SSB 3044

The percentage of the capital gain that is excluded for tax years beginning in 2023, 2024, and 2025 and beyond is percent, percent, and 100 percent, respectively. Several requirements must be met for the capital stock to qualify as capital stock of a qualified corporation. The qualified corporation must have employed individuals in this state for at least years. The qualified corporation must have had at least five shareholders for the years prior to the first sale or exchange pursuant to the bill, and the corporation must have had at least two shareholders or groups of shareholders who are not related for the years prior to the sale or exchange. The bill requires the capital stock to be common or preferred stock, and may be either voting or nonvoting, but does not include warrants, stock options, or debt securities. The bill provides that the election applies to transfers of the capital stock by inter vivos gift from the employee-owner to a spouse, or to a trust for the benefit of the employee-owner’s spouse. The election will apply to a spouse only if the spouse was married to the employee-owner on the date of the sale or the date of the employee-owner’s death. If, after making a valid inter vivos gift of stock that meets all the requirements for an election, an employee-owner dies without making an election, the surviving spouse, or if there is no surviving spouse, the personal representative of the employee-owner’s estate, may make the election. _____ An election under the bill is made on a form prescribed by the department of revenue and included with the taxpayer’s state income tax return for the taxable year in which the election is made. The division takes effect January 1, 2023, and applies to tax years beginning on or after that date. DIVISION II —— RETIRED FARMER LEASE INCOME EXCLUSION. Commencing with tax years beginning on or after January 1, 2023, the bill excludes from the individual income tax a retired farmer’s total net income received pursuant to a farm tenancy agreement covering real property held by the retired farmer for or more years, if the farmer materially participated in a farming business for or more years. Net income from a farm tenancy agreement earned by an entity taxed as a partnership for federal tax purposes, an S corporation, or a trust or estate is not eligible for the lease income exclusion, even if the net income passes through to a retired farmer. A retired farmer is not eligible for the lease income exclusion unless the farmer is at least years of age and no longer materially participating in farming.7(21), as amended by another division of the bill, or the beginning farmer tax credit. The division takes effect January 1, 2023, and applies to tax years beginning on or after that date. DIVISION III —— RETIRED FARMER CAPITAL GAIN EXCLUSION. The bill modifies the individual income tax capital gain exclusion for the sale of real property used in a farming business which otherwise would have gone into effect in tax year 2023, which was enacted in 2018 Iowa Acts, chapter 1161, section 113, and later modified in 2019 Iowa Acts, chapter 162. _____ 2019 Iowa Acts, chapter 162, and creates a new capital gain exclusion provision based upon the 2019 Iowa Acts, chapter 162 provisions, effective for tax years beginning on or after January 1, 2023. Under the provisions in 2019 Iowa Acts, chapter 162, section 1, which otherwise would have gone into effect during the 2023 tax year, a taxpayer who materially participates in a farming business for at least years and held real property used in such a business for at least years, may make a single lifetime exclusion election from the individual income tax of the capital gain of the sale of such property. The bill modifies the term “materially participated” in a farming business to include a retired farmer if the retired farmer materially participated in a farming business for years or more, in the aggregate, prior to making the election to exclude the capital gain of the sale of real property used in a farming business. In addition to a single lifetime exclusion of the capital gain from the sale of real property used in a farming business, the bill also allows a retired farmer to make a single lifetime exclusion of the net capital gain from the sale of cattle or horses if held by the retired farmer for breeding, draft, dairy, or sporting purposes for more than months, and only if the retired farmer materially participated in the farming business for five of the eight years preceding the retired farmer’s retirement or disability, and who sold all or substantially all of the retired farmer’s interest in the farming business by the time the election to exclude capital gain of the sale of livestock from the individual income tax is made. _____ in the farming business for five of the eight years preceding the retired farmer’s retirement or disability, and who sold all or substantially all of the retired farmer’s interest in the farming business by the time the election to exclude capital gain of the sale of livestock from the individual income tax is made. Under the bill, a retired farmer is not eligible for the capital gain exclusion if the retired farmer claims the beginning farmer tax credit in the same tax year. A retired farmer electing the capital gain exclusion is not eligible to elect to exclude retired farmer lease income in the same tax year or any succeeding tax year. The division takes effect January 1, 2023, and applies to sales consummated on or after that date.7(21) shall govern. DIVISION IV —— INDIVIDUAL INCOME TAX —— TAX YEARS 2023-2025.5A. The bill reduces individual income tax rates beginning with the 2023 tax year, and reduces the number of individual income tax brackets beginning with the 2024 tax year.5. The alternate income tax is an alternate method of calculating income tax liability in lieu of the regular income tax calculation. _____ tax calculation with the regular income tax rates are used.50 percent commencing with tax years beginning on or after January 1, 2026. The division takes effect January 1, 2023, and applies to tax years beginning on or after that date. DIVISION V —— INDIVIDUAL INCOME TAX —— FLAT RATE.5. The division takes effect January 1, 2026, and applies to tax years beginning on or after that date. DIVISION VI —— CORPORATE INCOME TAX RATES —— ADJUSTMENTS. The bill establishes a procedure where the corporate income tax rates may be modified commencing with tax years beginning on or after January 1, 2023. By November 1, 2022, and by November each year thereafter, the department of management shall determine the net corporate income tax receipts for the fiscal year preceding the determination date. If net corporate income tax receipts for the preceding fiscal year exceed $700 million, the department of revenue shall adjust and apply new corporate income tax rates. Under the bill, if a determination has been made that net corporate income tax receipts for the preceding fiscal year exceeded $700 million, the department of revenue shall adjust the two highest current corporate tax rates and apply the adjusted rates for tax years beginning on or after the next January following the determination date.33(1), the tax rates would have generated net corporate income tax receipts that equal $700 million.5 percent. If a tax rate is adjusted, the bill requires the director of revenue to cause an advisory notice containing the new corporate tax rates to be published in the Iowa administrative bulletin and on the internet site of the department of revenue. The calculation and publication of the adjusted tax rate by the director of revenue is exempt from Code chapter 17A, and shall be submitted for publication by the first December following the determination date to adjust the tax rates. DIVISION VII —— CORPORATE INCOME TAX —— FLAT TAX.5 percent. The division contingently takes effect the first January after such an occurrence, and applies to tax years beginning on or after that date. DIVISION VIII —— RETIREMENT INCOME EXCLUSION. Under current law, a taxpayer who is disabled, who is at least years of age, or who is the surviving spouse or other specified survivor of that qualifying taxpayer, may exclude a maximum of $6,000 of other retirement income ($12,000 for married persons). Commencing with tax years beginning January 1, 2023, the bill excludes retirement income from the computation of net income for purposes of the individual income tax. In order to be eligible for the retirement income exclusion, a person must be disabled, at least years of age, or be the surviving spouse of an individual or be a survivor having an insurable interest in an individual who would have qualified for the retirement income exclusion. The bill does not change current law allowing a taxpayer to exclude all retirement pay, including certain survivor benefits, received from the federal government for military service performed in the armed forces, the armed forces military reserve, or national guard.7(31) because the bill provides for the complete exclusion of such retirement income.5, and further provides that any retirement income excluded from the individual income tax will not be added back to these calculations for tax years beginning in 2023 or later. The division takes effect January 1, 2023, and applies to tax years beginning on or after that date.