James Van Fossen - Iowa State House Representative

HOUSE WAYS AND MEANS COMMITTEE APPROVES INTERNAL REVENUE CODE UPDATE-WHAT ABOUT YOUR TAX REBATE?

On Monday, February 18, The House Ways and Means Committee unanimously approved Senate File 2123, the 2008 update to the Internal Revenue Code.

Iowa income tax provisions are fixed in federal tax law. When determining Iowa taxable income under the individual income tax the starting point is federal adjusted gross income. Any change to federal tax law therefore has the potential to impact Iowa law.

In general, the Iowa Legislature will adopt changes made at the federal level or “couples” with the federal law. On occasion, the Legislature has chosen to “uncouple” from federal law, i.e. go our own direction.

Annually, the Iowa Department of Revenue introduces the Internal Revenue Code (IRC) Update, which includes into Iowa income tax law the federal income tax changes enacted by Congress since the previous session.

Senate File 2123 updates the provisions in the Iowa Code for the Iowa Research Activities Credit to include revisions in the federal research activities credit (which is the basis for the Iowa credit). The Iowa Code sections which define the Internal Revenue Code for Iowa income tax purposes are also updated so that all of the 2007 federal changes which affect the computation of Iowa net income for individuals, corporations and financial institutions are adopted.

During 2007, two federal bills were enacted that impact Iowa income tax. These two bills were:

U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007 (Public Law No. 110-28, May 2007)
Mortgage Forgiveness Debt Relief Act of 2007 (Public Law No. 110-142, December 2007)

The U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007, increased the maximum amount a small business taxpayer may expense under Section 179 of the Internal Revenue Code to $125,000 for the 2007 tax year. Senate File 2123 allows this expensing increase for Iowa tax purposes.

The Mortgage Forgiveness Debt Relief Act of 2007 provides for the exclusion of mortgage debt forgiveness for debt discharged on or after January 1, 2007 and before January 1, 2010 from income. Additionally this legislation provides for an exclusion from income for payments received by volunteer firefighters and emergency medical responders, up to a maximum of $360 per year, for tax years 2008-2010. Senate File 2123 couples Iowa law with both of those income exclusions.

Congress enacted the Tax Increase Prevention Act of 2007 (Public Law No. 110-166) in December 2007. This Act increases the exemption amount relating to the alternative minimum tax for individuals and provides that most nonrefundable credits for federal income tax my offset alternative minimum tax liability. This provision does not affect Iowa income tax because Iowa law provides for specific exemption amounts for the Iowa alternative minimum tax, and all Iowa nonrefundable credits can currently offset the Iowa alternative minimum tax.

Will the legislature tax your rebate check?

SF 2123 is the perfect opportunity to protect the federal rebate check Iowans are due to receive from state income taxation. Republicans and Democrats have a bipartisan amendment to SF 2123 to take care of this potential problem. Failure to adopt this amendment will mean a $64 million income tax increase on Iowans.

This bill is also the perfect opportunity to stand up for little guy. Hometown Iowa businesses are going to be hit with an income tax increase of up to $30 million if the Legislature does not “couple” or mirror the federal tax changes in regards to bonus depreciation.

Just last week the Legislature gave Microsoft and Bill Gates a big tax break to help land a Microsoft server farm in central Iowa. If the state can afford to give Bill Gates a tax cut, why can’t it afford to give home town, home grown Iowa businesses a tax cut?

If you work hard and play by the rules, the Legislature should be there to fight for you. With a recession looming, now is not the time to raise taxes on hometown, homegrown Iowa businesses.

Iowa’s state revenue is coming in at record levels. The state is collecting more revenue than was anticipated. Now is exactly the time to make sure our hometown, homegrown businesses get a break. Just like Bill Gates.