withhold income or to pay amounts withheld. 

New Provisions

The new law provides for withholding of income to pay a child support debt. 

Payor commits a simple misdemeanor for a first offense when support payments are ordered and the payor fails to withhold and each subsequent offense becomes a serious misdemeanor. Payer is liable for accumulated amounts, plus any costs, interest, and reasonable attorney fees related to the collection of the amounts due from payor. 

The new law requires Child Support Recovery Unit to submit a report to the governor and general assembly by January 15 regarding the effects of section 726.5 as amended by this Act.

Sections Amended

Section 1 of House File 2332 amends section 252B.9 subsection 1, Code Supplement 2005, by adding new paragraph j. Section 2 amends section 252B.15, Code 2005, by adding new subsection 3. Section 3 adds new section 252D.16A. Section 4 amends section 252 D. 17, subsection 8, Code 2005. Section 5 amends section 252D.18, Code 2005, by adding new subsection 1A.

Effective Date

The sections of this act are retroactively applicable to support orders and income withholding orders entered or pending before July 1, 2006.

06 HF 2332

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UPDATE OF REFERENCES TO THE INTERNAL REVENUE CODE

Prior Law

The primary references to the Internal Revenue Code in the various statutes for the determination of income were amended through January 31, 2005.

 

New Provisions

The primary references to the Internal Revenue Code were amended to January 1, 2006 to include the federal income tax changes in the following federal legislation:

 

Energy Tax Incentives Act of 2005

Katrina Emergency Tax Relief Act of 2005

Gulf Opportunity Zone Act of 2005

 

Many of the changes in the Energy Tax Incentives bill provided for additional federal tax credits for energy efficiency and energy production which do not directly impact Iowa income tax. Most of the changes in the Katrina Emergency Tax Relief Act and the Gulf Opportunity Zone Act related to deductions for individuals and businesses directly impacted by Hurricanes Katrina, Rita and Wilma which have a minimal impact on Iowa income tax.

 

The references to the Internal Revenue Code in the various statutes for the Iowa research activities credit are updated to January 1, 2006, so the federal changes in the research activities credit are adopted for Iowa tax purposes.

 

Sections Amended

Section 1 of House File 2461 amends section 15.335, subsection 4, Code Supplement 2005. Section 2 amends section 15A.9, subsection 8, paragraph e, Code Supplement 2005. Section 3 amends section 422.3, subsection 5, Code Supplement 2005. Section 5 amends section 422.10, subsection 3, Code Supplement 2005. Section 6 amends section 422.32, subsection 7, Code Supplement 2005. Section 7 amends section 422.33, subsection 5, paragraph d, Code Supplement 2005. Section 8 amends section 504B.5, Code 2005. Section 9 amends section 633.266, Code 2005.

 

Effective Date

Sections 1 through 3 and sections 5 through 9 are retroactive to January 1, 2005, for tax years beginning on or after that date.

06 HF 2461

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INCOME TAX DEDUCTION FOR ALTERNATIVE FUEL MOTOR VEHICLES

Prior Law

For tax years through 2005, a deduction of up to $2,000 for the cost of a clean fuel motor vehicle was allowed for both federal and Iowa individual income tax. Due to the Energy Tax Incentives Act of 2005, this deduction was eliminated for federal tax purposes, and an alternative motor vehicle credit was enacted for these clean fuel motor vehicles starting with the 2006 tax year.

New Provisions

The deduction of up to $2,000 will be allowed for Iowa individual income tax for any motor vehicle which is eligible for the alternative motor vehicle credit allowed under section 30B of the Internal Revenue Code. These include new qualified fuel cell motor vehicles, new advanced lean burn technology motor vehicles, new qualified hybrid motor vehicles and new qualified alternative fuel motor vehicles placed in service after December 31, 2005.

Section Amended

Section 4 of House File 2461 amends section 422.7, Code Supplement 2005, by adding new subsection 45.

Effective Date

Effective for qualifying vehicles placed in service after December 31, 2005.

06 HF 2461-A

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DETERMINATION OF THE HOLDING PERIOD FOR THE CAPITAL GAINS EXCLUSION

Prior Law

In determining the ten year holding period for eligibility for the Iowa capital gains exclusion, the asset being sold had to be owned by the taxpayer for the immediately preceding ten years to qualify for the exclusion. In cases involving like-kind exchanges, inherited property or gifted property, the time period that the assets were owned may be different than the holding period determined for federal income tax purposes in calculating the amount of capital gain.

New Provisions

In determining the ten year holding period for eligibility for the Iowa capital gains exclusion, the federal holding period provisions set forth in section 1223 of the Internal Revenue Code and regulations adopted by the Internal Revenue Service will be used.

Section Amended

Section 1 of House File 2465 amends section 422.7, subsection 21, Code Supplement 2005.

Effective Date

Retroactive to January 1, 2006, for sales made on or after that date, and for tax years ending on or after that date.

06 HF 2465

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CENTRALIZED COLLECTIONS

Prior Law

Pursuant to Iowa Code section 421.17, only state agencies were allowed access to the central collections unit as a means of collecting debts. The central collections unit was funded from the general appropriations budget of the department.

New Provisions

This House File expanded the entities allowed access to the department’s centralized collections, which includes the rights of offset, to include local governments and other boards, commissions, departments and entities that are reported in the Iowa Comprehensive Annual Financial Report.

This House File also removes the collection unit from the general appropriation budget of the department. The unit will be funded from the amount of debt collected. The funding is only for salaries, support, maintenance, services, and other costs related to the administration of the debt collection.

The department will report annually to the legislative fiscal committee and legislative services agency regarding the costs and collections.

Sections Amended

Section 28 of House File 2521 amends Iowa Code section 421.17, subsection 27, paragraphs “a”,”c”,”d”,”e”,”g”, and “h”, Code Supplement 2005. Section 29 amends section 421.17, subsection 27, by adding a new paragraph “j”. Section 30 amends section 422.26, unnumbered paragraph 6, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2521

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STATE BOARD OF TAX REVIEW - CHAPTER 422 DIVISION UPDATE

Prior Law

Iowa Code section 421.1 provides for the creation, powers, and administration of the State Board of Tax Review. In addition, this Code provision sets forth the subject matter of the various divisions of Iowa Code chapter 422.

New Provisions

Over the years this statute has been amended with various new provisions added. This House File rearranged statutory language to provide more organization to the statute. There was no change to the power or administration of the board.

In addition, this bill also sets forth the repeal of Division IV of this chapter regarding Iowa sales tax in the 2003 Iowa Acts and added for the enactment of Division X regarding the Livestock Production Tax Credit.

Section Amended

Sections 99 and 100 of House File 2543 amend Iowa Code section 421.1, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2543

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RECYCLING PROPERTY TAX EXEMPTION

Prior Law

The exemption was limited to property used to convert waste plastic, wastepaper products, waste paperboard, and waste wood products into new raw materials or products composed primarily of recycled material.

New Provisions

The exemption was expanded to include property used to convert waste glass into new raw materials or products.

Section Amended

Section 1 of House File 2633 amends section 427.1, subsection 19, unnumbered paragraph 8, Code Supplement 2005.

Effective Date

July 1, 2006. Applies to claims filed beginning with the 2007 assessment year for taxes payable in the 2008-2009 fiscal year.

06 HF 2633

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INDIVIDUAL INCOME TAX CHECKOFFS

Prior Law

There are no more than four individual income tax checkoffs on each tax return. When the same four checkoffs have been on the return for two consecutive years, the two checkoffs for which the least amount has been contributed, in the aggregate for the first year and through March 15 of the second year, are repealed. The same four checkoffs have been on the individual income tax returns for 2004 and 2005, and the Keep Iowa Beautiful Fund and Volunteer Fire Fighter Preparedness Fund checkoff were scheduled to be repealed.

New Provisions

A new Veterans Trust Fund checkoff has been added. Also, a joint income tax checkoff for the Keep Iowa Beautiful Fund and Volunteer Fire Fighter Preparedness Fund was added. The amounts contributed to the joint Keep Iowa Beautiful Fund/Fire Fighter Preparedness Fund checkoff will be split evenly between these two funds.

These two checkoffs, along with the Fish and Game protection fund checkoff and the Iowa State Fair foundation checkoff, will be on the 2006 and 2007 individual tax forms, and the checkoffs for which the least amount has been contributed for these two years remain subject to repeal.

Sections Amended

Section 3 of House File 2708 creates new section 422.12G related to the Veterans Trust Fund checkoff. Section 61 of House File 2782 creates new section 422.12G related to the combined Keep Iowa Beautiful and Volunteer Fire Fighter Preparedness Fund checkoff.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 HF 2708

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TARGETED JOBS WITHHOLDING TAX CREDIT FOR FUNDING IMPROVEMENTS IN CERTAIN URBAN RENEWAL AREAS

Prior Law

There is a withholding new jobs credit equal to 1.5% of the wages paid to employees covered under an industrial new jobs training agreement with a community college under Code section 260E.5. The moneys paid to the community college relate to costs incurred to provide education and training for these employees. For businesses approved by the department of economic development for the enterprise zone program or the new jobs and income program, a supplemental new jobs credit of an additional 1.5% of the wages paid to employees is available under section 15E.197.

New Provisions

A new withholding tax credit is available to employers who enter into an agreement with pilot project cities approved by the department of economic development. There will be four pilot project cities, each of which must contain three or more census tracts, which will be approved by the department of economic development. One city will be in a county bordering South Dakota, one city will be in a county bordering Nebraska, and two cities will be in a county bordering a state other than South Dakota or Nebraska.

A pilot project city must enter into a withholding agreement with an employer. An agreement cannot be entered into with a business currently located in Iowa unless the business either creates ten new jobs, each paying a wage at least equal to the average county wage, or makes a qualifying investment of at least $500,000 within an urban renewal area in the city. The withholding agreement may have a term of up to ten years. A copy of the withholding agreement must be provided to the department of revenue. A pilot project city cannot enter into a withholding agreement with an employer after June 30, 2010.

The withholding credit is equal to 3% of the gross wages paid by the employer to each employee under the withholding agreement. If the amount of withholding is less than 3% of the gross wages paid, the employer shall receive a credit against other withholding taxes due or may carry the credit forward for up to ten years or until depleted, whichever is the earlier. The employer shall remit the amount of the credit quarterly to the pilot project city, and the city must use this amount for an urban renewal project related to the employer. The employee whose wages are subject to a withholding agreement will receive full credit for the amount withheld when filing their individual income tax returns.

The employer must certify to the department of revenue that the withholding credit is in accordance with the withholding agreement. In addition, the pilot project city must certify to the department of revenue the amount of withholding credit an employer has remitted to the city. If the employer no longer meets the requirements of the withholding agreement, the agreement is terminated and the tax credit will also cease. However, if the employer met the number of new jobs created under the agreement and subsequently the number of jobs falls below that number, the employer still meets the terms of the withholding agreement until eighteen months after the date of the decrease in the number of new jobs.

An employer may participate in a new jobs credit from withholding under section 260E.5 or a supplemental new jobs credit from withholding under section 15E.197 (or section 15.331, Code 2005, relating to the new jobs and income program) at the same time as the employer is participating in a withholding agreement with a pilot project city. The credits under sections 260E.5, 15E.197 or 15.331 are collected and disbursed first to the community college before the withholding is collected and disbursed to a pilot project city.

Section Amended

Section 1 of House File 2731 creates new section 403.19A.

Effective Date

July 1, 2006.

06 HF 2731

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MILITARY SERVICE PROPERTY TAX EXEMPTION

Prior Law

Former members of the armed forces of the United States who performed at least 3 years of active duty military service, regardless of the time period, and were honorably discharged were eligible for the exemption.

New Provisions

The 3 year military service time period is shortened to 18 months. The 18 month service period does not have to be met if the person was honorably discharged because of a service related injury.

Section Amended

Section 1 of House File 2751 amends section 426A.11, subsection 4, Code Supplement 2005.

Effective Date

May 8, 2006. Applicable to claims filed by July 1, 2006 (taxes payable in 2007-2008).

06 HF 2751

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ETHANOL BLENDED GASOLINE TAX CREDIT

Prior Law

An ethanol blended gasoline tax credit was available to retail dealers of gasoline at which more than 60% of the total gallons of gasoline sold was ethanol blended gasoline. The tax credit equals 2 ½ cents multiplied by the total number of gallons of ethanol blended gasoline sold at the retail site in excess of 60% of all gasoline sold. The credit is available to individual and corporation taxpayers, and any credit in excess of the tax liability is refundable.

New Provisions

The ethanol blended gasoline tax credit is repealed on January 1, 2009. The credit is replaced with an ethanol promotion tax credit starting on January 1, 2009.

