Annual Report FY 2014 Courtney M. Kay-Decker Director
TABLE of CONTENTS Department of Revenue Organizational Chart... 2 Department Mission, Vision, and Guiding Principles... 3 Department Core Functions... 4 Tax Compliance and Revenue Collection... 5 Fiscal Year Deposits... 5 Historic Gross Deposits... 6 Collections... 7 Electronic Filing Business Taxes... 8 Electronic Filing Income Taxes... 9 Average Cost to Process Individual Income Tax Returns... 11 Taxpayer Services... 12 Research, Analysis, and Information Management... 13 Research and Statistical Reports... 13 Tax Credit Tracking and Analysis Program... 14 Local Government Assistance... 15 Property Tax... 15 Property Tax Relief and Local Option Taxes... 16 Property Assessment Appeal Board... 17 State Board of Tax Review... 17 1
Department of Revenue Organizational Chart The Department includes two boards for budgetary purposes: the State Board of Tax Review and the Property Assessment Appeal Board. 2
Department Mission, Vision, and Guiding Principles MISSION To serve Iowans and to support government services in Iowa by collecting all taxes required by law, but no more. VISION Iowa will be a state where it is easy to understand and comply with tax obligations. GUIDING PRINCIPLES The Department of Revenue has adopted the following Guiding Principles: Customer Focus We understand that Iowa taxpayers are our number one customers. We collaborate and partner with both our internal and external customers. We use technology to support our customers more efficiently. We maintain the public s confidence by safeguarding our customers' confidential information. Expertise We provide expert advice and support to policymakers and to local and state government entities. We help local governments responsibly manage their fiscal resources through our support of the property tax system and distribution of local option taxes. We educate and train employees to gain the knowledge needed to perform their jobs the best they can. Education We recognize that Iowa tax laws are complex and will provide the services and education necessary to facilitate compliance. We simplify regulations where possible and recommend policy that enhances the ease of taxpayer compliance. Fiscal Management We responsibly manage our financial resources to fulfill our mission. We continually monitor and measure our internal processes to assure economy and efficiency, keeping the cost of State government as low as possible. We work with the Legislative Branch to recommend fiscally sound legislation that reflects the fiscal obligations of the State. 3
Department Core Functions The core functions of the Iowa Department of Revenue consist of the following: TAX COMPLIANCE AND REVENUE COLLECTION These functions are the most visible portion of our operations. They include educating taxpayers our customers on tax laws and regulations, processing tax returns and related documents, and collecting taxes and other amounts due, all in compliance with Iowa s tax laws. It is under this umbrella that the Department conducts its taxpayer examination and audit programs and resolves disputed tax issues. RESEARCH, ANALYSIS, AND INFORMATION MANAGEMENT The Department provides tax policy development and analysis, fiscal impact estimation, and economic and statistical research and analysis to help customers, stakeholders, and policymakers make informed decisions. LOCAL GOVERNMENT ASSISTANCE The Department also provides resources and education to cities and counties. It is through this function that we administer just and uniform property assessments across the state. The Department also administers programs for property tax relief, local option sales tax, and other local tax programs. RESOURCE MANAGEMENT The Department s Internal Services Division provides internal infrastructure support for operations, including technology development and support, personnel management, and budgeting. Individual Income Tax/Withholding Corporation Income Tax Taxes and Fees Collected and/or Administered Consumer s Use Tax Retailer s Use Tax Fuel Taxes Environmental Protection Charge Franchise Tax Hotel / Motel Tax Inheritance Tax Sales Tax Local Option Sales Tax Cigarette / Tobacco Tax Replacement Tax E911 Surcharge Fee Hazardous Materials Permit Fee Property Tax Insurance Premium Tax Real Estate Transfer Tax One-Time Fee for New Vehicle Registration Car Rental Tax & Vehicle Title Surcharge Miscellaneous Taxes 4
