1998 Legislative Summaries



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IOWA GENERAL ASSEMBLY

BILL DESCRIPTION
HF 667 Administrative Procedures Act Changes
HF 2119 Iowa Educational Savings Plan Trust
HF 2120 Cigarette and Tobacco Products Self-Service Display Prohibition
HF 2153 Pre-Tax of State Pensions for State Income Tax Purposes
HF 2271 Required Annual Reports
HF 2282 Local Option Tax for School Infrastructure
HF 2374 Statewide Nonprofit Organ Procurement Organizations
HF 2513-A Exemption from State Income Tax of Certain Types of Capital Gains
HF 2513-B Increase in Partial Pension/Retirement Income Exclusion
HF 2513-C Increase in Personal Exemption Credit Amounts
HF 2513-D Tuition and Textbook Credit Increase and Revisions
HF 2513-E Nonprofit Hospital Exemption
HF 2513-F Elderly and Disabled Circuit Breaker
HF 2538 Enterprise Zone Housing Assistance Withholding Tax Credit
HF 2541 Vehicles Used in Interstate Commerce
HF 2550 Massage Therapists Exemption
HF 2560 Expanded Exemption for Sales of Aircraft and Aircraft parts
SF 2061 Property Tax Statement Requirement Delay
SF 2288-A Optional Service or Warranty Contracts
SF 2288-B Amendments to the Expanded Industrial Machinery and Equipment Exemption
SF 2357 Update of Reference to the Internal Revenue Code
SF 2364 Food and Drink Sales by Nonprofit Organizations that Promote Iowa Food Exempt
SF 2365-A Rural Water District Exemption
SF 2365-B Electricity Sales to Water Companies
SF 2400 Mobile, Manufactured and Modular Home Tax
SF 2407 Reduced Tax Rate for Ethanol Extended
SF 2416 Utility Replacement Tax

 

98 HF 667 - MISCELLANEOUS ADMINISTRATIVE PROCEDURES ACT CHANGES HIGHLIGHTS

Creates an administrative hearings division in the Department of Inspections and Appeals which will employ most of the administrative law judges in state government. A state agency can retain authority over a contested case if the agency head presides at the hearing. A litigant may still request a Department of Inspections and Appeals administrative law judge, but this request can be denied. Appeals can still be made to the agency. Decisions must include why the relevant evidence in the record supports each material finding of fact.

Requires a brief explanation of the principal reasons for a rule's adoption in the preamble when each rule is filed.

Provides for regulatory analysis of a proposed rule if one is requested in writing within 32 days after the rule is published under notice. The statute sets forth the information which must be contained in the regulatory analysis.

An interested party can make a written request requesting a formal review of an agency rule to determine if it should be repealed, amended, or a new rule adopted in its place. If the Administrative Rules Coordinator approves the request, the agency must complete a written response as to its findings.

A standing committee of the legislature is created to review rules referred to it by the Administrative Rules Review Committee. The standing committee has 21 days to take action on the rule from the date it is received by the standing committee.

Declaratory orders replace the concept of declaratory rulings which are currently issued by state agencies. The proceeding allows for intervenors if the Department's rules provide for intervenors. Declaratory orders are binding and are subject to judicial review.

If a party fails to appear at a hearing, a decision can be vacated for good cause and a second evidentiary hearing can be conducted.

New standards are created relating to ex parte communication.

A new emergency adjudicative proceeding is created for situations involving an immediate danger to the public health, safety, or welfare which requires immediate agency action.

New standards are created for judicial review of agency actions by courts

Effective Date

July 1, 1999

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98 HF 2119 - IOWA EDUCATIONAL SAVINGS PLAN TRUST

Prior Law

No prior law.

New Provision

An individual taxpayer may deduct an amount not to exceed $2,000 per beneficiary contributed as a participant in the Iowa educational savings plan trust. Also an individual or corporation may deduct to the extent not deducted for federal income tax purposes any gift, grant, or donation made to the Iowa educational savings plan trust for deposit in the endowment fund of the trust. An individual taxpayer may subtract to the extent included in income interest and earnings received from the plan.

Individuals must add to income the amount resulting from the cancellation of a participation agreement in the Iowa educational savings plan trust to the extent previously the amount was deducted.

Sections Amended

Section 12 of House File 2119 added the following new subsections 35, 36, and 37 to Code section 422.7, and section 13 of the Act added new subsection 422.33(14).

Effective Date

Sections 12 and 13 of the Act are effective for contributions, gifts, grants, and donations made on or after July 1, 1998.

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98 HF 2120 - CIGARETTE AND TOBACCO PRODUCTS SELF-SERVICE DISPLAY PROHIBITION

Prior Law

None.

New Provisions

Retailers are prohibited from selling cigarettes and tobacco products through the use of self-service displays in a quantity of less than a carton. "Self-service display" is defined as any manner of product display which permits a person to take possession of the product, prior to purchase, without assistance from the retailer. "Carton" is defined to mean a box or container of ten or more packages of cigarettes or tobacco products. Vending machine sales are not affected. Retail permit holders may have their permit revoked if in violation of the prohibition.

Sections Amended

Section 1 of House File 2120 explains the intent of the legislation; section 2 amends § 453A.1, Code 1997, by adding new subsections 1A, 15A, and 20A; section 3 adds new § 453A.36A.

Effective Date

January 1, 1999.

