Tax Updates

Endow Iowa Tax Credit Bill Moves to the House Floor

Senate File 302 – increases from $2.7 million to $3.5 million the maximum aggregate amount of tax credits available under the endow Iowa program.

Endow Iowa encourages all Iowans to invest in their communities through endowment funds. Endow Iowa relies on existing infrastructure and community foundations to incubate funds and mentor communities on growing and managing funds. These endowment funds may be unrestricted for broad community needs or may be designated for nonprofits, economic development or the environment.

It’s estimated that over the next 50 years a great wealth transfer (an estimated $41 trillion) will change hands. With Iowa one of the leading states with citizens 75 years and older, the Endow Iowa program will help facilitate charitable giving throughout the state.

Clarification of GPS Sales Tax Exemptions When used in Farming Operations Moves to the House Floor

House File 677- provides a sales tax exemption for the sales price of global positioning systems, including software activation, and subscription fees, when used in farming operations.

This bill clarifies the use of a sales tax exemption from the sales price of global positioning systems, including software activation and subscription fees when used in farming operations. GPS systems when used in farming operations allow for precise planting, and decreases the amount of fertilizer applied which helps the environment.

The estimated fiscal impact is $127,000 a year.

Registration Fees Waived For Vehicles Leased by Governmental and Certain Non-Profit Entities

House File 676 – creates exemptions from the fee for new registration for vehicles leased to federal, state, or local governmental agencies or certain nonprofit entities that are also exempt from the payment of sales tax and for vehicles leased to a governmental agency and titled in an individual’s name as authorized by law.

Under current law, an exemption from the fee for new registration is provided for vehicles that are sold to the same governmental agencies and nonprofit entities. This bill extends the same exemption for vehicles leased by these same entities.

Tax Coupling is Finally Signed into Law – Bringing Tax Certainty to all Iowans
Changes for tax year 2010 Iowa Income Tax filing became effective April 12, 2011 with the enactment of Senate File 512. This legislation couples Iowa tax provisions with federal provisions retroactive to January 1, 2010 in the areas listed below.

NOTE: Iowa did not couple with the bonus depreciation provisions allowed for federal tax purposes for the 2010 tax year.

Tax Changes for Individual Income Tax Filers Only:

Deduction of Educator Expenses
Taxpayers, who meet the requirements of an eligible educator in 2010, can deduct up to $250 of qualified expenses he or she paid in 2010 and claimed on line 23 of the federal return. This deduction is claimed as an Other Adjustment on line 24 of the IA 1040.

Tuition and Fees Deduction for Higher Education
Taxpayers who paid qualified tuition and fees for themselves, a spouse, or dependent(s) are able to take this deduction as claimed on line 34 of the federal return. This deduction is claimed as an Other Adjustment on line 24 of the IA 1040.

Election to Deduct State Sales/Use Tax as an Itemized Deduction in lieu of State Income Tax
Taxpayers will have the option of claiming an itemized deduction for either other state and local income taxes, or general sales taxes as claimed on the federal Schedule A, line 5. Iowa 1040 Schedule A has been modified to incorporate this change and is available on the Department Web site.

Earned Income Tax Credit (EITC)
The refundable Iowa credit is simply 7% of the federal credit, and there is no longer a need to recalculate the federal credit.

Tax Free Distribution from an IRA to Certain Charities for Individuals 70½ and Older
Taxpayers age 70½ and older can distribute up to $100,000 from their individual retirement account to certain charitable organizations without including the distribution in gross income.

Tax Changes for Individual Income Tax Filers as well as Corporate Income Tax (including S Corporations), Partnership, Fiduciary and Franchise Tax:

Section 179 Asset Expensing
An increase in the Section 179 expense deduction changes the cap for Iowa taxpayers from $134,000 to $500,000 for tax years beginning in 2010. This phases out when purchases exceed $2,000,000. This brings the limit in line with the federal provisions.

Alternative Simplified Research Credit
Tax form IA 128S immediately replaces the Iowa Alternative Incremental Research Activities Credit, IA 128A, for tax years beginning on or after January 1, 2010. Electronic filing of this form will not be accepted by the Department until April 26, 2011.

Deduction Related to Small Business Health Insurance Credit
For federal tax purposes, taxpayers claiming this credit must reduce the deduction for health insurance premiums by the amount of the credit. Since the deduction is disallowed for federal tax purposes, neither will it be allowed as a deduction for Iowa purposes nor can an adjustment be made on the Iowa return.
Start-up Expenditures

Iowa adopts the increase in the amount of start-up expenditures from $5,000 to $10,000 for 2010.