TAX COMPLIANCE AND REVENUE COLLECTION Fiscal Year Deposits During Fiscal Year (FY) 2014, the Department of Revenue processed and deposited nearly $9 billion into various funds for State and local government operations. The Department also processed and paid over $1 billion in refunds for taxpayers, resulting in net deposits just under $8 billion. Gross Deposits, Refunds, and Net Deposits Fiscal Year 2014 Taxes Gross Deposits Refunds Net Deposits Income Taxes Individual Income Tax $4,098,742,058 $785,229,315 $3,313,512,743 Corporation Income Tax $551,259,164 $127,742,986 $423,516,178 Franchise Tax $42,918,556 $10,698,930 $32,219,626 Total Income Taxes $4,692,919,779 $923,671,231 $3,769,248,548 Consumption Taxes Sales Tax (1) $2,528,484,746 $38,488,428 $2,489,996,318 Use Tax $485,649,890 $20,617,530 $465,032,360 One-Time Fee for New Vehicle Registration $331,473,767 $0 $331,473,767 Fuel Taxes $473,457,203 $30,558,852 $442,898,351 Cigarette Tax $194,462,895 $359,216 $194,103,679 Tobacco Tax $28,774,398 -$70 $28,774,468 Total Consumption Taxes $4,042,302,898 $90,023,956 $3,952,278,942 Miscellaneous Taxes Environmental Protection Charge $21,230,857 $0 $21,230,857 Real Estate Transfer Tax $18,658,603 $0 $18,658,603 Hazardous Materials Permit Fee $281,590 $0 $281,590 Inheritance Tax $91,034,037 $1,536,173 $89,497,864 Insurance Premium Tax $105,531,948 $118,150 $105,413,798 Car Rental Tax and Vehicle Title Surcharge (2) $682,471 $0 $682,471 Miscellaneous Taxes $2,230,092 $2,333,005 -$102,913 Total Miscellaneous Taxes $239,649,598 $3,987,328 $235,662,270 Grand Total $8,974,872,275 $1,017,682,515 $7,957,189,760 Notes: Deposits and Refunds are presented on a cash basis. (1) Gross sales tax deposits include approximately $348.7 million in local option sales tax and hotel/motel tax collections. (2) Car Rental Tax and Vehicle Title Surcharge include a 5% tax on car rentals and a $5.00 registration fee collected by County Recorders for snowmobiles, ATVs, and boat registrations. 5
TAX COMPLIANCE AND REVENUE COLLECTION Historic Gross Deposits After increasing between 5 and 6 percent in FY 2011, 2012 and 2013, gross deposits were flat in FY 2014, with total income tax deposits dropping while consumption and miscellaneous tax deposits rose. Gross Deposits in Millions Fiscal Years 2010-2014 Taxes FY 10 FY 11 FY 12 FY 13 FY 14 Income Taxes Individual Income Tax $3,352.53 $3,569.81 $3,750.06 $4,203.87 $4,098.74 Corporation Income Tax $392.31 $396.48 $523.13 $556.63 $551.26 Franchise Tax $31.62 $36.32 $41.47 $42.90 $42.92 Total Income Taxes $3,776.47 $4,002.61 $4,314.67 $4,803.41 $4,692.92 Consumption Taxes Sales Tax (1) $2,249.52 $2,335.94 $2,441.80 $2,469.27 $2,528.48 Use Tax $373.23 $398.30 $431.88 $458.91 $485.65 One-Time Fee for New Vehicle Registration $257.44 $279.98 $302.85 $318.53 $331.47 Fuel Taxes $459.05 $483.64 $476.53 $473.26 $473.46 Cigarette Tax $206.07 $200.09 $198.76 $198.92 $194.47 Tobacco Tax $26.01 $27.22 $26.69 $28.49 $28.77 Total Consumption Taxes $3,571.32 $3,725.17 $3,878.51 $3,947.38 $4,042.30 Miscellaneous Taxes Environmental Protection Charge $20.67 $21.80 $20.98 $20.78 $21.24 Real Estate Transfer Tax $13.71 $13.33 $15.87 $19.01 $18.66 Hazardous Materials Permit Fee $0.18 $0.47 $0.28 $0.27 $0.28 Inheritance Tax $67.43 $66.39 $77.64 $86.81 $91.03 Insurance Premium Tax $88.57 $97.10 $101.41 $104.88 $105.53 Car Rental Tax and Vehicle Title Surcharge (2) $0.08 $0.66 $0.68 $0.09 $0.68 Miscellaneous Taxes $0.96 $2.22 $2.15 $3.12 $2.23 Total Miscellaneous Taxes $191.60 $201.97 $219.01 $234.96 $239.65 Grand Total $7,539.39 $7,929.75 $8,412.19 $8,985.75 $8,974.87 Notes: Gross deposits are presented on a cash basis and do not reflect refunds paid. (1) Gross sales tax deposits include local option sales tax and hotel/motel tax collections. (2) Car Rental Tax and Vehicle Title Surcharge include a 5% tax on car rentals and a $5.00 registration fee collected by County Recorders for snowmobiles, ATVs, and boat registrations. 6