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98 HF 2153 - PRE-TAX OF STATE PENSIONS FOR STATE INCOME TAX PURPOSES

Prior Law

Starting with contributions to certain state pension plans made on or after January 1, 1995, the contributions were made on a pre-tax basis for federal income tax purposes. That is, the contributions were deemed to have been made by the state on behalf of the state employees covered by these pension plans. The employees were not subject to federal income tax on the amount of the contributions made to the pension plans on their behalf but were subject to both federal social security tax and to Iowa income tax on the contributions. The state pension plans affected by the change in contributions were the Public Safety Peace Officers' Retirement System authorized in Chapter 97A, Iowa Public Employees' Retirement System (IPERS) in Chapter 97B and the Retirement System for Police Officers and Fire Fighters in Chapter 411 of the Iowa Code. In addition, contributions to the Teachers' Pension System in Chapter 294 of the Iowa Code were to be made on a pre-tax basis for federal income tax purposes at the beginning of the tax year after application to the Internal Revenue Service for the change in tax treatment for the contributions.

Subsections 29, 30 and 31 of Section 422.7 were created in the act to provide a formula for calculation of the state taxable amount of the state pensions and the teachers pensions, since the pre-tax provision resulted in a greater bases in the employees' pensions for state income tax purposes than there were for federal income tax purposes.

New Provisions

Employees' contributions for the three state pension plans are treated as being made on a pre-tax basis for state income tax purposes starting with contributions made in January 1999. Thus, for state income tax purposes the contributions on behalf of the employees will be considered to have been made by the State instead of by the employees. When the employees retire the employees will be subject to state income tax on the portion of distributions made from the state pension plans that are considered to have been made by the State on a pre-tax basis. Employees' contributions to the Teachers' Pension System will also be treated as being made on a pre-tax basis for state income tax purposes, but the effective date for this change is dependent on when the Teachers' Pension System gets approval from the Internal Revenue Service for this change. Subsection 29, 30 and 31 of Section 422.7 which provide information on computing the Iowa taxable amounts of the state pensions and teacher's pensions are repealed. We will probably retain the Department rules for these statutes.

Sections Amended

Section l of House File 2153 amends paragraph 1 of subsection l of Section 97A.8. Section 2 of this bill amends subsections 1 and 2 of Section 97.B11. Section 3 of H. F. 2153 amends subsections 1 and 2 of Section 294.10A. Section 4 of the bill amends paragraph i of subsection 1 of Section 411.8. Section 5 of the Act strikes subsections 29, 30 and 31 of Section 422.7.

Effective Date

January 1, 1999, for tax years beginning on or after that date.

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98 HF 2271 - REQUIRED ANNUAL REPORTS

Prior Law

Iowa Code section 422.75 only required that the Department prepare and publish statistics as reasonably available regarding collection amounts, taxpayer classifications and any other facts deemed pertinent.

New Provisions

House File 2271, requires that the Department prepare and publish on an annual basis the above statistics and the report must also include reports and information required under Iowa Code sections 421.1(5) (tax reform recommendations); 421.17(13) (report of the Director regarding assessment, investigation and recommendations for improvement to the tax system); 421.17(34) (report regarding the operations of the centralized debt collection program); 421.60(2) (report regarding cases of abatement and recurrent taxpayer noncompliance and recommendations concerning the noncompliance); and 1997 Iowa Acts, Senate File 529, subsection 22, subsection 5 (reports regarding the implementation and financial status of the integrated revenue information system).

Section Amended

Iowa Code section 422.75

Effective Date

July 1, 1998

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98 HF 2282 - LOCAL OPTION TAX FOR SCHOOL INFRASTRUCTURE

Prior Law

None.

New Provisions

House File 2282 provides that a county by five percent of the eligible county voters or a school district with fifty percent of the county population may elect by majority vote derived by petition or motion, to impose a local option sales and services tax of up to one percent for school infrastructure purposes. "School infrastructure" which means those activities in which a school district is authorized to contract indebtedness and issue general obligation bonds under Iowa Code section 296.1, except those activities relating to a teacher's or superintendent's home or homes. The issue for imposing the tax must be held for election no sooner than 60 days following publication of the notice of ballot propositions. The election on the issue may be part of the state general election or by special election, but the special election must not occur at the time of the city regular election.

In addition this law provides that a school district that imposes this tax may issue negotiable bonds for school infrastructure needs without election and use the tax receipts derived from this tax to pay principal and interest on such bonds.

An estimate of funds from the tax to be received each month by each district will be prepared by the Department. Estimates are to be completed by July 15 of each tax year. The Department may revise the estimates at the end of each month. Payments will be made by the Department to each school district by the end of each month and will be made pursuant to 95% of the estimated receipts. Final payment will be made by the Department to these funds by November 10 of each tax year. If an overpayment occurs, then the next payment in the fiscal year shall be adjusted to account for such an overpayment.

If a county has multiple school districts, then the allocation of the funds from this tax shall be prorated based on the percentage of the actual enrollment for the school district attending school in the county divided by the total combined actual enrollment for the county. In other words, the formula would be as follows:

actual enrollment for the school district at issue
actual combined enrollment for the county

This law also establishes a school infrastructure safety fund which will receive federal funding for the purpose of a grant program that is to be allocated to local school districts for improvements relating to fire and personal safety.

Section Amended

Established Iowa Code chapter 422E.

Effective Date

Upon enactment. The bill was signed into law by the governor on April 20, 1998.

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98 HF 2374 - STATEWIDE NONPROFIT ORGAN PROCUREMENT ORGANIZATIONS

Prior Law

None

New Provision

The new provision exempts the gross receipts from sales of tangible personal property to and the performance of taxable services for a statewide, nonprofit, organ procurement organization, as defined in section 142C.2 of the Code. The exemption is applicable to use tax as well.

