SF 640 – Exemption from hotel/motel taxes for rental of lodging
SF 640 would establish a new threshold for determining the length of stays that qualify for an exemption from state and local hotel/motel taxes. Currently, the costs of stays at rented lodging that exceed 30 days are exempt from paying the state and local hotel/motel tax. The bill would extend the minimum length of a stay at a hotel/motel to qualify for the exemption only on the portion of the stay exceeding 90 days. For rentals where there is a tenant relationship (apartments/manufactured housing), the minimum length of stay to qualify for the exemption would remain 31 days.
The bill also creates an exemption from the state and local hotel/motel tax for the price of lodging furnished by a nonprofit lodging provider renting to the friends and family of a hospital patient. This applies to stays at the Ronald McDonald House and similar facilities. Currently, hotel/motel tax is owed on the payment/donation given to the nonprofit by the family/friends who stay at the facility. There isn’t a fixed charge, but families can donate to the organization to cover their costs of stay. Because this is considered a payment for lodging (and thus a sale) under a Department of Revenue declaratory order, the hotel/motel tax is owed.
[4/25: Short Form]
HF 741– Extends bond from 20 to 30 years for flood purposes
HF 741 would allow general obligation bonds issued to finance a flood-control project that was approved by the state flood mitigation board to be financed over a 30-year period instead of 20 years under current law. This is the same time frame that currently exists for cities and counties to issue bonds for essential purposes. The flood-control project that meets the terms outlined in the bill is in Cedar Rapids. There were 11 flood mitigation projects approved by the board and more could be coming if the Governor’s recommended funding is approved.
[4/26: 49-0 (Absent: Feenstra)]
HF 760 – Exemption from hotel/motel taxes for rental of lodging
HF 760 would establish a new threshold for determining the length of stays that qualify for an exemption from state and local hotel/motel taxes. Currently, the costs for stays at rented lodging that exceed 30 days are exempt from paying the state and local hotel/motel tax. The bill would extend the minimum length of a stay at a hotel/motel to qualify for the exemption only on the portion of the stay exceeding 90 days. For rentals where there is a tenant relationship (apartments/manufactured housing), the minimum length of stay to qualify for the exemption would remain at 31 days.
The bill also creates an exemption from the state and local hotel/motel tax for the sales price of lodging furnished by a nonprofit lodging provider renting to the friends and family of a hospital patient. This applies to stays at the Ronald McDonald House and similar facilities. Currently, hotel/motel tax is owed on the payment/donation given to the nonprofit by the family/friends who stay at the facility. There isn’t a fixed charge but families can donate to the organization to cover their costs of stay. Because this is considered a payment for lodging (and thus a sale) under a Department of Revenue declaratory order, the hotel/motel tax is owed.
The bill returned to the Senate after the House amended it. The Senate refused to concur with the House amendment, returning the bill to the House as originally passed by the Senate.
[4/27: 48-1 (No: Chapman; Absent: Feenstra)]
HF 767 – Electric vehicles
HF 767 creates new registration fees for Electric and Hybrid Vehicles and a new excise tax on hydrogen and electric fuel. In light of the increasing use of these vehicles, the Legislature directed the Iowa Department of Transportation (DOT) to estimate the impact of increased usage of electric, hybrid and other high-efficiency motor vehicles on future revenues to the Road Use Tax Fund. It also required DOT to evaluate and recommend alternative funding mechanisms or the alteration of existing funding mechanisms to offset decreases in future revenues due to the increased use of electric, hybrid and other high-efficiency motor vehicles. DOT produced recommendations with the goal of no net change in revenue, equity and low administrative costs. HF 767 is based on the recommendations from the DOT report.
Registration Fees – Battery electric vehicles are vehicles that have no internal combustion engine and are propelled exclusively by electricity. Under the bill, battery electric motors will now pay an additional registration fee of $65 in 2020, increasing to $130 after January 1, 2022. Plug-in hybrid vehicles will now pay a $32 fee beginning in 2020, increasing to a fee of $65 after January 1, 2022. Motorcycles that have a battery electric or hybrid motor will now pay an additional $4.50 fee beginning in 2020, with the fee increasing to $9 by January 1, 2022.
