Posts Tagged ‘ESOPs’

Iowa General Assembly adjourns without further damage (update – they got some damage in)

Thursday, May 10th, 2012 by Joe Kristan

It could have been much worse.

The 150 elected supergeniuses at the Iowa legislature weren’t shy about deciding what forms of energy production deserve your tax money, and they also invested tax dollars in a private baseball park in Dyersville.  Still, they at least avoided making taxpayers pay for other peoples “innovative” investments or ESOP consultants.

The legislature failed to pass the Governor’s highest priority, a reform of Iowa’s commercial property taxes, though they did vote to curb some of the worst abuses of TIF districts.

Bills that passed include:

  • TIF Reform. HF 2460, the TIF reform, keeps taxpayers from diverting TIF receipts and requires audits of projects.  It’s a small step against local crony capitalism.
  • Field of Dreams.  The legislature passed and the Governor signed a bill (SF 2329) to let an athletic complex built on the location of the Kevin Costner movie to keep sales taxes it collects.  The movie says “if you build it, they will come.”  The legislation says “If you lobby hard enough, they’ll vote for almost anything.”  Any bill passed for the benefit of a specific taxpayer is by definition bad policy.
  • Tax Credits for green energy.SF 2342 provides “tax credits for the construction and installation of solar energy systems and geothermal heat pumps, modifying sales and use tax provisions related to property purchased for resale, and creating a sales tax exemption for certain items purchased for use in providing vehicle wash and wax services.”  Because the Iowa legislature knows better than you how you should heat your house.

Bills that died, mercifully:

It’s unfortunate that the legislature couldn’t agree on a way to improve Iowa’s awful commercial property tax, but maybe we’ll be better off in the long run making it an issue in the upcoming election.  It would be even better if they would take up the issue of tax reform generally.  I suppose an election over the merits of the Quick and Dirty Iowa Tax Reform Plan would be too much to hope for.

The Quad City Times has more coverage of the end of the session.


New Iowa ESOP break clears House committee

Thursday, February 2nd, 2012 by Joe Kristan

The Governor’s proposed new break for ESOPs moved closer to passage yesterday when it cleared the House Ways and Means Committee. Like too many bad bills, it passed unanimously.
The bill, HF 2085, provides an exclusion on sales of stock to Employee Stock Ownership Plans if the corporation owns at least 30% of the company’s stock after the transaction.
The key language of the bill:

(1) To the extent not already excluded, the net capital gain from the sale or exchange of employer securities of an Iowa corporation to a qualified Iowa employee stock ownership plan when, upon completion of the transaction, the qualified Iowa employee stock ownership plan owns at least thirty percent of all outstanding employer securities issued by the Iowa corporation.
(2) For purposes of this paragraph:
(a) “Employer securities” means the same as defined in 1 section 409(l) of the Internal Revenue Code.
(b) “Iowa corporation” means a corporation whose commercial 3 domicile, as defined in section 422.32, is in this state.

Even if you think extra state breaks for ESOPs are a great idea (they aren’t), this bill is a mess. It meshes badly with Federal Code Section 1042, which provides an elective deferral for sales to ESOPs owning 30% of the corporation stock if the proceeds are re-invested in public securities. The gain is deferred until the public securities are sold.
The way this bill is written, it may make people selling stock to ESOPs choose between a federal deferral of taxable income and a permanent state exclusion. Remember, the Iowa break only applies on a sale of “employer securities.” The securities purchased when proceeds are re-invested under Section 1042 are not “employer securities,” so the Iowa break will not apply when they are eventually sold. If language excluding the deferred Section 1042 gain is added to the bill (Iowa gain is normally the same as federal), it would require taxpayers taking advantage of the federal break to remember to reduce the gain on the eventual sale of the rollover securities for their Iowa returns.
So why are state ESOP breaks not a good idea? The ESOP rules are incredibly complicated, and for many closely-held S corporations, almost hopelessly so. A state break adds an additional layer of complexity to an already byzantine part of the tax law. It also makes the Iowa tax law even more complicated. It will do about as much good for the Iowa economy as a bill signed yesterday “RELATING TO FINANCIAL ASSISTANCE FOR PURPOSES OF THE BATTLESHIP IOWA.”
We shouldn’t be adding more small-beer tax breaks to an Iowa tax law already full of them. Like the Battleship Iowa, the Iowa income tax is obsolete. It’s time to start over with a simple system with low rates — something like the Quick and Dirty Iowa Tax Reform plan. Unlike this break, it could actually more than a token difference for the Iowa economy.


Doing battle around the web

Wednesday, January 18th, 2012 by Joe Kristan

I’m quoted today in the Des Moines Register lead page 1 story explaining why the proposed special Iowa capital gain break on Iowa returns for sales to ESOPs is a bad idea. The story nowhere discusses the existing federal break for sales to ESOPs under Section 1042, which also applies to Iowa, nor does it mention the existing “10 and 10” Iowa gain exclusion on asset sales. There is a better way to improve Iowa’s business climate.
I pick a fight with advocates for increased IRS funding at Going Concern.
I pick a fight with no one (I think) at when I say that you shouldn’t try to file your return before you have all of your W-2s, 1099s and K-1s.