Section Amended

House File 2374 amends section 422.45, Code Supplement 1997, by adding a new subsection.

Effective Date

July 1, 1998.

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98 H F 2513-A - EXEMPTION FROM STATE INCOME TAX OF CERTAIN TYPES OF CAPITAL GAINS

 

Prior Law

Taxpayers were allowed a forty-five percent deduction for four types of net capital gains. The capital gain deduction could not exceed $17,500 in the aggregate for all taxpayers, except married taxpayers filing separate returns. Married taxpayers filing separate state returns could claim capital gain deductions of up to $8,750 per spouse. The four types of capital gains that qualified for the deduction were: (1) net capital gains from the sale of real property and tangible personal property used in a business which the taxpayer had owned for ten years and which the taxpayer had materially participated in for ten years; (2) net capital gain from the sale of cattle or horses held by the taxpayer for breeding, draft, dairy, or sporting purposes for a period of twenty-four months or more after acquisition, if the taxpayer received more than one-half of gross income from farming or ranching operations in the tax year; (3) net capital gain from the sale of breeding livestock, other than cattle or horses, if the livestock was held for a period of twelve months or more from the date of acquisition, if the taxpayer received more than one-half of gross income from farming or ranching operations during the tax year; (4) net capital gain from the sale of timber held for more than one year as defined in section 631(a) of the Internal Revenue Code. The capital gain deduction otherwise allowed was not allowed for purposes of computing a net operating loss and in computing the income for a taxable year for which a net operating loss was carried or was deducted. Note that the types of livestock described in items (2) and (3) above are livestock that qualify for capital gains treatment for federal income tax purposes under section 1231 of the Internal Revenue Code.

New Provision

The net capital gains received by a taxpayer from the sale of real estate and tangible personal property of a business are completely excluded from state income tax if the taxpayer had owned the business for ten years and had materially participated in the business for ten years. In order to qualify for exclusion from taxation, the sale of the assets of a business must include substantially all of the assets of that business. In addition, if the taxpayer had owned the business for ten or more years at the time of sale of the business and the business assets are sold to the lineal descendants of the taxpayer, the taxpayer did not have to have been material participating in the business for the ten years prior to the time of sale of the business for the capital gain to be exempt from tax. In the case of capital gains from the sale of qualifying livestock described under items (2) and (3) above to lineal descendants, the taxpayer did not have to have had more than half of gross income in the tax year from farming or ranching to have the capital gains be exempt from tax. The holding periods set forth in the statute still have to be met as the holding periods which qualify the livestock as capital assets. However, when the qualifying livestock is sold to persons or entities who are not lineal descendants of the taxpayer, the capital gains are exempt from income tax only if more than half of the gross income of the taxpayer in the tax year is from farming or ranching. Note that Capital gains received by the taxpayer from the sale of timber held by the taxpayer for 12 or more months is exempt from tax if the sale meets the criteria specified in section 631(a) of the Internal Revenue Code. For purposes of applicable provisions mentioned previously, the term "lineal descendent" means children of the taxpayer, including legally adopted children and biological children, stepchildren, grandchildren, great-grandchildren, and any other lineal descendants of the taxpayer. However, capital gains otherwise exempted from income are not allowed for purposes of computation of a net operating loss and in computing the income for a tax year for which a net operating loss is deducted. Note that in the case of an installment sale of a business which was made in a year prior to 1998, installments received in 1998 or in subsequent tax years will be exempt from income tax in cases where the taxpayers at the time of the installment sale had met conditions that would exempt the net capital gain from tax, if the installment sale had occurred in 1998. Note that in situations where a business is a corporation including a family farm corporation, capital gains received by the taxpayer from the sale of stock of the corporation is not exempt from state income tax, even if the sale of the stock is to a lineal descendant of the taxpayer.

Sections Amended

Section 1 of the Act amends unnumbered paragraph 1 of subsection 21 of Code section 422.7. Section 2 amends paragraph a of subsection 21 of Code section 422.7. Section 3 revises unnumbered paragraph 2 of subsection 21 of Code section 422.7.

Effective Date

The changes in Division I of this act take effect upon enactment and apply retroactively to January 1, 1998 for tax years beginning on or after January 1, 1998.

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98 HF 2513-B - INCREASE IN PARTIAL PENSION/RETIREMENT INCOME EXCLUSION

Prior Law

Effective for tax years beginning on or after January 1, 1995, qualifying taxpayers who received pension benefits and other retirement benefits could exclude up to $3,000 in taxable benefits received in the tax year. Married individuals who were eligible for the exclusion could exclude up to $6,000 in taxable benefits if joint Iowa returns were filed. Persons who were eligible for the exclusion were disabled individuals, individuals who were 55 years of age or older, individuals who were surviving spouses of pensioners who would have been eligible for the exclusion in the tax year because of age or disability, and survivors other than surviving spouses who were considered to have had an insurable interest in a pensioner or retiree who would have been eligible for the exclusion in the tax year. The retirement incomes that were included in the partial retirement income exemption were pensions, retirement payments, defined benefit or defined contribution plans, annuities, individual retirement accounts, self-employed retirement plans and deferred compensation plans. Not included in the exemption were taxable social security benefits.