A retail dealer of gasoline whose tax year ends prior to December 31, 2008 can continue to claim the tax credit in the following tax year for any ethanol blended gasoline sold through December 31, 2008.

A retail dealer of gasoline will be able to claim the ethanol blended gasoline tax credit even if the dealer claims an E-85 gasoline promotion tax credit for the same tax year for the same ethanol gallons sold.

Sections Amended

Sections 35 through 38 of House File 2754 amend section 422.11C, Code 2005. Sections 42 through 45 amend section 422.33, subsection 11, Code Supplement 2005. Section 49 is uncodified.

Effective Date

July 1, 2006.

06 HF 2754-A

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ETHANOL PROMOTION TAX CREDIT

Prior Law

None

New Provisions

Effective January 1, 2009, an ethanol promotion tax credit is available to retail dealers of ethanol blended gasoline which will replace the current ethanol blended gasoline tax credit. The amount of the tax credit is based on the pure amount of ethanol gallons sold. For example, 10 gallons of E-10 equals 1 gallon of pure ethanol. The credit is repealed on January 1, 2021.

The amount of the tax credit depends on whether the retail dealer attains a biofuel threshold standard, and how many gallons of motor fuel are sold in a year. The biofuel threshold standards for retail dealers who sell more than 200,000 gallons in a year, compared with the biofuel threshold standards for dealers who sell 200,000 gallons or less in a year, are set forth below:

Calendar Year Percentage more than 200,000 Percentage 200,000 or less
2009 10% 6%
2010 11% 6%
2011 12 10
2012 13 11
2013 14 12
2014 15 13
2015 17 14
2016 19 15
2017 21 17
2018 23 19
2019 25 21
2020 25 25

 

The credit is calculated separately for each retail motor fuel site. For any year in which the retail dealer has met the threshold, the credit is 6 ½ cents of each gallon of pure ethanol sold. If the retail dealer misses the threshold by two percent or less, the credit is 4 ½ cents of each gallon of pure ethanol sold. If the retail dealer misses the threshold by more than two percent but not more than four percent, the credit is 2 ½ cents of each gallon of pure ethanol sold. If the retail dealer misses the threshold by four percent or more, then no credit is allowed.

The retail dealer determines the biofuel percentage by summing the pure ethanol gallons and the pure biodiesel gallons sold during the calendar year, and dividing this sum by the total gasoline gallons sold during the calendar year. While the biodiesel gallons are included in the computation of the biofuel percentage to determine if the threshold is met, only the pure ethanol gallons sold are used in determining the amount of the credit.

EXAMPLE: A retail dealer only operates one motor fuel site. The number of gallons of gasoline sold at this site in 2009 equals 100,000 gallons. This consisted of 5,000 gallons of E-85, 80,000 gallons of E-10 and 15,000 gallons not containing ethanol. The dealer also sold 15,000 gallons of diesel fuel at this site during 2009, of which 5,000 gallons was B2 (2% biodiesel). The pure ethanol gallons is 12,250 (5,000 times 85% equals 4,250. 80,000 times 10% equals 8,000. 4,250 plus 8,000 equals 12,250). The pure biodiesel gallons sold is 100, or 5,000 times 2%. The total of 12,250 and 100, or 12,350, is divided by the total gallons sold of 115,000 to arrive at a biofuel percentage of 10.74%. Since this exceeds the 6% threshold for a dealer selling less than 200,000 gallons, the credit is 6.5 cents times 12,250, or $735.

A retail dealer of gasoline will be able to claim the ethanol promotion tax credit even if the dealer claims an E-85 gasoline promotion tax credit for the same tax year for the same ethanol gallons sold.

For retail dealers of gasoline whose tax year is not on a calendar year basis, the retail dealer may compute the tax credit on the gallons of pure ethanol sold during the year using the applicable credit amounts as shown above. A retail dealer of gasoline whose tax year ends prior to December 31, 2020, can continue to claim the tax credit in the following tax year for any pure ethanol gallons sold through December 31, 2020. For a retail dealer whose tax year is not on a calendar year basis and who did not claim the ethanol promotion tax credit on the previous return, the dealer may claim the credit for the current tax year for the period beginning on January 1 of the previous tax year to the last day of the previous tax year.

Any credit in excess of the tax liability may be refunded or, in the alternative, credited to the tax liability for the following year. If the ethanol promotion fuel tax credit is earned by partnerships, limited liability companies, S corporations, estates or trusts where income is taxed directly to the individual, the credit can be claimed by the individual based on the pro rata share of the individual’s earnings in the entity.

Sections Amended

Section 39 of House File 2754 creates new section 422.11N. Section 46 amends section 422.33, Code Supplement 2005, by adding new subsection 11A. Section 49 is uncodified. Sections 10 through 14 of House File 2759 amend section 422.11N, as enacted by House File 2754. Section 16 of House File 2759 amends section 422.33, subsection 11A, as enacted by House File 2754. Section 17 of House File 2759 amends Section 49 of House File 2754.

Effective Date

January 1, 2009.

06 HF 2754-B

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E-85 GASOLINE PROMOTION TAX CREDIT

Prior Law

None

New Provisions

An income tax credit is available to retail dealers of gasoline who sell E-85 gasoline through motor fuel pumps during the tax year. The amount of the credit is determined by multiplying the total number of E-85 gallons sold by the following rate:

Calendar years 2006, 2007 and 2008: 25 cents

Calendar years 2009 and 2010: 20 cents

Calendar year 2011: 10 cents

Calendar year 2012: 9 cents

Calendar year 2013: 8 cents

Calendar year 2014: 7 cents

Calendar year 2015: 6 cents

Calendar year 2016: 5 cents

Calendar year 2017: 4 cents

Calendar year 2018: 3 cents

Calendar year 2019: 2 cents

Calendar year 2020: 1 cent

Calendar year 2021 and subsequent : 0 cents

For retail dealers of gasoline whose tax year is not on a calendar year basis, the retail dealer may compute the tax credit on the gallons of E-85 gallons sold using the year using the applicable credit amounts as shown above. A retail dealer of gasoline whose tax year ends prior to December 31, 2020, can continue to claim the tax credit in the following tax year for any E-85 gallons sold through December 31, 2020. For a retail dealer whose tax year is not on a calendar year basis and who did not claim the E-85 credit on the previous return, the dealer may claim the credit for the current tax year for the period beginning on January 1 of the previous tax year to the last day of the previous tax year. This section is repealed on January 1, 2021.

A retail dealer of gasoline will be able to claim the E-85 gasoline promotion tax credit even if the dealer claims an ethanol blended gasoline tax credit for the same tax year for the same ethanol gallons sold.

Any credit in excess of the tax liability may be refunded or, in the alternative, credited to the tax liability for the following year. If the E-85 gasoline promotion tax credit is earned by partnerships, limited liability companies, S corporations, estates or trusts where income is taxed directly to the individual, the credit can be claimed by the individual based on the pro rata share of the individual’s earnings in the entity.

Sections Amended

Section 40 of House File 2754 creates new section 422.11O. Section 46 amends section 422.33, Code Supplement 2005, by adding new subsection 11B. Section 49 of House File 2754 is uncodified. Section 15 of House File 2759 amends section 422.11O, subsection 4, paragraphs a and b, as enacted by House File 2754.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 HF 2754-C

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BIODIESEL BLENDED FUEL TAX CREDIT

Prior Law

None

New Provisions

An income tax credit is available to retail dealers who sell biodiesel blended fuel through motor fuel pumps during the tax year. Of the total gallons of diesel fuel sold by the retail dealer during the tax year, fifty percent or more must be biodiesel fuel to be eligible for the tax credit. The tax credit applies to biodiesel blended fuel formulated with a minimum percentage of two percent by volume of biodiesel, if the formulation meets the standards of Code section 214A.2.

The tax credit equals three cents multiplied by the total number of gallons of biodiesel blended fuel gallons sold during the retail dealer’s tax year. For retail dealers of gasoline whose tax year ends before December 31, 2006, the retail dealer may compute the tax credit on the gallons of biodiesel blended fuel sold during the period from January 1, 2006, through the end of the tax year, provided that 50 percent of all diesel fuel sold during that period was biodiesel. Similarly, a retail dealer of gasoline whose tax year ends prior to December 31, 2011, can continue to claim the tax credit in the following tax year for any gallons of biodiesel blended fuel sold through December 31, 2011. This section is repealed on January 1, 2012.

Any credit in excess of the tax liability may be refunded or, in the alternative, credited to the tax liability for the following year. If the biodiesel blended fuel tax credit is earned by partnerships, limited liability companies, S corporations, estates or trusts where income is taxed directly to the individual, the credit can be claimed by the individual based on the pro rata share of the individual’s earnings in the entity.

Sections Amended

Section 41 of House File 2754 creates new section 422.11P. Section 47 amends section 422.33, Code Supplement 2005, by adding new subsection 11C. Section 49 of House File 2754 is uncodified.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 HF 2754-D

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RENEWABLE FUEL

Prior Law

The tax rate for E-85 gasoline is 17¢ per gallon for the period beginning January 1, 2006, and ending June 30, 2007.

New Provisions

“Biofuel” is redefined to mean ethanol or biodiesel. New definitions are added for “biodiesel”, “biodiesel blended fuel”, “E-85 gasoline”, “ethanol”, “flexible fuel vehicle”, “gasoline”, “motor fuel pump”, “nonethanol blended gasoline”, and “retail dealer”. “Ethanol blended gasoline” is redefined to mean a formulation of gasoline blended with ethanol and “motor fuel” is redefined. Special terms were added for “determination period”, “retail dealer’s total gasoline gallonage”, “retail dealers’ total diesel fuel gallonage”, ‘aggregate gasoline gallonage”, “aggregate diesel fuel gallonage”, “aggregate biodiesel distribution percentage”, and “aggregate biofuel distribution percentage”.

The department is required to establish a schedule listing the average amount of ethanol contained in E-85 gasoline for use by a retail dealer in calculating the dealer’s total ethanol gallonage.

Retail dealer’s are required to report the dealer’s total motor fuel gallonage for a determination period to the department and the department is required to submit a report of this information to the governor and the legislative services agency by February 1.

The tax rate for E-85 gasoline for the period beginning July 1, 2007, and ending June 30, 2008, will be dependent upon the difference between the amount of tax paid on E-85 gasoline during calendar year 2006 and the amount that would have been paid on E-85 gasoline had the variable tax rate contained in section 452A.3(1) applied. If the difference is less than $25,000, the tax rate will be 17¢ per gallon and if the difference is equal to or greater than $25,000, the tax rate will be 20¢ per gallon unless legislation is enacted maintaining the variable tax rate.

Sections Amended

Section 50 of House File 2754 amends section 452A.2, subsection 2, Code Supplement 2005, by striking the subsection and inserting a new subsection. Section 51 amends section 452A.2, by adding several new subsections. Section 52 amends section 452A.2, subsection 11. Section 53 amends section 452A.2, subsection 19. Section 54 adds new section 452A.31. Section 55 adds new section 452A.32. Section 56 adds new section 452A.33. Section 79 amends section 452A.2, subsection 3. Section 80 amends section 452A.2, subsection 21. Section 81 amends section 452A.3, subsection 1B. Section 82 amends section 452A.6, Code 2005. Most of these provisions are included in division V of House File 2754.

Effective Date

July 1, 2006.

06 HF 2754-E

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DETERMINATION OF BENEFITS UNDER THE WAGE-BENEFITS TAX CREDIT

Prior Law

A wage-benefits tax credit is available for businesses which create new jobs for which the wages and benefits paid equals at least 130% of the average county wage. In determining the amount of benefits relating to medical insurance, the business portion of the annual premium for employee-only or single coverage was included in the calculation of benefits.

New Provisions

In determining the amount of benefits paid relating to medical insurance, if the business offers both single and family coverage, the business will be given credit for providing medical insurance for family coverage to all new employees in calculating the benefits paid.

Section Amended

Section 39 of House File 2782 amends section 15I.1, subsection 2, paragraph a, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2782-A

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CORPORATION INCOME TAX NEXUS FOR A DISTRIBUTION FACILITY

Prior Law

For corporation income tax purposes, a foreign corporation which owned or leased property at a distribution facility or warehouse located in Iowa was determined to have nexus with Iowa, and was required to file Iowa corporation income tax returns.

There was one exception where an Iowa return was not required to be filed, and that involved a situation where a foreign corporation’s only activities in Iowa was the storage of goods for a period of sixty consecutive days or less in a warehouse for hire located in Iowa. While this foreign corporation would have nexus, it was not required to file an Iowa return if the foreign corporation transports or causes a carrier to transport such goods to that warehouse and none of these goods were delivered or shipped to a purchaser in Iowa.

