SF 220 – Increased expensing for corporations for tax year 2018
SF 220 relates to Section 179 expensing for S-corporations, C-corporations and other entities taxed as corporations. The bill also impacts individuals filing K-1 returns (members of LLCs, S-Corp and partnerships) for income earned through those entities. In 2018, SF 2417 (GOP tax bill) raised the Section 179 expensing limit to $70,000/$280,000 annually for individual income taxes only, not for corporate taxpayers. The bill also instituted a K-1 tax form “fix” so that the limit on expensing is extended to every member of the business rather than having all partners cumulatively limited to the expensing threshold.
During rulemaking to implement SF 2417, the Iowa Department of Revenue determined that, because Section 179 expensing was not raised for corporate taxpayers, the individual taxpayers filing K-1s as a part of an S-corporation (and other corporate taxes entities) were not eligible for the expanded Section 179 limit that individual income taxpayers were given in SF 2417. Those individuals could only claim up to the previous $25,000/$200,000.
The bill resolves this issue by changing the corporate expensing levels for tax year 2018. Changes for other years are fully addressed in SF 2417. Section 179 expensing levels are increased to $100,000/$250,000 for individual and corporate returns for tax year 2019. Section 179 and other coupling issues are resolved in tax year 2020 because we established “rolling conformity” from then on; applicable federal tax changes on expenses, credits and deductions allowed under Iowa law will automatically be incorporated into Iowa tax code, without further legislative action.
[2/18: 48-0 (Absent: Miller-Meeks; Vacant: Danielson)]
SF 306 – Pilot project for park user fees at Lake Manawa and Waubonsie
SF 306 establishes a pilot program for park user fees at Lake Manawa State Park in Council Bluffs. The Department of Natural Resources (DNR) will collect fees from nonresidents who access the state park, and DNR can charge different rates for facility rentals to residents and nonresidents. This system mirrors how Nebraska charges for nonresidents to use their state parks. Lake Manawa is a busy state park that attracts many 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. The fees are designed to cover park needs and discourage illegal activities. The pilot program will be repealed on July 1, 2022. The bill was amended to create a similar program for Waubonsie State Park in Fremont County.
[4/25: 49-0 (Absent: Chapman)]
SF 597 – Sales tax exemption for nonprofit blood centers
SF 597 provides a sales tax exemption for tangible property sold or laboratory test services furnished to a nonprofit blood center, as long as the property or testing are 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 in 2018 (SF 2417) redefined the term “manufacturing” to apply to a narrower scope of activity. This change 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.
[4/26: 48-0 (Absent: Lykam, T. Taylor)]
SF 605 – Child Support Recovery fees
SF 605 is a Department of Human Services bill regarding Child Support Recovery fees. The bill eliminates the application fee of $25. It changes the annual fee to what is required by federal law. The fee will be collected from the obligee after $550 in support has been distributed to the family. The fee is only charged if the obligee has never received cash assistance. The bill amends Iowa Code Chapter 252B to remove the specific amount of the fee and cites directly to federal law. This means that the state will not have to pass legislation each time the federal government makes changes.
[4/22: 49-0 (Absent: Segebart)]
SF 629 – Excessive weights for raw forest products
SF 629 requires the Department of Transportation (DOT) to develop and implement a single statewide system to receive applications for and issue permits to allow vehicles of excessive size or weight to operate on roads under state or local jurisdiction. DOT will determine, in consultation with local authorities, the network of highways and streets under local jurisdiction, including the appropriate routes, on which the vehicles may operate. DOT will issue permits for a fee set by DOT rule and proportionate to the fees in Code section 321E.14. DOT will allocate a portion of the fees to local authorities. DOT must submit a report to the Legislature by December 31, 2021, regarding the development and implementation of the system.
The bill allows DOT to issue annual permits for $175, authorizing a vehicle or combination of vehicles to transport divisible loads of raw forest products from fields to storage, processing or other commercial facilities. A vehicle or combination of vehicles for which a permit is issued may exceed the maximum weights in Code section 321.463 if the gross weight does not exceed the limits in Code section 321E.7 (20,000 pounds on any one axle and 46,000 pounds on any one tandem axle having at least four tires). The bill prohibits a vehicle or combination of vehicles issued such a permit from traveling on the interstate or exceeding the size limits set in Code sections 321.454 through 321.457. The permit is valid for operation on non-primary highways if local authorities approved the route within their jurisdictions.