New Provision

The pension/retirement income exclusion amounts under the prior law are increased to up to $5,000 for individuals and to up to $10,000 for married taxpayers who file a joint Iowa return. In the case of married taxpayers filing separate returns or separately on the combined return form, the up to $10,000 exclusion is allocated between the spouses in the ratio that each spouses' pension and retirement benefits relate to the total pension and retirement income received by both spouses. The same individuals are eligible for the increased pension/retirement income exclusion as under the prior law.

Section Amended

Section 5 of the Act amends subsection 34 of Code section 422.7.

Effective Date

The partial pension/retirement exclusion increase is retroactively applicable to January 1, 1998, for tax years beginning on or after that date.

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98 HF 2513-C - INCREASE IN PERSONAL EXEMPTION CREDIT AMOUNTS

 

Prior Law

The personal exemption credit amount for estate or trusts, single individuals or a married person filing a separate return was $20. For taxpayers filing individual income tax returns as unmarried heads of household or married taxpayers filing a joint Iowa return, the personal exemption credit amount was $40.

New Provision

The personal exemption credit amounts for estates and trusts, single individuals or married individuals filing a separate Iowa return are increased from $20 to $40. The personal exemption credit amounts for persons filing as unmarried heads of household or married individuals filing a joint Iowa return are increased from $40 to $80.

Section Amended

Section 7 of the Act amended paragraphs a and b of subsection 1 of Code section 422.12.

Effective Date

The increases in the personal exemption credit amounts are retroactive applicable to January 1, 1998, for tax years beginning on or after that date.

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98 HF 2513-D - TUITION AND TEXTBOOK CREDIT INCREASE AND REVISIONS

Prior Law

The tuition and textbook credit was equal to ten percent of the first one thousand dollars which the taxpayer paid in the tax year for tuition and textbooks for each dependent that attended grades kindergarten through 12 that in an Iowa school. In order for tuition paid by the taxpayer to a school to be eligible for the credit, the school had to have been accredited, not operated for profit and had to have adhered to the provisions of the civil rights act of 1964. The taxpayer could take the credit for payments for "textbooks" which included only those books and other instructional materials used in teaching subjects legally and commonly taught in Iowa's public schools. Textbooks did not include instructional books and materials used in teaching religious tenets, doctrines or worship. In addition, textbooks did not include books or materials used for extracurricular activities. For purposes of the credit, extracurricular activities are sporting events, speech activities, musical or dramatic events, driver's education, or programs of a similar nature

New Provisions

The tuition and textbook credit percentage is increased from ten percent to twenty-five percent of the first thousand dollars the taxpayer has paid for tuition and textbooks for each dependent in attending an elementary or secondary school in Iowa. All qualifications for the school are the same as under prior law. Expenditures by the taxpayer for the same textbooks and instructional materials that qualified for the credit under the prior law will still qualify after the revision. In addition, under the new law, "textbooks" for purposes of the credit include books and materials for extracurricular activities. Extracurricular activities include the same items as are listed above under the prior law.

Section Amended

Section 9 of the Act amends subsection 2 of Code section 422.12.

Effective Date

The changes in the tuition and textbook credit are retroactively applicable to January 1, 1998 for tax years beginning on or after that date.

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98 HF 2513-E - NONPROFIT HOSPITAL EXEMPTION

Prior Law

Some common hospital purchases of tangible personal property were exempt from tax (e.g. prescription drugs and devices) but no general statutory provision exempting hospital purchases of tangible personal property or furnishing of services to hospitals existed.

New Provision

Gross receipts from sales or rentals of tangible personal property to, or from services rendered, furnished, or performed for a nonprofit hospital are exempt from tax. The hospital must be licensed under chapter 135B of the Code and the tangible personal property or services must be used in operating the hospital if the exemption is to apply.

Section Amended

Section 11 of House File 2513 amends section 422.45, Code 1997, by adding a new subsection.

Effective Date

July 1, 1998

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98 HF 2513-F - ELDERLY AND DISABLED CIRCUIT BREAKER

Prior Law

The following table reflects the old income level and corresponding percent of property tax credit or rent reimbursement allowed to elderly and disabled homeowners and renters.

Household Income

% Credit/Reimbursement

$ 0 - 5,999.99

100%

6,000 - 6,999.99

85

7,000 - 7,999.99

70

8,000 - 9,999.99

50

10,000 - 11,999.99

35

12,000 - 13,999.99

25

 

The following table reflects the old income level and corresponding reduced tax rate for elderly and disabled mobile homeowners.

Household Income

Square Footage Tax Rate

$ 0 - 5,999.99

$.00

6,000 - 6,999.99

$.03

7,000 - 7,999.99

$.06

8,000 - 9,999.99

$.10

10,000 - 11,999.99

$.13

12,000 - 13,999.99

$.15

An elderly or disabled person with a household income of $6,000 or less was eligible to receive a credit against any unpaid special assessment levied against the person's homestead.

New Provisions

The following table reflects the new income level and corresponding percent of property tax credit or rent reimbursement allowed to elderly and disabled homeowners and renters.

Household Income

% Credit/Reimbursement

$ 0 - 8,499.99

100%

8,500 - 9,499.99

85

9,500 - 10,499.99

70

10,500 - 12,499.99

50

12,500 - 14,999.99

35

15,000 - 16,499.99

25

 

The following table reflects the new income level and corresponding reduced tax rate for elderly and disabled mobile homeowners.

Household Income

Square Footage Tax Rate

$ 0 - 8,499.99

$.00

8,500 - 9,499.99

$.03

9,500 - 10,499.99

$.06

10,500 - 12,499.99

$.10

12,500 - 14,999.99

$.13

15,000 - 16,499.99

$.15

 

An elderly or disabled person with a household income of $8,500 or less is eligible to receive a credit against any unpaid special assessment levied against the person's homestead.

