Iowa Lawmakers see need for sales tax collection equity

Online sales currently have unfair competitive advantage

The dome of the State Capitol building in Des Moines is shown on Tuesday, January 13, 2015. (Adam Wesley/The Gazette)
The dome of the State Capitol building in Des Moines is shown on Tuesday, January 13, 2015. (Adam Wesley/The Gazette)

ALTOONA — Several key legislative leaders Friday said they expect a wide-ranging discussion of state tax policy during the 2018 session — one that includes ensuring Iowans who buy products online are paying sales and use taxes that are collected by businesses physically residing in Iowa.

“We need to have a tax code that reflects the modern economy,” Rep. Guy Vander Linden, R-Oskaloosa, told those at the Iowa Taxpayers Association annual meeting.

“When buggy whips went out and we lost the sales tax on that, we didn’t hesitate to put the sales tax on automobiles,” added Vander Linden, chairman of the House Ways and Means Committee. “So, as the economy adjusts and we have new things that we never dreamed of in the past, that doesn’t mean they should be automatically exempt from the sales tax. The sales tax needs to match the economy.”

Sen. Pam Jochum, D-Dubuque, ranking member of the Senate Ways and Means Committee, said much has changed since the U.S. Supreme Court ruled in 1992 that companies did not have to collect and remit state sales taxes if they didn’t have a physical presence, or nexus, in the state.

“It’s time,” she said, to level the playing field by ensuring Iowa’s sales tax is applied to all eligible purchases by Iowans.

The last data she saw two years ago projected Iowa lost about $200 million from unpaid taxes on internet sales.

House Majority Leader Chris Hagenow, R-Windsor Heights, and Senate President Jack Whitiver, R-Ankeny, agreed the sales tax fairness issue will be among the topics discussed. But they also made it clear that corporate and individual income tax relief will headline state tax talks in 2018.

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Whitver said the GOP-led Legislature took on big projects with long-lasting effects during the landmark 2017 session, and Republicans are gearing up to tackle big, bold ideas again in the session that opens Jan. 8.

“Tax reform is one of those things that’s not easy to do,” said Whitver. “If it was easy, it would have been done in the last 20 years. We’re not shy about taking on a big and bold idea. Tax reform is going to be on the forefront. We’re very excited about that.”

Hagenow said House Republicans want to see tax changes that are “significant and meaningful.”

He said the 2018 tax-policy discussion will be shaped by next Monday’s state revenue projections for fiscal years 2018 and 2019 set by the Revenue Estimating Conference and by the federal tax changes that Republicans in Congress hope to have finalized this month.

Vander Linden said Iowa needs to change its “bumper sticker” top corporate income tax rate of 12 percent, a position that drew a personal endorsement from Rep. Dave Jacoby, D-Coralville, ranking member of the House Ways and Means Committee.

But Jacoby cautioned the state has had to dip into its cash reserves to balance spending that outpaced revenues. He said ongoing budget challenges could temper what the state is able to do on the tax relief side of the ledger.

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