Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

March 10th, 2016 by Joe Kristan

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Update, 10:23 a.m. The Senate Ways and Means Committee cleared SSB 3171 this morning unanimously, according to the Iowans for Tax Relief Twitter feed. They also report that House Ways and Means is meeting now to discuss HSB 642, which I believe is identical to SSB 3171.

Update, 11:30 a.m. O. Kay Henderson posted Statehouse leaders announce tentative deal on taxes. Looking at the statements, it appears that the deal is between leaders of the two legislative chambers, with Governor Branstad as a bystander. Makes me nervous, but I assume they wouldn’t go to the trouble without having the Governor on board somehow.

A deal, maybe. A bill rumored as the outline of a bi-partisan deal coupling 2015 federal tax changes to the Iowa income tax law was introduced by chief Senate taxwriter Joe Bolkcom yesterday. SSB 3171 would allow taxpayers to deduct up to $500,000 of equipment purchases on their 2015 Iowa returns that would otherwise be capitalized and depreciated over a period of years. This would match up the 2015 Iowa maximum “Section 179” deduction to the amount enact in December for 2015 and beyond in federal law. It would also enact for 2015 Iowa returns a number of other “expired” provisions, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

The matching would only be for one year. The price to get Senate Democrats to go along would be repeal of the sales tax administrative rules for manufacturers set to take effect July 1. They would be replaced by a smaller sales tax break passed by the Iowa House in 2014 that died in the Senate.

Iowa is not expected to couple with federal bonus depreciation.

While rumors say that this is close, with legislative movement likely as early as today, there remains uncertainty. The Governor is said to be unhappy with the deal, and he will go along only grudgingly, if at all, according to people I’ve heard from.

Rod Boshart reports at TheGazette.com:

“We’re ready to move ahead with those three elements: the coupling, rescinding the governor’s rules and picking up the consumable supplies bill that the House passed in 2014. That would be in one package,” Bolkcom said.

Republicans who control the Iowa House and Democrats who hold a majority in the Iowa Senate also were working to resolve a dispute over state funding for schools with negotiators looking at a deal that could boost state aid in fiscal 2017 by 2.25 percent and provide other categorical increases that would bring the overall funding growth closer to 2.5 percent, according to legislators close to the talks.

“There’s no deal yet, but we are meeting with House Republicans on the big issues,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, who declined to discuss specific numbers. “The good news is we are meeting and talking.”

The sales tax exemption has been a sore point with Senate Democrats since it was proposed by the Department of Revenue. Going with the 2014 house-passed language (HF 2443) reduces the break, giving the Senate Leadership a symbolic victory. Still, the 2014 death of HF 2443 indicates that they really didn’t want to keep any of the rule changes.

I haven’t figured out exactly what parts of the sales tax exemption will be lost under the bill introduced yesterday. The exemptions for items such as jigs, tools, dies, coolants and lubricants would survive.

This issue will be back next session. Even if the compromise passes, the section 179 coupling issue will be up again next year. SF 3171 is only for one year, while the federal legislation makes the federal change permanent. There seems to be no discussion yet of cutting back corporate welfare tax credits to “pay for” the Section 179 deduction used by 25,000 Iowa farmers and small businesses. Maybe next year.

I will update this post today as events warrant.

 

Scott Drenkard, Nicole Kaeding, How High Are Sales Taxes in Your State? (Tax Policy Blog):

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Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain.

That’s the tragedy about scaling back Iowa’s manufacturing exemption. Rather than scaling it back, the legislature should be looking to expand it to other business inputs.

 

Paul Neiffer, Two Opportunities for Farm and Estate Tax Education. While Roger McEowen will sadly no longer be part of the Iowa State University Center for Agricultural Law and Taxation, he will continue to teach his summer seminars: this year in Alaska and North Carolina. These are excellent seminars in nice settings, and a nice way to mix continuing education with leisure.

 

Robert Wood, Cayman Companies Plead Guilty To U.S. Tax Evasion, Handing Over American Accounts. Bank secrecy is still dead.

Jason Dinesen, More on Business Proactive Planning in the Real World. “The thing the “experts” miss is, most of us are trying to be proactive … but it’s hard when the client won’t be an active participant in the process.” I find that some clients want you to be pro-active, as long as you don’t charge any time for it.

Tony Nitti, With Summer Olympics Nearing: Should Athletes Pay Tax On Their Winnings?. “Few people realize this, but with an Olympic medal comes a cash payout: $25,000 for a gold, $15,000 for  a silver, and $10,000 for a bronze.” Somehow I doubt that it covers costs for, say, the Modern Pentathlon champions.

Kay Bell, Is Trump ‘poor’ enough to get NY property tax break?:

Crain’s New York Business may have shed some light on why Donald J. Trump doesn’t want us to see his tax returns.

The magazine reports that the billionaire real estate developer got a property tax break designed for New Yorkers making less than $500,000 a year.

People with a lot of wealth in real estate investments can have surprisingly low taxable incomes, after depreciation and interest deductions. Of course, so can people who aren’t really so wealthy.

 

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Jeremy Scott, Romney Cared About the 47 Percent Because He Cared About Deficits (Tax Analysts Blog). “Unlike 2016’s candidates, Romney was trying to push economic and tax policy that didn’t add too much to the national debt, and made Democrats seem financially irresponsible.”

TaxProf, The IRS Scandal, Day 1036

Cara Griffith, Should Tax Settlement Agreements Be Publicly Available? (Tax Analysts Blog). “Yet if it is conventional wisdom that good cases settle while bad cases go to trial, isn’t there a lot that could be learned if lawsuit settlements were made available for public scrutiny?” The good thing is that it would shine light on “secret” law. The bad news is that it might make deals harder to reach.

Renu Zaretsky, Schemes, Scams and States’ Fights. Today’s TaxVox headline roundup says some big company payroll departments fell victim to ID-theft scam emailers mimicking CEOs asking for employee information. Be careful, people.

 

Career Corner. Most Managers Would Prefer If You Could Just Read Their Minds (Caleb Newquist, Going Concern). We would, you know.

 

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