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Ways & Means Committee – Week 9, 2021

SSB 1250 – Removal of triggers for Contingent Income Tax System; Inheritance Tax phase-out

SSB 1250 would remove the “triggers” that must be met to move to the contingent individual income tax system that was established as part of SF 2417 in 2018 and make the new system effective for TY 2023. Under SF 2417, the contingent tax system only goes into effect after tax year 2023 when two conditions are met: general fund net receipts for FY22 (or after) exceed $8.31 billion, and net general fund receipts for that year must grow at least 4% above the year prior (equal to or more than 104% of previous year’s net receipts).

Under the contingent tax system, the basis for determining Iowa taxable income will be calculated on federal taxable income. This will incorporate all federal tax deductions into the Iowa tax code and will eliminate many of the Iowa specific adjustments to taxable income. The bill removes the state standard deduction but will bring federal standard or itemized deductions into the Iowa tax code by using federal taxable income as the base. One of the largest changes under the contingent tax system is the removal of the Iowa deduction for federal taxes paid, which is known as “federal deductibility.” This massive deduction has the impact of making Iowa’s income tax rates artificially high and appear less competitive with other states

The bill also phases out and eventually repeals Iowa’s inheritance tax and qualified use inheritance tax. The inheritance tax is paid by a beneficiary of the estate based on the taxable value of his or her share of the estate. Estates for deaths of decedents on or after January 1, 2024, would be fully exempt. The amount of the estate a beneficiary receives that is subject to the tax would be reduced by 25% for 2021, 50% for 2022, and 75% for 2023.

Iowa’s inheritance tax provides a complete exemption from the tax for lineal relatives (parents and step-parents, children and step-children, adopted family, etc.) of the deceased owner of the estate (decedent) who are beneficiaries, while also exempting estates valued at less than $25,000.

This is separate and distinct from the federal estate tax, which is assessed to the estate based on the taxable value of the estate. The federal estate tax does not have an exemption based on the designated beneficiary but does exempt estates valued up to $11.4 million.

The inheritance tax is assessed at different rates based on the beneficiary’s relationship to the deceased owner of the estate. For inheritances not exempt, the tax rate varies by size of the inheritance and category of the beneficiary:

The qualified use inheritance tax is available to certain taxpayers who elect to use an alternate valuation for the estate under Section 2032A of the federal Internal Revenue Code. [3/10: 11-6 (Party-line)]

SF 94 – Herbert Hoover Presidential Library tax credit

SF 94 would establish an income tax credit for Iowa taxpayers who make donations to the Hoover Presidential Library and Museum Renovation Project Fund. The credit is 25% of the donated amount with a maximum credit of $250,000 per taxpayer. The total amount of credits that can be issued under the program is $5 million. The credit program is modeled after the Endow Iowa Tax Credit Program and is designed to help generate $20 million in donations for a major renovation of the Hoover Presidential Library in West Branch.

Tax credits issued under the program are not transferrable or refundable. They can be applied to individual, corporate, franchise, insurance premium, and moneys and credits taxes. Unused credits can be carried forward for a five-year period. [3/10: Short form]

SF 266 – Model Business Corporations Act

SF 266 comes from the Business Law Section of the Iowa Bar Association and updates Iowa’s business corporations law based on the Model Business Corporation Act. The bill updates Iowa’s business law chapters to provide more clarity and includes sections that reflect the need for the possibility of remote meetings by business entities.

Proposed amendment: The amendment would make technical fixes to the bill, as well as making the provisions allowing for remote meetings to be effective upon enactment. The amendment also includes language that would require the Secretary of State to establish a process and fee for expedited business filings. [3/10: Short form]

SF 308 – Certificate for nonviable birth

SF 308 creates a certificate of nonviable birth. A patient can request a certificate from the Iowa Department of Public Health starting July 1, 2021. The certificate does not become part of Vital Records. This is similar to the Certificate of Stillbirth created in 2012. [3/10: Short form]

SF 309 – Confidential information, veteran property tax credits and exemptions

SF 309 addresses an issue from legislation enacted last session that was meant to prevent the collection of names of veterans using property tax information. The bill would clarify that the disabled veteran/POW and military serviceproperty tax credits and exemptions can be made public on property tax reports for individualparcels but the information could not be aggregated under public records. [3/10: Short form]

SF 359 – IDALS department bill

SF 359 makes various changes to the operations of the Iowa Department of Agriculture and Land Stewardship (IDALS).

Many of these issues were introduced and debated last session:

The committee adopted an amendment that would make confidential any information the department collects from animal facilities that register under the voluntary premise ID program. The premise ID program allows for the tracking of livestock to help identify the path or threats of spread of animal diseases. [3/10: Short form]

HF 368 – Administration of rent reimbursement program

HF 368 would transfer the administration of the rent reimbursement program from the Department of Revenue (IDR) to the Department of Human Services (DHS). The rent reimbursement program provides support to elderly and low-income taxpayers for rent costs associated with property taxes. This mirrors the elderly and disabled property tax credit program that is available for individuals who own their homes.

The current program requires taxpayers to apply to IDR and is administered out of the department’s offices in the Hoover Building in Des Moines. Moving the program to DHS would allow the program to be administered out of their local offices in counties around the state, increasing accessibility for eligible taxpayers. The bill does not provide any additional funding to DHS to administer the program. [3/10: Short form]