New Provisions

A foreign corporation will not be considered to have nexus for Iowa corporation income tax if it utilizes a distribution facility in Iowa, owns or leases property at a distribution facility in Iowa, or sells property shipped or distributed from a distribution facility located in Iowa. The distribution facility is an establishment where shipments of tangible personal property are processed for delivery to customers.

A distribution facility does not include an establishment where retail sales of tangible property or returns of such property are undertaken with retail customers on more than twelve days in a year except for a facility which processes customer sales orders by mail, telephone or electronic means, as long as the facility also processes shipments of tangible personal property to customers provided that not more than ten percent of the dollar amount of goods are delivered or shipped to a purchaser in Iowa.

Section Amended

Section 58 of House File 2782 amends section 422.34A, Code 2005, by adding new subsection 8.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 HF 2782-B

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IOWA UTILITIES BOARD AND CONSUMER ADVOCATE BUILDING BONDS

Prior Law

None

New Provisions

Bonds are going to be issued to finance a new building which will house the Iowa Utilities Board and the Iowa Consumer Advocate. Interest income from these bonds, which are exempt from federal income tax, will also be exempt from Iowa income tax and Iowa inheritance and estate tax.

Section Amended

Section 71 of House File 2782 amends section 422.7, Code Supplement 2005, by adding new subsection 45.

Effective Date

July 1, 2006.

06 HF 2782-C

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ENDOW IOWA TAX CREDIT

Prior Law

An endow Iowa tax credit administered by the department of economic development is available for individual income, corporation income, franchise, insurance premiums and money and credits tax. The credit is equal to 20% of a taxpayer’s endowment gift to a qualified community foundation. The amount of endow Iowa tax credits authorized cannot exceed $2 million on an annual basis, and the endow Iowa tax credit cannot be authorized after December 31, 2008.

New Provisions

The amount of endow Iowa tax credits to be issued in a calendar year by the department of economic development is $2 million plus a percentage of the adjusted gross receipts tax paid by excursion gambling boats and racetracks as determined by Code section 99F.11, subsection 3, paragraph e.

The endow Iowa tax credit was made permanent, and will not be repealed on December 31, 2008.

Section Amended

Sections 1 and 2 of House File 2791 amend section 15E.305, subsection 2, Code Supplement 2005. Section 3 amends section 15E.305, subsection 4, Code Supplement 2005, by striking the subsection.

Effective Date

July 1, 2007.

06 HF 2791

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LOCAL OPTION TAX EXPENDITURE LIMITATION

Prior Law

Prior law stated that local option sales tax (LOST) revenues can be expended for any lawful purpose of the city or county.

New Provisions

This amendment provided the current language of the statute which states that LOST revenues can be expended for any lawful purpose of the city or county be repealed December 31, 2022. In addition, a new paragraph to this provision was added which states that that LOST revenues cannot be expended by or for the benefit of a school district located in whole or in part in the county unless the county is imposing a SILO (local option sales and services tax for school infrastructure purposes pursuant to chapter 423E).

Section Amended

Section 45 of House File 2792 amends Iowa Code section 423B.7, subsection 6, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2792-A

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LOCAL OPTION TAX - SECURE AN ADVANCED VISION FOR EDUCATION FUND - 50% DISTRIBUTION

Prior Law

Iowa Code section 423E.4 (2) provided that money in the Secure an Advanced Vision for Education Fund be distributed in the following manner:

1. A school district that is located in whole or in part in a county that voted on and approved a school infrastructure local option tax (SILO) tax prior to April 1, 2003 and the district has a sales tax capacity per student above the guaranteed amount of SILO shall receive for the remainder of the unextended term of the tax an amount equal to its pro rata share of the SILO tax as provided in Iowa Code section 423E.3(5)”d”, unless the school board passes a resolution by October 1, 2003 agreeing to receive a distribution pursuant to Iowa Code section 423E.4(2)”b”(1).

2. a. A school district that is located in whole or in part of a county that voted on and approved a SILO tax prior to April 1, 2003 and has a sales tax capacity per student below its guaranteed SILO amount shall receive for the remainder of the unextended term of the tax and amount equal to its pro rata share of the SILO tax pursuant to Iowa Code section 423.3(5)”d”, plus an amount equal to its supplemental SILO amount, unless the school district passes a resolution by October 1, 2003, agreeing to receive only an amount of SILO equal to its pro rata share under Iowa Code section 423.3(5)”d” in all subsequent years.

2. b. A school district that is located in whole or in part in a county that voted on and approved SILO on or after April 1, 2003, shall receive an amount equal to its pro rata share of SILO as set forth in Iowa Code section 423E.3(5)”d”, not to exceed its guaranteed SILO amount. However, if the school district’s pro rata share is less than is guaranteed amount of SILO, the school district shall receive an additional amount to supplement its SILO amount.

3. A school district that is located in whole or in part of a county that voted on and approved the extension of SILO pursuant to Iowa Code section 423E.2 (5) on or after April 1, 2003, shall receive for any extended period an amount equal to its pro rata share of the SILO tax receipts as provided in Iowa Code section 423E.3 (5)”d”, not to exceed its guaranteed SILO amount. However, if the school district’s pro rata share is less than its guaranteed SILO amount; the district shall receive an additional amount equal to its supplement SILO amount.

4. A school district located in more than one county, the amount of SILO distribution shall be separately computed for each county based on the school district’s actual enrollment that attends school in the county.

New Provisions

This new legislation amended Iowa Code section 423E.4 by adding a new subsection (7), which states that a school district that is located in whole or in part in a county that has not previously imposed the local sales and services tax for school infrastructure, and which votes on and approves the tax at a rate of one percent on or before July 1, 2008, shall receive an amount equal to its pro rata share of SILO tax as provided in Iowa Code section 423E.3(5)”d” for a period corresponding to one-half the duration of the tax authorized by the voters. For the second half of the duration of the tax authorized by the voters, SILO tax receipts shall be distributed as otherwise applicable pursuant to Iowa Code section 423E.4(2).

Section Amended

Section 46 of House File 2792 amends Iowa Code section 423E.4, Code Supplement 2005, by adding a new subsection 7.

Effective Date

Effective July 1, 2006.

06 HF 2792-B

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DWELLING UNIT PROPERTY TAX EXEMPTION

Prior Law

Dwelling unit property owned and managed by a community housing development organization is exempt from tax if the organization is a nonprofit organization exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code and owns and manages more than 150 dwelling units in a city with a population of more than 110,000. The organization must be recognized by the state and federal government as meeting the criteria for community housing development organization designation contained in the HOME program of the federal National Affordable Housing Act of 1990.

No claim for tax exemption was required to be filed.

New Provisions

Beginning with the 2007 assessment year, the nonprofit organization is required to file a claim for tax exemption with the assessor by February 1. Claims are not required to be filed in subsequent years as long as the property continues to qualify for the exemption.

Sections Amended

Section 62 of House File 2792 amends section 427.1, subsection 21A, Code Supplement 2005, as amended by 2006 Iowa Acts, House File 2797, section 84, and section 66 repeals 2006 Iowa Acts, House File 2794, section 58.

Effective Date

July 1, 2006.

06 HF 2792-C

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ISSUANCE OF REPLACEMENT TAX CREDIT CERTIFICATES

Prior Law

Tax credit certificates are issued for the historic preservation and cultural and entertainment district tax credit by the state historic preservation office of the department of cultural affairs. Tax credit certificates are issued by the department of economic development for the eligible housing business investment tax credit.

The historic preservation and cultural and entertainment district tax credit may be transferred to any person or entity, and the eligible housing business tax credit may be transferred to any person or entity under certain circumstances. In both cases, the transferee must submit the transferred tax credit certificate back to either the state historic preservation office or the department of economic development. A replacement tax credit certificate is then issued by either the state historic preservation office or the department of economic development.

New Provisions

In cases where the tax credit certificate is being transferred for both the historic preservation and cultural and entertainment district tax credit and the eligible housing business investment tax credit, the transferee must submit the transferred tax credit certificate back to the department of revenue. The replacement tax credit certificate for both the historic preservation and cultural and entertainment district tax credit and the eligible housing business investment tax credit will now be issued by the department of revenue.

Sections Amended

Section 1 of House File 2794 amends section 15E.193B, subsection 8, unnumbered paragraph 1, Code Supplement 2005. Section 6 amends section 404A.4, subsection 5, unnumbered paragraph 1, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-A

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REFERENCE TO NONREFUNDABLE CREDITS IN THE DEFINITION OF INDIVIDUAL INCOME TAX LIABILITY IN VARIOUS SECTIONS OF THE IOWA CODE

There are a number of sections in the Iowa Code where the individual income tax liability is defined as the tax imposed under section 422.5 less the amount of credits allowed under various other sections of the Code. However, a number of additional credits have been added over the last several years, and these new credits were not referenced in the definition of the individual income tax liability.

New Provisions

Instead of itemizing all of the various credits in the definition of individual income tax liability which will change from year to year, the definition has been revised. The individual income tax liability is defined as the tax imposed under section 422.5 less the amount of nonrefundable credits allowed under chapter 422, division II of the Code. This change has been made in the following sections:

Section 68A.102 relating to the income tax checkoff for the Iowa election campaign fund

Section 257.21 relating to the school district surtax

Section 422.5 relating to the S corporation apportionment credit

Section 422.6 relating to the fiduciary income tax

Section 422.10 relating to the research activities credit

Section 422.12C relating to the child and dependent care credit and the early childhood development tax credit

Section 422D.2 relating to the emergency medical services income surtax

Sections Amended

Section 2 of House File 2794 amends section 68A.102, subsection 21, Code Supplement 2005. Section 3 amends section 257.21, unnumbered paragraph 2, Code 2005. Section 8 amends section 422.5, subsection 1, paragraph j, subparagraph (2), unnumbered paragraph 2, Code 2005. Section 11 amends section 422.6, unnumbered paragraph 1, Code 2005. Section 14 amends section 422.10, subsection 4, Code Supplement 2005. Section 23 amends section 422.12C, subsection 1, unnumbered paragraph 1, Code Supplement 2005. Section 24 amends section 422.12C, subsection 2, paragraph a, unnumbered paragraph 1, Code Supplement 2005. Section 39 amends section 422D.2, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-B

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RECORDER COLLECTION OF FEES FOR LAND RECORDS MANAGEMENT

Prior Law

The recorder will make available information concerning fees collected for land records management and uses for such fees.

New Provisions

The recorder shall collect only statutorily authorized processing fees for land records management from third parties which could include credit card fees, treasury management fees, and other transaction fees required to enable electronic payment.

Section Amended

Section 4 of House File 2794 amends section 331.605B, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-C

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TAX EXEMPTION FOR ANNEXED PROPERTY

Prior Law

The city council could be selective in determining which properties to exempt from city taxes in an annexation area during the transition period.

New Provisions

If the city council elects to provide an exemption from city taxes in an annexation area, all property in the annexed area must receive the exemption during the transition period.

Sections Amended

Section 5 of House File 2794 amends section 368.11, subsection 3, paragraph m, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-D

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REVENUE LAWS PUBLICATION & DISTRIBUTION REPEAL

Prior Law

The Director of Revenue was required to publish in pamphlet form the revenue laws of the state and distribute them to county auditors, assessors, and boards of review.

New Provisions

The statutory requirement was repealed which required that the Director publish and distribute the revenue laws to county auditors, assessors, and boards of review.

Sections Amended

Section 7 of House File 2794 amends section 421.17, subsection 14, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-E

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REFERENCE TO CHECKOFFS IN THE INDIVIDUAL INCOME TAX PORTION OF THE IOWA CODE

Prior Law

There are references to the keep Iowa beautiful checkoff, Iowa state fair checkoff and the volunteer fire fighter preparedness checkoff in sections 422.12A, 422.12D and 422.12F, respectively, of the Iowa code. There were no references in chapter 422 to the Iowa election campaign fund checkoff and the fish and game protection checkoff.

In addition, only the Iowa election campaign fund checkoff and the fish and game protection checkoff are noted in the provision of the S corporation apportionment credit which provides that these checkoffs are not affected by the computation of the S corporation apportionment credit.

New Provisions

References were added in chapter 422 to the Iowa election campaign fund checkoff and the fish and game protection checkoff. The S corporation apportionment credit provision was amended to state that all checkoffs are not affected by the computation of the S corporation apportionment credit.

Sections Amended

Section 8 of House File 2794 amends section 422.5, subsection 1, paragraph j, subparagraph (2), unnumbered paragraph 2, Code 2005. Section 27 adds new section 422.12G. Section 28 adds new section 422.12H.

Effective Date

July 1, 2006.

06 HF 2794-F

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HEAD OF HOUSEHOLD STATUS

Prior Law

Head of household has the same meaning as provided in the Internal Revenue Code in accordance with section 422.4(7). There are situations where a married taxpayer will be eligible for head of household status under the Internal Revenue Code. This occurs if the taxpayer’s spouse was not a member of the household for the last six months of the year and if the household is a principal place of residence of a child for whom the taxpayer may claim as a dependent.