TAX COMPLIANCE AND REVENUE COLLECTION Collections The Department s Tax Gap program undertakes examination and audits of tax returns to strive to collect all taxes owed to the State. The Department s Collection Enterprise collects delinquent tax debt and also provides collection services to the Iowa Judicial Branch, the Department of Human Services, and the Department of Natural Resources. In four of the last five fiscal years, total gross collections as a result of these efforts have been over $200 million, reaching a high of $237 million in FY 2014. Both Tax Gap and the Collection Enterprise are self-supporting. Total Gross Collections Collection Enterprise and Tax Gap $250,000,000 $225,000,000 $200,000,000 $218,636,997 $194,337,403 $223,460,884 $209,407,630 $236,752,360 $175,000,000 $150,000,000 $125,000,000 $100,000,000 $75,000,000 $50,000,000 $25,000,000 $0 FY 10 FY 11 FY 12 FY 13 FY 14 Note: Gross collections include both tax and non-tax collections. Collections of both taxes owed to the State and non-tax items owed to other State agencies continue to trend upward. Annual variances reflect the cyclical timing of tax returns processing activity that occurs at the end of each fiscal year. 7
TAX COMPLIANCE AND REVENUE COLLECTION Electronic Filing Business Taxes The Department continues to expand availability and encourage use of electronic filing of tax returns and tax payments for business taxes including withholding taxes remitted by employers on behalf of employees and sales taxes remitted by retailers on behalf of consumers. In FY 2014, 99% of withholding tax returns, nearly 360,000, and 97% of sales and use tax returns, nearly 408,000, were filed using the Department s efile & Pay system. These business filers paid more than 93.2% of funds owed to the State electronically resulting in lower administration costs and faster deposits. Withholding Quarterly Returns By Filing Method FY 2014 Paper, 4,307 Electronic, 359,711 Sales/Use Quarterly Returns By Filing Method FY 2014 Paper, 15,659 Electronic, 407,935 8
Count of Returns TAX COMPLIANCE AND REVENUE COLLECTION Electronic Filing Income Taxes The Department of Revenue also encourages taxpayers who owe taxes directly to the State on their income, or entities obligated to file informational income returns, to file electronic returns. The income tax type with the largest number of returns processed each year is individual income tax. The share of individual income tax returns filed electronically continues to rise, reaching 89% (over 1.39 million returns) in FY 2014 for tax year 2013 returns. Iowa taxpayers are among the nation s leaders in e-filing. 1,800,000 Individual Income Tax Returns Count and Distribution by Filing Method 1,600,000 1,400,000 1,200,000 22% 16% 13% 13% 11% 1,000,000 800,000 600,000 400,000 200,000 78% 84% 87% 87% 89% 0 FY 10 FY 11 FY 12 FY 13 FY 14 Paper 317,988 233,294 187,502 191,358 176,869 Electronic 1,142,344 1,255,607 1,286,162 1,325,860 1,392,756 Corporations and pass-through entities including partnerships, limited liability companies, S corporations and C corporations were first able to file electronic Iowa returns for tax year 2011 in FY 2012. Filers have been quickly moving to electronic returns with 60 percent of corporations using the electronic filing method during FY 2014. In FY 2015, the Department will add fiduciary returns as an eligible tax type for electronic filing. 9
Count of Returns Count of Returns 100,000 TAX COMPLIANCE AND REVENUE COLLECTION Electronic Filing Income Taxes Corporation Income Tax Returns Count and Distribution by Filing Method 90,000 80,000 70,000 60,000 62% 51% 40% 50,000 40,000 30,000 20,000 10,000 38% 49% 60% 0 FY 12 FY 13 FY 14 Paper 53,083 43,988 34,155 Electronic 32,043 41,512 52,003 Includes returns filed by C corporations and S corporations. 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Pass-Through Income Tax Returns Count and Distribution by Filing Method 59% 41% 44% 56% 33% 67% FY 12 FY 13 FY 14 Paper 24,111 18,380 15,020 Electronic 16,572 23,765 30,378 Includes returns filed by limited liability companies and partnerships. 10
TAX COMPLIANCE AND REVENUE COLLECTION Average Cost to Process Individual Income Tax Returns The Department encourages electronic filing because it reduces administrative costs. For FY 2014, the estimated average cost of receiving and capturing data from a paper return is $3.14 compared to only $0.54 for an electronic return. Average Cost to Process Individual Income Tax Returns Paper versus Electronic $3.50 $3.00 $2.50 $2.00 $3.14 $0.85 $0.32 $1.50 $1.00 $0.50 $0.00 $1.97 Paper $0.54 $0.48 $0.06 Electronic IDR Salary Costs IDR Non Salary Costs OCIO Charges In fiscal year 2014 the Department updated the estimation methodology for the cost to process returns, so these numbers cannot be compared to estimates from prior years. The costs incorporate expenses paid to the Office of the Chief Information Officer (OCIO) to prepare Department database and other technology systems for the filing season along with the Iowa Department of Revenue (IDR) direct costs. 11
