2017 Iowa Code Title X - FINANCIAL RESOURCES Chapter 422 - INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES Section 422.35 - Net income of corporation — how computed.
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INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES, §422.35
422.35 Net income of corporation — how computed.
The term “net income” means the taxable income before the net operating loss deduction,
as properly computed for federal income tax purposes under the Internal Revenue Code, with
the following adjustments:
1. Subtract interest and dividends from federal securities.
2. Add interest and dividends from foreign securities, from securities of state and other
political subdivisions, and from regulated investment companies exempt from federal income
tax under the Internal Revenue Code, except for those securities the interest and dividends
from which are exempt from taxation by the state of Iowa as otherwise provided by law,
including those set forth in section 422.7, subsection 2.
3. Where the net income includes capital gains or losses, or gains or losses from
property other than capital assets, and such gains or losses have been determined by using
a basis established prior to January 1, 1934, an adjustment may be made, under rules and
regulations prescribed by the director, to reflect the difference resulting from the use of a
basis of cost or January 1, 1934, fair market value, less depreciation allowed or allowable,
whichever is higher. Provided that the basis shall be fair market value as of January 1, 1955,
less depreciation allowed or allowable, in the case of property acquired prior to that date if
use of a prior basis is declared to be invalid.
4. Subtract fifty percent of the federal income taxes paid or accrued, as the case may be,
during the tax year, adjusted by any federal income tax refunds; and add the Iowa income
tax deducted in computing said taxable income.
5. Subtract the amount of the work opportunity tax credit allowable for the tax year under
section 51 of the Internal Revenue Code to the extent that the credit increased federal taxable
income.
6. a. If the taxpayer is a small business corporation, subtract an amount equal to
sixty-five percent of the wages paid to individuals, but not to exceed twenty thousand dollars
per individual, named in subparagraphs (1), (2), and (3) who were hired for the first time by
the taxpayer during the tax year for work done in this state:
(1) An individual with a disability domiciled in this state at the time of the hiring who
meets any of the following conditions:
(a) Has a physical or mental impairment which substantially limits one or more major life
activities.
(b) Has a record of that impairment.
(c) Is regarded as having that impairment.
(2) An individual domiciled in this state at the time of the hiring who meets any of the
following conditions:
(a) Has been convicted of a felony in this or any other state or the District of Columbia.
(b) Is on parole pursuant to chapter 906.
(c) Is on probation pursuant to chapter 907, for an offense other than a simple
misdemeanor.
(d) Is in a work release program pursuant to chapter 904, division IX.
(3) An individual, whether or not domiciled in this state at the time of the hiring, who is on
parole or probation and to whom the interstate probation and parole compact under section
907A.1, Code 2001, applies, or to whom the interstate compact for adult offender supervision
under chapter 907B applies.
b. This deduction is allowed for the wages paid to the individuals successfully completing
a probationary period named in paragraph “a”, subparagraphs (1), (2), and (3) during the
twelve months following the date of first employment by the taxpayer and shall be deducted
in the tax years when paid.
c. For purposes of this subsection:
(1) “Physical or mental impairment” means any physiological disorder or condition,
cosmetic disfigurement, or anatomical loss affecting one or more of the body systems or any
mental or psychological disorder, including intellectual disability, organic brain syndrome,
emotional or mental illness, and specific learning disabilities.
(2) (a) “Small business” means a profit or nonprofit business, including but not limited to
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Iowa Code 2017, Section 422.35 (41, 4)
§422.35, INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES
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an individual, partnership, corporation, joint venture, association, or cooperative, to which
the following apply:
(i) It is not an affiliate or subsidiary of a business dominant in its field of operation.
(ii) It has either twenty or fewer full-time equivalent positions or not more than the
equivalent of three million dollars in annual gross revenues as computed for the preceding
fiscal year or as the average of the three preceding fiscal years.
(iii) It does not include the practice of a profession.
(b) “Small business” includes an employee-owned business which has been an
employee-owned business for less than three years or which meets the conditions of
subparagraph division (a), subparagraph subdivisions (i) through (iii).
