Text: HSB138            Text: HSB140


House Study Bill 139

HOUSE FILE BY (PROPOSED COMMITTEE ON ECONOMIC GROWTH BILL BY CHAIRPERSON HOFFMAN) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act relating to state individual income tax exemptions for 2 residents of border cities, replacement local option sales and 3 services and property tax, and including an effective date. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2244YC 81 6 mg/sh/8 PAG LIN 1 1 Section 1. Section 257.21, unnumbered paragraph 2, Code 1 2 2005, is amended to read as follows: 1 3 The instructional support income surtax shall be imposed on 1 4 the state individual income tax for the calendar year during 1 5 which the school's budget year begins, or for a taxpayer's 1 6 fiscal year ending during the second half of that calendar 1 7 year and after the date the board adopts a resolution to 1 8 participate in the program or the first half of the succeeding 1 9 calendar year, and shall be imposed on all individuals 1 10 residing in the school district on the last day of the 1 11 applicable tax year. As used in this section, "state 1 12 individual income tax" means the taxes computed under section 1 13 422.5, less the credits without the exemption in section 1 14 422.5, subsection 11, and with the credit adjustments allowed 1 15 in sections 422.11A, 422.11B, 422.12, and 422.12B. 1 16 Sec. 2. Section 384.12, Code 2005, is amended by adding 1 17 the following new subsection: 1 18 NEW SUBSECTION. 23. If the city is a border city, as 1 19 defined in section 422.125, that has approved a state income 1 20 tax exemption for its residents, a tax to provide funding to 1 21 reimburse the state for lost state income tax revenues as 1 22 provided in sections 422.125 through 422.129. 1 23 Sec. 3. Section 422.5, Code 2005, Code 2005, is amended by 1 24 adding the following new subsection: 1 25 NEW SUBSECTION. 11. If a border city has approved the 1 26 local option exemption for border city residents pursuant to 1 27 sections 422.125 through 422.129, the taxes under this 1 28 division, including the alternative minimum tax, shall not be 1 29 imposed on the net income of a resident of that border city 1 30 and shall not be imposed on the income derived by a 1 31 nonresident of Iowa who lives in a border city outside of Iowa 1 32 from employment or business activity engaged in the Iowa 1 33 border city. 1 34 Sec. 4. NEW SECTION. 422.125 LEGISLATIVE FINDINGS AND 1 35 INTENT. 2 1 The general assembly realizes the inequities faced by 2 2 cities in this state and their inhabitants when the cities are 2 3 adjacent to an incorporated city or town in another state in 2 4 which the tax burden of the citizens of the city or town in 2 5 the adjoining state is substantially less than the tax burden 2 6 imposed by the laws of this state upon the citizens of a 2 7 border city in this state. 2 8 The general assembly finds that these tax inequities offer 2 9 inducements to citizens who would otherwise settle in Iowa and 2 10 operate businesses in Iowa to move to the border cities in the 2 11 adjoining states. 2 12 The general assembly declares that the passage of this 2 13 division is designed to establish a method of equalizing the 2 14 inequities imposed under the tax laws of this state, thereby 2 15 offering inducements to persons to establish their homes and 2 16 businesses in the Iowa border city. 2 17 The general assembly further declares that the 2 18 reimbursement to the state by the border city under this 2 19 division in lieu of the state income tax on the residents of 2 20 the border city shall be a benefit to the state and all of its 2 21 residents. 2 22 Sec. 5. NEW SECTION. 422.126 DEFINITIONS. 2 23 For the purposes of this division and unless the context 2 24 otherwise requires: 2 25 1. "Base year" means the fiscal year beginning immediately 2 26 prior to the effective date of the income tax exemption under 2 27 this division. 2 28 2. "Border city" means a city that is contiguous to a city 2 29 or town in another state or is within five miles of a city or 2 30 town in another state. 2 31 Sec. 6. NEW SECTION. 422.127 INCOME TAX EXEMPTION == 2 32 ELECTION. 2 33 1. The governing body of a border city may enact an 2 34 ordinance to exempt from the state income tax the income of 2 35 the residents of the border city, subject to this section. 3 1 2. The ordinance to provide for the income tax exemption 3 2 shall only be effective after an election at which a majority 3 3 of those voting on the question favors the enactment of the 3 4 ordinance and a repeal of the ordinance shall only be 3 5 effective after a subsequent election at which a majority of 3 6 those voting on the question favors the repeal of the 3 7 ordinance. 3 8 3. The governing body may submit the question of the 3 9 enactment or repeal of the ordinance for the income tax 3 10 exemption on its own motion and shall submit the question upon 3 11 receipt of a valid petition of the voters of the city pursuant 3 12 to section 362.4. 3 13 4. The county commissioner of elections shall submit the 3 14 question of the enactment or repeal of the ordinance at the 3 15 time of the state general election, city regular election, or 3 16 special election. However, the election shall not be held 3 17 sooner than sixty days after publication of the ballot 3 18 proposition. The ballot proposition shall contain a statement 3 19 that an income tax exemption for the city's residents will be 3 20 enacted and that the city will be required to reimburse the 3 21 state for lost revenue as a result of the exemption. The 3 22 ballot proposition shall also specify the sources for 3 23 reimbursing the state for the lost state income tax revenue. 