Sound tax policy? What’s that? Three minor tax bills advanced in the Iowa General Assembly yesterday in the pre-adjournment frenzy. They are all examples of the pursuit of tax legislation unmoored from consideration of sound tax policy.
ATVs. Iowa farmers don’t have to pay sales tax on equipment used “directly and primarily” in the production of agricultural products. The Iowa Department of Revenue holds that the exemption doesn’t apply to general-purpose all-terrain vehicles used to get around the farm — say, to check on crops or livestock (or, incidentally, to go to the good pheasant-hunting spots). The Iowa Senate passed SF 512 yesterday to exempt ATVs “used primarily in agricultural production” from sales tax.
Too bad this isn’t part of a broader movement to exempt all business inputs from sales tax. To the extent that ATVs are a business input, exempting them from sales tax is good policy. I suspect, though, that everyteenage farm boy will have an ATV used primarily in agriculture.
Young Farmers. HF 624 makes minor changes in the tax credit available for custom farming contracts with beginning farmers. No amount of tax credits will change the fundamental difficulties involved in getting into farming. It’s a capital-intensive business that has been consolidating for over a century into larger and more expensive units. This bill isn’t that big a deal, but “Young Farmer” tax credits have no more policy justification than “Young Factory Owner” credits or “Young Cold Storage Warehouse Operator” credits.
To the cleaners. Probably the worst tax policy to advance yesterday was HF 603, which excludes the use “self-pay” washing machines from sales tax. While business inputs should not be subject to sales tax, all final consumer expenditures should be. A broader base enables lower rates for everyone. O. Kay Henderson reports on this break:
Representative Josh Byrnes, a Republican from Osage, has met with a couple from St. Ansgar who sold their laundromats in Iowa and opened coin-operated laundromats in Minnesota, which does not charge the sales tax.
“The other part of this is just economic development in general,” Byrnes says. “We have a company that manufactures self-pay units in Fairfield, Iowa, called Dexter and actually they’re looking at some expansion and growth of their company I believe that this will help them get over that hump and help to further their business as well.”
You can make the same “economic development” argument for pretty much anything manufactured in Iowa, including the home laundry machines historically made by Iowa manufacturers Maytag and Amana. It takes a leap of faith to think this will sell even one additional washing machine.
Joseph Henchman, Illinois Governor Suspends New Film Tax Credits, Makes Other Spending Cuts (Tax Policy Blog):
With the two sides at a stalemate, Rauner announced that he is issuing administrative orders to cut $400 million in spending wherever he can. Including:
Immediate suspension of all future incentive offers to companies for business attraction and retention, including EDGE credits and the film tax credit program. Commitments already made will be honored.
Unilateral disarmament in the incentive wars is actually doing a big favor for Illinois taxpayers. Those credits enable the well-connected to pick the pockets of the rest of the taxpayers. It is excellent public policy. I hope Iowa decides it needs to ditch its crony tax credits to compete with Illinois.
Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 2. “HRAs are often — but not always — a good strategy for sole proprietors. Here are some numbers that lay it out.”
Dean Zerbe, Tax Court Decision – Good News For Whistleblowers (Procedurally Taxing). “This decision and the actions of the IRS in this case are not going to make administration of the IRS whistleblower program easier – and could have easily been prevented by the IRS.”
Jack Townsend, Whistleblower Case Apparently Involving Wegelin. “Perhaps most interesting for many readers of this blog is that the underlying criminal prosecution and guilty plea appears to involve Wegelin Bank, the Swiss Bank that met its demise for its U.S. tax cheat enabler activities.”
Renu Zaretsky, There’s Always Room for Improvement. Today’s TaxVox headline roundup covers the IRS data breach, climate-change tax promises, and charitable tax deduction policy, among other things.
Kelly Davis, Kansas Considers Tax Hikes on the Poor to Address Budget Mess (Tax Justice Blog).
TaxProf, The IRS Scandal, Day 756
So tell me again how IRS regulation of preparers will fight fraud? IRS Employee Files Hundreds of Fraudulent Tax Returns:
The former IRS worker, 38-year-old Demetria Michele Brown, stole names, birth dates and social security numbers, and provided false information about wages, deductions, addresses and workplaces in order to obtain the refunds.
The documents were filed from her computer and the money returned by the IRS was sent to bank accounts controlled by Brown, St. Louis newspaper reports.
According to prosecutors, the fraudster carried out the activity from 2008 until 2011 and collected $326,000 / €290,000.
I’m sure it wouldn’t have happened if she had to take an ethics exam.