(c) For purposes of this definition, “dominant in its field of operation” means having more
than twenty full-time equivalent positions and more than three million dollars in annual gross
revenues, and “affiliate or subsidiary of a business dominant in its field of operation” means
a business which is at least twenty percent owned by a business dominant in its field of
operation, or by partners, officers, directors, majority stockholders, or their equivalents, of a
business dominant in that field of operation.
6A. a. If the taxpayer is a business corporation and does not qualify for the adjustment
under subsection 6, subtract an amount equal to sixty-five percent of the wages paid
to individuals, but shall not exceed twenty thousand dollars per individual, named in
subparagraphs (1) and (2) who were hired for the first time by the taxpayer during the tax
year for work done in this state:
(1) An individual domiciled in this state at the time of the hiring who meets any of the
following conditions:
(a) Has been convicted of a felony in this or any other state or the District of Columbia.
(b) Is on parole pursuant to chapter 906.
(c) Is on probation pursuant to chapter 907, for an offense other than a simple
misdemeanor.
(d) Is in a work release program pursuant to chapter 904, division IX.
(2) An individual, whether or not domiciled in this state at the time of the hiring, who is on
parole or probation and to whom the interstate probation and parole compact under section
907A.1, Code 2001, applies, or to whom the interstate compact for adult offender supervision
under chapter 907B applies.
b. This deduction is allowed for the wages paid to the individuals successfully completing
a probationary period named in paragraph “a”, subparagraphs (1) and (2) during the twelve
months following the date of first employment by the taxpayer and shall be deducted in the
tax years when paid.
c. The department shall develop and distribute information concerning the deduction
available for businesses employing persons named in paragraph “a”, subparagraphs (1) and
(2).
7. Subtract the amount of the alcohol and cellulosic biofuel fuels credit allowable for the
tax year under section 40 of the Internal Revenue Code to the extent that the credit increased
federal taxable income.
8. Add the amounts deducted and subtract the amounts included in income as a result
of the treatment provided sale-leaseback agreements under section 168(f)(8) of the Internal
Revenue Code for property placed in service by the transferee prior to January 1, 1986, to
the extent that the amounts deducted and the amounts included in income are not otherwise
deductible or included in income under the other provisions of the Internal Revenue Code as
amended to and including December 31, 1985. Entitlement to depreciation on any property
involved in a sale-leaseback agreement which is placed in service by the transferee prior to
January 1, 1986, shall be determined under the Internal Revenue Code as amended to and
including December 31, 1985, excluding section 168(f)(8) in making the determination.
9. Reserved.
10. Add the percentage depletion amount determined with respect to an oil, gas, or
geothermal well using methods in section 613 of the Internal Revenue Code that is in excess
of the cost depletion amount determined under section 611 of the Internal Revenue Code.
11. If after applying all of the adjustments provided for in this section and the allocation
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Iowa Code 2017, Section 422.35 (41, 4)
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INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES, §422.35
and apportionment provisions of section 422.33, the Iowa taxable income results in a net
operating loss, such net operating loss shall be deducted as follows:
a. For tax years beginning prior to January 1, 2009, the Iowa net operating loss shall be
carried back three taxable years for a net operating loss incurred in a presidentially declared
disaster area by a taxpayer engaged in a small business or in the trade or business of farming.
For all other Iowa net operating losses for tax years beginning prior to January 1, 2009, the
net operating loss shall be carried back two taxable years or to the taxable year in which the
corporation first commenced doing business in this state, whichever is later.
b. An Iowa net operating loss for a tax year beginning on or after January 1, 2009, or an
Iowa net operating loss remaining after being carried back as required in paragraph “a” or
“f” shall be carried forward twenty taxable years.
c. If the election under section 172(b)(3) of the Internal Revenue Code is made, the Iowa
net operating loss shall be carried forward twenty taxable years.
d. No portion of a net operating loss which was sustained from that portion of the trade
or business carried on outside the state of Iowa shall be deducted.
