SF 1 – Repeal of state inheritance tax
SF 132 – Pilot project for park user fees at Lake Manawa
SF 220 – Increased expensing for corporations for tax year 2018
COMMITTEE ACTION:
SF 1 – Repeal of state inheritance tax
SF 1 would repeal Iowa’s inheritance tax and qualified use inheritance tax. The inheritance tax is paid by a beneficiary of the estate based on the taxable value of his or her share of the estate. This is separate and distinct from the federal estate tax, which is assessed to the estate based on the taxable value of the estate.
Iowa’s inheritance tax provides a complete exemption from the tax for lineal relatives (parents and step-parents, children and step-children, etc.) of the deceased owner of the estate (decedent) who are beneficiaries, while also exempting estates valued less than $25,000. The federal estate tax does not have an exemption based on the designated beneficiary but does exempt estates valued up to $11.4 million.
The bill would repeal the inheritance tax for estates for deaths of decedents on or after July 1, 2019. The projected fiscal impact of the repeal is $30.2 million in FY20 and $86.9 million in FY21. In subsequent years, the impact on the general fund would grow by 2.5 percent. The exemption for lineal relatives was enacted in 1997, with smaller additional exemptions made since then. These exemptions are likely larger than the amount collected under the current inheritance tax guidelines.
The inheritance tax is assessed at different rates based on the beneficiary’s relationship to the deceased owner of the estate. For inheritances not exempt, the tax rate varies by size of the inheritance and category of the beneficiary:
- If the net value of the entire estate is less than $25,000, the tax rate is 0 percent.
- For a brother, sister, son-in-law or daughter-in-law, the rate is 5 percent to 10 percent.
- For an aunt, uncle, niece, nephew, foster child, cousin, brother-in-law, sister-in-law and all other individuals, the rate is 10 percent to 15 percent.
- For firms and for-profit corporations and organizations, the rate is 15 percent.
- For charitable, educational or religious organizations under the laws of other states or countries, the rate is 10 percent.
- For bequests for religious services in excess of $500, the rate is 10 percent.
- For unknown heirs, the rate is 5 percent.
- For public libraries and art galleries, hospitals, humane societies, municipal corporations, or for the care of cemetery or burial lots, or bequests for religious services not to exceed
$500, the rate is 0 percent.
The qualified use inheritance tax is available to certain taxpayers who elect to use an alternate valuation for the estate under Section 2032A of the federal Internal Revenue Code.
[2/18: 11-6 (No: Jochum, Bolkcom, Dotzler, Quirmbach, J. Smith, Wahls)]
SF 132 – Pilot project for park user fees at Lake Manawa
SF 132 would establish a pilot program for park user fees at Lake Manawa State Park in Council Bluffs. The Department of Natural Resources (DNR) would collect fees from nonresidents to access the state park and allow DNR to charge different rates for facility rental to residents and nonresidents. This system would mirror how Nebraska charges for nonresidents to use their state parks. Lake Manawa is a busy state park that attracts a large number of nonresident visitors because the park does not charge fees for access, unlike similar parks in the area. This has led to high use, need for infrastructure repairs, and demands on local law enforcement responding to illegal activity. It is hoped the fees will cover park needs, while discouraging illegal activities. The pilot program would be repealed on July 1, 2022.
[2/18: Short Form]
FLOOR ACTION:
SF 220 – Increased expensing for corporations for tax year 2018
SF 220 relates to Section 179 expensing for S-corporations, C-corporations and other entities taxed as corporations. The bill also impacts individuals filing K-1 returns (members of LLCs, S-Corp and partnerships) for income earned through those entities. In 2018, SF 2417 (GOP tax bill) raised the Section 179 expensing limit to $70,000/$280,000 annually for individual income taxes only, not for corporate taxpayers. The bill also instituted a K-1 tax form “fix” so that the limit on expensing is extended to every member of the business rather than having all partners cumulatively limited to the expensing threshold.
During rulemaking to implement SF 2417, the Iowa Department of Revenue determined that, because Section 179 expensing was not raised for corporate taxpayers, the individual taxpayers filing K-1s as a part of an S-corporation (and other corporate taxes entities) were also not eligible for the expanded Section 179 limit that individual income taxpayers were given in SF 2417. Those individuals could only claim up to the previous $25,000/$200,000.
The bill resolves this issue by changing the corporate expensing levels for tax year 2018. Changes for other years were fully addressed in SF 2417. Section 179 expensing levels are increased to $100,000/$250,000 for both individual and corporate returns for tax year 2019. Section 179 and other coupling issues are resolved in tax year 2020 because “rolling conformity” from then on. Rolling conformity means that applicable federal tax changes on expenses, credit and deductions allowed under Iowa law will automatically be incorporated into Iowa tax code instead of requiring legislative action to implement the changes.
[2/18: 48-0 (Absent: Miller-Meeks; Vacant: Danielson)]