Relating to state and local taxation and regulations by changing certain tax credits, cigarette and tobacco-related regulations, and certain city budget certification deadlines, providing for penalties, and including retroactive applicability and effective date provisions

Sponsored by the House Ways and Means Committee

Proposed by the Department of Revenue · their explanation · all agency proposals

Topics:Alcohol, cannabis & gaming Cities & counties Taxes Tax credits & incentives

Same legislation: HSB 90, SSB 1153, SF 612

Write your legislators about itWhat changed before it passed

Official bill page Lobbyist declarations One-pager to print

Where it is now

Done: IntroducedJanuary 28, 2025
Done: SubcommitteeJanuary 28, 2025
Done: House committeeMay 12, 2025
Done: Passes the HouseMay 14, 202581–0
Skipped: Senate committeeSkipped
Done: Passes the SenateApril 16, 202547–0
Done: To the GovernorMay 23, 2025
Done: Signed into lawJune 6, 2025

SF 612 became law → The same legislation passed as SF 612, so this version was set aside. Go to SF 612 What’s a funnel?

What’s in it

AI summary Local governments will now use a state electronic system to handle tobacco permit applications and fees. People must also submit their tobacco tax reports and documents electronically starting in July 2025 or face penalties. Additionally, businesses doing agriscience research can now qualify for a specific research tax credit, and certain small cities are given extra time to meet budget deadlines.¹

Read the official explanation

This bill relates to state and local taxation and regulations. DIVISION I —— CIGARETTE AND TOBACCO-RELATED REGULATIONS. The bill specifies that cities and counties may approve tobacco-related retail permits but the department shall issue the permit to the applicant on behalf of the city or county. The bill requires the city or county to use the electronic portal of the department to process retail permit applications. If a city or county is unable to use the electronic portal of the department, the city or county may request permission from the director of revenue to process retail applications by another method. The bill provides that all tobacco-related permit fees shall be collected by the department, and the department shall credit the fees to the city or county where the permit is in effect. The bill specifies that a person who fails to timely file or submit a required return, report, or other documentation upon which no tax is shown due is subject to a penalty in the amount of $50 for each occurrence. The bill requires cigarette and tobacco tax returns, reports, invoices, bonds, and payments to be filed with or submitted to the department electronically beginning on or after July 1, 2025. The bill provides any report, return, remittance, or other documentation required to be submitted electronically that is submitted in a manner other than in an electronic format shall be considered not a valid submission. However, the bill does allow a person required to make a submission electronically to request permission from the director of revenue to make the submission in another manner.57 (submitting documents —— alternative method) in subchapter IV. DIVISION II —— RESEARCH ACTIVITIES TAX CREDIT. The bill modifies the research activities tax credit available against the individual and corporate income taxes.1. The bill provides that a person engaged in agriscience research does qualify for the credit. The bill defines “agriscience research”. The division applies retroactively to tax years beginning on or after January 1, 2017, for tax years beginning on or after that date. DIVISION III —— CITY BUDGET CERTIFICATION DEADLINE. The bill defines “qualified city” to mean a city in this state having a population between 20,400 and 20,500 persons, according to the 2020 federal decennial census. The bill allows a qualified city that failed to certify a budget as required by law to nevertheless comply with the budget deadline requirements by certifying the budget on or before July 1, 2025. The division takes effect upon enactment.

Changed since by amendments H-1329, H-1328; see Amendments.

Full bill text · What changed before it passed²

House subcommittee

Named January 28, 2025 (as HSB 90). On February 12, 2025 it recommended passage.

Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part

Fiscal note

Minimal Compare with other bills

AI summary This bill requires electronic filing for certain tobacco-related documents, allows specific small cities to meet a different budget certification deadline, and increases the refund rate for the Historic Preservation Tax Credit to 100.0%. The new $50 penalty for late tobacco documentation is expected to have a minimal impact on increasing revenue to the General Fund. The changes to city budget deadlines may impact city revenues and expenses in fiscal year 2026, but the amount cannot be estimated. Increasing the tax credit refund rate is estimated to decrease revenue to the General Fund by $5.0 million in fiscal year 2026, $6.6 million in fiscal year 2027, and $8.3 million in fiscal year 2028 and beyond.³

Read the fiscal note

Description

Senate File 612 relates to cigarette and tobacco regulations, city budgets, and tax credits. Division I — Cigarette and Tobacco-Related Regulations

Description

Division I of the Bill requires that certain tax returns, permits, bonds, and reports related to cigarettes, tobacco products, alternative nicotine products, and vapor products be filed electronically.

The Division provides that retail permits for tobacco, tobacco products, alternative nicotine products, and vapor products are issued by the Iowa Department of Revenue (IDR) after the approval of the city or county in which the retailer is located. Local permit fees are collected by the IDR and remitted to the city or county in which the retailer is located. The Division provides that a person who fails to timely submit a required return, report, or other documentation upon which no tax is shown due is subject to a $50 penalty. The Division provides that any application, bond, fee, report, return, remittance, or other documentation required to be submitted electronically that is not submitted electronically is considered not to be a valid submission.

The Division takes effect July 1, 2025.

Background

Tax returns, permits, bonds, and reports related to cigarettes, tobacco products, alternative nicotine products, and vapor products are not required to be filed electronically. Under current law, cities and counties may issue retail permits for tobacco, tobacco products, alternative nicotine products, and vapor products.

Assumptions

Revenues from the $50 penalty created in the Bill are deposited into the General Fund.
There are 147 active State cigarette or tobacco permits.
Any application, bond, fee, report, return, remittance, or other documentation that was filed electronically will continue to be filed electronically.

Fiscal Impact

The creation of a $50 penalty for the failure to timely submit certain documentation to the IDR in Division I of the Bill may increase revenue to the General Fund; however, this is anticipated to be minimal.

Division II — City Budget Certification Deadline

Description

Division II of the Bill allows a qualified city with a population of between 20,400 and 20,500 that failed to meet the deadline to certify a budget for FY 2026 to certify a budget on or before July 1, 2025. A qualified city is not required to conduct a public hearing on the city’s FY 2026 budget. Division II takes effect upon enactment.

Background

A city whose budget is certified after April 30 is limited to the taxes levied in the previous fiscal year. A public hearing must be held before a budget is certified. A notice of the public hearing must be published not less than 10 days and not more than 20 days before the public hearing in a newspaper having general circulation in the city.

Assumptions

Planned city FY 2026 budgets and tax levies impacted by the Bill are unknown.

Fiscal Impact

Division II of the Bill may impact the revenues and expenses of cities in FY 2026; however, the amount of the impact cannot be estimated due to a lack of data.

Division III — Historic Preservation Tax Credit

Description

Division III of the Bill increases the refund rate of the Historic Preservation Tax Credit (HPTC) to 100.0%. The Division applies retroactively to tax years beginning on or after January 1, 2025.

Background

The HPTC provides a 25.0% tax credit for qualified expenditures incurred during the substantial rehabilitation of eligible historic properties in Iowa. Under current law, the refund rate for the HPTC is as follows:

Tax year (TY) 2025 = 85.0%
TY 2026 = 80.0%
TY 2027 and beyond = 75.0%

Additional information on the HPTC, including redemption history, is available in the HPTC Fiscal Topic.

Assumptions

The maximum aggregate award limit of $45.0 million will be awarded each year.
Changes to the HPTC will have no impact on the school district surtax.
Under current law, 79.4% of the HPTC maximum aggregate award limit will be claimed each year.
On average, 7.5% of HPTC claims are against tax liability and 92.5% of claims are refunded.
Based on the refundability levels in Iowa Code section 404A.2(4)(a), it is assumed that the reduction rates for tax credit refundability are 13.9% in TY 2025, 18.5% in TY 2026, and 23.1% in subsequent tax years.