However, there were provisions in various individual income tax sections of the Iowa code which referred to unmarried head of households.

New Provisions

References to “unmarried head of household” were changed to “head of household” to conform Iowa law to federal law.

Sections Amended

Section 9 of House File 2794 amends section 422.5, subsection 1, paragraph k, subparagraph (2), subparagraph subdivision (b), Code 2005. Section 10 amends section 422.5, subsection 2, Code 2005. Section 13 amends section 422.9, subsection 1, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-G

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CAPITAL GAIN EXCLUSION FROM SALE OF A BUSINESS

Prior Law

An Iowa capital gain exclusion is allowed from the sale of a business in which the taxpayer was employed or in which the taxpayer materially participated for ten years, as defined in section 469(h) of the Internal Revenue Code, and which has been held for a minimum of ten years.

New Provisions

The language relating to being employed in a business was eliminated from the capital gain exclusion. Employment is an element already in the material participation test under section 469(h), which made this reference unnecessary and duplicative.

Section Amended

Section 12 of House File 2794 amends section 422.7, subsection 21, paragraph a, subparagraph (1), unnumbered paragraph 1, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-H

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REFERENCE TO TAX CREDITS IN CHAPTERS 422, 432 AND 533 OF THE IOWA CODE

Prior Law

There are a number of tax credits administered by either the Iowa department of economic development or the Iowa capital investment board which were only in Sections 15, 15A or 15E of the Iowa Code. There was no reference to these credits in Chapters 422, 432 and 533 of the Iowa Code.

New Provisions

The following credits are now referenced in the individual income tax portion of chapter 422:

The following credits are now referenced in the franchise tax portion of chapter 422:

The following credits are now referenced in chapter 432 relating to insurance premiums tax:

The following credits are now referenced in chapter 533 relating to the moneys and credits tax:

Sections Amended

Section 15 of House File 2794 amends section 422.10, Code Supplement 2005, by adding new subsection 5. Section 19 amends section 422.11F, Code 2005. Section 20 creates new section 422.11M. Section 29 amends section 422.33, subsection 5, Code Supplement 2005. Section 32 amends section 422.33, subsection 12, Code Supplement 2005. Section 33 amends section 422.33, Code Supplement 2005, by adding new subsections 20 and 21. Section 37 amends section 422.60, subsection 5, Code Supplement 2005. Section 38 amends section 422.60, Code Supplement 2005, by adding new subsections 11 and 12. Section 60 amends section 432.12C, Code 2005. Section 61 creates new section 432.12H. Section 62 creates new section 432.12I. Section 65 amends section 533.24, Code Supplement 2005, by adding new subsections 8, 9, and 10.

Effective Date

July 1, 2006.

06 HF 2794-I

FRANCHISE TAX CREDIT

Prior Law

The Iowa franchise tax credit for individual income tax was computed after deducting the personal exemption credits and the tuition and textbook credit. All other individual income tax credits were computed after deducting the personal exemption credits, the tuition and textbook credits and the earned income credit.

New Provisions

The franchise tax credit is computed after deducting the earned income credit, along with the personal exemption credit and the tuition and textbook credit. This is consistent with how other credits for individual income tax are computed.

 

Section Amended

Section 16 of House File 2794 amends section 422.11, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-J

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ALTERNATIVE MINIMUM TAX CREDIT TECHNICAL CHANGES

Prior Law

The sections of the Iowa Code relating to the alternative minimum tax credit for individual income, corporation income and franchise tax provided for a computation relating to the adjusted net minimum tax. The adjusted net minimum tax was the net minimum tax reduced by the amount of the net minimum tax if the only item of tax preference taken into account was the preference item described in paragraph (6) of section 57(a) of the Internal Revenue Code.

New Provisions

Paragraph (6) of section 57(a) of the Internal Revenue Code was repealed effective June 30, 1992. Therefore, there is no need to make an adjustment for the net minimum tax in determining the amount of Iowa alternative minimum tax credit for individual income, corporation income and franchise tax.

Sections Amended

Section 17 of House File 2794 amends section 422.11B, subsection 1, unnumbered paragraph 2, Code 2005. Section 18 amends section 422.11B, subsection 2, unnumbered paragraph 3, Code 2005 by striking the paragraph. Section 30 amends section 422.33, subsection 7, paragraph a, unnumbered paragraph 2, Code Supplement 2005. Section 31 amends section 422.33, subsection 7, paragraph b, unnumbered paragraph 3, Code Supplement 2005, by striking the unnumbered paragraph. Section 35 amends section 422.60, subsection 3, paragraph a, unnumbered paragraph 2, Code Supplement 2005. Section 36 amends section 422.60, subsection 3, paragraph b, unnumbered paragraph 3, Code Supplement 2005, by striking the unnumbered paragraph.

Effective Date

July 1, 2006.

06 HF 2794-K

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DETERMINATION OF MARITAL STATUS FOR INDIVIDUAL INCOME TAX PURPOSES

Prior Law

The requirements for the determination of whether an individual is married for Iowa individual tax purposes was based upon the language in section 7703(a) of the Internal Revenue Code. However, there is also a provision under section 7703(b) of the Internal Revenue Code which addresses the determination of a marital status of an individual, and the language of this provision was not reflected in Iowa law.

New Provisions

Iowa Code section 422.12(3) was amended to state that the determination of whether an individual is married for Iowa individual tax purposes shall be made in accordance with section 7703 of the Internal Revenue Code.

Section Amended

Section 21 of House File 2794 amends section 422.12, subsection 3, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-L

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OFFSET OF LIABILITIES BY DEPARTMENT OF ADMINISTRATIVE SERVICES

Prior Law

Offsets were handled by the Iowa Department of Revenue. However, offset activities were transferred to the Iowa Department of Administrative Services. Two Iowa Code sections were missed in prior legislation.

New Provisions

Offsets are handled by the Department of Administrative Services which is corrected by this bill.

Sections Amended

Section 22 of House File 2794 amends section 422.12A, subsection 2, Code 2005. Section 26 of this bill amends section 422.12F, subsection 2, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-M

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EARLY CHILDHOOD DEVELOPMENT TAX CREDIT

Prior Law

An early childhood development tax credit is available for individual income tax equal to 25% of the first $1,000 of expenses paid for early childhood development expenses for each dependent from the ages of three to five. The credit is only available for taxpayers whose net income is less than $45,000, and the credit is available starting with the 2006 tax year. The credit was capped at $2.5 million per year.

Taxpayer had to apply to the department by November 1 of the tax year to which the credit was applicable, and the expenses eligible for the credit include those incurred between November 1 of the previous tax year through October 31 of the tax year in which the credit is applicable. The department would compute the total amount of credits allowable, and if the amount exceeded $2.5 million, taxpayers would receive a pro rata amount of the credit. The department then had to notify taxpayers of the amount of the tax credit allowed by January 1 following the deadline for application.

New Provisions

The $2.5 million cap for the early childhood development tax credit has been removed.

In addition, taxpayers do not have to submit any application to the department for the tax credit. The credit can simply be claimed on the individual’s tax return for expenses incurred during the calendar year. For the 2006 calendar year only, expenses incurred in November and December of 2005 for early childhood development expenses shall be considered paid in 2006 for purposes of computing the credit.

Sections Amended

Section 24 of House File 2794 amends section 422.12C, subsection 2, paragraph a, unnumbered paragraph 1, Code Supplement 2005. Section 25 amends section 422.12C, subsection 2, paragraph b, Code Supplement 2005, by striking the paragraph.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 HF 2794-N

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ALTERNATIVE MINIMUM TAX FOR FRANCHISE TAX

Prior Law

In computing the alternative minimum tax for Iowa franchise tax, the tax preference and adjustment items applicable in computing the federal alternative minimum tax are used in the computation, with some exceptions. One of the exceptions related to adjustments computed under section 56(f) of the Internal Revenue Code. Adjustments under 56(f) of the Internal Revenue Code were not considered adjustments for purposes of computing the alternative minimum tax for franchise tax.

New Provisions

Section 56(f) of the Internal Revenue Code was repealed effective with the tax year beginning January 1, 1990. Therefore, there is no need to exclude adjustments under section 56(f) in determining the amount of alternative minimum tax for Iowa franchise tax.

Section Amended

Section 34 of House File 2794 amends section 422.60, subsection 2, paragraphs “a” and “b”, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-O

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MEDICAID SERVICE PROVIDERS EXEMPT FROM SALES/USE TAX

Prior Law

Exempt from Iowa sales and use tax are the sales of tangible personal property sold or services furnished to certain nonprofit corporations which include qualifying residential care facilities for the mentally retarded, rehabilitative facilities for those with mental retardation or disabilities and residential care facilities for foster care children. This exemption from Iowa sales and use tax was not extended to Medicaid waiver service organizations.

New Provisions

Iowa Code section 423.3(18), was amended to provide an exemption from Iowa sales and use tax for purchases of tangible personal property and services to a nonprofit corporation which is a certified home and community-based service provider certified to offer Medicaid waiver services by the Iowa Department of Human Services that are any of the following:

(1) Ill and handicapped waiver service providers, described in administrative rule 441 IAC 77.30;

(2) Hospice providers, described in administrative rule 441 IAC 77.32;

(3) Elderly waiver service providers, described in administrative rule 441 IAC 77.33;

(4) AIDS/HIV waiver service providers, described in administrative rule 441 IAC 77.34;

(5) Federally qualified health centers, described in administrative rule 441 IAC 77.35;

(6) MR waiver service providers, described in administrative rule 441 IAC 77.37; and

(7) Brain injury waiver service providers, described in administrative rule 441 IAC 77.39.

Chapter 441 of the Iowa Administrative Code consists of rules governing Iowa Department of Human Services.

Section Amended

Section 40 of House File 2794, amends Iowa Code section 423.3, subsection 18, Code Supplement 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-P

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EXPANDING THE CASUAL SALES EXEMPTION

Prior Law

A seller who was making “reoccurring” sales of services was not making casual sales of those services and was not entitled to claim the casual sales exemption.

New Provisions

A seller making reoccurring sales is also making casual sales if all of the following apply: 1) the seller is performing or selling services taxed under section 423.2, but is not engaged in the business of performing or selling those services for a profit; 2) the owner of the business is the only person performing the services; 3) the owner of the business is a full-time student: and, 4) total gross receipts from the furnishing or sales of the services do not exceed $5,000 for a calendar year.

Section Amended

Section 41 of House File 2794 amends section 423.3, subsection 39, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-Q

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CLARIFYING THE EXEMPTION IN FAVOR OF FUEL USED IN PROCESSING

Prior Law

The sales price of fuel consumed in creating power, heat, or steam for processing or for generating electric current was exempt from Iowa tax.

New Provisions

The applicable statute is clarified to state explicitly that the sales price of “fuel consumed in creating power, heat, or steam for processing or for generating electric current” is exempt from tax. When the Streamlined Sales Tax Act was drafted, the quoted phrase was inadvertently left out.

Section Amended

Section 42 of House File 2794 amends section 423.3, subsection 50, Code Supplement 2005.

Effective Date

July 1, 2006.

 06 HF 2794-R

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SERVICES ON VESSELS - AMENDED EXEMPTION FROM SALES/USE TAX

Prior Law

Iowa Code section 423.3(86) exempted the sales of services performed on a vessel if all of the following apply:

  1. The vessel is a licensed vessel under the laws of the United States coast guard;
  2. The vessel is not moored or tied to a physical location in this state;
  3. The service is used to repair or restore a defect in the vessel;
  4. The vessel is engaged in interstate commerce and will continue in interstate commerce once the repairs or restoration is completed; and
  5. The vessel is in navigable water that borders the eastern boundary of this state.

New Provisions

This legislation amended this Code section and changed two requirements under the current exemption criteria. The following two criteria are changed in regard to the exemption:

1. The vessel can be moored or tied to a physical location in this state.

2. The vessel is in navigable water on the eastern border of this state.

The new criteria states that the vessel must be in navigable water that borders a boundary in Iowa.

In addition, this amendment also provides a definition for “vessel” for the purpose of this exemption. "Vessel" includes a ship, barge, or other waterborne vessel.

Section Amended

Section 43 of House File 2794 amends Iowa Code section 423.3, subsection 86, Code Supplement 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-S

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NEW SALES TAX EXEMPTION FOR BULLION, COINS, AND CURRENCY

Prior Law

No exemption from Iowa sales or use tax existed on behalf of sales of bullion, currency, or coins, when the currency or coins were sold as tangible personal property.