Sections Amended

Section 12 of House File 2513 amends § 425.23, subsection 1, Code 1997; section 13 amends § 425.23, subsection 3, paragraph a, Code 1997; section 14 amends § 425.23, Code 1997, by adding new subsection 4; section 15 amends § 435.22, subsection 2, Code 1997; section 16 provides an effective date.

Effective Date

Applies to claims for property tax credit, rent reimbursement and mobile home reduced tax rate filed on or after January 1, 1999.

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98 HF 2538 - ENTERPRISE ZONE HOUSING ASSISTANCE WITHHOLDING TAX CREDIT

 

Prior Law

No prior law.

New Provision

A business located in a certified enterprise zone which elects to provide a housing assistance program, may elect as an alternative to the new jobs credit from withholding as provided in Iowa Code section 15.331, a housing assistance program credit to fund the housing assistance program. The employer housing assistance program may be down payment assistance or rental assistance for employees in new jobs, as defined in Code section 260E.2, who buy or rent housing located within and certified enterprise zone. If the amount of withholding by the employer is less than one and one-half percent of the gross wages paid to the employees participating in the housing program, then the employer shall receive a credit against other withholding taxes due by the employer. The employer must deposit the amount of the credit quarterly into a housing assistance fund created by the business out of which the business shall provide employees enrolled in the housing assistance program with down payment assistance or rental assistance.

Sections Amended

Section 3 of House File 2538 added new paragraph b, to subsection 15E.196(1).

Effective Date

Section 3 of the Act is effective July 1, 1998 for amounts withheld from wages of employees participating in the housing assistance program.

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98 HF 2541 - VEHICLES USED IN INTERSTATE COMMERCE

Prior Law

To claim the exemption from use tax allowed to vehicles used "substantially" in interstate commerce, it was necessary for certain persons claiming the exemption to keep a record of the miles a vehicle traveled in both interstate and intrastate commerce to insure that use of the vehicle in interstate commerce, subsequent to sale, was substantial. No time limit on this record keeping requirement existed. If interstate use subsequent to sale was not substantial, use tax was calculated based on the full purchase price of the vehicle.

New Provision

If a vehicle is used substantially in interstate commerce in each year of the first four years of its operation, its subsequent use is exempt from tax until the vehicle is sold or otherwise transferred. If a vehicle has not met the requirements for exemption or its exemption is revoked, use tax must be computed based not on the vehicle's purchase price, but on its book or market value, whichever is less, at the time the requirement for exemption was not met or at the time the exemption was revoked.

Section Amended

House File 2541 amends section 423.4, subsection 10, Code Supplement 1997, by adding a new, unnumbered paragraph.

Effective Date

July 1, 1998

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98 HF 2550 - MASSAGE THERAPISTS EXEMPTION

Prior Law

Iowa Code section 422.43(11) listed massage as a taxable service.

New Provisions

Senate File 2550 exempts from sales tax the services provided by massage therapists licensed under Iowa Code chapter 152C.

Section Amended

Iowa Code section 422.43(11).

Effective Date

July 1, 1998

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98 HF 2560 - EXPANDED EXEMPTION FOR SALES OF AIRCRAFT AND AIRCRAFT PARTS

Prior Law

The gross receipts from sales or rentals of certain aircraft and aircraft parts and gross receipts from the performance of certain taxable services used in the repair, remodeling, or maintenance of aircraft were exempt from tax. However, these exemptions were not applicable to aircraft used in nonscheduled interstate aircarrier operations or to aircraft purchased by a dealer for subsequent lease and sale.

New Provision

Gross receipts from the sale or rental of tangible personal property which is permanently affixed or attached as a component part of an aircraft, including but not limited to repair or replacement materials and parts, are exempt from tax. Also exempt are gross receipts from the performance of services used in aircraft repair, remodeling or maintenance. For the purposes of this exemption provision, an "aircraft" means an aircraft used in nonscheduled interstate FAA certified aircarrier operations.

Also exempted are the gross receipts from the sale of an aircraft to a dealer who in turn rents or leases the aircraft if 1) the aircraft is kept in the inventory of the dealer for sale at all times; 2) the dealer reserves the right to immediately take the aircraft from the renter or lessee when a buyer is found; and, 3) the renter or lessee is aware that the dealer will immediately take the aircraft when a buyer is found.

Section Amended

Sections 5 and 6 of House File 2560 amend section 422.45 of the 1997 Code Supplement by adding new subsections 38B and 38C respectively.

Effective Date

July 1, 1998 for sale or use occurring on or after that date.

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98 SF 2061 - PROPERTY TAX STATEMENT REQUIREMENT DELAY

Prior Law

House File 726, enacted in 1997, required county treasurers to send a tax statement to the taxpayer and the titleholder or contract holder of record. The tax statement was required to contain specified comparative information beginning with tax statements issued for the 1998-1999 fiscal year.

New Provisions

The county treasurer is required to send the tax statement to the titleholder. Upon request, the treasurer is to send a copy of the tax statement the contract holder, lessee, mortgagee, certain state financial institutions and federally chartered financial institutions.

The Iowa state treasurer's association is required to report to the legislative council's task force on Iowa's system of state and local taxation on the impact of requiring counties to provide the comparative tax information on a uniform tax statement. The report is due by October 1, 1998. Counties are allowed to delay implementation of the property tax statement comparative data information for the 1998-1999 and 1999-2000 fiscal years upon application to and approval by the department of management.

