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Iowa/Illinois
Reciprocity Agreement Awaits Governors Approval
House
File 2116 addresses the issue of terminating the Iowa/Illinois tax
reciprocity agreement. In
his budget, the Governor stated that he intends to sever the
Iowa/Illinois tax reciprocity agreement.
This agreement, which has been in current law since 1972,
allows residents of one state to work in the other, but still pay
the income tax in the state of their residence.
Currently,
the decision to sever the agreement does not require Legislative
approval, nor does it require any approval by the State of
Illinois. According
to the Code, a final decision to sever the agreement is to be made
by Gerald Bair -- the Director of the Iowa Department of Revenue
and Finance. However,
HF 2116 (as amended) states that reciprocal agreements that are
entered into on or after the enactment of HF 2116, cannot take
effect until the agreement has been authorized by a constitutional
majority of both the House and Senate and signed by the Governor.
Additionally, an existing reciprocal agreement that is in
effect cannot be terminated unless the termination has been
authorized by a constitutional majority of both the House and
Senate and signed by the Governor
HF
2116 also included the annual Internal Revenue Code (IRC) Update
(as proposed by the Department of Revenue and Finance and amended
by the House and Senate).
The
IRC corrects the differences between the state revenue code and
the Federal revenue code. State
coupling with the Federal Code changes has been an issue that has
gained national media attention in recent months because of
President George W. Bush's Economic Growth and Tax Relief
Reconciliation Act of 2001, as well as the Job Creation and Worker
Assistance Act of 2002.
When
President Bush signed the Economic Growth and Tax Relief
Reconciliation Act of 2001 in June of 2001, there were several
differences in the taxation of Individual Retirement Accounts
(IRAs), 401(k) type pension plans (including 403b annuities and
salary reduction SEPs), college tuition deduction, and child and
dependent care credit between the state and the federal revenue
codes. The IRC Update
corrects the differences between the two; therefore, Iowa will not
penalize those who save for their retirement.
The
2001 federal tax act reduces federal income tax rates and makes
numerous other revisions in the federal income tax law in the
period from 2001 through 2010.
Iowa will automatically couple with the federal changes
that impact federal adjusted gross income for
individuals
and federal taxable income for corporations when the Governor
signs the Internal Revenue Code Update Bill.
HF
2116 does not address Iowa coupling with the accelerated
depreciation
provisions in the Job Creation and Worker Assistance act of 2002.
President Bush did not sign that
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legislation
until March 8, 2002, and HF 2116 only matches Iowa’s code to
Federal changes that occurred on or before January 31, 2002.
The
accelerated depreciation provisions in the 2002 federal tax act
allows a first year depreciation deduction equal to 30 percent of
the adjusted basis for certain tangible personal property used in a
trade, or for the production of income acquired after September 10,
2001 and before September 11, 2004.
Attempt
to Raise Sales Tax Thwarted
Proponents
of a one-cent school sales tax increase failed to get the votes
needed to pass the over $300 million tax increase. Rep. Clarence
Hoffman introduced an amendment, H-8422 to SF 2228, that would have
added a sixth penny to the state sales tax.
Rep. Hoffman withdrew his amendment Thursday during debate.
The
House and Senate entered the homestretch of the session this week as
the budget subcommittees continued the work on the FY 2003 budget.
The budget subcommittees approved all of their bills by Wednesday,
March 27. All of the budget sub bills except Transportation and
Infrastructure will be rolled into an Omnibus budget bill.
The
remaining five budget bills will be run independently. They are: the
Senior Living Trust Fund (and Hospital Trust Fund) bill, the
Transportation funding bill, the Infrastructure budget bill, the
Healthy Iowans Tobacco Trust (which funds the ongoing obligations of
the tobacco settlement) bill and the state employee salary
adjustment bill.
Ways
& Means Update
Bills
Assigned In The Ways & Means
Committee
This Week:
HSB
713 Relating
to the percentage of actual value at which apartments, mobile home
parks, manufactured home communities, and land-lease communities are
assessed for property tax purposes.
HSB
714 A
proposed amendment to the Constitution of the State of Iowa relating
to the state budget by limiting state general fund expenditures.
HSB
715 Relating
to the tax on premiums and subscriber contract payments received by
insurance companies and health service corporations by phasing in a
reduction in the tax and increasing the prepayment of the tax.
HSB
717
Relating to the utility replacement tax.
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