TAX COMPLIANCE AND REVENUE COLLECTION Taxpayer Services Iowa taxpayers seek answers to their questions about taxes. Tax specialists are available by telephone, email, and in person. The preferred method for taxpayers to receive information is shifting to self-service via the Department s website. As part of the Department s customer service and modernization goals, taxpayer education videos were added to its website to enhance self-service information. A total of 7,030 people viewed six general tax information videos and fifteen videos regarding implementation of the new Business Property Tax Credit. The Department delivered nine business tax webinars in partnership with IASourceLink and MyEntre.Net which were attended by 1,426 people. In addition, a total of 412 people followed the Business Tax, Individual Income Tax, and Tax Professional Twitter accounts. The Department sent 820 tweets which were received and shared with 58,792 people through Twitter followers. In December 2013 the Department launched a Facebook site. In FY 2014 86 posts were made and were viewed 6,809 times. In FY 2014 the Department also launched a new website. To Receive Assistance From a Tax Specialist: email: idr@iowa.gov Telephone: 515-281-3114 or 800-367-3388 Mail: Iowa Department of Revenue P O Box 10457 Des Moines, Iowa 50306-0457 To Find Online Services and Forms: https://tax.iowa.gov Current and Past Year Tax Forms Individual Income Tax efile Information Where s My Refund Apply for a Permit efile & Pay for Business Taxes Pay Debt Online Visit the Iowa Tax Research Library (http://itrl.idr.iowa.gov) for a searchable repository of Department rulings and court cases 12
RESEARCH, ANALYSIS, AND INFORMATION MANAGEMENT Research and Statistical Reports The Department provides tax policy analysis, fiscal impact estimation, economic research, and statistical analysis to help customers, stakeholders, and policymakers make informed decisions. Research Reports Iowa Leading Indicators Index Monthly Report Contingent Liabilities Report Tax Expenditure Studies Legislative Summaries Tax Credits User s Manual Tax Credit Evaluation Studies Statistical Reports Sales and Use Tax Quarterly and Annual Reports Individual Income Tax Annual Statistical Report Annual Tax Credit Claims Report Retailers Motor Fuel Gallons Annual Report These reports are all available on the Department s website: https://tax.iowa.gov The Department also provides data through Iowa s open data portal. Data includes that required by statute and other data for which the Department often receives requests. https://data.iowa.gov Sales and Use Tax Registration Data Monthly State Tax Receipts and Refunds Tax Credit Awards and Claim Data Local Option Sales Tax Receipts by Month and Location Fuel Sales by County 13
RESEARCH, ANALYSIS, AND INFORMATION MANAGEMENT Tax Credit Tracking and Analysis Program The Department has been assigned the responsibility of awarding several income tax credits along with completing all requested tax credit transfers and tracking claims. In FY 2014, of the nearly $248 million in total tax credits awarded by various State agencies, $8.7 million were awarded under the three tax credit programs administered by the Department. See the Contingent Liabilities Report for amounts awarded under other tax credit programs. Tax credit transfers in FY 2014 totaled $38.1 million. Tax Credits Awarded by Department of Revenue Fiscal Year 2014 Tax Credit Program Awarded Amount Renewable Energy Tax Credit $5,626,315 Solar Energy System Tax Credit $1,499,346 Wind Energy Production Tax Credit $1,577,165 Total State Tax Credit Awards by IDR $8,702,826 Total State Tax Credit Awards $247,607,301 Total Tax Credit Transfers $38,088,754 14
LOCAL GOVERNMENT ASSISTANCE Property Tax The Department provides assistance to local governments throughout Iowa by administering fair and equitable assessments and programs for property tax relief. The Property Tax Division: Administers credits and exemptions for property owners. Trains, educates, and certifies the assessment community and trains boards of review. Equalizes assessed property values through ratio studies processed every second year. Provides for central assessments of utilities, telecommunications, pipelines, and railroads. Annually determines agricultural productivity values statewide. Provides information pertaining to assessed valuations to other governmental agencies. Collaborates with county-level government in implementation of technology solutions. Reviews assessment practices for statutory compliance and taxpayer inquiries. Makes recommendations and collaborates with key stakeholders regarding statewide property tax issues. Distributes SAVE, LOST, and Hotel/Motel payments and property tax relief to school districts and local jurisdictions. 15