e. The limitations on net operating loss carryback and carryforward under sections
172(b)(1)(E) and 172(h) of the Internal Revenue Code shall apply.
f. Notwithstanding paragraph “a”, for a taxpayer who is engaged in the trade or business
of farming as defined in section 263A(e)(4) of the Internal Revenue Code and has a loss
from farming as defined in section 172(b)(1)(F) of the Internal Revenue Code including
modifications prescribed by rule by the director, the Iowa loss from the trade or business of
farming, for tax years beginning prior to January 1, 2009, is a net operating loss which may
be carried back five taxable years prior to the taxable year of the loss.
g. The deductions described in paragraphs “a” through “f” of this subsection are allowed
subject to the requirement that a corporation affected by the allocation provisions of section
422.33 shall be permitted to deduct only that portion of the deductions for net operating loss
and federal income taxes that is fairly and equitably allocable to Iowa, under rules prescribed
by the director.
12. Subtract the loss on the sale or exchange of a share of a regulated investment company
held for six months or less to the extent the loss was disallowed under section 852(b)(4)(B)
of the Internal Revenue Code.
13. Add, to the extent it reduced federal taxable income, any amount contributed under
section 170 of the Internal Revenue Code to the extent such contribution was made to an
organization for the purpose of deposit in the Iowa education savings plan trust established
in chapter 12D, and the taxpayer designated that any part of the contribution be used for
the direct benefit of any dependent of a shareholder of the taxpayer or any other single
beneficiary designated by the taxpayer.
14. Reserved.
15. Reserved.
16. Add depreciation taken for federal income tax purposes on a speculative shell
building defined in section 427.1, subsection 27, which is owned by a for-profit entity and
the for-profit entity is receiving the proper tax exemption. Subtract depreciation computed
as if the speculative shell building were classified as fifteen-year property during the period
during which it is owned by the taxpayer and is receiving the property tax exemption.
However, this subsection does not apply to a speculative shell building which is used by the
taxpayer, subsidiary of the taxpayer, or majority owners of the taxpayer, for other than as a
speculative shell building, as defined in section 427.1, subsection 27.
17. Subtract the amount of the employer social security credit allowable for the tax year
under section 45B of the Internal Revenue Code to the extent that the credit increases federal
taxable income.
18. Add, to the extent not already included, income from the sale of obligations of the
state and its political subdivisions. Income from the sale of these obligations is exempt from
the taxes imposed by this division only if the law authorizing these obligations specifically
exempts the income from the sale from the state corporate income tax.
19. a. The additional first-year depreciation allowance authorized in section 168(k) of the
Internal Revenue Code, as enacted by Pub. L. No. 107-147, §101, does not apply in computing
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Iowa Code 2017, Section 422.35 (41, 4)
§422.35, INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES
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net income for state tax purposes. If the taxpayer has taken such deduction in computing
taxable income, the following adjustments shall be made:
(1) Add the total amount of depreciation taken on all property for which the election under
section 168(k) of the Internal Revenue Code was made for the tax year.
(2) Subtract an amount equal to depreciation allowed on such property for the tax year
using the modified accelerated cost recovery system depreciation method applicable under
section 168 of the Internal Revenue Code without regard to section 168(k).
(3) Any other adjustments to gains or losses to reflect the adjustments made in
subparagraphs (1) and (2) pursuant to rules adopted by the director.
b. A taxpayer may elect to apply the additional first-year depreciation allowance
authorized in section 168(k)(4) of the Internal Revenue Code, as enacted by Pub. L. No.
108-27, in computing net income for state tax purposes, for qualified property acquired
after May 5, 2003, and before January 1, 2005. If the taxpayer elects to take the additional
first-year depreciation allowance authorized in section 168(k)(4) of the Internal Revenue
Code for state tax purposes, the deduction may be taken on amended state tax returns,
if necessary. If the taxpayer does not elect to take the additional first-year depreciation
allowance authorized in section 168(k)(4) of the Internal Revenue Code for state tax
purposes, the following adjustment shall be made:
(1) Add the total amount of depreciation taken on all property for which the election under
section 168(k)(4) of the Internal Revenue Code was made for the tax year.