[4/23: 37-12 (No: Celsi, Greene, Hogg, Miller-Meeks, Nunn, Quirmbach, Schultz, Segebart, Sinclair, J. Smith, R. Taylor, Zaun)]
SF 634 – Limits on property tax revenues; city/county budget growth cap
SF 634 establishes a new public hearing process before local governments assembles their budgets. As part of this process, the local board will establish a total maximum property tax revenue limit for the city or county budget process. This includes taxes available through existing levies for general services, rural services, trust and agency, and supplemental levies.
The proposal does not eliminate any levy authority or any specific levies. The local board must publish the maximum property tax revenues within that group for the current budget year, and calculate an effective levy rate that shows what the effective rate would have been if total maximum property tax revenues were not increased. This would provide the public with information on how much property tax revenues are generated by new valuations and revaluations of existing property.
The proposal establishes a “soft cap” of 2% growth in total maximum property tax revenues over the previous year. If a local board proposes to increase the total maximum property tax revenue by more than 2%, the resolution must be approved by a two-thirds majority vote.
For counties, the levies included under the total maximum property tax calculation include:
- The sum of property tax dollars certified for general county services: ($3.50) basic levy, general county services supplemental levies and additions to basic levies (unusual circumstances), but excluding additions approved at election under current Code (special levy elections).
- The sum of property tax dollars certified for levy for rural county services: ($3.95) basic levy, rural county services supplemental levies and additions to basic levies (unusual circumstances), but excluding additions approved at election under current Code.
For cities, the levies included under the total maximum property tax revenue calculation include:
- The sum of property tax dollars certified for city government purposes under the following levies: the city basic levy ($8.10), city trust and agency fund, emergency fund and various additional taxes, under additional taxes, including emergency management commission and insurance.
The bill establishes new requirements for publication of information prior to the budget process. The bill allows an additional two weeks to complete local budgets that must be submitted to the state. The bill requires that local governments include information on the current budget protest process as part of their budget approval.
The bill does not include a reverse referendum process or “hard caps” on local budget growth. The bill maintains existing levies. The changes are effective for local budgets after July 1, 2020.
[4/23: 33-17 (Yes: Republicans, Bisignano)]
HF 389 – Boat, ATV and snowmobile registration process improvements
HF 389 updates the Iowa Code regarding the process for registering and titling boats and other vessels. Boat and vessel registration is now done using an electronic licensing system. These changes will improve the process:
- Allowing an owner to register their vessel with any county recorder rather than the county where the vessel was initially registered.
- Allowing a 60-day grace period for renewal of a boat registration. Boat registrations expire on April 30, prior to the time most owners take their vessel onto the water. Owners could renew prior to June 1 without a $5 late fee.
- Allowing an owner to initially register their vessel for shorter than the three-year registration period so as to prorate the fee and align the registration with the timeline for renewal.
- Allowing a title to be used to sell or transfer a vessel. Currently, the transfer or sale requires completing a form on the original registration certificate.
- Removing the requirement for a notarial to witness the application for a title after acquiring a vessel.
The bill also increases from 15 to 30 the number of days a snowmobile, all-terrain vehicle or vessel dealer has to send fees and applications to transfer a vehicle requiring a title.
[4/18: 48-1 (No: Celsi; Absent: Mathis)]
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. At time of passage, one flood-control project in Cedar Rapids met the terms outlined in the bill.
[4/26: 49-0 (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 pay an additional registration fee of $65 in 2020, increasing to $130 after January 1, 2022. Plug-in hybrid vehicles will 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 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 is again raised to $12 million for tax years 2019 and beyond. The tax credit is 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 no longer covers 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. 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 772 – Empower Rural Iowa
HF 772 changes the Broadband Infrastructure Grant Program and the Workforce Housing Tax Credit Program. Under the bill, qualifying broadband projects eligible for grant assistance must meet upload/download speeds established by the Office of the Chief Information Officer. Currently, the speeds are outlined in Code at 25mbps/3mbps. The bill also extends the grant program by five years, and proposes a $5 million increase in tax credits available through the Workforce Housing Tax Credit Program. This $5 million is set aside for projects located within the 88 lowest population counties in the 2010 census. The Workforce Housing Tax Credit Program has a tax credit cap of $20 million, with $5 million reserved for projects in smaller communities.
