Relating to state and local finance and the administration of the tax and related laws by the department of revenue, and including effective date, applicability, and retroactive applicability provisions

This bill relates to state and local finance and the administration of the tax and related laws by the department of revenue (department). DIVISION I —— IOWA EDUCATIONAL SAVINGS PLAN AND FIRST-TIME HOMEBUYERS DUE DATES. The bill makes changes to the Iowa educational plan trust (529 plans) and the first-time home buyer savings account program.17(30), the taxpayer may elect that a contribution made to a 529 plan during the extended time to file such a return may be deemed to have been made for the prior calendar year. The bill provides that the first-time homebuyers savings account designations must be provided to the department on or before the date to file an individual income tax return, excluding extensions, or on or before the extended filing date if the director extends the date for making and filing an individual income tax return in the case of a natural disaster. DIVISION II —— BONUS DEPRECIATION AND INCREASED EXPENSING —— APPLICABILITY. The “trigger” (2018 Iowa Acts, chapter 1161, sections through 134) went into effect on January 1, 2023. The bill provides that the repeal of bonus depreciation and increased expensing provisions in the trigger applies to tax years beginning on or after January 1, 2023, for property placed in service on or after January 1, 2023. DIVISION III —— TAX FILING STATUS MODIFICATIONS. For tax years beginning on or after January 1, 2023, the bill requires a taxpayer to use the same filing status for Iowa individual income tax purposes as the taxpayer used for federal individual income tax purposes. The bill also strikes provisions implying that a taxpayer may elect to use a different tax filing status on the taxpayer’s Iowa and federal income tax returns. The division applies to tax years beginning on or after January 1, 2023. DIVISION IV —— WITHHOLDING.16 relating to withholding agents withholding Iowa tax from the wages or other income of a resident or nonresident.4. Under current law, most retirement income is no longer subject to Iowa income tax. The bill strikes provisions requiring the withholding of state income tax from retirement income made to Iowa residents if the retirement income is no longer subject to Iowa income tax. The bill excludes some pass-through entity income for purposes of calculating whether a taxpayer is required to make estimated tax payments. DIVISION V —— FUTURE CORRESPONDING CHANGE.5.5. The division takes effect January 1, 2026. DIVISION VI —— SETTLEMENT AUTHORITY —— NOTICE OF ASSESSMENT —— ESTIMATION OF TAX. Under current law, the director may compromise and settle doubtful claims for taxes or refunds. The bill defines “settle” or “settlement” to include any compromise or abatement of tax, penalties, and interest. The bill specifies that the department may settle any taxes, penalties, and interest in the case of doubtful liability, doubtful collectability, economic hardship, or to promote effective tax administration. The bill requires the department to make a complete record of the settlement. A taxpayer shall not have the right to a settlement under the bill, and any determination by the department regarding a settlement shall be discretionary and final, except in the case of fraud, mutual mistake, or stated in a written settlement agreement.60(2)(i) and (m) which relate to the settlement of taxes owed the state and makes conforming changes.10 relating to the appeal period for the revision of the assessment of tax. The bill specifies that the appeal period provisions apply to notices from the department involving adverse department actions directed at a specific taxpayer, other than licensing, which involves a calculation. Under current law, the appeal period provisions relate to all agency actions regardless if the action is adverse, if any department action is directed at a specific taxpayer, other than licensing, and involves a calculation.25 to specify that if a taxpayer required to file a return with the department fails to file the return or files a false or fraudulent return, the department may, at any time, estimate the tax due based upon information or knowledge the department is able to obtain. If the department estimates the tax due, the bill requires the department to issue a notice of assessment to the taxpayer and creates procedures for the department to follow if the taxpayer files a return within three years from the date of the assessment, and creates procedures if the taxpayer fails to file such a return within three years from the date of the assessment.37(1) (sales and use tax) to specify that the department may examine a sales tax return within three years after the return is filed. Under current law, the department is required to examine such a return within three years. The bill establishes procedures for when a sales tax return is incorrect or insufficient when filed. The bill requires the department to determine the amount of tax due from information or knowledge the department is able to obtain including using any generally recognizable sampling technique to determine the tax owed, if the sampling technique is mutually agreed upon by the department and the person being audited. The bill requires the department to issue a notice of assessment if the return is found to be incorrect, and establishes procedures