ENACTED LEGISLATION 10/24/2013. Updated references to January 1, 2013

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1 Jim McNulty ENACTED LEGISLATION Internal Revenue Code (IRC) Update Bill (SF106) Updated references to January 1, 2013 Includes changes to American Taxpayer Relief Act of 2012 Coupled with all items except 50% bonus depreciation for assets acquired in 2013 Bonus depreciation also disallowed for for Iowa 1

2 IRC UPDATE Provisions allowed for 2012 (and 2013) tax year Educator expenses up to $250 Tuition and fees deduction for higher education Section 179 expensing limit of $500,000 Election to deduct state sales/use tax in lieu of state income tax as an itemized deduction IRC UPDATE Provisions allowed for 2012 (and 2013) tax year Tax-free distributions to charity from an IRA up to $100,000 Treatment of mortgage insurance premiums as qualified residence interest as an itemized deduction Iowa estate tax in Code chapter 451 will not be reinstated IRC UPDATE Internal Revenue Code Update changes Limitation on itemized deduction for high income taxpayers ($250,000 for single filers, $300,000 for joint filers) starting in 2013 Form IA 104 (Itemized Deduction Worksheet) will be resurrected for 2013 and subsequent years 2

3 OTHER 2013 Medical expenses itemized deduction 10% of AGI for taxpayers under age % Medicare contribution tax allowed as federal tax deduction Iowa coupled with federal earned income tax credit and child and dependent care credits OTHER 2013 S corporations built in gains tax 5 year recognition period Internal Revenue Procedure (simplified method for determining business use of home expenses) Iowa coupled with R&D tax credit through 2013 ENACTED LEGISLATION Department Technical Corrections (HF575) Lists all double exempt municipal bonds in tax portion of Iowa Code Repeal of outdated provisions regarding 2001 federal tax rebate Expanded definition of partnerships required to file Iowa returns Include partnerships doing business in Iowa or having real, tangible or intangible property in Iowa 3

4 TAX CREDIT Historic Preservation Tax Credit (SF 436) Eligibility changes only, credit remains at 25% of expenses with $45 million cap School tuition organization credit (HF 625) Cap increased to $12 million for 2014, compared to $8.75 million for 2013 Credit available for partnerships, LLC s, S corporations, and estates & trusts effective 2013 TAX CREDIT Earned Income tax credit (EITC) (SF 295) Increases to 14% of federal EITC for 2013, 15% of federal EITC for 2014 and subsequent years (previously was 7% of federal EITC) S corporation apportionment credit (SF 452) Available to estate and trust shareholders of S corporations starting with 2013 Endow Iowa tax credit (HF 620) Cap increased to $6 million (from $4.5 million) starting with 2012 tax year TAX CREDIT Innovation Fund Tax Credit (HF 615) Increases to 25% (from 20%) of investment in certified fund (certification done by Economic Development Authority) Eliminate 3 year delay in claiming credit Credit now transferable once Credit certificate for 2013 tax year cannot be issued until September 1, 2014 Credit capped at $8 million per fiscal year 4

5 TAX CREDIT Agricultural asset transfer credit (HF 599) Increase in cap from $6 million to $12 million Credit percentage increase from 5% to 7% for cash rent Credit percentage increase from 15% to 17% for crop share Custom Farming Contract credit available equal to 7% - part of $12 million cap Credit capped at $50,000 per taxpayer TAX CREDIT Net worth for beginning farmer increased to $691,172 Agricultural asset Credit sunsets at the end transfer credit (HF 599) of 2017 Retroactive to 2013 tax year TAX CREDIT Taxpayer Trust Fund Credit (SF 295) Approximate $55 credit for all individual taxpayers for 2013 Must file return by 10/31/14 to claim credit Nonrefundable credit Claimed after all other credits (except tax withheld and estimated payments) Credit available for subsequent tax years 5

6 TAX CREDIT Farm to Food Donation Credit (SF 452) 15% credit for value of commodities donated by producer to food bank effective 1/1/14 Credit limited to 15% or $5,000, whichever is lower Nonrefundable credit with 5 year carryover Charitable deduction not allowed if credit claimed Also available for corporation income tax TAX CREDIT Increase in cap for Economic Development awards to $170 million effective 7/1/12 Enterprise zone program High Quality Jobs Program Housing enterprise zone program Redevelopment tax credit (brownfield and grayfield) cap increased to $10 million 6

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8 Sales/Use Tax Machinery & Equipment exemption expanded to include persons not primarily engaged in manufacturing (SF 452) Consistent with 2010 Iowa Supreme Court decision in Sherwin Williams Must still be engaged in processing Refund claims can be filed within 3 year statute of limitations Sales/Use Tax Security & Detective Services not taxable if performed by peace officer with supervisor consent (SF 452) Silvicultural (forestry) activities exempt (SF 452) Hydroelectric conversion property exemption (HF 630) Sales/Use Tax Reinvestment districts (HF 641) Sales Tax Nexus Requirements (HF 625) Distribution of SAVE (school infrastructure funds) (SF 452) will result in elimination of sales by county columns on sales/use tax returns effective 7/1/2014 8