(2) Subtract an amount equal to depreciation allowed on such property for the tax year
using the modified accelerated cost recovery system depreciation method applicable under
section 168 of the Internal Revenue Code without regard to section 168(k)(4).
(3) Any other adjustments to gains or losses to reflect the adjustments made in
subparagraphs (1) and (2) pursuant to rules adopted by the director.
19A. The additional first-year depreciation allowance authorized in section 168(k) of the
Internal Revenue Code, as enacted by Pub. L. No. 110-185, §103, Pub. L. No. 111-5, §1201, Pub.
L. No. 111-240, §2022, Pub. L. No. 111-312, §401, Pub. L. No. 112-240, §331, and Pub. L. No.
113-295, §125, does not apply in computing net income for state tax purposes. If the taxpayer
has taken the additional first-year depreciation allowance for purposes of computing federal
taxable income, then the taxpayer shall make the following adjustments to federal taxable
income when computing net income for state tax purposes:
a. Add the total amount of depreciation taken under section 168(k) of the Internal Revenue
Code for the tax year.
b. Subtract the amount of depreciation allowable under the modified accelerated cost
recovery system described in section 168 of the Internal Revenue Code and calculated without
regard to section 168(k).
c. Any other adjustments to gains or losses necessary to reflect the adjustments made
in paragraphs “a” and “b”. The director shall adopt rules for the administration of this
paragraph.
19B. The additional first-year depreciation allowance authorized in section 168(n) of
the Internal Revenue Code, as enacted by Pub. L. No. 110-343, §710, does not apply in
computing net income for state tax purposes. If the taxpayer has taken the additional
first-year depreciation allowance for purposes of computing federal taxable income, then the
taxpayer shall make the following adjustments to federal taxable income when computing
net income for state tax purposes:
a. Add the total amount of depreciation taken under section 168(n) of the Internal
Revenue Code for the tax year.
b. Subtract the amount of depreciation allowable under the modified accelerated cost
recovery system described in section 168 of the Internal Revenue Code and calculated without
regard to section 168(n).
c. Any other adjustments to gains or losses necessary to reflect the adjustments made
in paragraphs “a” and “b”. The director shall adopt rules for the administration of this
paragraph.
20. A taxpayer may elect not to take the increased expensing allowance under section
179 of the Internal Revenue Code, as amended by Pub. L. No. 108-27, §202, in computing
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Iowa Code 2017, Section 422.35 (41, 4)
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INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES, §422.35
taxable income for state tax purposes. If the taxpayer does not take the increased expensing
allowance under section 179 of the Internal Revenue Code for state tax purposes, the
following adjustments shall be made:
a. Add the total amount of expense deduction taken on section 179 property for federal
tax purposes under section 179 of the Internal Revenue Code.
b. Subtract the amount of expense deduction on section 179 property allowable for federal
tax purposes under section 179 of the Internal Revenue Code prior to enactment of Pub. L.
No. 108-27, §202.
c. Any other adjustments to gains and losses to the adjustments made in paragraphs “a”
and “b” pursuant to rules adopted by the director.
21. Subtract the amount of foreign dividend income, including subpart F income as
defined in section 952 of the Internal Revenue Code, based upon the percentage of ownership
as set forth in section 243 of the Internal Revenue Code.
22. Subtract, to the extent included, the amount of ordinary or capital gain realized by
the taxpayer as a result of the involuntary conversion of property due to eminent domain.
However, if the total amount of such realized ordinary or capital gain is not recognized
because the converted property is replaced with property that is similar to, or related in use
to, the converted property, the amount of such realized ordinary or capital gain shall not
be subtracted under this subsection until the remaining realized ordinary or capital gain is
subject to federal taxation or until the time of disposition of the replacement property as
provided under rules of the director. The subtraction allowed under this subsection shall not
alter the basis as established for federal tax purposes of any property owned by the taxpayer.
23. Reserved.
24. A taxpayer is not allowed to take the increased expensing allowance under section 179
of the Internal Revenue Code, as amended by Pub. L. No. 111-5, §1202, in computing taxable
income for state tax purposes.
