Governor Branstad Signs Budget Bill With Key Tax Provisions Into Law

July 28, 2011 | Roger McEowen


In late June, the Iowa legislature passed SF 533.  It’s an appropriation bill, but it also contains some important tax provisions for Iowa returns.  Not only does the bill contain an expansion of the earned income credit for Iowa, but it also includes retroactive coupling (with the federal provision) for the 2008 tax year for the tuition and fees deduction, educator expense deduction and casualty losses associated with certain disasters.  The retroactive nature of the coupling will require amended returns for 2008, and no interest will be paid on any refunds related to these amended returns.  Also, the Iowa legislature waited until late in the session to address the issue of coupling for 2010 on some other key tax items.  That meant that returns had been filed before the coupling for 2010 became law.  So, SF 533 deals with that issue too.  Importantly, the bill allows taxpayers to make certain changes on the 2011 Iowa return in lieu of amending the 2010 return due to the late passage of coupling with the Internal Revenue Code.  The three items for which the change can be made in 2011 in lieu of amending the 2010 return are Section 179 expensing, the educator expense deduction and the tuition and fees deduction. 

Late on July 27, the Governor signed SF 533 into law.  SF 533 was not signed into law in its entirety.  Importantly, he did not line-item veto the provisions dealing with the retroactive 2008 changes – his office pushed for that change.  Also, the Governor did not line-item veto the provisions dealing with the 2010/2011 issue.  As we noted in our ealier post on the matter, that provision will save the state money and processing time by not requiring amended returns for 2010 to take advantage of the coupled provisions that can now be “doubled-up” on a 2011 return.   However, the Governor did line-item veto the increase in the Iowa earned income tax credit.  That was the only tax item in the bill that was line-item vetoed.