Bolkcom: Creating tax break through rule change illegal

DES MOINES - Sen. Joe Bolkcom, D-Iowa City, is challenging a rule change being proposed by Gov. Terry Branstad's administration that would exempt consumable supplies used in manufacturing from the state sales tax.

'I believe it is illegal for the Branstad administration to use the rule- making process to create a massive corporate tax giveaway without approval by the Legislature,” Bolkcom said.

Bolkcom, who is chairman of the Senate Ways and Means Committee, said the administration offered legislation in 2013 seeking the sales tax change. He said the issue was sidelined while the split-control Legislature worked out a bipartisan tax relief package that cut commercial property taxes and made other changes as part of the largest tax cut in Iowa history.

Now, Bolkcom contends the administration is attempting to make the change, which carries a potential price tag of up to $37 million, via a proposed rule to be considered next week by the Legislature's Administrative Rules Review Committee. If approved, the rule would take effect Jan. 1.

'This rule would change more than 15 years of existing policy,” said Bolkcom, who issued a statement calling it 'outrageous” that the governor would attempt to bypass 150 legislators with the rule change.

Branstad responded at his weekly news conference Monday by noting that Bolkcom has been 'the leading critic” of his administration's efforts to expand Iowa's economy.

Branstad said the rule change is an effort to modernize the state's tax code to reflect the new realities of manufacturing.

'This is not the workplace of the 1970s. It's a totally different workplace and we need to adjust to change,” Branstad said.

Bolkcom said his concern about the multimillion-dollar business tax break comes at a time when Branstad vetoed education spending out of concern there was not room in a tight state budget for the funding.

Debi Durham, director of the state Economic Development Authority, took issue with the characterization that the proposed rule change would exempt 'consumable supplies' from the state sales tax, arguing instead that the new language clarified current law and was legal.

'Iowa law clearly exempts machinery and equipment, including replacement parts, from the sales tax,” Durham said in a statement. 'Unfortunately, for many years, taxpayers have struggled to understand what property qualifies as a replacement part because the Legislature never defined it. These rules address that problem.

While it is true the rules have a fiscal impact, the marginal cost is more than offset by the clarity and predictability the new rules will bring to manufacturers and tax professionals,” she added. 'We think the rules advance Iowa's manufacturing sector, the single biggest contributor to state GDP.”