Senate Study Bill 3207 - Introduced
SENATE FILE _____
BY (PROPOSED COMMITTEE ON
WAYS AND MEANS BILL BY
CHAIRPERSON DAWSON)
A BILL FOR
1 An Act relating to state and local finances by modifying
2 individual and alternate income tax rates, withholding
3 credits, franchise tax deductions, methodologies for
4 determining property taxes, and property tax assessment
5 limitations, changing methods of determining compensation
6 of county officials, making contingent transfers from the
7 taxpayer relief fund, and making corrections, and including
8 effective date and applicability provisions.
9 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
TLSB 6385XC (8) 90
jm/jh
 S.F. _____
1 DIVISION I
2 SINGLE INDIVIDUAL AND ALTERNATE INCOME TAX RATES BEGINNING IN
3 TAX YEAR 2025
4 Section 1. Section 421.27, subsection 9, paragraph a,
5 subparagraph (3), Code 2024, is amended to read as follows:
6 (3) In the case of all other entities, including
7 corporations described in section 422.36, subsection 5, and all
8 other entities required to file an information return under
9 section 422.15, subsection 2, the entity’s Iowa net income
10 after the application of the Iowa business activity ratio,
11 if applicable, multiplied by the top income tax rate imposed
12 under section 422.5A 422.5 for the tax year, less any Iowa tax
13 credits available to the entity.
14 Sec. 2. Section 422.5, subsection 1, paragraph a, Code 2024,
15 is amended to read as follows:
16 a. A tax is imposed upon every resident and nonresident
17 of the state which tax shall be levied, collected, and paid
18 annually upon and with respect to the entire taxable income
19 as defined in this subchapter at rates as provided in section
20 422.5A a rate of three and eight-tenths percent.
21 Sec. 3. Section 422.5, subsection 2, paragraph b, Code 2024,
22 is amended to read as follows:
23 b. (1) In lieu of the computation in subsection 1, or
24 in paragraph “a” of this subsection, if the married persons’
25 filing jointly, head of household’s, or surviving spouse’s net
26 income exceeds thirteen thousand five hundred dollars, the
27 regular tax imposed under this subchapter shall be the lesser
28 of the alternate state individual income tax rate specified in
29 subparagraph (2) of four and three-tenths percent times the
30 portion of the net income in excess of thirteen thousand five
31 hundred dollars or the regular tax liability computed without
32 regard to this sentence. Taxpayers electing to file separately
33 shall compute the alternate tax described in this paragraph
34 using the total net income of the spouses. The alternate tax
35 described in this paragraph does not apply if one spouse elects
LSB 6385XC (8) 90
-1- jm/jh 1/49
 S.F. _____
1 to carry back or carry forward a net operating loss as provided
2 under the Internal Revenue Code or in section 422.9.
3 (2) (a) (i) (A) For the tax year beginning on or after
4 January 1, 2023, but before January 1, 2024, the alternate tax
5 rate is 6.00 percent.
6 (B) For the tax year beginning on or after January 1, 2024,
7 but before January 1, 2025, the alternate tax rate is 5.70
8 percent.
9 (C) For the tax year beginning on or after January 1, 2025,
10 but before January 1, 2026, the alternate tax rate is 5.20
11 percent.
12 (ii) This subparagraph division (a) is repealed January 1,
13 2026.
14 (b) For tax years beginning on or after January 1, 2026, the
15 alternate tax rate is 4.40 percent.
16 Sec. 4. Section 422.5, subsection 3, paragraph b, Code 2024,
17 is amended to read as follows:
18 b. (1) In lieu of the computation in subsection 1 or 2,
19 if the married persons’ filing jointly, head of household’s,
20 or surviving spouse’s net income exceeds thirty-two thousand
21 dollars, the regular tax imposed under this subchapter shall be
22 the lesser of the alternate state individual income tax rate
23 specified in subparagraph (2) of four and three-tenths percent
24 times the portion of the net income in excess of thirty-two
25 thousand dollars or the regular tax liability computed without
26 regard to this sentence. Taxpayers electing to file separately
27 shall compute the alternate tax described in this paragraph
28 using the total net income of the spouses. The alternate tax
29 described in this paragraph does not apply if one spouse elects
30 to carry back or carry forward a net operating loss as provided
31 under the Internal Revenue Code or in section 422.9.
32 (2) (a) (i) (A) For the tax year beginning on or after
33 January 1, 2023, but before January 1, 2024, the alternate tax
34 rate is 6.00 percent.
35 (B) For the tax year beginning on or after January 1, 2024,
LSB 6385XC (8) 90
-2- jm/jh 2/49
 S.F. _____
1 but before January 1, 2025, the alternate tax rate is 5.70
2 percent.
3 (C) For the tax year beginning on or after January 1, 2025,
4 but before January 1, 2026, the alternate tax rate is 5.20
5 percent.
6 (ii) This subparagraph division (a) is repealed January 1,
7 2026.
8 (b) For tax years beginning on or after January 1, 2026, the
9 alternate tax rate is 4.40 percent.