Excise Tax – A gallon of hydrogen is 249 pounds and will pay an excise tax of 65 cents per gallon. Vehicles using hydrogen fuel will have a special fuel sticker from the County Treasurer designating that the vehicle takes special fuel. Electric fuel means electrical energy delivered or placed into a battery or other energy source outside the motor vehicle to propel it. An excise tax of two and six-tenths cents per kilowatt hour of electric fuel delivered into the battery will attach at the time of delivery. A person cannot sell or dispense electric fuel unless they hold an electric fuel license.
[4/27: 34-14 (Yes: Republicans, Kinney, Quirmbach; Absent: Lykam, T. Taylor)]
HF 768 – Beginning farmer tax credit program
HF 768 amends the Beginning Farmer Tax Credit Program, which had allowed up to $12 million in tax credits for the last five years. The legislation that increased the maximum tax credits allowed per year included a sunset of that increase after a five-year period to review the program to ensure the increase remained necessary and that the credit was targeted to the right type of situation. After the sunset, that income tax credit was reduced to a maximum of $6 million for tax years 2019 and after.
Under this legislation, the tax credit limit for the beginning farmer program would be raised back to $12 million for tax years 2019 and beyond. The tax credit would also be reorganized as a single program rather than reverting to the Agricultural Asset Transfer Tax Credit and Custom Contract Farming Tax Credit. The bill maintains existing income and asset limitations for qualifying farmers and restricts the cost of the lease a beginning farmer can be charged by someone who claims the tax credit. The tax credit would no longer cover custom contract farming operations.
[4/25: 49-0 (Absent: Chapman)]
HF 769 – Gross weight of special trucks
HF 769 allows a special truck used for certain farming purposes to increase to a gross maximum weight of 39 tons from the current maximum of 32 tons. The registration fee is an additional $25 per ton between 32 and 38 tons, and an additional $10 between 38 and 39 tons.
[4/26: 49-0 (Absent: Feenstra)]
HF 778 – Capital gains deduction for sale of real estate involved in farming
HF 778 would amend the contingent capital gains for farming property that will happen for tax year 2023 if the revenue triggers in SF 2417 from last session are met. SF 2417 amended the existing capital gains exemption for farm real estate to a new standard that would exist under the contingent tax system included in that bill. The new capital gains deduction that would exist under the contingent tax system was narrower than what currently exists, reducing the value of the existing capital gains deduction.
The current capital gains deduction is allowed for sales of six types of qualifying assets:
- The qualifying sale of cattle, horses or breeding livestock.
- The qualifying sale of real property used in a farm business.
- The qualifying sale of real property used in a non-farm business.
- The qualifying sale of timber.
- The qualifying sale of a business.
- The qualifying sale of employer securities to a qualified Iowa employee stock ownership plan.
The future (contingent) capital gain deduction is limited to:
- The taxpayer “materially participated” in the farming business for at least 10 years and held the real property for at least 10 years; and sold the real property to a relative.
- The deduction would be revoked if the relative sells or transfers the real property used in a farming business to a non-relative on the taxpayer within five years of the original sale.
The bill would amend the future (contingent) capital gains deduction so that it would apply in the following cases:
- The taxpayer “materially participated” in the farming business for at least 10 years and held the real property for at least 10 years; or the taxpayer sold the real property to a relative.
- This bill expands the definition of relative to include an entity in which a relative of the taxpayer has a legal or equitable interest in the entity as an owner, member, partner or beneficiary.
- This bill strikes provisions related to restricting the capital gain deduction for the sale of real property used in a farming business if the relative sells or transfers the real property used in a farming business within five years of the original sale.