New Provisions

The sales price from sales of coins, currency, or bullion is exempt from tax. "Bullion" means bars, ingots, or commemorative medallions of gold, silver, platinum, palladium, or a combination of these where the value of the metal depends on its content and not the form. "Coins" or "currency" means a coin or currency made of gold, silver, or other metal or paper which is or has been used as legal tender.

Section Amended

Section 44 of House File 2794 amends section 423.3, Code Supplement 2005, by adding a new subsection.

Effective Date

July 1, 2006.

06 HF 2794-T

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BUSINESS TRANSFER OF VEHICLE - AMENDED EXEMPTION FROM SALES/USE TAX

Prior Law

Iowa Code section 423.6(10) provides for a transfer of a vehicle to be exempt from Iowa use tax if all of the following apply:

  1. Vehicle is transferred from a business or individual conducting a business in Iowa as a sole proprietorship, partnership, or limited liability company to a corporation formed by the sole proprietorship, partnership, or limited liability company for the purpose of continuing the business;
  2. All of the stock of the corporation so formed is owned by the sole proprietor and the sole proprietor's spouse, by all the partners in the case of a partnership, or by all the members in the case of a limited liability company. This exemption is equally available where the vehicles subject to registration are transferred from a corporation to a sole proprietorship, partnership, or limited liability company; and
  3. The new business entity must have been formed for the purpose of continuing the business when all of the incidents of ownership are owned by the same person or persons who were stockholders of the corporation.

By rule, the department imposed a 12 month limit on the transfer of such vehicles. As a result, the vehicle must be transferred from the original business entity to the new business entity within 12 months of the date that the new business entity was created.

This exemption also applies where the vehicles subject to registration are transferred from a corporation as part of the liquidation of the corporation to its stockholders if within three months of such transfer the stockholders retransfer those vehicles subject to registration to a sole proprietorship, partnership, or limited liability company for the purpose of continuing the business of the corporation when all of the incidents of ownership are owned by the same person or persons who were stockholders of the corporation.

New Provisions

This legislation amended Iowa Code section 423.6(10) to provide by statute that for transfers of vehicles of corporations to be exempt from Iowa use tax, the corporation that is either transferring the vehicle or receiving transfer of the vehicle, must have been in existence no longer than 24 months.

Section Amended

Section 45 of House File 2794 amends Iowa Code section 423.6, subsection 10, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-U

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VEHICLE TRADE-IN CREDIT FOR A DEALER - CRITERIA FOR CREDIT

Prior Law

Iowa statutes did not provide a provision for trade-in credits for a dealer.

New Provisions

This amendment provides that the value of a trade-in of a vehicle by a dealer towards the purchase of another vehicle by the dealer would result in the taxable price of the obtained vehicle to be reduced by the value of the traded vehicle, if all of the following criteria are met:

  1. The dealer must be a licensed motor vehicle dealer under Iowa Code chapter 322;
  2. The motor vehicle being registered is being placed in service as a replacement motor vehicle for a motor vehicle registered by the motor vehicle dealer;
  3. The motor vehicle being registered is taken from the motor vehicle dealer's inventory;
  4. Use tax on the motor vehicle being replaced was paid by the motor vehicle dealer when that motor vehicle was registered;
  5. The replaced motor vehicle is returned to the motor vehicle dealer's inventory for sale;
  6. The application for registration and title of the motor vehicle being registered is filed with the county treasurer within two weeks of the date the replaced motor vehicle is returned to the motor vehicle dealer's inventory; and
  7. The motor vehicle being registered is placed in the same or substantially similar service as the replaced motor vehicle.

Section Amended

Section 46 of House File 2794 amends Iowa Code section 423.6, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-V

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IOWA SELLER ASSISTANCE FOR STREAMLINED PARTICIPANTS

Prior Law

Authorizes Iowa to enter into an agreement with other states to simplify and modernize sales and use tax administration.

New Provisions

This new amendment provides for assistance to Iowa sellers which are impacted by administrative burdens, resulting from participation in the streamlined agreement. The Director of the Department of Revenue and the Iowa Streamlined Sales Tax Advisory Council shall provide recommendations to the general assembly by January 1, 2007.

Section Amended

Section 47 of House File 2794 amends section 423.8, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-W

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REPRESENTATIVES TO THE STREAMLINED AGREEMENT GOVERNING BOARD

Prior Law

Authorizes the director to enter into and represent Iowa in the streamlined agreement.

New Provisions

This new provision designates four representatives, which includes: one member of the Iowa House; one member of the Iowa Senate; and two representatives from the executive branch to be members of the Streamlined Governing Board with one combined vote.

Section Amended

Section 48 of House File 2794 amends section 423.9, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-X

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IOWA STREAMLINED SALES TAX ADVISORY COUNCIL

Prior Law

None, new section.

New Provisions

Creates an Iowa Streamlined Sales Tax Advisory Council to review, study, and submit recommendations to the designated Iowa streamlined sales tax representatives regarding issues such as uniform definitions, effects upon taxability of items newly defined in Iowa, impacts upon businesses, technology implementation issues, and other issues that may arise. Administrative support will be provided by the department. Director of Revenue in consultation with the Iowa Taxpayers Association, Iowa Retail Federation, and the Iowa Association of Business and Industry, shall appoint members consisting of: one from the department; three each representing small, medium, and large Iowa businesses; one representing taxpayers as a whole; one representing the retail community as a whole; and other business members that the director deems appropriate.

Section Amended

Section 49 of House File 2794 adds new Iowa Code Section 423.9A.

Effective Date

July 1, 2006.

06 HF 2794-Y

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CHANGE RELATED TO EVENT SPONSOR’S LIABILITY FOR SALES TAX

Prior Law

An event sponsor who sponsored events fewer than three times per year was not obligated to obtain from every retailer selling taxable services or goods at an event proof that the retailer had an Iowa sales tax permit.

New Provisions

The test is no longer the number of times per year that an event sponsor sponsors events. To be excluded from the requirement of obtaining proof that a retailer selling taxable goods or services at an event has an Iowa sales tax permit, the event must involve “casual sales pursuant to section 423.4, subsection 39.”

Section Amended

Section 50 of House File 2794 amends section 423.33, subsection 3, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-Z

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SAMPLING AGREEMENT FOR ESTIMATED TAX

Prior Law

Iowa Code section 423.37 provides that if a taxpayer fails to file a return or if a filed return is incorrect or insufficient and the taxpayer does not file a corrected or sufficient return within 20 days after notice by the department, the department may determine an amount of tax due based on information the department can obtain. This estimated tax may be based on external indices, such as the number of employees that the taxpayer has, rentals paid by the taxpayer, stock on hand, and other factors.

New Provisions

The amendment of this Code section provides the department and taxpayer another means to estimate tax that is due. This new language allows the department and the taxpayer to mutually agree to use a generally recognized, valid and reliable sampling technique to obtain an estimated tax. This technique can be used regardless of whether the taxpayer has complete records or not.

Section Amended

Section 51 of House File 2794 amends Iowa Code section 423.37, subsection 2, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-AA

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LOCAL OPTION SALES TAX AND CONTIGUOUS CITIES IN CONTIGUOUS COUNTIES

Prior Law

Iowa Code section 423B.1 (3) implemented the law governing the election and implementation of the local option sales tax (LOST) tax. However, there was no specific law governing election and implementation of LOST when there are contiguous cities in contiguous counties.

New Provisions

Iowa Code sections 423B.1 (3) and (6) and 423B.5 were amended to provide that LOST can be implemented when submitted to the registered voters of two or more contiguous counties. The implementation of LOST under this new provision will result in all cities contiguous to each other shall be treated as part of one incorporated area, even if the corporate boundaries of one or more of the cities include areas of more than one county, and the tax shall be imposed in each of those contiguous cities only if a majority of those voting on the tax in the total area covered by the contiguous cities favored its imposition.

Section Amended

Sections 52, 54, and 55 of House File 2794 amend Iowa Code sections 423B.1, subsection 3, subsection 6, paragraph “a”, Code 2005 and 423B.5, unnumbered paragraph 1, Code Supplement 2005.

Effective Date

Effective July 1, 2006.

06HF 2794-BB

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CONTIGUOUS CITIES AGREEMENT FOR LOCAL OPTION SALES TAX

Prior Law

Iowa Code section 423B.1 treated all cities contiguous to each other as part of one incorporated area for the purposes of local option sales tax (LOST) as long as the majority of those voting in the area of the contiguous cities favor imposition of the tax.

New Provisions

Iowa Code section 423B.1 (4) was amended to provide for a contractual relationship to establish the LOST jurisdiction. Under this new law, boards of supervisors of two or more contiguous counties in which the question of imposing LOST is to be submitted to the voters may enter into a joint agreement that provides that a city whose corporate boundaries include areas of more than one county shall be treated as part of the county in which a majority of the residents of the city reside. A copy of this agreement is to be given promptly to the Director of the Iowa Department of Revenue. The county commissioner of elections from each county will determine a single date for the election to be held.

In addition, all laws under Iowa Code chapter 423B relating to the imposition, repeal, change of use, and collection of the tax is applicable to the jurisdiction designated in the agreement by the Board of Supervisors.

Section Amended

Section 53 of House File 2794 amends Iowa Code section 423B.1, subsection 4, Code 2005.

Effective Date

Effective July 1, 2006.

06 HF 2794-CC

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HOMESTEAD TAX CREDIT (COMMUNITY LAND TRUST)

Prior Law

A homestead property tax credit was not allowable, with certain exceptions, if the owner of the home did not also own the land on which the home was located.

New Provisions

The homestead credit is now allowable if the person occupying the home is a member of a community land trust as defined in 42 U.S.C., section 12773, and the land on which the home is located is owned by the community land trust provided the person is liable for the taxes on the property.

Section Amended

Section 56 of House File 2794 amends section 425.11, subsection 4, Code Supplement 2005.

Effective Date

June 1, 2006. Applies to taxes due and payable in fiscal years beginning on or after July 1, 2007, for claims filed by July 1, 2006.

06 HF 2794-DD

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CITY/COUNTY AIRPORT PROPERTY TAX EXEMPTION

Prior Law

Property owned by a city or county but leased to others was subject to taxation.

New Provisions

The exemption from taxation of property owned by a city or county is expanded to include property which is located at an airport and leased to a fixed base operator providing aeronautical services to the public.

Section Amended

Section 57 of House File 2794 amends section 427.1, subsection 2, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-EE

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CAR WASH PROPERTY TAX EXEMPTION

Prior Law

Car wash equipment that was attached to the building was assessed and taxed as real property.

New Provisions

Equipment used in washing, waxing, drying, and vacuuming motor vehicles and point-of-sale equipment necessary for the purchase of car wash services is not to be assessed and taxed as real property.

Section Amended

Section 59 of House File 2794 amends section 427A.1, Code 2005, by adding new subsection 5A.

Effective Date

June 1, 2006. Applies retroactively to January 1, 2006 for assessment years beginning on or after that date.

06 HF 2794-FF

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NOTICE OF PROPERTY ASSESSMENT APPEAL BOARD PROTEST

Prior Law

No time period was included in the statute for the property assessment appeal board to be notified of an appeal of its decision to district court.

New Provisions

The secretary of the property assessment appeal board is required to be notified if the board’s decision is protested to district court after the filing of notice with the clerk of district court.

Section Amended

Section 63 of House File 2794 amends section 441.38, subsection 2, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2794-GG

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COUNTY REAL ESTATE ELECTRONIC GOVERNMENT ADVISORY COMMITTEE

Prior Law

Staffing services for the committee were to be provided by the auditor of state.

New Provisions

This amendment removes the requirement of staffing services for the committee to be provided by the auditor of the state. Removes reference to section 331.605C. which requires updated integration plan to be filed with the governor and general assembly on or before November 1, 2006.

Section Amended

Section 67 of House File 2794 amends Iowa Acts chapter 179 section 100, Code 2005.

Effective Date

July 1, 2006.

06 HF 2794-HH

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COUNTY LAND RECORD INFORMATION SYSTEM ADDITIONAL PROVISIONS

Prior Law

The current provision requires county recorders to execute contracts necessary for implementation of the county land record information system, collect only statutorily authorized fees for land records management, and transfer fees to the treasurer of the state. This law also requires the auditor of the state to conduct an audit of funds collected and the Iowa state association of counties to provide information to the government oversight committee.

New Provisions

This amendment repeals requirement of county recorders to collect only statutorily authorized fees for land records management.

Section Amended

Section 68 of House File 2794 repeals Iowa Acts chapter 179 section 101, subsection 3.

Effective Date

July 1, 2006.

06 HF 2794-II

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REDEFINING THE TERM “BUNDLED SERVICE CONTRACT"

Prior Law

The sales price of a “bundled service contract” was subject to tax. The term was very generally defined in the statute. The term “bundled service contract” was not defined for the purposes of the Streamlined Sale and Use Tax Agreement. The Director could enter into agreements with individual retailers, groups of retailers, and organizations of retailers on the subject of how bundled service contracts could be taxed.

