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May 3, 2023

Iowa legislature approves elective pass-through entity tax

On May 11, 2023, Governor Kim Reynolds signed HF 352 into law.

On April 26, 2023, the Iowa legislature passed House File 352 (HF 352), which would adopt an elective pass-through entity (PTE) tax, which would apply retroactively to tax years beginning on or after January 1, 2022. The election would only be available for tax years in which the federal limitation on the state and local tax deduction applies under IRC Section 164(b)(6). Governor Kim Reynolds is expected to sign HF 352 in the coming days. Once signed, HF 352 would take immediate effect.

HF 352 would enact a new provision, Iowa Code 422.16C, which would allow a partnership or an S corporation to elect annually to be subject to an entity-level tax. The Iowa Department of Revenue (Department) would establish how and when to make the election. Once made, the election would be irrevocable and binding on all partners and shareholders of the PTE for that year. If the election is made, the composite return, otherwise required by Iowa Code 422.16B, would not be required.

The PTE tax would apply to the PTE's taxable income allocated and apportioned to Iowa at the highest individual rate prescribed by Iowa Code 422.5A. The PTE tax would be due with the taxpayer's return on or before the last day of the fourth month following the close of the PTE's tax year.

HF 352 also would create a refundable credit for each PTE owner based on the owner's pro rata share of the PTE tax paid. The credit would apply to the owner's individual income tax, corporate income tax, or franchise tax returns, as applicable. If a PTE is itself a partner or shareholder in another taxpayer making an election, the PTE could claim the credit.

A nonresident individual who is a partner or shareholder in an electing PTE would not be required to file an Iowa return for the tax year if the PTE income is the only source of Iowa income for that individual, provided the PTE files the entity-level return.

HF 352 would not require PTEs to make estimated payments for tax years beginning before HF 352's effective date. In addition, HF 352 would authorize the Department to waive interest and penalties for an election made for a tax year beginning before HF 352's effective date.


If enacted, Iowa would become the 34th jurisdiction to adopt an elective PTE tax that aligns with IRS Notice 2020-75.1 EY will continue to monitor developments in this area as the Department prescribes necessary forms and rules.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Bill Nolan (

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor


1 Jurisdictions that have enacted a PTE tax as a workaround to the federal limitation on the state and local tax deduction are Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New Mexico, New York, New York City, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, West Virginia and Wisconsin.