Sections Amended

Section 1 of Senate File 2061 will not be codified and pertains to the report required of the county treasurer's association; section 2 amends § 445.5, subsection 1, unnumbered paragraph 1, Code Supplement 1997; section 3 amends § 445.5, subsection 1, unnumbered paragraph 2, Code Supplement 1997 by striking the paragraph and inserting a new subsection 2; section 4 adds a new § 445.6; section 5 provides an effective date.

Effective Date

May 14, 1998

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98 SF 2288-A - OPTIONAL SERVICE OR WARRANTY CONTRACTS

Prior Law

Gross receipts from sales of optional services or warranty contracts which provide for the furnishing of labor and materials and the furnishing of any enumerated taxable service were subject to Iowa tax. Tax was imposed on all gross receipts from the sale of a contract even if some of the services performed under the contract were not taxable. The only exemption allowed was for sales of residential service contracts regulated under chapter 523C of the Code.

New Provision

If an optional service or warranty contract is a computer software maintenance or support service contract and provides for technical support services only, no tax may be imposed on its sale. If such a computer software maintenance or support service contract has no separately stated fee for taxable personal property or for any nontaxable services performed, tax can be imposed on only fifty percent of the gross receipts from the sale of the contract.

Section Amended

Section one of Senate File 2288 amends section 422.43, subsection 6, 1997 Code Supplement.

Effective Date

July 1, 1998 for taxable sales and uses occurring on and after that date.

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98 SF 2288-B - AMENDMENTS TO THE EXPANDED INDUSTRIAL MACHINERY AND EQUIPMENT EXEMPTION

Prior Law

Gross receipts from sales of fuel or electricity used by a manufacturer in processing only, and no other fashion e. g. recycling, were exempt from tax. Vehicles subject to registration were not specifically excluded from the category of tangible personal property eligible for the industrial machinery and equipment exemption. A business whose principal activity was mining or quarrying was not considered to be a "manufacturer"

and none of its activities were considered to be manufacturing for the purposes of the industrial machinery and equipment exemption. Finally, exempt "processing" was characterized as "commencing with the receipt or producing of raw materials by the manufacturer", but the term "receipt or producing of raw materials" was not further defined.

New Provision

Gross receipts from sales of fuel or electricity consumed by all computers, machinery, or equipment used in an exempt manner under the industrial machinery and equipment exemption (except fuel or electricity consumed by computers used in processing or storage of data or information) are exempt from tax. Vehicles subject to registration are excluded from exempt industrial machinery and equipment, except vehicles subject to registration which are directly and primarily used in recycling or reprocessing of waste products. A business engaged in activities subsequent to the extractive process of mining or quarrying, such as crushing, washing, sizing, or blending of aggregate materials, is a manufacturer with respect to those activities for the purposes of the industrial machinery and equipment exemption. Finally, "receipt or production of raw materials" means "activities performed upon tangible personal property only. With respect to raw materials produced from or upon real estate, the receipt or producing of raw materials is deemed to occur immediately following the severance of the raw materials from the real estate."

Section Amended

Section 2 of Senate File 2288 amends section 422.45, subsection 27, paragraph b; section 3 amends section 422.45, subsection 27, paragraph c; section 4 amends section 422.45,

subsection 27, paragraph d, subparagraph (4); and section 5 of Senate File 2288 amends section 422.45, subsection 27, paragraph d of the 1997 Code Supplement.

Effective Date

July 1998, with sections 2, 3, and 5 of the Act retroactive to July 1, 1997, for sales and uses occurring on and after that date.

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98 SF 2357 - UPDATE OF REFERENCES TO THE INTERNAL REVENUE CODE

Prior Law

The major references to the Internal Revenue Code and the references to the Internal Revenue Code in the statutes for the research activities credit was amended through January 1, 1997.

New Provision

The major references to the Internal Revenue Code and the references to the Internal Revenue Code in the statutes for the research activities credit are updated through January 1, 1998.

For tax years ending after August 5, 1997 a qualified preneed funeral trust is not subject to Iowa nor is the beneficiary subject to Iowa income tax on the income accruing to the trust.

For tax years beginning after August 5, 1997, an Iowa net operating loss an individual taxpayer or a corporation with a casualty or theft property loss or a net operating loss in a presidentially declared disaster area incurred by a taxpayer in a small business or in a trade or business of farming can be carried back three years and forward twenty years. All other net operating losses may be carried back two years and forward twenty years.

A refund claim may be filed with the Department before June 30, 1999 to claim a refund if the taxpayer's federal income tax was refunded due to a provision in the federal Taxpayer's Relief Act of 1997, Pub. L. 105-34.

Sections Amended

Section 15.335, unnumbered paragraph 1 and section 15A.9, subsection 8, unnumbered 2 are amended in sections 1 and 2 of Senate File 2357. Section 3 of the Act amends section 422.3, subsection 4. Section 4 of the Act amends section 422.6, unnumbered paragraph 1. Section 5 of S. F. 2357 revises section 422.7, subsection 8 and section 8 revises section 422.35, subsection 5. Sections 6 and 7 amend section 422.10, unnumbered paragraph 1 and section 422.33, subsection 5, unnumbered paragraph 1. Section 9 amends section 422.73 by adding a new subsection 3.

