Legislature agrees to correct machinery sales tax repeal error

Mistake made in 2008, caught last summer

DES MOINES – A legislative effort to correct a mistake made in 2008 and caught last summer that repealed the state sales tax assessed on heavy machinery purchases made in Iowa turned partisan Thursday before senators sent the change to Gov. Terry Branstad for his consideration.

At issue was a 2008 tax code rewrite that had an unintended consequence of repealing the state sales tax on heavy equipment purchases. The change went so unnoticed that dealers continued to collect the sales tax since then, meaning if lawmakers allowed the mistake to stand the state would forego future revenue of about $7 million a year and would have to provide refunds and interest in the range of $20 million to $30 million to customers who paid the sales tax to about 185 retailers of construction equipment at the time of purchase that was collected and remitted to the state not knowing the requirement had unwittingly been struck via a bureaucratic and legislative snafu.

Earlier this month, the Republican-led Iowa House voted 95-0 to approve the state Department of Revenue’s technical bill that included a provision to reinstate the state sales tax on heavy equipment retroactive to July 1, 2008.

However, minority Republicans in the Iowa Senate, where Democrats hold a 26-24 majority, balked at the idea Thursday of reinstating the repealed tax and making the action retroactive, calling it a new tax and a constitutionally questionable move that could face a court challenge.

“This bill is very significant,” said Sen. Randy Feenstra, R-Hull, before senators voted 26-21 to approve House File 2438 and sent it to the governor’s desk.

“This is a very serious deal,” Feenstra added. “We are clawing back in our tax code four years in trying to collect tax from people. Does anyone else see a problem with that?”

However, Senate President Pam Jochum, D-Dubuque, who left the presiding officer’s chair to manage HF 2438 on the Senate floor, refuted GOP claims that the bill’s provisions represented imposing a new tax, noting that the sales tax in question has been in place for decades and has been collected since the erroneous repeal took place.

“We are not somehow raising taxes. We are correcting a mistake,” Jochum said.

“A mistake was made. We caught it. There was never any intention that people who were purchasing heavy construction equipment would not pay sales tax on that purchase,” she added. “Not one person in the industry has asked for a repeal of the tax nor have they advocated for a repeal.”

During a subcommittee meeting in February, representatives of the heavy equipment industry indicated they would not resist legislative efforts to correct the mistake that repealed the state sales tax assessed on machinery purchases made in Iowa. However, they said if no change is made to the new status quo this session, the industry would view that as “an affirmative action” and stop paying the tax.

Jochum said House members worked in a bipartisan fashion to correct the mistake with a 95-0 vote and the Senate ought to follow their lead. “It’s about governing,” she said.

However, Sen. Mark Chelgren, R-Ottumwa, counted that “just because a bill goes through a chamber doesn’t make it the right thing to do.”

“We are setting a very dangerous precedent of going back and taxing somebody after the fact,” Chelgren argued. “If this bill is passed and if this bill is signed into law, I do not believe that it will stand in the courts.”

Comments: (515) 243-7220; rod.boshart@sourcemedia.net

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