[co-authors: Asher Mitchell and Kelsy Shay]
In the final day of the 2020 session, the Iowa legislature passed a bill that enacted several changes to Iowa tax laws. This post addresses several miscellaneous changes made to the tax laws that are effective immediately.
Taxpayers are now allowed to make an irrevocable election to waive the entire carryback period for Iowa net operating losses (NOL) beginning on or after January 1, 2020. The Iowa NOL may then be carried forward for twenty taxable years. Iowa farming loss is an Iowa NOL, and the taxpayer may elect for the farming loss to be carried back five taxable years prior to the year of loss. This election is irrevocable during the taxable year in which it is made. These provisions apply to tax years beginning on or after January 1, 2020.
Research activities credit
The amendment made changes to research activities credits and updates all references to the Internal Revenue Code section on the election of alternative simplified credit. This provision is effective immediately and applies to tax years beginning on or after January 1, 2019.
Married taxpayers – joint liability
This amendment changes the language from an innocent spouse to a spouse eligible for relief from joint and several liability. It allows the Department of Revenue to notify and permit the intervention of the non-requesting or former spouse when relief from joint and several liability is requested. This provision is effective immediately.
Business interest expense deduction and global intangible low-taxed income
This amendment adds new subsections for computing net income for both individuals and corporations. Business interest is limited under the Internal Revenue Code, so taxpayers whose adjusted gross income for the tax year was increased or decreased by business interest must recalculate net income for state tax purposes. This does not apply when additional first-year depreciation is authorized and applies in computing net income for state tax purposes. A taxpayer may not currently deduct interest expense paid or accrued in a previous taxable year by reason of carryforward of disallowed business interest. Corporations may subtract global intangible low-taxed income.
Computer peripherals are now exempted from sales tax. The legislature defines “computer peripheral” as an ancillary device connected to the computer digitally, by cable, or by another medium, used to put information into or get information out of a computer.
School Tuition Tax Credit
The current “total approved tax credits” for calendar years beginning on or after January 1, 2020, is $15 million. The changes in the bill allow for increases for any calendar year beginning on or after January 1, 2022, as follows:
- If the total amount of awarded tax credits from the preceding year is equal to or greater than 90% of the total approved tax credits for the current year, the current year’s total approved tax credits will be increased by 10%.
- If an increase occurs under (i), this recomputed total approved tax credits will carry forward to the following year (rather than starting back at $15 million), once again allowing for another 10% increase if the 90% threshold for awarded tax credits is met from the previous year. However, there is a maximum cap for recomputed total approved tax credits of $20 million for any calendar year.
Broadband infrastructure taxation
This amendment allows individual and corporate taxpayers to subtract grants provided to a communications service provider, if the grant is used to install broadband infrastructure, in computing net income.
Refunds will be allowed for claims between January 1, 2019, and January 1, 2020, only if it is filed prior to October 1, 2020. This provision is effective immediately and applies to tax years beginning on or after January 1, 2019.
The conference board must provide written notice of the appointment of an assessor within 10 days of the decision of the board and no longer needs to include its effective date. A new subsection requires confirmation of the appointment by the Director of Revenue prior to assuming the office of city or county assessor. Assessors and deputy assessors may not assess a property if the person or a member of the person’s immediate family owns or has a financial interest in the property.
The conference board is now subject to review and prior approval by the city legal department or county attorney when employing special counsel to assist the city legal department or county attorney.
Military student loan repayments
This amendment removes the subtraction of military student loan repayments received by individual taxpayers while on active duty. It also strikes sections regarding increased expensing allowance under section 179 of the Internal Revenue Code for both individuals and corporations.
Donation of qualifying personal protection equipment
“Qualifying personal protection equipment” refers to personal protective equipment that is manufactured and donated during (and up to 180 days after) a state of disaster emergency declared by the governor. Refunds of sales taxes, interest, or penalties reflecting these kinds of donations made before January 1, 2020, will be allowed only if the claim is filed before October 1, 2020.
Short-term rental properties
Under the new amendments, counties can only regulate short-term rental properties (single-family home units rented for thirty days or less) for select purposes like public safety, residential zoning, or certain illegal or obscene activity like illegal drug manufacturing.
Addition of Flying Our Colors special registration plates
The legislature has permitted the Department of Transportation to design the “Flying Our Colors” special registration plate, a plate consisting of the colors of the Iowa flag. The fee for the plate is $35 and will be applied toward the state’s road use tax fund.
Entity level foreign tax paid
This section expands the language in Iowa Code Section 422.8 regarding credits towards Iowa income taxes for income tax paid in another state. Previously the section only addressed foreign taxes paid by a taxpayer as credit for that taxpayer. The revised language now provides for a credit towards Iowa income taxes paid to other states by entities, such as a partnership, corporation, estate, or trust. The new language states an Iowa resident who is a partner, shareholder, or beneficiary is deemed to have paid a pro rata share of the foreign income tax paid by the entity. The entity must provide the partner, shareholder, or resident a statement documenting that person’s share of the income, the income tax liability, and the amount of tax paid to the foreign state. This provision is effective immediately and applies to tax years beginning on or after January 1, 2020.
First-time home buyer accounts
Taxpayers now have until July 31, 2020, to designate an account opened in 2019 as a first-time homebuyer savings account. Typically, the deadline would have been April 30, 2020. The extension of time to designate the account reflects the extended due date for 2019 Iowa income tax returns.
HF2641 encompasses several tax law changes including many miscellaneous aspects listed above. Questions about your specific tax situation, whether personal or business, should be addressed to a competent tax attorney.