3 24 If one of the sources is a local sales and services tax, the 3 25 rate, in increments of one or more full percentage points, and 3 26 the date of imposition of the tax shall be specified. 3 27 5. If a majority of those voting on the question of 3 28 enactment or repeal of the ordinance favors enactment or 3 29 repeal, the ordinance or repeal is effective for an unlimited 3 30 period of time. If the ordinance is enacted, the income tax 3 31 exemption takes effect January 1 following the favorable 3 32 election and applies to tax years beginning on or after the 3 33 effective date. If the ordinance is repealed, the income tax 3 34 exemption is repealed effective January 1 following the 3 35 favorable election and applies to tax years beginning on or 4 1 after the effective date. 4 2 Sec. 7. NEW SECTION. 422.128 APPLICABILITY OF EXEMPTION. 4 3 1. A state income tax exemption enacted by ordinance under 4 4 this division only applies to individual taxpayers and not to 4 5 estates, trusts, corporations, or any other person. 4 6 2. An individual taxpayer residing in a border city or 4 7 town located outside Iowa is entitled to the state income tax 4 8 exemption with respect to income derived from employment or 4 9 business activity engaged in in an Iowa border city that has 4 10 approved the state income tax exemption pursuant to this 4 11 division. 4 12 Sec. 8. NEW SECTION. 422.129 REIMBURSEMENT OF LOSS TO 4 13 STATE == FUNDING SOURCES. 4 14 1. A border city that has approved the state income tax 4 15 exemption shall reimburse the state for the estimated loss in 4 16 state income tax revenues attributable to the exemption. The 4 17 estimated loss shall be based on the estimated amount of state 4 18 income tax revenues received during the base year from 4 19 residents of the border city and nonresidents who were 4 20 employed or had business activities in the border city. The 4 21 amount of the reimbursement equals one hundred percent of such 4 22 estimated amount during the base year. 4 23 2. Funding sources available to the border city for 4 24 reimbursement for the state consists of the following: 4 25 a. A local option sales and services tax without a rate 4 26 limitation. However, the rate shall be listed on the ballot 4 27 proposition and in a whole number. 4 28 b. A special property tax levy without rate limitation. 4 29 c. Any other city funds not otherwise dedicated for a 4 30 specific purpose. 4 31 d. Any combination of funding sources referred to in 4 32 paragraphs "a", "b", and "c". 4 33 3. a. If a local option sales and services tax imposed in 4 34 the incorporated area of the border city is to be used to 4 35 partially or fully fund the reimbursement, the tax shall be 5 1 imposed either January 1 or July 1 following notification of 5 2 the director but not sooner than ninety days following the 5 3 favorable election and not sooner than sixty days following 5 4 notice to sellers, as defined in section 423.1. 5 5 b. The provisions relating to the imposition of the local 5 6 sales and services tax in section 423B.5, the administration 5 7 of such tax in section 423B.6, and the refunds for 5 8 construction contractors in section 423B.8 apply to the local 5 9 option sales and services tax imposed by a border city, except 5 10 that the rate shall be as specified on the ballot proposition, 5 11 references to the county shall mean the border city, and other 5 12 provisions inconsistent with the intent and workings of this 5 13 tax shall not be considered. 5 14 Sec. 9. Section 422D.2, Code 2005, is amended to read as 5 15 follows: 5 16 422D.2 LOCAL INCOME SURTAX. 5 17 A county may impose by ordinance a local income surtax as 5 18 provided in section 422D.1 at the rate set by the board of 5 19 supervisors, of up to one percent, on the state individual 5 20 income tax of each individual residing in the county at the 5 21 end of the individual's applicable tax year. However, the 5 22 cumulative total of the percents of income surtax imposed on 5 23 any taxpayer in the county shall not exceed twenty percent. 5 24 The reason for imposing the surtax and the amount needed shall 5 25 be set out in the ordinance. The surtax rate shall be set to 5 26 raise only the amount needed. For purposes of this section, 5 27 "state individual income tax" means the tax computed under 5 28 section 422.5, less the credits without the exemption in 5 29 section 422.5, subsection 11, and with the credit adjustments 5 30 allowed in sections 422.11A, 422.11B, 422.12, and 422.12B. 5 31 Sec. 10. EFFECTIVE DATE. This Act, being deemed of 5 32 immediate importance, takes effect upon enactment. 5 33 EXPLANATION 5 34 This bill provides that a border city may vote to exempt 5 35 the residents of the city from the state individual income 6 1 tax. A border city is one that is contiguous to a city or 6 2 town in another state or is within five miles of a city or 6 3 town in another state. The vote taken must be a citywide 6 4 election at which a majority votes in favor of the exemption 6 5 as well as in favor of reimbursement to the state from a 6 6 specified source of the estimated loss to the state 6 7 attributable to the exemption. The funding for the 6 8 reimbursement is optional and may consist of a local option 6 9 sales and services tax with no rate limit, a special property 6 10 tax with no rate limit, or any other funds available to the 6 11 city which are not otherwise dedicated to another purpose. 6 12 Only the sales tax must be on the ballot if that is to be one 6 13 of the funding sources and the rate must be specified. 6 14 The bill provides that income surtaxes for schools and 6 15 emergency medical services are not affected by the exemption 6 16 provided border city residents. 6 17 The bill takes effect upon enactment. 6 18 LSB 2244YC 81 6 19 mg:rj/sh/8
Text: HSB138            Text: HSB140