LOCAL GOVERNMENT ASSISTANCE Property Tax Relief and Local Option Taxes The Department administers numerous property tax credits that alter revenues collected by local governments. The Department also collects and distributes local option taxes to local governments and school districts. Program Definition FY 14 Distribution Property Tax Relief Homestead Credit Disabled and Senior Citizens Property Tax Credit/Rent Reimbursement Mobile Home Reduced Tax Rate Special Assessment Credit Ag Land Credit Family Farm Land Credit Military Property Tax Exemption Local Option Tax Local Option Sales Tax Secure an Advanced Vision for Education Tax (SAVE) Hotel/Motel Tax Adopted to encourage home ownership through property tax relief. Current credit is equal to the actual tax levy on the first $4,850 of actual value. Provides property tax relief to low-income elderly and disabled homeowners or rent relief to low-income elderly and disabled renters. Established in conjunction with the Disabled and Senior Citizens Property Tax Credit. Provides tax reduction to homeowners of mobile and manufactured homes. Established in conjunction with the Disabled and Senior Citizens Property Tax Credit. Provides 100% tax reduction to qualified homeowners who are required to pay special assessments. Credit established to partially offset the school tax burden borne by agricultural real estate. Current law allows a credit for any general school fund tax in excess of $5.40 per $1,000 of assessed value. Land used for agricultural or horticultural purposes in tracts of 10 acres or more is eligible. Credit established to partially offset the school tax burden borne by agricultural real estate. Current law allows a credit for any general school fund tax in excess of $5.40 per $1,000 of assessed value. The owner or owner's relatives must be actively engaged in farming the land and the land must be used for agricultural or horticultural purposes. Reduces the taxable value of property for military veterans. The amount of the exemption varies. Sales tax up to 1% imposed by counties either countywide or in incorporated areas or unincorporated areas. Imposed on sales and services taxed under State sales tax provisions. Statewide 1% sales and use tax distributed to school districts on a per pupil basis. Tax up to 7% imposed by cities on the gross receipts from the rental of hotel or motel rooms for 31 consecutive days or less. $131,749,558 $23,422,887 $100,035 $19,863 $29,053,800 $10,000,000 $2,156,176 $310,190,925 $429,873,936 $48,327,089 16
The Department also includes two boards for budgetary purposes. PROPERTY ASSESSMENT APPEAL BOARD The State of Iowa Property Assessment Appeal Board (PAAB) is a State board created for the purpose of establishing a consistent, fair, and equitable property assessment appeal process. PAAB conducts administrative hearings with the statutory authority to review any final decision, finding, ruling, determination, or order of a local board of review relating to protests of an assessment, valuation, or application of an equalization order. The number of appeals received is typically higher in odd calendar years due to the property tax reassessment cycle. 1,800 1,600 1,603 Appeals Received 1,400 1,200 1,202 1,000 800 733 818 600 400 390 200 0 CY 10 CY 11 CY 12 CY 13 CY 14 Board Membership, Residence, and Term Karen Oberman Waukee April 30, 2015 Jacqueline Rypma Clive April 30, 2019 Stewart Iverson, Chair Clarion April 30, 2017 STATE BOARD OF TAX REVIEW The State Board of Tax Review is a bipartisan board consisting of three members appointed by the Governor to six-year terms. The Board serves in a review capacity, empowered to review all actions of the Director and affirm, modify, reverse, or remand such actions. Board Membership, Residence, and Term Michael Milligan West Des Moines April 30, 2015 Jill Sanchez LeClaire April 30, 2019 Jeffrey Elgin, Chair Cedar Rapids March 2, 2017 17