Legislature stimulates C corporations with a kick in the teeth

As Iowa businesses struggle with one of the worst years in decades, the Iowa legislature decided they need to suffer a bit more.  They have reached into the pockets of both profitable and money-losing C corporations.

Loss carrybacks yanked.  With SF 483, the legislature took away the ability of C corporations to carry back Net Operating Losses to get refunds of Iowa taxes paid in profitable years. An example:

Bob Corporation makes $200,000 in Iowa-source taxable income in 2008, its first tax year. It pays Iowa tax of $17,500. Like with so many businesses, things go bad in 2009 and Bob loses $200,000. Between the two years, Bob has no income. Bob Corporation throws in the towel and closes the business after 2009.

Until SF 483, Bob Corp. could carry the 2009 loss back to 2008 and recover the taxes paid. It's a fair result - no income for two years, and no tax. Under the proposed change, Bob Corp. would never recover the 2008 tax. The 2009 loss could only be carried forward - a useless privilege when the business closes.

Estimated tax requirements increased.  Before this year, Iowa corporations could avoid penalties for estimated tax underpayments by paying in 90 percent of their tax liability through quarterly payments, with the rest due with their tax return.  SF 478 raises the 90 percent requirement to 100 percent, starting with yesterday's first quarter estimated tax payment for 2009. 

So whether your C corporation makes or loses money in 2009, the legislature has found a way into your pockets.  

Not all of the news is bad, but the good news comes from the IRS, not Iowa.  The IRS has made it easier for taxpayers with 2008 net operating losses to qualify for a five-year carryback period by removing a requirement to elect the carryback with the original 2008 return. 

So the IRS is more compassionate to money-losing corporations than the Iowa General Assembly.  Way to go, legislators.