[4/25: 49-0 (Absent: Chapman)]
HF 779 – Omnibus tax administration bill
Division I – Income and franchise tax changes – This division contains technical changes requested by the Department of Revenue. They include:
- Technical changes to the new qualified business income deduction to incorporate the “cooperative” fix. This addresses the federal Tax Cut and Jobs Act (TCJA) that had inadvertently created a tax equity issue for people who sold their grain or other agricultural products through a cooperative.
- Changes the administration of the school tuition organization (STO) so the amounts are calculated on a calendar year basis rather than tax year. This is how the program is currently administered, but the change is necessary because corporate tax years vary. This change standardizes how the program is married.
- Clarification on the allocation of the early childhood development tax credit among married taxpayers who filed joint federal tax returns.
- Provides for the coupling of the state franchise tax to the federal tax code. This was not included in SF 2417 last session.
- Technical changes to the treatment of like/kind exchanges to couple with federal tax changes made after the TCJA.
Division II – Administrative changes – This division allows the department to adopt rules that will allow a taxpayer to designate another person to receive tax information. Currently the department only provides tax information to the individual who is designated on the tax form.
Division III – Sales and Use tax changes – This division contains a number of changes to sales and use taxes:
- Clarifies the existing definition of “affiliate” to aid in the collection of sales and use taxes from affiliated businesses.
- Changes the amount of service or warranty contract subject to the sales or use tax. The law currently says it is only based on one-half of the sales price of the service contract. The bill changes the calculation so that the price is based on the full price of the service contract.
- Clarifies what is taxable under carpentry services. This relates to an Iowa Supreme Court case that involved construction services provided by Lowe’s. The bill makes it clear that carpentry repair and installation services are taxable. This mirrors administrative rules language that exists for electric or plumbing services. The administrative rules for carpentry did not include the two terms, creating uncertainty that the court ultimately decided.
- Creates a new sales and use tax exemption for grain bins, including construction materials and replacement parts. This exemption is for sales going forward (not retroactive).
- Clarifies the type of equipment not exempt from sales and use tax on sales or rentals of industrial machinery, equipment and computers. This change relates to telecommunications companies and is needed to prevent refund claims that could arise from other legislative changes that were not meant to create a new exemption for machinery and equipment used for manufacturing purposes.
- Extends the sales tax exemption on digital products sold for commercial purposes to include digital service contracts.
- Eliminates language creating a 200-transaction threshold for determining if a retailer is subject to the requirements for remote sellers to collect and remit sales tax. This leaves one test ($100,000 or more in sales) for determining whether or not a remote seller must comply with Iowa’s sales tax requirements. The transaction threshold is being eliminated in other states as well.
- Reduces the frequency of required reports that must be filed by a “referrer” of online sales. A “referrer” is distinct from a marketplace facilitator. The bill also states that the department cannot collect tax or require filings for referrers until administrative rules are in place to establish the responsibilities of a referrer.
- Directs the Department of Revenue to establish a task force to review and provide clarity regarding the definition of “computer” as used throughout the Code and administrative rules.
Division IV – Automobile Rental Excise Tax – This section is designed to provide clarity on the taxable portion of the rental price of an automobile rental and who is responsible for collecting sales taxes on these transactions. This would streamline the process for collecting and administering the automobile rental excise tax. There have been issues with online sales where the online platform doesn’t collect the full rental sales price at the time of the transaction.
Division V – Telephone company property – This division provides a fix to an issue that has arisen because of conflicting legislative language in bills that were enacted after last session. SF 2388 and another bill both amended the same Code section. The changes included in the bills have created uncertainty in how to implement them. This language is designed to address those issues.
Division VI – Targeted Jobs Withholding Tax Credit – This division includes changes to the targeted jobs withholding tax credit program. The program is available for specified jobs located in a pilot project city. Pilot project cities include Sioux City, Council Bluffs, Burlington and Keokuk/Fort Madison. Sioux City is the most active participant in this program.
