HF2317: Tax Reform

The House, Senate and Governor's compromise tax reform bill, as amended by S-5022 on 2/24/2022

Division 1 - Allows an employer owner of certain qualified corporations one lifetime exclusion from capital gains tax from the sale of capital stock.  Phases in a full exemption of such sales over three years.

Divisions 2 & 3 - Retired Farmer provisions allowing for lease income to be excluded from income tax as well as capital gains.

Divisions 4 & 5 – Phases in a flat state income tax of 3.9% over three years.   Under current law, the top tax rate of 8.53% in calendar year (CY) 2022 was set to fall to 6.5% in CY2023.  The bill would set the top rate at 6% in CY2023, 5.7% in CY2024, 4.82% in CY 2025, and lock in 3.9% in CY 2026 and subsequent years.  All other brackets are reduced in a similar fashion until a 3.9% flat income tax exists for all taxpayers in CY2026. 

Division 6 - Excludes retirement income from individual income tax, starting 1/1/2023.

Division 7 – Research Activities Tax Credit – Phases in a 50% reduction in refundability over 5 years. 

Division 8 – Phases in a 25% reduction in refundability over 5 years of the following tax credits: Assistive Device, Historic Preservation, Redevelopment, Supplemental Research Activities, and Third-Party Developer.  Requires the IEDA to prioritize the Research Activities Tax Credit. Prohibits any new issuances of the Geothermal Heat Pump Tax Credit after 12/31/2022.  Limits the maximum tax credit dollar amount for the Endow Iowa Tax Credit to $100,000 per year (from 5% of the currently authorized $6 million). 

Divisions 9 & 10 – Reduces corporate income tax rates over a period of years to 5.5%.  This is done by setting a baseline of $700 million in revenues and every year (starting in CY 2023) reducing the top corporate rate to a percentage that yields that same $700 million in revenues.

Division 11 – Repeals the Tax Expenditure Committee as of 7/1/2022 and transfers that oversight to departments responsible for each tax credit.

Division 12 – Makes changes to the Taxpayer Relief Fund to establish criteria for when automatic transfers occur to the General Fund, starting in FY 2024.