-Joe Kristan is a founding member of Roth & Company P.C
Taxpayers barely averted a national tax filing season disaster this season when Congress and the president agreed in December to permanently extend important tax provisions that had expired at the end of 2014. Now our governor and legislators are doing their best to subject Iowa to the filing season nightmare that the rest of the country dodged.
Iowa's tax law doesn't automatically tie to federal changes. The Legislature passes a "code conformity" bill, or "coupling" bill, every year to incorporate desired federal tax changes into Iowa's income tax. This has been important because Congress habitually enacts many important tax provisions for only one or two years at a time. Since 2010 the governor has proposed to adopt all of the federal "expiring provisions" retroactively every time they were renewed by Congress, with the exception of "Bonus Depreciation."
The biggest of these for most Iowa businesses is the "Section 179 deduction," which allows taxpayers to deduct the cost of up to $500,000 of fixed assets that would otherwise be depreciated over a period of years. A number of other business and personal tax provisions are affected, including research credits, the provision for IRA charitable contributions, and the above-the-line student loan interest deduction.
The Section 179 deduction is popular with Main Street businesses. With the prices for much farm equipment running well into six figures, the deduction is a big deal for farmers, but it is also important to other businesses. Failing to couple with the federal deduction would leave Iowans with a maximum $25,000 Section 179 deduction on their Iowa returns -- a significant tax increase to businesses in every county.
Most tax people assumed the pattern of conforming to everything but bonus depreciation would continue. The Governor surprised us last month by proposing (SSB 3107) to conform to only one 2015 tax change -- the research credit. He proposed to conform with none of the remaining changes for 2015. He then would conform with all the changes -- except for Section 179 and bonus depreciation -- for 2016 and beyond.
The Governor's position was unpopular in the General Assembly. The Iowa House swiftly voted 82-14 to couple with all federal 2015 changes except bonus depreciation (HF 2092). It apparently was so unpopular that the Governor this week changed his mind and came out in favor of the House bill.
Senate Majority Leader Gronstal now holds the cards, as he can keep the House-passed bill from ever coming up for a Senate vote. The Legislature is now at an impasse. Prior to the Governor's change of heart, it appeared that no Section 179 coupling would occur. Now we can expect Senator Gronstal to use coupling as a bargaining chip for his priorities.
It's unclear when we will know what Iowa's 2015 tax law is. Iowa returns aren't due until April 30, and it’s still possible that they won't pass a coupling bill by then. The default result if nothing happens is no coupling. While I expect coupling to occur, it may take some time for the poker game to play out.
This poses a dilemma for taxpayers. If they assume that that the expiring provisions won't be re-enacted for Iowa, they'll incur the expense of filing amended returns to claim refunds if the governor and the majority leader eventually go along with the legislature. If optimistic taxpayers assume the extenders are eventually adopted, they face penalties if they guess wrong. Iowans wanting to file their taxes the right way, for sure, are just out of luck.