10 Sec. 5. Section 422.5, subsection 6, Code 2024, is amended
11 by striking the subsection.
12 Sec. 6. Section 422.16, subsection 2, paragraph e, Code
13 2024, is amended to read as follows:
14 e. For the purposes of this subsection, state income tax
15 shall be withheld at the highest rate described in section
16 422.5A 422.5 from supplemental wages of an employee in those
17 circumstances in which the employer treats the supplemental
18 wages as wholly separate from regular wages for purposes
19 of withholding and federal income tax is withheld from the
20 supplemental wages under section 3402(g) of the Internal
21 Revenue Code.
22 Sec. 7. Section 422.16B, subsection 2, paragraph a, Code
23 2024, is amended to read as follows:
24 a. (1) A pass-through entity shall file a composite return
25 on behalf of all nonresident members and shall report and pay
26 the income or franchise tax imposed under this chapter at the
27 maximum state income or franchise tax rate applicable to the
28 member under section 422.5A 422.5, 422.33, or 422.63 on the
29 nonresident members’ distributive shares of the income from the
30 pass-through entity.
31 (2) The tax rate applicable to a tiered pass-through entity
32 shall be the maximum state income tax rate under section 422.5A
33 422.5.
34 Sec. 8. Section 422.16C, subsection 4, paragraph a, Code
35 2024, is amended to read as follows:
LSB 6385XC (8) 90
-3- jm/jh 3/49
 S.F. _____
1 a. A taxpayer making an election under this section shall
2 be subject to tax in an amount equal to the maximum rate under
3 section 422.5A 422.5, imposed against the taxable income of the
4 taxpayer for the taxable year properly determined under this
5 chapter and allocated and apportioned to the state under the
6 rules adopted by the department. The tax shall be due with the
7 taxpayer’s return required under this chapter.
8 Sec. 9. Section 422.16C, subsection 5, paragraph a,
9 subparagraph (2), Code 2024, is amended to read as follows:
10 (2) The difference between one hundred percent and the
11 highest individual income tax rate in effect for the tax year.
12 Sec. 10. Section 422.21, subsection 5, Code 2024, is amended
13 to read as follows:
14 5. The director shall determine for the 2023 calendar year
15 and each subsequent calendar year the annual and cumulative
16 inflation factors for each calendar year to be applied to tax
17 years beginning on or after January 1 of that calendar year.
18 The director shall compute the new dollar amounts as specified
19 to be adjusted in section 422.5 by the latest cumulative
20 inflation factor and round off the result to the nearest one
21 dollar. The annual and cumulative inflation factors determined
22 by the director are not rules as defined in section 17A.2,
23 subsection 11.
24 Sec. 11. Section 422.25A, subsection 5, paragraph c,
25 subparagraphs (3), (4), and (5), Code 2024, are amended to read
26 as follows:
27 (3) Determine the total distributive share of all final
28 federal partnership adjustments and positive reallocation
29 adjustments as modified by this title that are reported to
30 nonresident individual partners and nonresident fiduciary
31 partners and allocate and apportion such adjustments as
32 provided in section 422.33 at the partnership or tiered partner
33 level, and multiply the resulting amount by the maximum highest
34 individual income tax rate pursuant to section 422.5A for the
35 reviewed year.
LSB 6385XC (8) 90
-4- jm/jh 4/49
 S.F. _____
1 (4) For the total distributive share of all final federal
2 partnership adjustments and positive reallocation adjustments
3 as modified by this title that are reported to tiered partners:
4 (a) Determine the amount of such adjustments which are of a
5 type that would be subject to sourcing to Iowa under section
6 422.8, subsection 2, paragraph “a”, as a nonresident, and then
7 determine the portion of this amount that would be sourced to
8 Iowa under those provisions as if the tiered partner were a
9 nonresident.
10 (b) Determine the amount of such adjustments which are of
11 a type that would not be subject to sourcing to Iowa under
12 section 422.8, subsection 2, paragraph “a”, as a nonresident.
13 (c) Determine the portion of the amount in subparagraph
14 division (b) that can be established, as prescribed by the
15 department by rule, to be properly allocable to indirect
16 partners that are nonresident partners or other partners not
17 subject to tax on the adjustments.
18 (d) Multiply the total of the amounts determined in
19 subparagraph divisions (a) and (b), reduced by any amount
20 determined in subparagraph division (c), by the highest
21 individual income tax rate pursuant to section 422.5A for the
22 reviewed year.
23 (5) For the total distributive share of all final federal
24 partnership adjustments and positive reallocation adjustments
25 as modified by this title that are reported to resident
26 individual partners and resident fiduciary partners, multiply
27 that amount by the highest individual income tax rate pursuant
28 to section 422.5A for the reviewed year.
29 Sec. 12. RATE OF WITHHOLDING. Notwithstanding any other
30 provision of law to the contrary, for tax years beginning on
31 or after January 1, 2025, any required rate of withholding
32 shall not be higher than the rate for the applicable tax year
33 pursuant to section 422.5 as amended by this division of this
34 Act.
35 Sec. 13. REPEAL. 2022 Iowa Acts, chapter 1002, sections 19,
LSB 6385XC (8) 90
-5- jm/jh 5/49
 S.F. _____
1 20, 21, 22, 23, and 24, are repealed.
