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Iowa Gov. Kim Reynolds (R) approved an extensive tax overhaul and conformity law, saying the measure would provide individual and corporate taxpayers with $2.16 billion in relief over six years.
Reynolds said the tax legislation, Senate File 2417, would bring Iowa into general conformity with recent changes to the Internal Revenue Code, including the 2017 federal tax act ( Pub. L. No. 15-97), and provide tax savings to almost every taxpayer in the state.
“This bill brings immediate relief. It’s simple, it’s transparent, and it’s fair for main street. But most importantly, it’s sustainable for our state budget,” Reynolds said May 30 during a bill-signing event at tablet computer manufacturer MobileDemand LC in Hiawatha, Iowa. “The new tax plan is fiscally responsible for the long term. It provides meaningful relief for middle class families while still ensuring we can fund our key priorities like education, health care, and public safety.”
On the individual side, the legislation will reduce rates across Iowa’s nine brackets next year and provide further reductions in four years. The top rate, for earnings above approximately $75,000, will eventually shift from 8.98 percent to 6.5 percent. All four brackets of the corporate income tax rate will be reduced in 2021 under the new law, with the top rate moving to 9.8 percent from 12 percent.
The proposed law will bring some new dollars into state coffers by expanding the sales and use tax regime to digital goods, ride-sharing services, subscription services, online sellers, and online travel company websites.
In addition, S.F. 2417 boosts online sales tax collections by adopting South Dakota’s economic nexus standard, which is under review at the U.S. Supreme Court in South Dakota v. Wayfair, 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.
The new tax law won applause from the business community, which has been lobbying for corporate rate reductions for several years.
Tom Sands, president and CEO of the Iowa Taxpayers Association, called S.F. 2417 a down payment on additional reforms needed to stimulate the Iowa economy.
“This is the first step and a base to build on next year for greater reforms that are much needed,” Sands told Bloomberg Tax in an email. “Reforming Iowa tax law to grow jobs and the economy benefits all Iowans.”
According to an analysis by the state’s Legislative Services Agency, S.F. 2417 will:
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