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Iowa Gov. Kim Reynolds (R) is endorsing a massive tax overhaul and conformity bill that streaked through the Republican-controlled Legislature over the weekend.
Reynolds pledged her support for Senate File 2417, which would provide $2.16 billion in tax relief to individual and corporate taxpayers over six years. On the individual side, the legislation would reduce rates and collapse the current nine-bracket scheme to four. All four brackets of the corporate income tax rate would be reduced in 2021 under the plan, with the top rate moving to 9.8 percent from 12 percent.
S.F. 2417 brings Iowa into general conformity to recent changes to the Internal Revenue Code including the 2017 federal tax act (Pub. L. No. 115-97).
The proposed law would generate some new revenue for Iowa through expansions to the sales and use tax regime, including new taxes on digital goods, ride sharing, and subscription services. In addition, S.F. 2417 seeks to boost online sales tax collections by adopting South Dakota’s economic nexus standard, which is under review at the U.S. Supreme Court, and a marketplace provider standard that requires e-commerce giants such as Amazon.com Inc., eBay Inc., and Etsy Inc. to collect and remit tax on transactions by third-party sellers that move merchandise over their platforms to Iowa consumers.
S.F. 2417 flew through the Senate on May 4 by a vote of 28-10. Later in the day, the House expressed its support by a vote of 54-32.
In a statement, Reynolds applauded the action in the Legislature, saying “Republicans led on tax reform in 2018. As a result, hardworking, middle class Iowa families, farmers, small business owners and workers get meaningful relief, all while Iowa’s budget priorities in future years are protected.”
Democrats blasted the overhaul bill, calling it a blow against tax fairness and an exercise in fiscal irresponsibility during a revenue crisis.
“The bill is filled with giveaways to millionaires, wealthy corporations, and people who don’t even live in Iowa,” said Senate Democratic Leader Janet Petersen.
While S.F. 2417 was generally applauded by business groups, the e-commerce trade association NetChoice said the modifications to the sales and use tax regime would have dangerous impacts on the travel and technology sectors of the state economy. NetChoice also warned that provisions dealing with economic nexus could be quickly voided depending on the U.S. Supreme Court’s decision later this year in South Dakota v. Wayfair, a direct challenge to the court’s 1992 decision in Quill Corp. v. North Dakota.
Quill, which states for years have tried to “kill” through lawsuits and legislation, prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. The case was argued April 17, and practitioners expect a decision by late June.
“Iowans will likely see this legislation as a tax increase,” said NetChoice president and CEO Steve DelBianco in a statement. “This bill attacks Iowa’s tech sector and travel agents, and its taxes will be passed on to Iowa residents. Legislators should not pass a bill that will come back to haunt them.”
According to an analysis by the state’s Legislative Services Agency, S.F. 2417 would make multiple changes to Iowa’s tax code:
Text of S.F. 2417 is at http://src.bna.com/yB9.
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