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2019 Legislative Update October 9, 2019 | Tim Reilly Sales & Excise Tax Policy Director IDR Legislative Liaison Disclaimer This presentation is intended for general educational purposes only, nothing should be construed as legal advice. The Iowa Department of Revenue could take a contrary position in the future to one stated in this presentation. Any oral or written opinion by Department personnel not pursuant to a Petition for Declaratory Order under 701 IAC 7.24 is not binding upon the Department.

2 2019 Bills Related to Tax Senate File 220: Section 179 Expensing for TY 2018 Senate File 597: Sales Tax Exemption for Nonprofit Blood Centers Senate File 634: Property Tax Reform House File 546: SAVE Extension House File 590: Tax Return Preparer Regulation House File 767: Electric & Hydrogen Vehicle Registration Fee and Excise Tax House File 768: Beginning Farmer Tax Credit House File 778: Capital Gains for Real Property Used in

Farming House File 779: Tax Omnibus Senate File 220: Section 179 Expensing for Tax Year 2018 Under prior law, for tax year 2018, the maximum expensing allowance deduction and investment limitations on section 179 property for corporations, financial institutions, partnerships, and LLCs were limited to $25,000 and $200,000, respectively. The Act allowed these entities to qualify for the increased expensing allowance deduction on section 179 property for corporate state income tax purposes, but limits the maximum deduction and investment limitation to $70,000

and $280,000, respectively. Effective for tax years starting on or after January 1, 2018 Senate File 597: Sales Tax Exemption for Nonprofit Blood Centers This Act exempts from the sales and use tax tangible personal property sold or test laboratory services furnished to a nonprofit blood center, if the center is registered with the FDA and if the property or services are directly and primarily used in the processing of human blood. Processing means the same as defined in Iowa Code section 423.3(47) but says the center does not need to be a manufacturer

Senate File 634: Property Tax Reform For budget years beginning on or after July 1, 2020, prior to filing of the entitys proposed budget, each county and city is required to adopt a resolution establishing the total maximum property tax dollars that may be certified for proper services or funds. The governing body must hold a public hearing on the resolution. After hearing, body may decrease, but not increase, the proposed total maximum property tax dollar amounts. Senate File 634: Property Tax Reform (continued)

If the sum of the total maximum property tax dollars for the budget year specified in the resolution exceeds 102 percent of the sum of the current fiscal years actual property taxes certified for levy, the governing body shall be required to adopt the resolution by a two-thirds majority. The Act moves the certification deadline for counties and cities from March 15 to March 31 and modifies other relevant statutory deadlines relating to county and city budgets accordingly. Senate File 634: Property Tax Reform (continued) Each county and city assessor is now required to use

the most recently issued state appraisal manual in assessing and valuing all classes of property in the state within two years of the publication date of the most recently issued manual. The Department of Revenue may grant an extension of up to two years. House File 546: SAVE Extension 1 of the 6 cents of the 6 percent statewide sales tax rate is transferred to the Securing an Advanced Vision for Education Fund. This Act extended the sunset for this transfer from 2029 to 2051. Prior law included transfer to Property Tax Equity and Relief (PTER) Fund. This Act adds a transfer to the new

Career Academy Fund. House File 590: Tax Return Preparer Regulation Starting January 1, 2020, tax return preparers: Must include PTIN on forms (already required by IDR) May be temporarily or permanently enjoined from preparing Iowa returns or refunds Must complete a minimum of 15 hours of continuing education courses on subject matters prescribed by IDR, including two hours on professional ethics

House File 590: Tax Return Preparer Regulation (continued) A tax return preparer includes individuals who prepare 10 or more Iowa tax returns or refund claims under Ch. 422 for consideration in a calendar year. Excluded: CPAs Licensed attorneys Enrolled agents

Employees who prepare for employers IDR working on administrative rules and forms to implement new requirements House File 767: Electric & Hydrogen Vehicle Registration Fee, Excise Tax Registration fees in addition to existing annual fees: Battery electric motor vehicle (BEV): $65 in 2020, $97.50 in 2021, $130 in 2022 and beyond. Plug-in hybrid electric motor vehicle (PHEV): $32.50 in 2020, $48.75 in 2021, $65 in 2022 and beyond. Motorcycles with battery electric or plug-in hybrid electric motor: $4.50 in 2020, $6.75 in 2021, and $9 in 2022 and

beyond. Effective January 1, 2020. HF 767: Electric & Hydrogen Vehicle Registration Fee, Excise Tax (contd.) Hydrogen Fuel Excise Tax: 65 cents per gallon on hydrogen used as a special fuel in motor vehicles. Diesel gallon equivalent of hydrogen is 2.49 pounds. The excise tax on hydrogen is collected in the same manner as the existing taxes on compressed natural gas, liquefied natural gas, and liquefied petroleum gas under Iowa Code 452A.