The bill would extend the program by two years so that it would end after June 30, 2021. SF 631 had proposed a four-year extension. The program has been extended before, most recently last year when it was extended one year from 2018 to 2019. The bill also restricts the jobs the program applies to. Currently, the program can be used to benefit jobs that are being created or retained; the bill would only allow the program to benefit created jobs.
Division VII – School Tuition Organization tax credits – This division increases the amount of tax credits that can be issued under the School Tuition Organization (STO) tax credit program. The tax credit program cap is increased by $2 million to $15 million annually for Tax Year 2020. SF 631 had proposed a $4 million increase.
STOs provide scholarship assistance to a student who is eligible to receive a tuition grant under the Student Tuition Organization tax credit program. Eligible students are from families with incomes up to 400 percent of the federal poverty level.
Division VIII–Income Tax Checkoffs – This division would re-authorize the state fair and combined volunteer firefighter/veterans income tax checkoffs. The bill also establishes a notification process so the Legislature will know which income tax checkoffs are scheduled to be eliminated from the state income tax form. This language matches SF 635 that was approved unanimously by Senate Ways and Means.
Under current law, there is a two-year cycle for established income tax checkoffs. After those two years, the two checkoffs that have received the lowest amount of funds are eliminated from the state income tax return. For this cycle, the two lowest returns were the state fair and the combined volunteer firefighter/veterans checkoffs. The highest two checkoffs support wildlife habitat and child abuse prevention.
The state income tax return has a maximum of four slots available for income tax checkoffs. The current system allows an opportunity to consider which checkoffs are included on the state income tax return and provides an opportunity to add new checkoffs to the form.
Division IX– Powers and Duties of Director of Revenue – This division adds a new item to the Code section outlining the powers and duties of the director of the Department of Revenue. This change clarifies that the director can audit or examine all taxes collected or administered by the department. This will extend audit and examination authority to the moneys and credits tax for credit unions. Because of a law change last session, the department now administers this tax. It previously had been administered through counties.
Division X – Sales and Use Tax Exemption for Manufacturers – This division clarifies changes from SF 2417 that had restricted who qualified for the sales and use tax exemption for manufacturing processes. That bill had made it so anyone engaged in a designated business was unable to qualify for the manufacturing exemption. The bill allows the exemption for a company that is primarily engaged in manufacturing but also engaged in the listed activities. This is a minor adjustment to the change in definition of manufacturer in SF 2417 last year, not a full-scale reversal.
Division XI – State Research Activities Tax Credit (RAC) – This division amends the industries eligible to claim the state RAC to include agriscience. Last session, SF 2417 contained language designed to reign in the types of companies claiming the credit, and restore the credit to the activities intended under the legislation as passed in 2010. SF 2417 also prohibited those engaged in agricultural production, commercial and residential repair and installation, including HVAC, plumbing, security and electrical systems, from claiming the credit.
Recent rulemaking by the Department of Revenue to enact SF 2417 has already included agrisciences as an eligible industry because it is difficult to separate it from “life sciences” that are allowed under the legislation. Unlike SF 631 the bill does not extend the RAC to agricultural animal production.
Division XII – Adoption tax credit; timing of eligible expenses – This division allows adoption expenses to be included when claiming the adoption tax credit. Currently, the credit only allows expenses to be claimed during the year the adoption is completed. This means eligible expenses claimed in years before the adoption is completed can’t be included and requires the taxpayer to file amended returns for previous years to claim the credit for eligible expenses incurred during those years.
Division XIII – Utility Replacement Tax Task Force – This division extends the utility replacement task force by five years to January 1, 2024. SF 631 had proposed a 10-year extension. This task force reviews the implementation and operation of the utility replacement tax created to replace the previous property tax on utilities.
Division XIV – Repealing the alternative minimum tax for franchise taxes – This division repeals the alternative minimum tax (AMT) for franchise taxes beginning in tax year 2021. A one-year transition period allows the use of the AMT credit in tax year 2021 for those who have to pay the AMT in tax year 2020. This repeal mirrors the repeal of the corporate AMT that was included in SF 2417 last session.