New Provisions

For the purposes of the Streamlined Sales and Use Tax Agreement, the term “bundled service contract” is replaced by the phrase “bundled transaction,” and a fairly detailed description of that term is set out. The statute no longer specifically mentions the Director’s power to enter into agreements with individual retailers, groups, or organizations.

Section Amended

Section 70 of House File 2794 amends section 423.2, subsection 8, Code Supplement 2005.

Effective Date

January 1, 2008.

06 HF 2794-JJ

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CHANGES IN THE TAXATION OF PRODUCTS WITH MULTIPLE POINTS OF USE

Prior Law

There was a basic consensus under the Streamlined Sales and Use Tax Agreement as to how sales of digital goods, computer software, and services concurrently available for use in more that one jurisdiction and sold to a business purchaser were to be treated under the laws of all states which were parties to the Agreement.

New Provisions

Additional material is added to the statute which expands upon the existing basics of taxation of products with multiple points of use. A definition of “computer software” is provided which applies only to the amended section. The statute now states explicitly that a purchaser providing an exemption certificate claiming multiple points of use shall report and pay the tax to every jurisdiction where use has occurred. It also states that a purchaser and seller may work together to find an appropriate method of apportionment for multiple points of use products when the purchaser does not present the seller with an exemption certificate. If the appropriate method is used, the seller can collect and remit the tax to the various jurisdictions without any obligation to collect more tax unless the seller has exercised “bad faith.” The section now states explicitly that if its provisions are not applicable to sales of products with multiple points of use that the general sourcing provisions of the Code will apply. Finally, a new provision states that the section is not intended to limit any person’s constitutional or statutory right to a tax credit.

Section Amended

Section 71 of House File 2794 amends section 423.18, Code Supplement 2005.

Effective Date

January 1, 2008.

06 HF 2794-KK

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TELECOMMUNICATIONS SERVICE SOURCING AND PREPAID WIRELES CALLING SERVICE

Prior Law

The statute defined and provided detailed standards for the sourcing of various types of telecommunications services, including “prepaid calling service” but did not specifically mention “prepaid wireless calling service.”

New Provisions

A new definition of “Prepaid wireless calling service” is provided, distinguishing it from “Prepaid calling service” generally and stating that a prepaid wireless calling service is never a part of postpaid calling service unlike some prepaid calling services which can, under certain conditions, be postpaid calling services. The amendment then explains that prepaid wireless calling service is sourced under the “general sourcing rules applicable to sales of tangible personal property.”

Section Amended

Sections 72, 73, and 74 of House File 2794 amend section 423.20, subsections 1 and 2, Code 2005.

 

Effective Date

January 1, 2008.

06 HF 2794-LL

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“GOOD FAITH REQUIREMENT” FOR SELLERS NOT REGISTERED UNDER THE STREAMLINED SALES AND USE TAX ACT

Prior Law

Sellers who were not registered under the Streamlined Sales and Use Tax Act were required to accept an exemption certificate “in good faith” to be relieved of liability if any sale covered by the certificate was later found to be taxable. Sellers registered under the Act were held to the lesser standard of “lack of fraudulent intent” in accepting a certificate with the proviso that the defense did not apply to sellers who fraudulently fail to collect the tax or to sellers who solicit purchasers to participate in any unlawful claim of exemption.

New Provisions

Sellers not registered under the Streamlined Sales and Use Tax Act are given the same protection against liability for accepting a false exemption certificate as sellers registered under the Act. Lack of fraudulent intent is enough, with the proviso that the two exceptions to the defense set out above apply to sellers not registered under the Act as well as those who are registered.

Sections Amended

Section 75 of House File 2794 amends section 423.45, subsection 4, paragraph b, Code 2005. Section 76 amends section 423.45, subsection 4, paragraph d, Code 2005.

Effective Date

Upon enactment, which was June 1, 2006.

06 HF 2794-MM

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CHANGES IN RELIEF FROM LIABILITY OFFERED TO SELLERS REGISTERED UNDER THE STREAMLINED SALES AND USE TAX ACT

Prior Law

Sellers registered under the Streamlined Sales and Use tax Act were held to the standard of “lack of fraudulent intent” in accepting an exemption certificate with the proviso that the defense of lack of fraudulent intent did not apply to sellers who fraudulently failed to collect the tax or to sellers who solicited purchasers to participate in any unlawful claim of exemption. This relief from liability did not extend to certified service providers. The statute did not mention any right to secure an exemption certificate after a sale was completed or any special circumstances which justified reliance upon an exemption by a seller in “a reoccurring business relationship.”

New Provisions

The defense of lack of fraudulent intent does not apply in two additional circumstances. The first occurs when a seller accepts an exemption certificate from a purchaser claiming an entity-based exemption, and three complicated special conditions exist. The second occurs when a seller accepts an exemption certificate claiming multiple points of use for tangible personal property, other than computer software, for which an exemption claiming multiple points of use is acceptable under Section 423.18, the Code section dealing with multiple points of use exemption forms. A seller who does not obtain an exemption certificate at the time of a sale has up to 90 days after the sale to obtain a valid exemption certificate from a purchaser or to secure “the relevant data elements of a fully completed exemption certificate;” and, if a seller cannot do this, the seller has 120 days after a request from the Department for substantiation of an exemption to obtain a fully completed exemption certificate taken in good faith from a purchaser or to prove that a sale was not subject to tax “by other means.” A seller has no obligation to collect tax from a purchaser from whom the seller obtains a blanket exemption certificate if the seller and the purchaser have a reoccurring business relationship. Finally, all relief which the amended section provides to sellers it also provides to certified service providers.

Sections Amended

Section 77 of House File 2794 amends section 423.51, subsection 2, Code 2005. Section 78 amends section 423.51, Code 2005, by adding a new subsection.

Effective Date

January 1, 2008.

06 HF 2794-NN

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CHANGES TO RELIEF FROM LIABILITY FOR SELLERS AND SERVICE PROVIDERS

Prior Law

No particular limit was set on the type of database which sellers and certified service providers could use and hope to be relieved of liability for failure to collect a proper amount of tax if that failure resulted from erroneous data furnished by this state. If Iowa provided an addressed-based system for assigning taxing jurisdictions, whether pursuant to the federal Mobile Telecommunications Sourcing Act or not, the Department was not liable for errors resulting from reliance on that system.

New Provisions

Sellers and certified service providers using only databases derived from zip codes or state or vendor provided address-based databases are relieved of liability for failure to collect a proper amount of tax if that failure results from erroneous data furnished by this state. The reference to the Federal Mobile Telecommunications Sourcing Act is removed from that portion of the statute dealing with address-based systems. If Iowa provides an address-based system for determining taxation systems to sellers and certified service providers, the State must allow relief from liability for those relying on those systems, unless the Director has given “adequate notice” to affected parties of any decision to end that relief. Model 2 sellers and certified service providers are relieved of liability to Iowa for any failure to charge and collect the correct amount of sales or use tax if this failure results from the model 2 seller's or the certified service provider's reliance upon this state's certification to the governing board that Iowa has accepted the governing board of the Streamlined Sales and Use Tax Agreement’s certification of a piece of software as a certified automated system. If the department determines that an item or transaction is incorrectly classified as to its taxability, the department shall notify the model 2 seller or certified service provider of the incorrect classification. The model 2 seller or certified service provider shall have ten days to revise the classification after receipt of notice of the determination. Upon expiration of the ten days, the model 2seller or certified service provider shall be liable for the failure to collect the correct amount of sales or use taxes due and owing to this state.

Section Amended

Section 79 of House File 2794 amends section 423.52, Code 2005.

Effective Date

January 1, 2008.

06 HF 2794-OO

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PROPERTY TAX CREDIT FUNDING

Prior Law

Section 425.1(1) provides a standing unlimited annual appropriation for reimbursements to counties for homestead property tax credits allowed to qualified homeowners.

Section 426.1 provides a standing limited annual appropriation of $39,100,000 for reimbursement to counties for agricultural land property tax credits and family farm property tax credits allowed to eligible persons. The first $10,000,000 is to be transferred to the family farm tax credit fund (section 425A.1).

Section 426A.1A provides a standing unlimited annual appropriation for reimbursements to counties for military service property tax credits allowed certain military veterans.

Section 425.39 provides a standing unlimited annual appropriation for reimbursements to counties for property tax credits allowed to elderly and disabled homeowners and for reimbursements to elderly and disabled renters for rent paid.

New Provisions

The limited appropriations made to these funds for the 2006-2007 fiscal year are:

Homestead credit: $102,945,379

Ag. land & family farm credit: $34,610,183

Military exemption: $2,773,402

Elderly & disabled credit/reimbursement: $19,540,000

If the appropriation for the homestead credit, military exemption, or elderly and disabled credit is insufficient to fully fund the credit or exemption, the political subdivision is required to extend to the taxpayer only that portion of the credit or exemption estimated by the department to be funded by the appropriation. The department has estimated that the homestead credit will be funded to the extent of 77% and the elderly and disabled property tax credit/rent reimbursement funded to the extent of 94%.

Section Amended

Section 5 of House File 2797 lists the amount appropriated for each program.

Effective Date

June 2, 2006.

06 HF 2797-A

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PROPERTY ASSESSMENT APPEAL BOARD

Prior Law

Members of the property assessment appeal board were not to be state employees.

New Provisions

Members of the property assessment appeal board will be state employees.

Section Amended

Section 30 of House File 2797 amends section 421.1A, subsection 6, Code Supplement 2005.

Effective Date

July 1, 2006.

06 HF 2797-B

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NOTICE OF PROTEST/APPEAL TO SCHOOL DISTRICT

Prior Law

None.

 

New Provisions

The assessor is required to provide notice to the school district in which the property is located within 10 days of the filing of the protest with the board of review or the filing of an appeal with the property assessment appeal board or the district court, whichever is applicable, if the assessment of the property is $5,000,000 or more.

Section Amended

Section 85 of House File 2797 adds new section 441.38A.

Effective Date

January 1, 2007. Applies to assessment years beginning on or after that date.

06 HF 2797-C

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INTEREST INCOME FROM HONEY CREEK PREMIER DESTINATION PARK BONDS

Prior Law

The Honey Creek premier destination park authority may issue bonds to provide funding for improvements at the Honey Creek premier destination park. All interest on the bonds issued by the authority was exempt from Iowa income tax and Iowa inheritance and estate taxes.

New Provisions

The authority may now issue both taxable and tax-exempt bonds to provide funding for improvements at the Honey Creek premier destination park. Any tax-exempt bonds which are exempt from federal income tax will also be exempt for Iowa income tax and Iowa inheritance and estate taxes. Any taxable bonds issued by the authority will be subject to Iowa income tax and Iowa inheritance and estate taxes.

Section Amended

Section 3 of Senate File 2056 amends section 463C.12, subsections 1 and 8, Code Supplement 2005.

Effective Date

Upon enactment, which was March 9, 2006.

06 SF 2056

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ASSISTIVE DEVICE TAX CREDIT

Prior Law

An assistive device tax credit is available for individual and corporation income taxpayers who are small businesses that purchases, rents or modifies an assistive device or makes workplace modifications for an individual with a disability. The credit is limited to 50% of the first $5,000 paid for the assistive device or workplace modification. This credit is administered by the Department of Economic Development.

A disability for purposes of this credit was defined in Iowa Code section 225C.46 which is a section of the Code relating to the Department of Human Services. Disability was defined similarly under section 15.102 which is a section of the code relating to the Department of Economic Development. Alcoholism was excluded as a disability under section 225C.46, but was not excluded under section 15.102.

New Provisions

Section 225C.46 was repealed, and a disability for purposes of the assistive device credit is defined in section 15.102. However, a specific reference was made to the assistive device credit to specify that disability does not include alcoholism. Therefore, there was no change made to the definition of disability for purposes of this credit.

Sections Amended

Section 25 of Senate File 2217 amends section 422.11E, subsection 4, paragraph b, Code 2005. Section 26 amends section 422.33, subsection 9, paragraph c, subparagraph (2), Code Supplement 2005.

Effective Date

July 1, 2006.

06 SF 2217

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TAX CREDITS FOR AGRICULTURAL ASSETS TRANSFERRED TO BEGINNING FARMERS

Prior Law

None

New Provisions

A tax credit for agricultural asset transfers from a taxpayer to beginning farmers is available for individual and corporation income taxpayers.

The tax credit is only allowed for agricultural assets that are subject to a lease or rental agreement. The lease must be for a term of at least two years, but not more than five years. The taxpayer must meet certain qualifications as established by rules adopted by the Iowa Agricultural Development Authority. The beginning farmer must be eligible to receive financial assistance as required by Code section 175.12.