for the taxpayer to appeal the assessment, or pay the tax, penalty, and interest, and file a refund claim on the estimated tax if necessary.37(2) establishing the procedures for when a sales or use tax return is not filed. The bill states the period for examination and determination of the correct amount of tax is unlimited, and allows the department to estimate the amount of tax due. The bill requires the department to issue a notice of assessment, and establishes procedures for the taxpayer to appeal the assessment, or pay the tax, penalty, and interest, and file a refund claim on the estimated tax if necessary.37 (procedures for when a return is filed incorrectly or not filed), which is also amended in the bill.37 (procedures when return is filed incorrectly or not filed), which is also amended in the bill.38 relating to provisions that are applicable to the judicial review of the actions of the department involving sales and use taxes, and makes conforming changes. The division takes effect January 1, 2024. DIVISION VII —— TAX RETURN PREPARERS AND PERSONS AUTHORIZED TO ACT FOR TAXPAYERS. The bill requires additional tax return preparers to include the preparer’s personal identification number on any return prepared by the preparer and filed with the department if the preparer is licensed as a certified public accountant or a licensed public accountant under Code chapter 542 or a similar law of another state, if the preparer is admitted to practice law in this state, or if the preparer is an enrolled agent enrolled to practice before the Internal Revenue Service.59, including striking the authority of an individual to act on behalf of a taxpayer who has been named as an authorized representative on a fiduciary return or an inheritance tax return. DIVISION VIII —— SETOFF. The bill allows but does not require the department to establish a fee for use of the setoff system. Currently, the department is required to charge a fee for use of the setoff system. The setoff system is a centralized system designed to collect debt owed to public agencies. The setoff system operated by the department is currently not operational until the department adopts rules. DIVISION IX —— HOMESTEAD PROPERTY TAX CREDIT.11 relating to the homestead credit. The bill expands the definition of “owner” to allow a person occupying a homestead to receive the homestead credit regardless of whether the underlying land is held in fee or as a leasehold interest, provided that the person is occupying the homestead and is liable for and pays property tax on the homestead. The division takes effect upon enactment and applies to claims under Code chapter 425, subchapter I, for credits against property taxes due and payable in fiscal years beginning on or after July 1, 2024. DIVISION X —— PROPERTY TAX CREDITS AND RENT REIMBURSEMENT. The bill modifies the definition of “income” to include certain retirement, deferred, or rental income for purposes of calculating eligibility for the elderly and disabled property tax credit or for reimbursement of rent constituting property taxes paid under Code chapter 425, subchapter II. The division applies to claims under Code chapter 425 for credits due and payable in fiscal years beginning on or after July 1, 2024, and for rent reimbursement in base years beginning on or after January 1, 2023. The division also applies to claims for a credit for manufactured and mobile home taxes due in fiscal years beginning on or after July 1, 2024. DIVISION XI —— ELECTRONIC COMMUNICATION —— RULES. The bill provides that if the department posts a rule to the department’s electronic portal, the posting of the electronic communication shall satisfy any requirement of mailing or personal service for purposes of Code chapter 17A (Iowa administrative procedure Act). DIVISION XII —— COMPOSITE RETURN FILING EXCLUSION FOR FINANCIAL INSTITUTIONS AND CERTAIN FINANCIAL INSTITUTIONS. Under the bill, a pass-through entity is not required to remit Iowa income or franchise tax on behalf of a nonresident member if either of the following apply: the pass-through entity is a financial institution subject to the franchise tax and files a franchise tax return and pays any franchise tax owed; or the pass-through entity wholly owns one or more financial institutions subject to the franchise tax, and at least percent of the gross income of the pass-through entity for the tax year is also reportable income on the franchise tax return of the wholly owned financial institutions and any franchise tax owed is paid. DIVISION XIII —— RETIRED FARMER INCOME EXCLUSIONS. The bill modifies the definition of “materially participated” for purposes of the retired farmer tenancy income exclusion and the retired farmer capital gain exclusion by excluding section 469(h)(3) of the Internal Revenue Code from the definition of “materially participated” in section 469(h) of the Internal Revenue Code. This division takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2023. DIVISION XIV —— INSTRUCTIONAL SUPPORT INCOME SURTAX. The bill modifies the manner in which the instructional support income surtax is deposited into the school district income surtax fund by requiring monthly deposits into the fund and prohibiting certain income surtax moneys from being deposited into the general fund of the state. The bill also modifies the instructional support income tax certification and accounting dates by the department of revenue to the department of management.