The bill changes the application process from first-come, first-served to a competitive process that scored by IEDA. Additionally, the bill allocates the entire cap for the program for FY20 to small city projects that were registered priority to July 1, 2019.
HF 772 also provides $10 million in Workforce Housing tax credits for projects in counties designated disaster areas because of flooding along the Missouri River. Housing projects in disaster areas can receive a tax credit of up to 20% of new investment in the project, in addition to sales tax refunds. This is in addition to the credits available under the Workforce Housing Program.
HF 778 – Capital gains deduction for sale of real estate involved in farming
HF 778 amends the contingent capital gains for farm property that will happen for tax year 2023 if the revenue triggers in 2018’s SF 2417 are met. SF 2417 changed the capital gains exemption for farm real estate to a new standard under the contingent tax system in that bill. The capital gains deduction under the contingent tax system was narrower, reducing the value of the capital gains deduction.
The capital gains deduction is allowed for sales of six types of qualifying assets:
- Cattle, horses or breeding livestock
- Real property used in a farm business
- Real property used in a non-farm business
- A business
- 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:
- 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 that 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.
- Clarifies 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.
- Technical changes to the treatment of like/kind exchanges to couple with federal changes made after the TCJA.
Division II – Administrative changes: The Department of Revenue may adopt rules allowing taxpayers to designate another person to receive tax information.
Division III – Sales and Use tax changes:
- Clarifies the existing definition of “affiliate” to aid in collecting sales and use taxes from affiliated businesses.
- Changes the amount of service or warranty contract subject to sales or use tax to the full price of the service contract.
- Clarifies that carpentry repair and installation services are taxable. This relates to an Iowa Supreme Court case that involved construction services provided by Lowe’s. This mirrors administrative rules 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.
- 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 prevents 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. Under the bill, DOR 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: Streamlines the process for collecting and administering the automobile rental excise tax to eliminate issues where online platforms don’t collect the full rental sales price at time of transaction.
Division V – Telephone company property: Addresses conflicting legislative language in bills enacted following the 2018 session. SF 2388 and another bill both amended the same Code section. The changes included in those bills created uncertainty in how to implement them.
Division VI – Targeted Jobs Withholding Tax Credit: Extends the targeted jobs withholding tax credit program by two years so that it ends after June 30, 2021, and restricts it to jobs created (not retained). 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.
Division VII – School Tuition Organization tax credits – Increases the amount of tax credits that can be issued under the School Tuition Organization (STO) tax credit program by $2 million to $15 million annually for tax year 2020. STOs provide scholarship assistance to students from families with incomes up to 400 percent of the federal poverty level.
Division VIII–Income tax checkoffs: Re-authorizes the state fair and combined volunteer firefighter/veterans income tax checkoffs, and establishes a process to notify the Legislature of which checkoffs are scheduled to be eliminated from the state income tax form.
There is a two-year cycle for established income tax checkoffs. After those two years, the two checkoffs that received the lowest amounts 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: 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 in 2018, the department now administers this tax. It previously had been administered through counties.
Division X – Sales and Use Tax Exemption for Manufacturers: Clarifies changes from SF 2417 that had restricted who qualified for the sales and use tax exemption for manufacturing processes. Under that bill, 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, not a full-scale reversal.
Division XI – State Research Activities Tax Credit (RAC): Amends the industries eligible to claim the state RAC to include agriscience. In 2018, SF 2417 reigned in the types of companies claiming the credit, and restored 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. The bill does not extend the RAC to agricultural animal production.
Division XII – Adoption tax credit; timing of eligible expenses: Allows adoption expenses to be included when claiming the adoption tax credit. Previously, expenses only could be claimed during the year the adoption is completed. That meant 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: Extends the utility replacement task force by five years to January 1, 2024. 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: Repeals the alternative minimum tax (AMT) for franchise taxes beginning in tax year 2021. A one-year transition 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 in 2018’s SF 2417.
Division XV – Geothermal system tax credit: Reinstates the state geothermal system tax credit that was eliminated in 2018’s SF 2417. 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: Makes 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 the 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)]