Reason to hope, reasons to despair. The Iowa House Ways and Means Chairman introduced a “code conformity” bill yesterday (HSB 535) that includes the federal $500,000 Section 179 limit. This defies the wishes of Governor Branstad, who says the state can’t afford the expanded deduction. He would only allow a $25,000 deduction for asset purchases that would otherwise have to be capitalized and depreciated.
The bill, as expected, does not adopt bonus depreciation for Iowa.
The Section 179 conformity proposal is is good news. It appears that Ways and Means Republicans sense that their business and farm constituents won’t appreciate a big tax increase, especially in a year that looks like it will be a down year around the state. Now attention will turn to the Senate, where Democratic Majority Leader Gronstal controls what legislation reaches the floor. If he supports the legislation, it is likely to pass. The Governor would probably be able to kill it with a veto, but would he?
That brings up my first reason to despair. Unless the Governor backs down or some compromise is reached, the conformity bill is likely to be delayed. Affected taxpayers will have to wait to file their 2015 Iowa returns until they know what the tax law is; if they guess wrong, they will incur the expense of amending their returns. It compresses the filing season into an ever-narrower window and delays refunds.
The biggest issue is likely to be the budget impact. While I haven’t seen a current figure, last year’s Section 179 conformity bill was estimated to reduce state revenues by $88.5 million.
I certainly have a list of possible pay-fors, starting with the newest proposed credit, a $10 million “renewable biochemical tax credit” (SSB 3001). It is refundable, meaning it isn’t just a tax reduction, but an actual cash subsidy to taxpayers whose credit exceeds their Iowa tax. That easily could happen, as it is based on pounds of qualifying stuff produced. It will only go to taxpayers who “enter into an agreement” with the economic development administration. In other words, for insiders who know where to pull strings.
And here is another reason to despair. It appears this new boondoggle is going to slide right on through. From the Des Moines Register (my emphasis):
More than a dozen lobbyists representing businesses, farm organizations, economic development groups and other expressed support, and there was no opposition. Gov. Terry Branstad has listed renewable chemical manufacturing tax credits as a key item in his 2016 legislative agenda.
Under the bill, the maximum amount of state tax credits available annually to any one business for the production of renewable chemicals would be either $1 million or $500,000, depending how long the company has operated in Iowa.
Even Mark Chelgren (R-Ottumwa), who has in the past voted against corporate welfare tax credits, is on board with this one.
It will be very difficult to get the Governor to go along with the higher Section 179 limits without spending or tax credit cuts to offset the revenue loss. The Governor seems dead set against cutting cronyist tax credits. If the legislature agrees with him, Section 179 has a very difficult fight this session. Failure to adopt the federal Section 179 limit would represent a triumph of a handful of insiders over the businesses and farms in every county that would have their taxes increased to pay for subsidies.
Iowa increases security to prevent tax fraud (thegazette.com):
The Iowa Department of Revenue has upped its security game after seeing more than 10,000 fraudulent tax returns last year.
This tax season, the agency will use technology to better track fraudsters, validate bank accounts before making direct deposits and share information with the IRS, other states, software providers and banks.
The story says Iowa stopped $11.6 million in fake refund claims last year on 10,600 fraudulent returns.
Hank Stern, O’Care in Real Life (InsureBlog):
So, one of my small group clients just lost the last person on his group plan. It had gotten so expensive that no one could really afford to stay on it. Shopping around didn’t help: everything we looked at was at least as expensive for comparable benefits. And the plan was pretty much bare-bones, not a lot of fat to trim.
Tom has been a client – and friend – for almost 30 years. A small business owner, he was proud to be able to offer his employees coverage. Now that’s gone.
He said “If you like your plan, you can keep your plan.” He didn’t say you could afford it.
Kristine Tidgren, Farm Lease Questions Often Arise This Time of Year (Ag Docket)
Robert D. Flach, A VERY IMPORTANT REMINDER. “Don’t listen to a broker, a banker, an insurance salesman, or your Uncle Charlie! You wouldn’t ask your butcher for a medical opinion, so why would you accept tax advice from your MD?”
Keith Fogg, Public Policy Cases Accepted by the Taxpayer Advocate Service (Procedurally Taxing). “If you have an issue that raises policy issues for a group of taxpayers, you can bring this to the attention of the NTA in hopes that it will make the policy list and open the doors to TAS assistance.”
Paul Neiffer, Top 10 Reasons You Might Need Accrual Accounting. “Although this list is designed to be humorous, the reality is that all farmers should consider using accrual accounting to manage their farm operation.”
Kay Bell, Smooth tax season start? Not for some TaxAct users. “Just a few days before the filing season and Free File opened for business, the tax software manufacturer sent a letter to about 450 customers, notifying them of a data breach.”
Jack Townsend, Should Proof of No Tax Evaded Be Admissible as Defense in Crime Not Requiring Tax Evaded as an Element
Tony Nitti, An Ode To Tax Season: How To Bid Farewell To Your Family.
Tax season is here. Tax season is the worst. But don’t just abandon your family for the next three months with no explanation; make them aware of the series of mistakes that were set into motion long ago that led you to this self-imposed hell. And tell them with rhymes!
That may be why my grown kid is a musician, and the high schooler wants to be one.
David Brunori, Good Government Developments in the Tax World (Tax Analysts Blog). No Iowa items make the list.
David Henderson, The Economics of the Cadillac Health Care Tax, Part I, Part II. “But now that I have done a more careful analysis with some plausible numbers, I am seriously undecided.”
Kyle Pomerleau, Senator Hatch To Introduce Corporate Integration Plan (Tax Policy Blog). “Not only does the double tax on equity investment increase the cost of capital, it creates economic distortions. The most obvious one is the distortion towards debt-financed investments.”
Renu Zaretsky, Market Woes and the Price of Breaks. Today’s TaxVox headline roundup covers stupid things from proposed financial transaction taxes to the ongoing Kansas budget and tax policy disaster.
Robert Wood, IRS Wipes Another Hard Drive Defying Court Order…But You Must Keep Tax Records. Darn right, peasant!
TaxProf, The IRS Scandal, Day 987.
Career Corner. Stop Doing Other People’s Work Because It Saves Time (Leona May, Going Concern). A classic symptom of Senior Accountant’s Disease.