The tax credit is based upon the gross amount paid to the taxpayer under the lease agreement by the beginning farmer. The tax credit equals 5% of the amount paid to the taxpayer under the agreement or, in the alternative; the tax credit equals 15% of the amount paid to the taxpayer from crops or animals sold under an agreement in which the payment is exclusively made from the sale of crops or animals.

A tax credit certificate, which is issued by the Iowa Agricultural Development Authority, must be attached to the taxpayer’s tax return for the year in which it is used. Any tax credit in excess of the tax liability can be carried forward for the following five years or until depleted, whichever is the earlier. A tax credit is not transferable to any other person other that the taxpayer’s estate or trust upon the taxpayer’s death. If the tax credit is issued to a partnership, limited liability company, S corporation, estate or trust, the tax credit can be claimed by the individual based on the pro rata share of the income of the entity.

The lease or rental agreement may be terminated by either the taxpayer or the beginning farmer. If the Agricultural Development Authority determines that the taxpayer is not at fault for the termination, the Authority will not issue a tax credit certificate for subsequent years, but any prior tax credit certificates issued will be allowed. If the Authority determines that the taxpayer is at fault for the termination, any prior tax credit certificates issued will be disallowed, and the tax credits can be recaptured by the Department of Revenue.

Sections Amended

Section 2 of Senate File 2268 creates new section 175.37. Section 3 creates new section 422.11M. Section 4 amends section 422.33, Code Supplement 2005, by adding new subsection 20.

 

Effective Date

Effective for tax years beginning on or after January 1, 2007.

06 SF 2268-A

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RETROACTIVE ADDITIONS TO THE SALES TAX EXEMPTION FOR “FARM EQUIPMENT”

Prior Law

For the purposes of the sales and use tax exemption applicable to livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants, “farm equipment” did not include “auger systems, curtains and curtain systems, drip systems, fan and fan systems, shutters, inlets and shutter or inlet systems, and refrigerators.”

New Provisions

The sale or use of the above-described “farm equipment” specific items is exempt from Iowa tax.

 

Section Amended

Section 5 of Senate File 2268 amends section 423.3, subsection 11, unnumbered paragraph 1, Code Supplement 2005.

 

Effective Date

Upon enactment, which was June 2, 2006, and is retroactive to January 1, 1992. Refunds of taxes, interest, or penalties which arise from claims occurring between January 1, 1992 and June 2, 2006, shall be limited to $25,000 in the aggregate and shall not be allowed unless refund claims are filed prior to October 1, 2006, notwithstanding any other provision of law. If the amount of claims totals more than $25,000 in the aggregate, the Department of Revenue shall prorate the $25,000 among all claimants in relation to the amounts of the claimants' valid claims. Claimants shall not be entitled to interest on any refunds.

06 SF 2268-B

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INCOME TAX EXCLUSIONS FOR INJURED VETERANS GRANT PROGRAM

Prior Law

None

New Provisions

An injured veteran’s grant program is established under the Department of Veteran Affairs. Money appropriated for these grants will be given to veterans injured in a combat zone after September 11, 2001. The grants cannot exceed $10,000 per injured veteran. The department of veteran affairs may also receive money from any public or private source for purposes of providing grants to injured veterans.

The amount of grant money received by an injured veteran that is included in the veteran’s federal adjusted gross income is not included in the veteran’s Iowa net income. In addition, a deduction is allowed for the amount paid by a taxpayer to the Department of Veteran Affairs for the purposes of providing grants to the injured veterans grant program. The amounts paid by a taxpayer to the Department of Veteran affairs for these grants shall not be considered an itemized deduction for charitable contributions for Iowa tax purposes.

Section Amended

Section 2 of Senate File 2312 amends section 422.7, Code Supplement 2005, by adding new subsections 45 and 46.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 SF 2312

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ELECTRONIC FILING OF RULES

Prior Law

Iowa Code section 7.17 requires that all proposed rules and rule amendments be filed with the Administrative Rules Coordinator by submitting three copies of a rule in hard-copy format to the Coordinator. In turn, the Administrative Rules Coordinator would send the copies to the other appropriate parties in the process. In addition, to the hard copies, each agency was also required to submit an electronic format of the rule by e-mailing all proposed rules and rule amendments to the Administrative Rules Coordinator.

New Provisions

Senate File 2316 changes the process of filing proposed rules or rule amendments with the Administrative Rules Coordinator. This new law provides that state agencies need not file hard-copies of rules with the Administrative Rules Coordinator. Instead, state agencies need only file proposed rules or rule amendments via e-mail directed to the Administrative Code Editor and the Administrative Rules Coordinator. The Administrative Code Editor, in coordination with the Administrative Rules Coordinator, is responsible for assigning the proposed rule or rule amendment with an ARC number and for publishing all notices regarding the rule while in the administrative rule-making process.

Sections Amended

Senate File 2316 amends Iowa Code sections 7.17, 17A.4, 17A.5, and 17A.6, Code 2005.

Effective Date

Effective July 1, 2006.

06 SF 2316

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EXCISE TAX ON TOUCHPLAY PROCEEDS

Prior Law

No separate excise tax was imposed on the revenue generated by monitor vending machines, commonly known as “touch play” machines.

New Provisions

A separate excise tax is imposed on the net receipts of monitor vending machines. “Net receipts” are gross receipts received minus prizes awarded. The rate of this tax is 65 percent of the net receipts. The Director of the Department of Revenue is to administer the tax as nearly as possible in conjunction with the state sales tax laws. The excise tax is only imposed on net receipts that are generated if the touch play machines continue in operation after the ban is imposed which was after May 4, 2006.

Sections Amended

Section 1of Senate File 2330 amends section 99G.3, subsection 7, Code 2005. Section 2 amends section 99G.3, Code 2005, by adding a new subsection 8A. Section 3 adds a new section 99G.30A to chapter 99G.

Effective Date

Upon enactment, March 20, 2006. The tax is imposed on net receipts generated on and after the 45th day following enactment, May 4, 2006.

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NEW EXEMPTION FOR CENTRAL OFFICE EQUIPMENT

Prior Law

No exemption from state sales or use or local option sales tax existed in favor of central office equipment or transmission equipment sold to or rented by certain companies providing telecommunication service.

New Provisions

Sales or rentals of central office and transmission equipment primarily used in the furnishing of commercial telecommunication service by certain telecommunication companies (e.g. franchised cable television operators), are exempted from tax. "Central office equipment" means equipment utilized in the initiating, processing, amplifying, switching, or monitoring of telecommunications services. "Transmission equipment" means equipment utilized in the process of sending information from one location to another location. The terms also include ancillary equipment and apparatus which support, regulate, control, repair, test, or enable such equipment to accomplish its function. The exemption will be phased in over a seven-year period by way of a series of tax refunds beginning July 1, 2006, and ending June 30, 2012. State sales tax only will be refunded during this period. On and after July 1, 2012, sale or rental of the equipment is exempt from state sales and use and local option sales taxes.

Section Amended

Section 1 of Senate File 2390 amends section 423.3, Code Supplement 2005, by adding a new subsection 47A.

Effective Date

July 1, 2006.

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CONCRETE/ASPHALT FACILITIES PROPERTY TAX EXEMPTION

Prior Law

Machinery, equipment, and fixtures at concrete batch plants and hot mix asphalt facilities were taxable if attached to real estate.

New Provisions

Regardless of attachment to real estate, machinery, equipment, and fixtures used in processing concrete or asphalt at a mixing facility are exempt from taxation.

Sections Amended

Section 1 of Senate File 2391 amends section 427A.1, subsection 1, paragraph c, Code 2005, and section 2 amends section 427A.1, subsection 4, Code 2005.

Effective Date

May 31, 2006. Applies retroactively to January 1, 2006, for assessment years beginning on or after that date.

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NEW SALES TAX EXEMPTION IN FAVOR OF SOLAR ENERGY EQUIPMENT

Prior Law

No exemption in favor of solar energy equipment existed.

New Provisions

The sales price of solar energy equipment is exempted from Iowa sales and use tax. “Solar energy equipment” is defined as “equipment that is primarily used to collect and convert incident solar radiation into thermal, mechanical, or electrical energy or equipment that is primarily used to transform such converted solar energy to a storage point or to a point of use.”

Section Amended

Section 1 of Senate File 2398 amends section 423.3, Code Supplement 2005, by adding a new subsection.

Effective Date

July 1, 2006.

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WIND ENERGY PRODUCTION TAX CREDIT

Prior Law

A wind energy production tax credit is available for individual income, corporation income, franchise and insurance premiums tax. The wind energy production facility must be placed in service on or after July 1, 2005, but before July 1, 2008, to qualify for the tax credit. The facility must also be approved by the Iowa Utilities Board to qualify for the tax credit. A facility that is not operational within eighteen months after approval by the Utilities Board will cease to be an eligible facility.

If the tax credit was earned by a partnership, limited liability company, S corporation, estate or trust electing to have income taxed directly to an individual, the amount of the tax credit earned by the individual is based on the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, estate or trust. The tax credit certificates are issued by the department of revenue.

New Provisions

The wind energy production facility must be placed in service on or after July 1, 2005, but before July 1, 2009, to qualify for the tax credit. If the facility is not operational within eighteen months of approval by the Utilities Board due to the unavailability of necessary equipment, the facility will be allowed an additional twelve months to become operational.

In cases where the applicant is a partnership, limited liability company, S corporation, estate, trust, or other reporting entity which elects to have income taxed directly to an individual and the applicant is also eligible to receive renewable electricity production tax credits authorized under section 45 of the Internal Revenue Code, the credit does not have to be based upon the individual’s pro rata share of earnings from the entity. There are two alternatives to issue the tax credits, as noted below:

In both cases, the applicant must identify, in their application for the tax credit certificate, the holders or beneficiaries that are to receive the tax credit certificates.

Sections Amended

Section 1 of Senate File 2399 amends section 476B.1, subsection 4, paragraph c, Code Supplement 2005. Section 3 amends section 476B.5, subsection 3, Code Supplement 2005. Section 4 amends section 476B.6, subsection 5, Code Supplement 2005.

Effective Date

January 1, 2007. However, the provision regarding assigning the tax credits if renewable electricity energy were authorized under section 45 of the Internal Revenue Code is effective upon en enactment, which was May 30, 2006.

06 SF 2399-A

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RENEWABLE ENERGY TAX CREDIT

Prior Law

A renewable energy tax credit is available for individual income, corporation income, franchise and insurance premiums tax. A renewable energy facility includes a wind energy conversion facility, a biogas recovery facility, a biomass conversion facility, a methane gas recovery facility or a solar energy conversion facility.

The renewable energy facility must be placed in service on or after July 1, 2005, but before January 1, 2011, to qualify for the tax credit. The facility must also be approved by the Iowa Utilities Board to qualify for the tax credit. A facility that is not operational within eighteen months after approval by the Utilities Board will cease to be an eligible facility. Renewable energy tax credits could not be issued for renewable energy purchased after December 31, 2020.

The maximum amount of nameplate generating capacity of all wind energy conversion facilities could not exceed ninety megawatts of nameplate generating capacity, while the maximum amount of nameplate generating capacity of all other facilities could not exceed ten megawatts.

If the tax credit was earned by a partnership, limited liability company, S corporation, estate or trust electing to have income taxed directly to an individual, the amount of the tax credit earned by the individual is based on the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, estate or trust. The tax credit certificates are issued by the department of revenue.

New Provisions

The renewable energy facility must be placed in service on or after July 1, 2005, but before January 1, 2012, to qualify for the tax credit. A refuse conversion facility, if approved by the Utilities Board, can qualify as a renewable energy facility. If a wind energy conversion facility is not operational within eighteen months of approval by the Utilities Board due to the unavailability of necessary equipment, the facility will be allowed an additional twelve months to become operational. If any renewable energy facility is not operational within thirty months of approval by the Utilities Board, it will cease to be an eligible renewable energy facility. Renewable energy tax credits cannot be issued for renewable energy purchased after December 31, 2021.

The maximum amount of nameplate generating capacity of all wind energy conversion facilities could not exceed one hundred eighty megawatts of nameplate generating capacity, while the maximum amount of nameplate generating capacity of all other facilities, which would include refuse conversion facilities, could not exceed twenty megawatts.

In cases where the applicant is a partnership, limited liability company, S corporation, estate, trust, or other reporting entity which elects to have income taxed directly to an individual and the applicant is also eligible to receive renewable electricity production tax credits authorized under section 45 of the Internal Revenue Code, the credit does not have to be based upon the individual’s pro rata share of earnings from the entity. There are two alternatives to issue the tax credits, as noted below:

In both cases, the applicant must identify, in their application for the tax credit certificate, the holders or beneficiaries that are to receive the tax credit certificates.