Effective Date

Section 1, 2, 3, 6, and 7 of Senate File 2357 apply retroactively to January 1, 1998 for tax years beginning on or after that date. Section 4 of the Act applies retroactively to tax years ending after August 5, 1997. Sections 5 and 8 apply retroactively to net operating and casualty losses in taxable years beginning after August 5, 1997. Section 9 applies retroactively to January 1, 1977 for tax years beginning on or after that date.

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98 SF 2364 - FOOD AND DRINK SALES BY NONPROFIT ORGANIZATIONS THAT PROMOTE IOWA FOOD EXEMPT

Prior Law

None

New Provisions

Senate File 2364 provides that the gross receipts from the sales of food and beverages for human consumption by an organizations is exempt from sales tax. To claim this exemption an organization must be nonprofit, exempt from federal taxation under section 501 (c) of the Internal Revenue Code and the organization must principally promotes food or beverage products for human consumption that are grown, produced or raised in Iowa.

In addition, this law provides for a refund of taxes, interest or penalties from claims resulting from the enactment of this exemption for tax periods beginning July 1, 1988 through June 30, 1998. Such refund claims will be limited to twenty-five thousand dollars in aggregate. If the amount of claims total more than the aggregate limit, then the Department shall prorate twenty-five thousand dollars among all claims in relation to the amount of valid claims. Claims must be filed by October 1, 1998 to qualify for refund.

Section Amended

Implemented Iowa Code section 422.45(52)

Effective Date

Upon enactment. The bill was signed into law by the governor on April 14, 1998. However, this exemption is to be applied retroactively to July 1, 1988.

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98 SF 2365-A - RURAL WATER DISTRICT EXEMPTION

Prior Law

None

New Provisions

Rural water districts organized under chapter 504A can receive a refund of sales or use tax imposed on the gross receipts of all sales of building materials, supplies or equipment sold to a contractor or used in the fulfillment of constructing facilities for such a rural district. A qualifying rural water district may receive a refund by submitting an application to the Department in the manner and governed by the same requirements set forth in Iowa Code section 422.45(7).

Section Amended

Section 1 of the Act adds a new unnumbered paragraph to Iowa Code sections 357A.15.

Effective Date

July 1, 1998

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98 SF 2365-B - ELECTRICITY SALES TO WATER COMPANIES

Prior Law

None

New Provisions

Provides an exemption from sales tax for the gross receipts from the sale of electricity to water companies assessed for property tax pursuant to Iowa Code sections 428.24, 428.26 and 428.28 which is used solely for the purpose of pumping water from a river or a well.

Section Amended

Section 2 of the Act amends section 422.45, Code 1997, by adding a new subsection.

Effective Date

July 1, 1998

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98 SF 2400 - MOBILE, MANUFACTURED AND MODULAR HOME TAX

Prior Law

Modular homes were taxed in the same manner as mobile and manufactured homes. All were taxed on the basis of the home's square footage if located within mobile home parks and taxed as real estate if located outside of mobile home parks.

Modular homes were included with manufactured and mobile homes in the definitions of "home" and "mobile home park" in chapter 435.

New Provisions

Manufactured homes located in land-leased communities are to be taxed on the basis of the home's square footage.

Modular homes placed in mobile home parks in existence on or before January 1, 1998 continue to be taxed on the basis of the home's square footage. Modular homes placed in mobile home parks in existence after January 1, 1998 are to be taxed as real estate.

Modular homes have been excluded from the definitions of "home" and " mobile home park" in chapter 435.

The assessor is required to enter on the assessment roll the title number of the mobile, modular or manufactured home and the manufacturer's identification number.

Sections Amended

Section 10 of Senate File 2400 amends § 335.30A, Code Supplement 1997; section 16 amends § 414.28A, Code Supplement 1997; section 17 amends § 435.1, subsection 1, Code Supplement 1997; section 18 amends § 435.1, subsection 4, Code Supplement 1997; section 19 amends § 435.22, unnumbered paragraph 1, Code 1997; section 20 amends § 435.26, subsection 1, paragraph a, Code 1997; section 21 amends § 435.26, Code 1997, by adding new subsection 3; section 22 amends § 435.27, subsection 1, Code 1997; section 23 amends § 435.29, Code 1997; section 24 adds new § 435.34; section 25 amends § 435.35, Code 1997; section 33 provides an effective date.

Effective Date

Applies retroactively to the assessment year beginning January 1, 1998.

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98 SF 2407 - REDUCED TAX RATE FOR ETHANOL EXTENDED

Prior Law

A tax of 19¢ per gallon was imposed on ethanol until June 30, 2000.

New Provisions

The reduced tax rate for ethanol is extended to June 30, 2007.

Sections Amended

Section 1 of Senate File 2407 amends § 452A.3, subsections 1 and 2, Code 1997.

Effective Date

July 1, 1998

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98 SF 2416 - UTILITY REPLACEMENT TAX

Prior Law

Entities involved in the production and distribution of electricity and natural gas were assessed for property taxation purposes by the director of revenue and finance.

New Provisions

The current central property tax assessment system is replaced with a replacement tax on the generation, transmission and delivery of electricity and natural gas.

A replacement delivery tax is imposed on every person who makes a delivery of electricity to a consumer. The tax is equal to the sum of the number of kilowatt-hours of electricity delivered to the consumers by the taxpayer multiplied by the electric replacement delivery tax rate plus the number of kilowatt-hours of electricity delivered to consumers by the taxpayer multiplied by the electric transfer replacement tax rate, where applicable. The electric replacement delivery tax rate is to be calculated by the director and the electric transfer replacement tax rate is to be calculated by the city council. The electric delivery tax rate is to be published by the director in the Iowa administrative bulletin by November 30 of the first year and during the last quarter of each subsequent year.

