The Tax Foundation released its 2013 State Business Tax Climate Index. Iowa dropped one place, to 42nd, switching places with Maryland in the bottom 10. Iowa’s poor score has much to do with its terrible 49th-place ranking for corporation income tax.
Iowa scores badly on its corporation tax on a number of fronts:
- We have the highest stated corporation tax rate, and the second-highest effective rate taking the deduction allowed for half of the federal corporation income tax.
- Iowa has its own state corporation alternative minimum tax.
- Iowa no longer allows a corporation net operating loss carryback, distorting the tax on cyclical businesses.
- Iowa’s tax code is distorted by “incentive” tax credits that tend to favor pet industries and the well-lobbied.
Here’s what the full Tax Foundation report says about incentive tax credits (my links and emphasis):
Many states provide tax credits which lower the effective tax rates for certain industries and/or investments, often for large firms from out of state that are considering a move. Policymakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a bad business tax climate. Economic development and job creation tax credits complicate the tax system, narrow the tax base, drive up tax rates for companies that do not qualify, distort the free market, and often fail to achieve economic growth.
Recently Iowa City policy analyst Peter Fisher wrote an op-ed piece saying that Iowa’s corporation buisness climate is just great, largely on the basis that it doesn’t collect much tax. A big part of the reason it doesn’t collect much is the special breaks granted to favored businesses by smokestack-chasing politicians. The Tax Foundation notes that these “economic development incentives” don’t work, citing the work of none other than Peter Fisher.
The Tax Update’s Quick and Dirty Iowa Tax Reform Plan has a better approach to state business tax policy. Key points:
- Abolish the state corporation income tax.
- Abolish all economic development tax credits and special deductions. You name the special break, I’m against it.
- Lower the personal income tax rate to 4% or less with the money saved by eliminating complicated deductions, tax credits and subsidies.
Iowa’s political leaders – both parties — trip over themselves throwing tax credits and special breaks around. But does anybody think that “no corporate tax” wouldn’t be a better way to attract and grow industry than “we have dozens of special tax breaks if you know the right people”?
Related:
TaxProf, 2013 Business Tax Climate: Chilliest in Blue States
Russ Fox, Why I’m Happy to be in Nevada and Not in California
Roberton Williams, Marginal Tax Rates Matter More than Average Tax Rates (TaxVox). This is relevant to Peter Fisher’s argument that Iowa’s highest-in-the-nation corporation taxa rate doesn’t matter because Iowa’s loopholes let so much revenue slip through. It’s the rate on the next dollar of income that affects decisions.
Thirty-nine years ago today, Spiro Agnew resigned the vice-presidency to pursue other interests, but mostly to plead guilty to tax evasion. The Washington Examiner reports:
He was accused of receiving kickbacks from contractors while he was governor of Maryland. He claimed the charges were “damned lies” and eventually pleaded in federal court in Baltimore to no contest to not paying taxes on $29,500.
As part of his plea deal, Agnew agreed to resign from office. He was sentenced to three years’ probation and fined $10,000. He was disbarred.
Coincidentally (I think), the debate between the two major party Vice-Presidential nominees is tonight.
In other crime news:
Judge rejects Wasendorf’s bid for jail release (KTTC.com). The confessed embezzler couldn’t convince the judge that a prison term that will keep him behind bars past his 100th birthday might be a reason he might flee.
It’s not just Harleys: Sturgis surgeon convicted of income tax fraud, faces prison, reports the Mitchell Republic:
A federal jury has convicted a Rapid City surgeon on 13 felony charges related to income tax evasion.
Edward Picardi, of Sturgis, was accused of sending millions of dollars of income out of the country and filtering the money through offshore accounts to avoid paying taxes on it. His trial lasted three weeks.
Sturgis would seem like a funny place to look for the Tax Fairy.
Regarding yesterday’s news about the West Des Moines payroll firm that apparently has not been remitting client payroll taxes timely: Victims in Alleged $3.8 Million Payroll Fraud by West Des Moines Company Coming Forward. West Des Moines Patch reports that the payroll firm founder:
…is the subject of a first-degree theft and fraud investigation, according to a report on file at the West Des Moines Police Department.
In that report, Des Moines contractor Priority Excavating claimed losses of $850,000 the company paid InFocus Partners’ subsidiary, ILC Staffing Inc., to administer its payroll.
Owner Tobias “Toby” Torstenson told police Detective Tom Boyd that he was contacted by the IRS and informed his company has not paid federal taxes since 2009.
Torstenson paid the money to InFocus, who was supposed to forward it to the IRS but never did, the police report said.
The IRS will still want the taxes from clients that have forwarded them to the payroll provider. If you outsource your payroll compliance, sign up for EFTPS so you can verify online that your payroll provider is remitting your payments.
Kay Bell, Mortgage interest, charitable donation deductions are safe, says Romney
Dan Meyer, Presidential Debates and Changing Accountants
TaxGrrrl, 9 Tax-Related Myths About Selling Your Home
Jack Townsend, Render Unto Caesar — Another Intersection of Alleged Religion and Tax
Margaret Van Houten, ACTEC Wealth Advisor: A New App For Your iPad (Davis Brown Tax Law Blog)
Jason Dinesen, Would a Name Change Help Enrolled Agents? Part 2
Robert D. Flach comes through with his Wednesday Buzz.
The Critical Question: Will Farmers Have More “Repairs” This Year? (Paul Neiffer)
News you can use: The IRS Is Not Obligated to Pursue Your Whistleblower Claim (Anthony Nitti)
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