Sections Amended

Section 5 of Senate File 2399 amends section 476C.1, subsection 6, unnumbered paragraph 1, Code Supplement 2005. Section 6 amends section 476C.1, subsection 6, paragraph d, Code Supplement 2005. Section 9 amends section 476C.3, subsections 2 through 5, Code Supplement 2005. Section 10 amends section 476C.4, subsection 4, Code Supplement 2005. Section 11 amends section 476C.5, Code Supplement 2005. Section 8 of Senate File 2273 amends section 476C.3, subsection 3, Code Supplement 2005.

Effective Date

January 1, 2007. However, the provision regarding assigning the tax credits if renewable electricity energy were authorized under section 45 of the Internal Revenue Code is effective upon enactment, which was May 30, 2006.

06 SF 2399-B

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SOY-BASED TRANSFORMER FLUID TAX CREDIT

Prior Law

None

New Provisions

A soy-based transformer fluid tax credit is available for individual income and corporation income tax.

This credit can be claimed by an electric utility equal to the costs incurred by the utility during the tax year for the purchase and replacement costs relating to the transition from using nonsoy-based transformer fluid to using soy-based transformer fluid. The costs must be incurred after June 30, 2006, and before January 1, 2008, and the costs must be incurred during the first eighteen months of the transition. The cost of the purchase and replacement cannot exceed two dollars per gallon of soy-based transformer fluid, and the number of gallons eligible for the credit cannot exceed 20,000 gallons per electric utility. The total amount of soy-based transformer fluid eligible for a tax credit cannot exceed 60,000 gallons in the aggregate.

If the electric utility elects to take the tax credit, any costs incurred in the transition that are deductible for federal income tax purposes cannot be deducted for Iowa tax purposes. Any credit in excess of the tax liability can be refunded, or credited to the next year’s estimated tax. Any credit earned by a partnership, limited liability company, S corporation, estate, or trust can be claimed by an individual based on the pro rata share of earnings of the partnership, limited liability company, S corporation, estate, or trust.

The electric utility must apply for the tax credit by submitting an application and a copy of a signed purchase agreement or other agreement to purchase soy-based transformer fluid to the department of revenue. The department will calculate the amount of the credit and issue a tax credit certificate to the applicant. The tax credit shall contain the taxpayer’s name, address, tax identification number, the amount of credit, the first year the certificate may be used, the type of tax to which the credit will apply, and any other information required by the department. The certificate shall only list one type of tax for which the credit may be applied.

If the application for the tax credit is denied, the applicant has sixty days from the date of the denial to file an appeal with the department.

Sections Amended

Section 1 of Senate File 2402 creates new section 422.11M. Section 2 amends section 422.33, Code Supplement 2005, by adding new subsection 20. Sections 5 through 9 create new chapter 476D.

Effective Date

Applies to tax years ending after June 30, 2006, and beginning before January 1, 2008.

06 SF 2402-A

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SOY-BASED TRANSFORMER FLUID SALES TAX REFUND

Prior Law

None.

New Provisions

An electric utility in possession of a soy-based transformer fluid tax credit certificate or certificates issued pursuant to chapter 476D may apply to the Director for a refund of sales and use tax imposed upon and paid by the utility in an amount not to exceed the amount of credit listed on any certificate or certificates issued to the utility. The amount of a credit is based on a utility’s purchase and replacement costs relating to its transition from using nonsoy-based transformer fluid to using soy-based transformer fluid. Taxes reported and paid during the period beginning July 1, 2006, and ending December 31, 2008, are eligible for the refund. Application for the refund must be filed by January 31 after the end of the calendar year in which the tax credit certificate is to be applied.

Section Amended

Section 3 of Senate File 2402 amends section 423.4, Code Supplement 2005, by adding a new subsection 6.

Effective Date

July 1, 2006. Repealed December 31, 2008.

06 SF 2402-B

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REPLACEMENT TAX REIMBURSEMENT (SOY-BASED TRANSFORMER FLUID)

Prior Law

A reimbursement of replacement tax paid was allowed to the producer or purchaser of renewable energy.

New Provisions

A reimbursement of replacement tax paid is allowed to electric utilities for the costs incurred in the transition from using nonsoy-based transformer fluid to soy-based transformer fluid. The reimbursement can not exceed the amount of tax credit certificates issued pursuant to chapter 476D. The tax credit certificates must be attached to the return filed by the electric utility under section 437A.8.

Section Amended

Section 4 of Senate File 2402 adds new section 437A.17C.

Effective Date

July 1, 2006. Applies to tax years ending after June 30, 2006, and beginning before January 1, 2008. Section 473A.17C is repealed December 31, 2008.

06 SF 2402-C

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FILING THRESHOLDS FOR INDIVIDUAL TAXPAYERS 65 YEARS OF AGE OR OLDER

Prior Law

An Iowa individual return was not required to be filed for single persons with income of $9,000 or less. An Iowa individual return was not required to be filed for married persons filing jointly, married persons filing separately on a combined return, married persons filing separate returns, head of households, or surviving spouses with dependent children with income of $13,500 or less. This threshold affected all taxpayers regardless of their age.

For married persons, the income of both the husband and wife must be included in determining the threshold amount. The amount of pension exclusion under section 422.7, subsection “31”, must be added back in determining the threshold amount for all persons. In addition, the portion of a lump sum distribution subject to separate federal tax is included in determining the threshold amount. Also, in the case of married persons where one spouse has a net operating loss and the taxpayers elect to file separate Iowa returns or separately on a combined return, the taxpayers cannot receive the benefit of the threshold amount if the spouse with the loss elects to carry back or carry forward the net operating loss.

New Provisions

The threshold amount has been increased for persons who are 65 years or older as of December 31 of the tax year. In the case of married persons, the higher threshold amounts apply even if only one spouse is 65 years or older as of December 31 of the tax year.

For the 2007 and 2008 tax year, an Iowa return is not required for single persons with income of $18,000 or less, and an Iowa return is not required for all other tax persons with income of $24,000 or less. For the 2009 tax year and for subsequent years, an Iowa return is not required for single persons with income of $24,000 or less, and an Iowa return is not required for all other persons with income of $32,000 or less.

For married persons, the income of both the husband and wife must be included in determining the threshold amount. In addition, the amount of pension exclusion under section 422.7, subsection 31, along with the social security exclusion starting with the 2007 tax year under section 422.7, subsection 13, must be added back in determining the threshold amount for all persons. Also, the portion of a lump sum distribution subject to separate federal tax is included in determining the threshold amount. Also, in the case of married persons where one spouse has a net operating loss and the taxpayers elect to file separate Iowa returns or separately on a combined return, the taxpayers cannot receive the benefit of the threshold amount if the spouse with the loss elects to carry back or carry forward the net operating loss.

Sections Amended

Section 1 of Senate File 2408 amends section 422.5, Code 2005, by adding new subsection 2A which is applicable for the 2007 and 2008 tax years only. Section 2 amends section 422.5, Code 2005, by adding new subsection 2B for tax years 2009 and subsequent years. Section 3 amends section 422.5, subsection 7, Code 2005.

Effective Date

January 1, 2007, for tax years beginning on or after that date.

06 SF 2408-A

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ALTERNATE TAX FOR INDIVIDUAL TAXPAYERS 65 YEARS OF AGE OR OLDER

Prior Law

An alternate tax calculation is available to individual income taxpayers except single taxpayers who have income just above the $13,500 income threshold. Under this provision, the taxpayer multiplies the net income for the tax year in excess of $13,500 by the maximum individual income tax rate of 8.98%. This tax amount is compared to the tax computed using the regular tax rates, and the taxpayer is subject to the lesser of the two amounts. In doing the alternate tax calculation, the pension exclusion under section 422.7, subsection 31, must be added back to the Iowa net income.

New Provisions

The alternate tax calculation will also be available to taxpayers who are 65 years of age or older, except single taxpayers, who have income just above the new threshold amounts of $24,000 for the 2007 and 2008 tax years and $32,000 for 2009 and subsequent years. The taxpayer will multiply the net income for the tax year in excess of $24,000 (for 2007 and 2008) or $32,000 (for 2009 and subsequent years) by the maximum individual income tax rate of 8.98%. This tax amount is compared to the tax computed using the regular tax rates, and the taxpayer is subject to the lesser of the two amounts. In the case of married persons, the alternate tax can be applied even if only one spouse is 65 years or older as of December 31 of the tax year.

In doing the alternate tax calculation, the pension exclusion under section 422.7, subsection 31, along with the social security exclusion starting with the 2007 tax year under section 422.7, subsection 13, must be added back to the Iowa net income.

Sections Amended

Section 1 of Senate File 2408 amends section 422.5, Code 2005, by adding new subsection 2A which is applicable for the 2007 and 2008 tax years only. Section 2 amends section 422.5, Code 2005, by adding new subsection 2B for tax years 2009 and subsequent years.

Effective Date

January 1, 2007, for tax years beginning on or after that date.

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PHASE-OUT OF TAXATION OF SOCIAL SECURITY BENEFITS

Prior Law

Individual income taxpayers who have taxable social security benefits for federal tax purposes also have taxable social security benefits for Iowa tax purposes. No more than 50 percent of social security benefits are taxable for Iowa purposes, although up to 85 percent of social security benefits may be taxable for federal tax purposes.

New Provisions

The amount of taxable social security benefits for Iowa tax purposes will be reduced by the following percentages over an eight year period under the following schedule:

2007 – 32% of taxable social security benefits excluded

2008 – 32% of taxable social security benefits excluded

2009 – 43% of taxable social security benefits excluded

2010 – 55% of taxable social security benefits excluded

2011 – 67% of taxable social security benefits excluded

2012 – 77% of taxable social security benefits excluded

2013 – 89% of taxable social security benefits excluded

2014 – 100% of taxable social security benefits excluded

For the 2014 tax year and subsequent tax years, no social security benefits will be included in the computation of Iowa taxable income for individuals.

Section Amended

Section 4 of Senate File 2408 amends section 422.7, subsection 13, Code Supplement 2005.

Effective Date

January 1, 2007, for tax years beginning on or after that date.

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SCHOOL TUITION ORGANIZATION TAX CREDIT

Prior Law

None

New Provisions

A school tuition organization tax credit is available for individual income tax equal to 65% of the amount of a voluntary cash contribution made by a taxpayer to a school tuition organization. The contribution cannot be used for the direct benefit of any dependent of the taxpayer or any other student designed by the taxpayer.

A school tuition organization must be a charitable organization in Iowa that is exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code that allocates at least 90% of its annual revenue in tuition grants for children who reside in Iowa to allow them to attend a qualified school of their parents’ choice. The school tuition organization must represent more than one school, and they can only provide tuition grants to eligible students who are members of households whose annual income does not exceed an amount equal to three times the most recently published federal poverty guidelines published by the U.S. Department of Health and Human Services.

The school tuition organization must initially register with the department and must provide verification of 501(c)(3) status, a list of schools the organization serves, and the names and addresses of the board of directors of the organization. Once the organization has registered, it is not required to subsequently register unless the schools it serves changes.

Each school served by a school tuition organization must submit a participation form to the department annually by October 15 which provides the certified enrollment as of the third Friday of September and the school tuition organization that represents the school. For the 2006 tax year only, each school must submit a participation form by August 1, 2006, which provides the certified enrollment as of the third Friday of September 2005, along with the school tuition organization that represents the school. A school cannot be represented by more than one school tuition organization.

By November 15 of each year, the department will authorize school tuition organizations to issue tax credit certificates for the following tax year. For the 2006 tax year only, the department will authorize school tuition organizations to issue tax credit certificates by September 1, 2006, for the 2006 calendar year. The total of tax credit certificates to be authorized is $2.5 million for the 2006 year only and $5.0 million for 2007 and subsequent years.

The tax credit certificates available for issue for each school tuition organization is determined by first dividing the total tax credit available of $5 million (or $2.5 million for the 2006 year only) by the total enrollment of all participating schools. This result, which is the per student tax credit, is then multiplied by the total participating enrollment of each school tuition organization to determine the tax credit available to issue for each organization.

The organization will then issue tax credit certificates to the persons that made a contribution to the organization, and the certificate must be attached to the tax return to claim the credit. The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, amount of contribution, amount of the tax credit, and any other information required by the department.

In addition, the school tuition organization must provide to the department by January 12 the following information:

Any credit in excess of the tax liability is not refundable but may be credited to the tax liability for the following five years or until depleted, whichever if the earlier. The amount of the contribution cannot be taken as a itemized deduction for charitable contributions for Iowa income tax purposes.

Section Amended

Section 1 of Senate File 2409 creates new section 422.11M.

Effective Date

Retroactive to January 1, 2006, for tax years beginning on or after that date.

06 SF 2409

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