2006 IOWA TAXATION LEGISLATIVE SUMMARIES

2006 IOWA LEGISLATIVE SUMMARIES WITH TAX IMPLICATIONS

IOWA DEPARTMENT OF REVENUE

JULY 2006

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

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:

The construction contract for the erection of the building or structure must be entered into on or after April 1, 2003;
The building or structure must be located within the corporate city limits in Iowa with a population in excess of 195,000 residents;
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
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:

The contract for construction of the building or structure must be entered into on or after April 1, 2003;
The building or structure must be in the corporate limits of a city in the state with a population in excess of 195,000;
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;
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);
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
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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 tr