United States:
2021 Iowa Legislative Session Ends With Flurry Of New Tax Rules
18 August 2021
Brown Winick
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On May 19, 2021, the Iowa Legislature closed this year’s
session by passing a 60-page tax bill consisting of 28 divisions
addressing a plethora of topics, resulting in an estimated cut in
taxes of $1 billion over the next eight years. This article does
not attempt to cover each of the upcoming tax changes; however, it
does highlight the key provisions that could most likely affect
your business or you individually. The bill has been awaiting the
signature of Governor Reynolds, which occurred on June 16, 2021.
The Governor’s press release can be found here.
Elimination of 2018’s Tax Reform Triggers.
The 2018 Iowa tax reform laws contained tax revenue
“triggers” that the state was required to meet to
initiate certain tax changes beginning in 2023. This 2021 tax
legislation repealed the triggers so now these tax changes now take
effect on January 1, 2023 regardless of whether state general fund
revenue targets are met. For individuals, this primarily
means:
- The number of tax brackets will be reduced from nine to four
with the top rate reduced to 6.5%; - Federal deductibility will be repealed, meaning Iowans will no
longer be able to deduct federal income tax payments from Iowa
taxable income; - Federal taxable income becomes the starting point for
Iowa income taxes rather than federal adjusted gross
income – meaning there should be more consistency between federal
and Iowa tax treatment; and - Iowa capital gain deduction will apply only to net capital gain
from the sale of real property used in a farming business and
meeting other requirements (previously, this deduction was
available for the sale of certain non-farming businesses as
well).
For businesses, this means certain changes to the net
operating loss deduction and carryforwards.
COVID-19 Related
Changes. Basically, the new
legislation addressed the income tax treatment of certain COVID
programs implemented to ease its impacts on Iowans and Iowa
businesses.
- Individual & Corporate Income Tax – COVID-19 Related
Grants. The legislation excludes from Iowa individual and
business income tax grants received by an individual or business
that are related to COVID-19 and were administered by the Iowa
Economic Development Authority (IEDA), Iowa Finance Authority, or
Iowa Department of Agriculture and Land Stewardship. This income
tax exclusion applies retroactively to March 17, 2020. - Federal Paycheck Protection Program. Those that filed
for Paycheck Protection Program (PPP) loans and were previously
excluded from deducting business expenses for which the loan
proceeds were used are now allowed to take those business expense
deductions related to forgiven PPP loan proceeds. This change
should now fully conform with federal tax law. - Downtown Loan Guarantee Program. The COVID-19 pandemic
had a drastic effect on downtown area businesses within the State.
To encourage downtown economic reinvestment and the reopening of
businesses, the bill creates a Downtown Loan Guarantee Program to
be administered by the IEDA. Generally, the program guarantees the
repayment of loans up to certain thresholds to encourage businesses
and banks to invest in new or existing businesses located in
downtown areas. - For loan amounts less than or equal to $500,000, the loan
guarantee cannot exceed 50% of the loan, while for loans greater
than $500,000, the loan guarantee may not exceed $250,000. The
program requires the loan to be secured by a mortgage against the
property, requires the lender to pay an annual fee, and prohibits
the loan guarantee from being transferred upon sale or transfer of
the property. - Numerous conditions apply for a loan to qualify under the
program, including the following: the loan finances an eligible
downtown resource center community catalyst building remediation
grant project or main street Iowa challenge grant within a
designated district; the loan finances a rehabilitation project, or
finances acquisition or refinancing costs associated with the
project; at least 25% percent of the project costs are used for
construction on the project or renovation; the project includes a
housing component; the loan is used for construction of the
project, permanent financing of the project, or both; a federally
insured financial lending institution issued the loan; the loan
does not reimburse the borrower for working capital, operations, or
similar expenses; and the project meets downtown resource center
and main street Iowa design review. - Loan guarantees are limited to five years, but the IEDA may
extend the loan guarantee for an additional five years if an
underwriting review finds that an extension would be beneficial. In
the event of a default or loss, the loan guarantee proportionally
pays the guarantee percentage of the loss to the lender.
- For loan amounts less than or equal to $500,000, the loan
Iowa Taxation Relating to Federal Taxation.
- Bonus Depreciation. Iowa tax law will now conform (or
couple) to federal law’s Code Section 168(k) bonus
depreciation, applying retroactively for qualified assets purchased
on or after January 1, 2021. - Interest Deduction. Additionally, Iowa law will remain
exempt (or decoupled) from the federal business interest expense
deduction limitation found in Federal law Code Section 163(j).
Repeal of State Inheritance
Tax. Over four years, beginning for
estates of decedents passing on or after January 1, 2021, the tax
rate is reduced ultimately eliminating the inheritance tax for
deaths on or after January 1, 2025.
Changes in and Updates to Certain Tax Credit Programs.
- Beginning Farmer. The Legislature broadened the
definition of agricultural assets and expanded the Beginning Farmer
Tax Credits Program by allowing participation for up to 15 years.
The program now allows taxpayers to enter into agreements with
multiple beginning farmers. It also expands the amount of tax
credits available by only limiting each agreement to $50,000 per
year, rather than a total of $50,000 per year. These changes are to
become effective on January 1, 2022. - High Quality Jobs and Renewable Chemical Production. The
Legislature reduced the maximum amount of tax credits available for
the High Quality Jobs Program from $105 million to $70 million.
This takes effect for the fiscal year beginning July 1, 2021 and
each fiscal year thereafter. The Legislature also reduced the
Renewable Chemical Production Program’s available tax credits
from $10 million to $5 million for the fiscal year beginning July
1, 2021 and each fiscal year thereafter. - Workforce Housing. The Legislature increased the amount
of tax credits for the Workforce Housing Tax Incentives Program to
$35 million from $25 million. It also increased the amount of money
that reserved specifically for qualified housing projects in small
cities for the fiscal year beginning July 1, 2021. - Brownfields and Grayfields. The Legislature extended
this program until June 30, 2031 and expanded the amount of
available tax credits from $10 million to $15 million.
Commercial and Industrial Property Tax Replacement
Payments. Negotiations between the
governor, the Senate, and the House led to an agreement to replace
potential losses in revenue for local governments of up to $152.1
million per year. In 2013, a property tax bill was passed that
capped commercial, industrial, and railway properties at 90% of
their assessed value. Previously, those classifications of property
were largely taxed at 100% of assessed value. The legislation
begins the phase-out of property tax replacement dollars to local
authorities over periods of four to seven years depending on the
corresponding tax base growth rates.
New Manufacturing Technology Investment
Program. The Legislature created a
new program called the Manufacturing 4.0 Technology Investment. It
creates a fund meant to assist investments relating to the use of
smart technologies in existing manufacturing operations located in
Iowa. The fund will be administered as a revolving fund and may
consist of any moneys appropriated by the general assembly. Awards
may be made up to $75,000. A manufacturer must meet certain
criteria to be eligible for the award including but not limited to,
demonstrating the ability to provide matching financial support for
the investment on a one-to-one basis and deriving a minimum of 51%
of gross revenue from the sale of manufactured goods.
Written by BrownWinick attorneys Christopher Nuss and
Cynthia Boyle Lande, along with 2021 Summer Law Clerks Marcus M.
Weymiller and Carter S. Albrecht.
Originally published 06-14-2021
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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