The following are not subject to the electric delivery tax rate:

a. Delivery of electricity generated by a low capacity factor electric power generating plant.

b. Delivery of electricity to a city from the city's municipal utility, provided the electricity is used by the city for the city's public purposes.

c. Electricity consumed by a state university or university of science and technology, provided the electricity is generated by federal or state property.

A replacement delivery tax is imposed on every person who makes a delivery of natural gas to a consumer. The tax is equal to the number of therms of natural gas delivered to consumers by the taxpayer multiplied by the natural gas delivery tax rate plus the number of therms delivered to consumers by the taxpayer multiplied by the municipal gas transfer replacement tax rate, where applicable. The natural gas delivery tax rare is to be calculated by the director and the municipal natural gas transfer replacement tax rate is to be calculated by the city council. The natural gas delivery tax rate is to be published by the director in the Iowa administrative bulletin by November 30 of the first year and during the last quarter of each subsequent year.

Delivery of natural gas to a city from the city's municipal utility is not subject to the replacement delivery tax, provided the natural gas is used by the city for the city's public purposes.

A replacement generation tax of six hundredths of a cent per kilo-watt hour of electricity is imposed on every person generating electricity except electricity generated by the following:

a. A low capacity factor electric power generating plant.

b. facilities owned by or leased to a municipal utility when devoted to public use and not held for pecuniary profit, except facilities of a municipally owned electric utility held under joint ownership or lease and facilities of an electric power facility financed under chapter 28F.

c. Wind energy conversion property.

d. methane gas conversion property.

e. facilities owned by or leased to a state university or university of science and technology to the extent the electricity is consumed by such institutions.

A replacement transmission tax is imposed on every person owning or leasing transmission lines equal to the sum of the following:

a. $550 per pole mile not exceeding 100 kilovolts.

b. $3,000 per pole mile greater than 100 kilovolts but not exceeding 150 kilovolts.

c. $700 per pole mile greater than 150 kilovolts but not exceeding 300 kilovolts.

d. $7,000 per pole mile greater than 300 kilovolts.

The following are exempt from the replacement transmission tax:

a. Transmission lines owned by or leased to a municipal utility when devoted to public use and not for pecuniary profit, except lines of a municipally owned electric utility held under joint ownership and lines of an electric power facility financed under chapter 28F.

b. Lines owned by or leased to a lessor when the lessee or sublessee of the lines is subject to the replacement transmission tax.

c. Any electric cooperative which owns, leases, or owns and leases in total more than 50 pole miles and less than 750 pole miles of lines.

d. Lines owned by or leased to a state university or university of science and technology, provided the lines are used exclusively for the transmission of electricity consumed by the universities.

e. Lines owned by or leased to a person, other than a public utility, for which a franchise is not required under chapter 478.

Taxpayers are required to file a return with the director by February 28 of each year and calculate the replacement tax due. The director shall report the to the department of management the total replacement taxes due and the department of management shall determine an allocation formula for distribution of the taxes to local taxing districts. The director and the department of management shall compute the allocation of replacement taxes among local taxing districts and report the allocations to the county treasurer by August 15 of each year. The treasurer shall notify the taxpayer of the amount of replacement tax due by August 31. The taxpayer is to remit one- half of the tax due by September 30 and the other half by March 31 of the following year. The county treasurer shall determine by August 31 a special utility property tax levy or credit for each taxpayer by comparing the taxpayer's replacement tax liability with the anticipated tax revenues from the taxpayer.

Taxpayers subject to a municipal transfer replacement tax are required to file a return with the chief financial officer of the city by February 28 of each year and calculate the tax due. The tax is to be paid to the chief financial officer at the time directed by the city council.

The director and the chief financial officer of a city have 3 years to audit returns and make necessary corrections in the amount of tax due. The period of time for performing the audit is unlimited in the case of a false or fraudulent return made with the intent to evade tax or in the case of a failure to file a return. The 3 year period of limitation is subject to extension at the request of the taxpayer. The taxpayer may receive a credit or refund of excess replacement tax paid.

A task force is established consisting of representatives from the department of management, department of revenue and finance, electric companies, natural gas companies, municipal utilities, electric cooperatives, counties, cities, school boards and consumers to study the effects of the replacement tax on local taxing districts and taxpayers. The department of management shall report to the general assembly by January 1, 2002, the results of the study.

A replacement tax study committee is established to study the effects of the replacement tax on both restructuring and the development of competition in the gas and electric industries. The committee shall consist of representatives from the utilities board, the department of revenue and finance, the department of management, investor-owned utilities, municipal utilities, cooperative utilities, local governments and major customer classes. The utilities board shall report the results of the study to the general assembly by January 1, 2002.

Within 90 days of the effective date of this Act, each electric company, electric cooperative, municipal utility and natural gas company shall report to the director the information necessary to compute the delivery tax rate.

A statewide property tax of 3¢ per $1,000 of assessed value is imposed on the operating property of a taxpayer subject to the replacement tax. Taxpayers subject to the statewide property tax shall file a return with the director by February 28, calculate the amount of tax due and remit the tax with the return. The revenues from the tax shall be deposited in the state general fund of which 50% shall be available to the department of management and the balance to the department of revenue and finance.

Records shall be kept by taxpayers of the replacement tax or statewide property tax for a period of 10 years.

Sections Amended

Senate File 2416 creates a new chapter 437A.

Effective Date

Applies to property tax assessment years beginning January 1, 1999.

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