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The 2021 legislative session in Iowa ends with a flurry of new tax regulations
August 18, 2021
Brown Winick
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On May 19, 2021, the Iowa Legislature closed this year’s session with the passage of a 60-page tax bill made up of 28 divisions covering a variety of topics, resulting in an estimated tax cut of $ 1 billion over the next eight Years leading. This article does not seek to cover each of the upcoming tax changes; However, it highlights the most important provisions that are most likely to affect your business or you personally. The bill awaited Governor Reynolds’ signature on June 16, 2021. The governor’s press release can be found here.
Eliminate the triggers for the 2018 tax reform.
The Iowa tax reform laws of 2018 included “triggers” for the tax revenue the state had to meet in order to initiate certain tax changes starting in 2023. This tax legislation 2021 has lifted the trigger, so that these tax changes will now take effect on January 1, 2023, regardless of whether the income targets of the general state fund are achieved. For private individuals, this primarily means:
- The number of tax brackets will be reduced from nine to four, with the top rate being lowered to 6.5%;
- Federal deductibility will be removed, meaning Iowas will no longer be able to deduct federal income tax payments from taxable Iowa income;
- Federal taxable income becomes the starting point for Iowa income taxes, rather than federal adjusted gross income – which means that tax treatment by the federal and Iowa should be more consistent; and
- The Iowa capital gain deduction applies only to net capital gains from the sale of real estate used on a farm that meets other requirements (previously this deduction was available on the sale of certain non-farm operations).
For companies, this means certain changes to the net operating loss allowance and loss carryforwards.
COVID-19 related changes. Basically, the new legislation looked at the income tax treatment of certain COVID programs that were put in place to mitigate their impact on Iowa and Iowa businesses.
- Income Tax for Individuals and Businesses – COVID-19 Related Grants. The law excludes Iowa income tax grants for individuals and companies who receive an individual or company related to COVID-19 and are administered by the Iowa Economic Development Authority (IEDA), the Iowa Finance Authority, or the Iowa Department of Agriculture and Land Stewardship became. This income tax exclusion applies retrospectively to March 17th, 2020.
- Federal Paycheck Protection Program. Those who applied 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 make those deductions from business expenses related to waived PPP loan proceeds. This change should now fully comply with federal tax law.
- Downtown loan guarantee program. The COVID-19 pandemic has had a drastic impact on businesses in the country’s downtown area. To encourage downtown economic reinvestment and reopening of businesses, the bill provides for a downtown loan guarantee program administered by the IEDA. In general, the program guarantees loan repayment up to certain thresholds to encourage businesses and banks to invest in new or existing downtown businesses.
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- For loan amounts less than or equal to US $ 500,000, the loan guarantee cannot exceed 50% of the loan, while for loans over US $ 500,000, the loan guarantee cannot exceed US $ 250,000. The program requires that the loan be secured by a mortgage on the property, requires the lender to pay an annual fee, and prohibits the transfer of the loan guarantee if the property is sold or transferred.
- There are numerous requirements for a loan to be eligible for the program, including the following: the loan will fund an eligible downtown building renovation project at a downtown resource center, or a grant for the Iowa High Street Challenge all rolled into one specific district; the loan finances a renovation project or the acquisition or refinancing costs associated with the project; at least 25% of the project costs will be used for the construction of the project or renovation; the project includes a housing component; the loan will be used for the construction of the project, permanent funding of the project, or both; a state-insured credit institution granted the loan; the loan does not reimburse the borrower for working capital, operating costs or similar expenses; and the project meets the downtown resource center and Iowa High Street design assessment.
- Loan guarantees are limited to five years, but the IEDA can extend the loan guarantee for an additional five years if an underwriting review shows that an extension would be beneficial. In the event of default or loss, the loan guarantee pays the lender on a pro rata basis of the guaranteed percentage of the loss.
Iowa taxation related to federal taxation.
- Bonus depreciation. Iowa tax law will now match (or pair) the bonus amortization of code Section 168 (k) of federal law, which will apply retrospectively to qualifying assets acquired on or after January 1, 2021.
- Interest deduction. In addition, Iowa law remains exempted (or decoupled) from the restriction of federal corporate interest deductions under Section 163 (j) of federal law.
Abolition of the state inheritance tax. The tax rate will be reduced over a period of four years, starting for bequests from deceased persons that expire on or after January 1st, 2025, whereby the inheritance tax for deaths on or after January 1st, 2025 is definitely no longer applicable.
Changes and updates to certain tax credit programs.
- Beginning farmer. Legislators broadened the definition of agricultural assets and expanded the novice tax credit program by allowing attendance for up to 15 years. The program now enables taxpayers to enter into agreements with several would-be farmers. It also expands the amount of tax credits available by capping each agreement at only $ 50,000 per year instead of a total of $ 50,000 per year. These changes should come into effect on 01/01/2022.
- Quality jobs and renewable chemical production. Legislators have reduced the maximum amount of tax credits available for the Quality Workplace program from $ 105 million to $ 70 million. This applies to the fiscal year beginning on July 1, 2021 and each subsequent fiscal year. Legislature has also reduced the renewable chemicals program’s available tax credits from $ 10 million to $ 5 million for the fiscal year beginning July 1, 2021 and each subsequent fiscal year.
- Workers’ housing. Lawmakers increased the amount of tax credits for the Workforce Housing Tax Incentives Program from $ 25 million to $ 35 million. In addition, the amount reserved specifically for qualified residential projects in small towns was increased for the fiscal year beginning July 1, 2021.
- Brownfields and Grayfields. Legislators extended this program through June 30, 2031, increasing 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 of Representatives resulted in an agreement to compensate for potential lost revenue for local governments of up to $ 152.1 million per year. In 2013, a property tax law was passed that limits commercial, industrial and railroad properties to 90% of their estimated value. So far, these property classifications have largely been taxed at 100% of the appraised value. The legislation begins with the gradual elimination of property tax replacement funds to local authorities over a period of four to seven years, depending on the corresponding growth rates of the tax base.
New investment program for manufacturing technology. Legislators have created a new program called Manufacturing 4.0 Technology Investment. It creates a fund to support investments related to the use of intelligent technology in existing Iowa manufacturing operations. The fund is managed as a revolving fund and can consist of funds approved by the General Assembly. Up to $ 75,000 can be awarded. A manufacturer must meet certain criteria in order to be eligible for the award, including, but not limited to, evidence that they are able to provide one-to-one financial support for the investment and at least 51% of gross revenue from sales achieving of finished goods.
Written by BrownWinick attorneys Christopher Nuss and Cynthia Boyle Lande, and Summer Law Clerks 2021, Marcus M. Weymiller and Carter S. Albrecht.
Originally published 6/14/2021
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.
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