9 Sales/Use Tax Technical Corrections (HF 575) Auto Body sales tax exemption correction from 2012 Remove outdated exemption regarding wine shipped into Iowa Correct terminology regarding exemption for items purchased with food stamps ENACTED LEGISLATION One time fee for new vehicle registration (SF 452) Shell corporations (Montana LLC) 90 day rule Imposition of fraud penalty Streamlined sales tax (HF 199) food and food ingredients include beverage-grade carbon dioxide gas 9

10 Property Tax SF 295 Governor s Commercial Property Tax Reform Bill: Business Property Tax Credit Claim must be filed by 1/15 for taxes due and payable in the upcoming fiscal year (1/15/2014) Valuation growth limitation from 4% to 3% (Ag & Res; Assessment Year 2013) Rollback on percent of value subject to tax (Assessment Year 2013) Local backfill (Assessment Year 2013) New Multi-residential Property Classification (Assessment Year 2015) Telecommunication Company Property Exemption (Assessment Year 2013) Telecommunication Company Study Committee (Report Due August 2015) Administrative Changes Eliminate requirement to put next month s interest on notices of assessment issued after 20th of month (SF 432) Eliminate 20 day notice (courtesy notices) for sales/use tax and environmental protection charge (SF 432) Study committee to review protest and appeal process and new tax appeal board (SF 452) Other Information efile Statistics (Thru 9/13) Individual Income tax 1,321,151 electronic (up 1.5% from 2012) 236,288 paper (down 6% from last year) 85,077 of 236,288 paper returns 2D bar coded 10

11 Other Information efile Statistics (Thru 8/13) Partnership Returns 20,062 electronic (up 42% from 2012) 15,540 paper (down 23% from last year) Corporation Income tax 31,452 electronic (up 28% from last year) 29,552 paper (down 19% from last year) 2013 Tax Year Social security taxable benefits reduced as Changes follows 89% for % for 2014 forward College Savings Iowa $3,045 deduction for Tax Year Standard deduction $1,900 single filers Changes $4,670 joint filers, head of household Biodiesel Blended fuel tax credit (IA 8864) Credit is 4.5 cents per gallon Must be B5 or higher blend 11

12 2013 Tax Year Changes Volunteer firefighter/ volunteer EMS credit Maximum $50 credit Prorated if not volunteer for entire year IA 1040A (short form) eliminated for 2013 IA 1120S (short form) eliminated for 2013 Iowa Schedule A must be used Other Issues Capital Gain Deduction Capital gain worksheet starting in 2013 Replaced checklist Will be on IDR website under Forms Federal form 8949 will be captured on 2013 Iowa returns Other Issues Capital Gain Deduction State Board of Tax Review Appeal Rental of non-farm real estate State Board decision on October 8, 2013 upheld Director decision denying deduction Investor-type activities (review of financial statements, monitoring finances, preparing summaries of finances) not counted for material participation 12

13 Other Information Updates Electronic filing of IA1041 (fiduciary) available for 2014 returns Interest rate.4% per month for 2014 Solar energy credits (through 9/30/13) $601,756 for 2012 $502,557 for 2013 Other Information Updates Same sex marriage U.S. Supreme Court decision has little impact for Iowa income tax Updated list of Iowa income tax credits on Department website at ax/taxlaw/taxcredits.pd f Other Information Updates Withholding tax pass through entities Iowa only income tax audits Hobby loss Embezzlement Gross receipts related to sales tax audits of cash businesses 13

14 Other Information Consumer s Use Tax Two new methods of reporting & paying Iowa consumer s use tax: efile & Pay - pay electronically on our Web site, without a consumer s use tax permit Consumer s Use Tax Worksheet - a fillable online worksheet to report consumer s use tax and mail with a check Other Information Services Subject to Sales Tax More than 75 services are subject to Iowa sales tax, including: Barber / beauty / cosmetology Carpentry Janitorial / cleaning (for nonresidential customers only) Landscaping / lawn care / tree trimming & removal Painting Pet grooming Plumbing Vehicle repair NOT TAXABLE - Snow removal On Our Web Site 14

15 For Breaking News elists General Business (sales/use) Individual Income (tax professionals) Withholding Motor Vehicle Fuel Cigarette/Tobacco Construction Contractors Government Entities Economic, Fiscal & Statistical Research Iowa Tax Research Library Updates Follow Us @IDRTaxPros 15

16 Need More Information? Call us: 8 a.m. - 4:15 p.m. CT us at idr@iowa.gov Contact Information Jim McNulty Program Manager Policy & Communications Division Phone: FAX: Jim.McNulty@iowa.gov Website: Questions 16

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