Effective January 1, 2020. No known hydrogen fuel vehicles in Iowa presently. HF 767: Electric & Hydrogen Vehicle Registration Fee, Excise Tax (contd.) Electric Fuel Excise Tax: 2.6 cents on each kilowatt hour of electric fuel delivered or placed into the battery or other energy storage device of an electric motor vehicle at a location other than a residence. The excise tax on hydrogen is collected in the same manner as the existing taxes on compressed natural gas, liquefied natural gas, and liquefied petroleum gas under Iowa Code 452A. No requirement of public utilities to collect or monitor electric

fuel usage. Effective July 1, 2023. House File 768: Beginning Farmer Tax Credit Administered by IFA. Cap raised back to $12 million. Changes from the prior version: Taxpayer may participate in the program to not more than 10 years. Aggregate net worth requirement for all members of a family farm LLC participating in the program is increased to not more than twice that of an individual.

All of an award value over the term of the award is counted toward the $12 million cap on awards. House File 778: Capital Gains for Property Used in Farming Act amends changes made by 2018 Acts, SF 2417 to take effect upon reaching revenue thresholds (triggers) Expands the definition of relative to include an entity in which a relative of the taxpayer has a legal or equitable interest in the entity as an owner, member, partner, or beneficiary. Strikes restriction on claiming the deduction for the sale of real property used in a farming business if the relative sells or transfers the real property used in a farming business within five years of the original sale.

Strikes restriction on deducting capital gains for purposes of calculating net income to determine NOL House File 779: Tax Omnibus Income Tax Provisions Qualified business income (QBI) deduction: Adjustments to IRC references School tuition organization (STO) credit: Clarifies size of board allowed to control an STO and are approved on calendar year basis, not tax year Raises cap to $15 million for TY 2020 Early childhood development (ECD) credit:

Adjusts provision that allowed out of state resident with no Iowa income to claim the credit Franchise alternative minimum tax (AMT): Aligns AMT definition with IRC Repeals effective January 1, 2021 (same as corporate AMT under SF 2417) House File 779: Tax Omnibus Income Tax Provisions (contd.) Like-kind exchanges (IRC section 1031): Adds corporations to the changes from 2018 Acts SF 2417, effective TY 2019

Income tax checkoffs: Codifies the 4 current income tax checkoffs: veterans trust fund/volunteer firefighter fund; fish and game fund; Iowa state fair fund; child abuse prevention fund Research activities credit (RAC): Adds agriscience to allowed industries Had been included in life sciences by IDR rule Adoption tax credit: Allows taxpayer to claim the entire $5,000 in the year the adoption is finalized

Geothermal tax credit: Reinstated effective January 1, 2019; requires application House File 779: Tax Omnibus Sales Tax Provisions Affiliate definition in Iowa Code section 423.1: Changes entity to person Optional warranty contracts taxed as TPP: Removes 50% tax value, but adds them to commercial enterprise exemption in Iowa Code section 423.3(104) Carpentry service in Iowa Code section 423.2(6):

Clarifies both repair and installation are taxable Grain bin exemption: Sales of bins, materials used to construct them, and replacement parts are exempt House File 779: Tax Omnibus Sales Tax Provisions (contd.) M&E exemption: Adds language including supplies to exclusion for utilities, retroactive to January 1, 2016 Adjusts manufacturer definition to exclude entities primarily engaged in listed activities

200 transaction threshold eliminated for remote sellers, marketplace facilitators Referrer provision made optional by IDR rulemaking Establishes task force to review definition and exemption of computers Vehicle rental excise tax: Modifies rental price definition to match Ch. 423 House File 779: Tax Omnibus Property Tax Provisions Telephone company property: Reinstates exemption for property owned by a competitive long distance company as designated by IUB that was apparently struck on accident by 2018 Acts, HF 2446.

Retroactive to July 1, 2018. Utility replacement tax task force: Extended to January 1, 2024 Moneys and credits: Strikes language that required county treasurers to collect the tax. In 2018, the legislature added language to this Code section directing the Department to do so. House File 779: Tax Omnibus Assorted Provisions Powers and duties of the Director: Allows the director to audit and examine all taxes collected or

administered by the department. Release of information: IDR may disclose state tax information to a person a taxpayer has identified to receive such information in the manner prescribed by the department. Administrative rules forthcoming. Questions? Guidance related to SF 2417: tax.iowa.gov/iowa-tax-reform Request guidance on other tax issues: tax.iowa.gov/law-policy/tax-guidance

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