Division XV – Geothermal system tax credit – This division will reinstate the state geothermal system tax credit that was eliminated in SF 2417 last session. The state credit is based off of the federal geothermal tax credit. The state credit will be issued on a first-come, first-served basis. The amount of credits issued in any one year is limited to $1 million.
Division XVI – Moneys and Credits Taxes – This division is a technical fix to a legislative change in 2018 that put the Department of Revenue in charge of collecting and assessing the moneys and credits tax on credit unions. The bill removes language that includes county boards of supervisors and county treasurers in the levying and collection process.
[4/27: 44-4 (No: Bolkcom, Celsi, Quirmbach, R. Taylor; Absent: Lykam, T. Taylor)]
SF 306 – Pilot project for park user fees at Lake Manawa
SF 306 would establish a pilot program for park user fees at Lake Manawa State Park in Council Bluffs. The Department of Natural Resources (DNR) would collect fees from nonresidents who access the state park, and DNR could charge different rates for facility rentals to residents and nonresidents. This system would mirror how Nebraska charges for nonresidents to use their state parks. Lake Manawa is a busy state park that attracts a large number of nonresident visitors because the park does not charge fees for access, unlike similar parks in the area. This has led to high use, a need for infrastructure repairs and demands on local law enforcement responding to illegal activity. It is hoped the fees will cover park needs, while discouraging illegal activities. The pilot program would be repealed on July 1, 2022. The Senate concurred with a House amendment that created a similar program for Waubonsie State Park in Fremont County in southwest Iowa.
[4/25: 49-0 (Absent: Chapman)]
SF 597 – Sales tax exemption for nonprofit blood centers
SF 597 would provide a sales tax exemption for tangible property sold or laboratory test services furnished to a nonprofit blood center, as long as the tangible property or laboratory testing services is directly and primarily used in the processing of human blood. The nonprofit blood centers must be registered with the federal Food and Drug Administration (FDA).
This exemption is needed because tax legislation passed last session (SF 2417) redefined the term “manufacturing” to apply to a narrower scope of activity. This change in definition subjected tangible property and laboratory testing services used by nonprofit blood centers to the sales tax. SF 597 replaces the sales tax exemption the nonprofit blood centers had operated under and makes the change retroactive to May 30, 2018, which is the date SF 2417 was signed into law by Governor Reynolds.
On this vote, the Senate concurred with a House amendment that removed a provision that included non-profit blood centers in a sales tax exemption for the sale of digital products to commercial enterprises. The House amendment also removed the retroactive effective date, meaning the sales tax exemption will begin July 1, and no refunds will be issued for sales taxes paid since May 30, 2018.
[4/26: 48-0 (Absent: Lykam, T. Taylor)]
SF 633 – Assessment of subdivided real property
SF 633 would amend current Code language regarding the assessment of certain subdivided real property. Current law under 405.1 allows counties and cities to adopt ordinances so that land that has been subdivided for housing development is assessed as it was prior to subdivision until the property is sold for construction or the occupancy of housing or for a period of five years, whichever is shorter. The law also allows counties or cities to extend the ordinance regarding the assessment of those properties. A separate Code section (441.72) prohibits the increased assessment of subdivision property when the plat is recorded for a five-year period or until the property is improved and is not restricted to housing developments.
Under the bill, subdivided properties would simply maintain the prior assessment until the property is sold for construction or the occupancy of housing. It eliminates the need for an ordinance and removes the time limits on the assessments. The two Code sections create two processes for the assessment of these properties, and the bill tries to conform those two processes.
The committee adopted an amendment to further clarify the process for the assessment of properties platted for subdivisions. The amendment will repeal the process that exists under 405.1 since this process only applies to housing subdivisions, while 441.72 applies to all subdivided property. The amendment also amends the process under 441.72 to remove outdated language for subdivision plats recorded between 2004 and 2011.
[4/26: 49-0 (Absent: Feenstra)]