Effective for tax years beginning on or after January 1,
2002, the department of revenue may, when the action has been approved by the
general assembly and the governor, and when it is cost-efficient,
administratively feasible, and of mutual benefit to Iowa and another state,
enter into a reciprocal tax agreement with a tax administration agency of the
other state. Under this agreement, income earned from personal services in Iowa
by residents of the other state will be exempt from Iowa income tax if the
other state provides an identical exemption from its state income tax for
income earned in the other state from personal services by Iowa residents. For
purposes of this rule, "income earned from personal services" includes wages,
salaries, commissions, tips, deferred compensation, pensions, and annuities
which were earned from personal services in Iowa by a resident of another state
that had a reciprocal tax agreement with Iowa at the time the wages, salaries,
commissions, tips, deferred compensation, pensions, or annuities were earned.
See rule 701-302.45 (422) for the
treatment of deferred compensation, pensions, or annuities received by a
nonresident of Iowa related to the documented retirement of a participant in a
deferred compensation plan, a pensioner or an annuitant. The provisions of rule
701-302.45 (422) supersede the
definition of "income earned from personal services" under any reciprocal
agreement as it relates to deferred compensation, pensions, or
annuities.
(1)
Reciprocal tax
agreement with Illinois. Pursuant to the authority of Iowa Code
subsection
422.8(5), the
department of revenue entered into a reciprocal tax agreement with tax
administration officials of Illinois in November 1972 which went into effect
for taxable years which began after December 31, 1972. The Iowa-Illinois
reciprocal tax agreement cannot be terminated by the Iowa
department of revenue
unless the termination is authorized by a constitutional majority of each house
of the general assembly and is approved by the governor. The Iowa-Illinois
reciprocal tax agreement includes the following terms:
a. No Illinois or Iowa employer is required
to withhold Illinois income tax from compensation paid to an Iowa resident for
personal services in Illinois.
b.
No Illinois or Iowa employer is required to withhold Iowa income tax from
compensation paid to an Illinois resident for personal services in
Iowa.
c. Every Iowa employer who is
subject to the jurisdiction of Illinois is liable to the state of Illinois for
withholding of Illinois income tax from compensation paid to Illinois
residents.
d. Every Illinois
employer who is subject to the jurisdiction of Iowa is liable to the state of
Iowa for the withholding of Iowa income tax from compensation paid to Iowa
residents.
e. The Illinois
department of revenue will encourage Illinois employers who are not subject to
the jurisdiction of Iowa to withhold and remit Iowa income tax from wages paid
to Iowa residents employed in Illinois.
f. The Iowa department of revenue will
encourage Iowa employers who are not subject to the jurisdiction of Illinois to
withhold and remit Illinois income tax from compensation paid to Illinois
residents from employment in Iowa.
g. For purposes of the agreement,
"compensation" means
wages, salaries, commissions, tips, deferred compensation,
pensions, and annuities and any other remuneration paid for personal services.
In the case of deferred compensation, pensions, and annuities, those incomes
are deemed to have been earned at the time of employment. Therefore, if an
Illinois resident receives a pension or annuity from employment in Iowa at the
time the reciprocal agreement was in effect, the pension or annuity income is
not taxable to Iowa since it is "compensation" covered by the reciprocal
agreement. See rule
701-302.45 (422) for the
treatment of deferred compensation, pensions, or annuities received by an
Illinois resident related to the documented retirement of a participant in a
deferred compensation plan, a pensioner or an annuitant. The provisions of rule
701-302.45 (422) supersede the
definition of "compensation" under the reciprocal agreement with Illinois.
"Compensation" does not include unemployment compensation benefits which an
Illinois resident receives due to employment in Iowa.
h. No Iowa resident is required to pay
Illinois income tax or file an Illinois return from compensation paid from
personal services in Illinois.
i.
No Illinois resident is required to pay Iowa income tax or to file an Iowa
return on compensation for personal services in Iowa.
j. For purposes of the agreement, the term
"Iowa resident" means an individual who is a resident under the laws of the
state of Iowa, and the term "Illinois resident" means an individual who is a
resident as defined in the Illinois Income Tax Act.
(2)
Reciprocal tax agreements with
states other than Illinois. The Iowa department of revenue has not
entered into reciprocal tax agreements with any state except the state of
Illinois. See subrule 300.13(1).
This rule is intended to implement Iowa Code section
422.8 as amended by 2002 Iowa
Acts, House File 2116, and section
422.15.
