DES MOINES — Iowa legislative committees wasted little time in approving a compromise to fully couple federal income tax changes to the state tax code retroactive to the 2015 tax year and adopt a scaled-back version of state sales tax breaks on consumable supplies used in the manufacturing process.
“We have good news this morning,” Sen. Rob Hogg, D-Cedar Rapids, said in introducing Senate Study Bill 3171 to the Senate Ways and Means Committee Thursday. The change will benefit “tens of thousands of farmers, small business owners and teachers.”
The agreement will provide “certainty to thousands of Iowa taxpayers and ensures that Iowans are not faced with an unexpected tax increase,” said House Speaker Linda Upmeyer, R-Clear Lake. “At the end the day, the taxpayers are the real winners with this agreement.”
The bill and a companion bill will couple Iowa’s tax code with a recent change in the federal tax code, including Section 179 expensing or bonus depreciation for tax year 2015.
It also approve sales tax exemptions related to the purchase of items — known as “consumables” — used in manufacturing and other activities. Those changes were approved by the House in 2014 legislation.
However, Hogg said the bill, which was approved on a voice vote, also will rescind some of those exemptions that were approved by administrative rules to address the issue in “a more targeted and fiscally responsible manner. It will provide about $25 million in tax relief.
The change is an “absolute win” for rural Iowa, Sen. Randy Feenstra, R-Hull, said.
Gov. Terry Branstad expressed concerns on the impact the sales tax rule change would have on incentivizing jobs in biochemical — one of his goals, but acknowledged “it certainly is a significant step in the right direction.”
ARTICLE CONTINUES BELOW ADVERTISEMENT
A companion bill, House Study Bill 642 that was approved 20-3 by the House Ways and Means Committee despite Democrats grumbling about the lack of input on the agreement.
The legislation, which will be eligible for Senate floor debate Tuesday, will prevent a $95 million tax increase on Iowa farmers, small business owners, teachers and others who anticipated the continuation of state coupling with the federal tax code, according to House Republicans. Coupling with the federal tax code benefitted more than 177,000 taxpayers in 2014.
Neither the House nor Senate bills mentioned a rumored agreement in school funding.
Republicans who control the House and Democrats who hold a majority in the Senate reportedly are working to resolve a dispute over state funding for schools with negotiators looking at a deal that could boost state aid in fiscal 2017 by 2.25 percent and provide other categorical increases that would bring the overall funding growth closer to 2.5 percent, according to legislators close to the talks.