2 Sec. 14. REPEAL. 2023 Iowa Acts, chapter 115, sections 20
3 and 21, are repealed.
4 Sec. 15. REPEAL. Section 422.5A, Code 2024, is repealed.
5 Sec. 16. EFFECTIVE DATE. This division of this Act takes
6 effect January 1, 2025.
7 Sec. 17. APPLICABILITY. This division of this Act applies
8 to tax years beginning on or after January 1, 2025.
9 DIVISION II
10 TARGETED JOBS WITHHOLDING CREDIT
11 Sec. 18. Section 403.19A, subsection 3, paragraph c,
12 subparagraphs (1) and (2), Code 2024, are amended to read as
13 follows:
14 (1) The pilot project city and the economic development
15 authority shall enter into a withholding agreement with each
16 employer concerning the targeted jobs withholding credit. The
17 withholding agreement shall provide for the total amount of
18 withholding credits awarded, as negotiated by the economic
19 development authority, the pilot project city, and the
20 employer. An agreement shall not provide for an amount of
21 withholding credits that exceeds the amount of the qualifying
22 investment made in the project. An agreement shall not be
23 entered into with a business currently located in this state
24 unless the business either creates or retains ten jobs or makes
25 a qualifying investment of at least five hundred thousand
26 one million dollars within the pilot project city. The
27 withholding agreement may have a term of years negotiated by
28 the economic development authority, the pilot project city,
29 and the employer, of up to ten years. A withholding agreement
30 specifying a term of years or a total amount of withholding
31 credits shall terminate upon the expiration of the term of
32 years specified in the agreement or upon the award of the total
33 amount of withholding credits specified in the agreement,
34 whichever occurs first. An employer shall not be obligated to
35 enter into a withholding agreement. An agreement shall not be
LSB 6385XC (8) 90
-6- jm/jh 6/49
 S.F. _____
1 entered into with an employer not already located in a pilot
2 project city when another Iowa community is competing for the
3 same project and both the pilot project city and the other Iowa
4 community are seeking assistance from the authority.
5 (2) The pilot project city and the economic development
6 authority shall not enter into a withholding agreement after
7 June 30, 2024 2027.
8 Sec. 19. Section 403.19A, subsection 3, paragraph f, Code
9 2024, is amended to read as follows:
10 f. Pursuant to rules adopted by the economic development
11 authority, the pilot project city employer shall provide on an
12 annual basis to the economic development authority information
13 documenting the employer’s compliance of each employer with
14 each requirement of the withholding agreement, including but
15 not limited to the number of jobs created or retained and
16 the amount of investment made by the employer. The economic
17 development authority shall, in response to receiving such
18 information from the pilot project city employer, assess the
19 level of compliance by each employer and provide to the pilot
20 project city recommendations for either maintaining employer
21 compliance with the withholding agreement or terminating the
22 agreement for noncompliance under paragraph “g”. The economic
23 development authority shall also provide each such assessment
24 and recommendation report to the department of revenue.
25 DIVISION III
26 FRANCHISE TAX —— INVESTMENT SUBSIDIARIES
27 Sec. 20. Section 422.34, subsection 1, Code 2024, is amended
28 to read as follows:
29 1. All state, national, private, cooperative, and savings
30 banks, credit unions, title insurance and trust companies,
31 federally chartered savings and loan associations, production
32 credit associations, insurance companies or insurance
33 associations, reciprocal or inter-insurance exchanges, and
34 fraternal beneficiary associations, and investment subsidiaries
35 included on a return due to an election under section 422.60,
LSB 6385XC (8) 90
-7- jm/jh 7/49
 S.F. _____
1 subsection 1, paragraph “b”.
2 Sec. 21. Section 422.60, subsection 1, Code 2024, is amended
3 to read as follows:
4 1. a. A franchise tax according to and measured by net
5 income is imposed on financial institutions for the privilege
6 of doing business in this state as financial institutions.
7 b. (1) A financial institution with an investment
8 subsidiary may elect under the regulations of the director to
9 include the income and expenses of an investment subsidiary
10 on the franchise tax return for the purpose of imposing the
11 franchise tax in paragraph “a”.
12 (2) An election made under this paragraph shall require
13 the inclusion of the income and expenses of the investment
14 subsidiary on all subsequent returns of the financial
15 institution so long as the investment subsidiary remains a
16 subsidiary of the financial institution unless the director
17 determines that the filing of separate returns will more
18 clearly disclose the taxable income of the investment
19 subsidiary or financial institution. This determination shall
20 be made after specific request by the taxpayer for the filing
21 of separate returns.
22 Sec. 22. Section 422.61, subsection 3, paragraph f, Code
23 2024, is amended to read as follows:
24 f. (1) A Except as provided in subparagraph (2), a
25 deduction shall not be all