25. Subtract, to the extent included, the amount of any biodiesel production refund
provided pursuant to section 423.4.
[C35, §6943-f31; C39, §6943.067; C46, 50, 54, 58, 62, 66, 71, 73, 75, 77, 79, 81, §422.35; 81
Acts, ch 132, §8, 9; 82 Acts, ch 1023, §14, 15, 30, 31, ch 1203, §2, ch 1206, §1]
83 Acts, ch 174, §2, 3; 83 Acts, ch 179, §16, 24; 86 Acts, ch 1236, §9; 86 Acts, ch 1238, §20;
86 Acts, ch 1241, §23; 87 Acts, 1st Ex, ch 1, §8 – 11; 89 Acts, ch 175, §3; 89 Acts, ch 225, §20,
21; 90 Acts, ch 1168, §46; 90 Acts, ch 1171, §6; 90 Acts, ch 1195, §2; 90 Acts, ch 1251, §53;
91 Acts, ch 210, §3; 92 Acts, ch 1222, §5, 6; 92 Acts, ch 1225, §2, 5; 94 Acts, ch 1107, §26; 94
Acts, ch 1166, §9, 10, 12; 95 Acts, ch 152, §6, 7; 96 Acts, ch 1129, §113; 97 Acts, ch 135, §8,
9; 98 Acts, ch 1078, §8, 12; 98 Acts, ch 1172, §13, 14; 99 Acts, ch 95, §10 – 13; 2001 Acts, ch
15, §3, 4; 2001 Acts, ch 116, §7, 28; 2001 Acts, 2nd Ex, ch 6, §23 – 26, 37; 2003 Acts, ch 139,
§10 – 12; 2004 Acts, ch 1101, §47; 2004 Acts, 1st Ex, ch 1001, §40 – 42; 2005 Acts, ch 2, §3, 4,
6; 2005 Acts, ch 19, §54; 2005 Acts, ch 24, §9 – 11; 2005 Acts, ch 140, §41, 73; 2006 Acts, 1st
Ex, ch 1001, §42, 49; 2007 Acts, ch 54, §36; 2007 Acts, ch 162, §8, 13; 2007 Acts, ch 186, §17;
2008 Acts, ch 1011, §8, 9; 2009 Acts, ch 133, §141 – 143; 2009 Acts, ch 135, §4, 5; 2011 Acts,
ch 41, §21 – 25; 2011 Acts, ch 113, §58, 60; 2012 Acts, ch 1019, §130; 2012 Acts, ch 1110, §12;
2012 Acts, ch 1136, §35, 39 – 41; 2013 Acts, ch 1, §10 – 12; 2013 Acts, ch 70, §5, 6; 2013 Acts,
ch 100, §24, 27; 2015 Acts, ch 1, §10 – 12; 2016 Acts, ch 1107, §4 – 6
Referred to in §422.33, §422.60, §422.61
2012 strike of subsection 23 takes effect May 25, 2012, and applies retroactively to January 1, 2012, for tax years beginning on or after
that date, and does not apply to contracts or agreements entered into on or before May 25, 2012; 2012 Acts, ch 1136, §39 – 41
2013 amendment to subsection 19A takes effect February 14, 2013, and applies retroactively to January 1, 2013, for tax years ending on
or after that date; 2013 Acts, ch 1, §11, 12
2015 amendment to subsection 19A takes effect February 17, 2015, and applies retroactively to January 1, 2014, for tax years ending on
or after that date; 2015 Acts, ch 1, §11, 12
For provisions relating to the disallowance of additional first-year depreciation under §168(k) of the Internal Revenue Code for tax years
ending on or after January 1, 2015, but before January 1, 2016, see 2016 Acts, ch 1007, §3 – 5
Subsection 13 takes effect May 25, 2016, and applies retroactively to January 1, 2016, for tax years beginning on or after that date; 2016
Acts, ch 1107, §5, 6
NEW subsection 13
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Iowa Code 2017, Section 422.35 (41, 4)
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