On May 24, 2007, Gov. Culver signed S.F. 580 into law. The legislation provides for a state tax amnesty program to be administered by the Iowa Department of Revenue (IDOR) from September 4, 2007, through October 31, 2007. The amnesty program covers tax liabilities delinquent as of December 31, 2006, and authorizes a taxpayer, during the amnesty period, to pay the tax due with one-half of the interest which would otherwise be charged and without any penalty or civil or criminal prosecution. The taxpayer must agree to relinquish all administrative and judicial rights to challenge the imposition of the tax and its amount.The legislation also appropriates up to $710,000 to the IDOR to carry out the amnesty program, and another $150,000 to increase the IDOR’s enforcement and auditing activities.
The amnesty program covers individual and corporate income taxes, franchise tax, sales and use tax, hotel and motel tax, local city, county and school district sales and service taxes, automobile rental tax, equipment tax, petroleum diminution charge, inheritance and estate taxes, motor fuel and special fuel taxes, cigarette and tobacco taxes, and controlled substance tax.
Iowa had a previous tax amnesty in 1986, and the current amnesty may indicate a pattern in Iowa for tax amnesty on a periodic basis, especially when the state needs a temporary revenue increase (indeed, the legislation states that it is the legislature’s intent that another amnesty program not be conducted before 2025). Unfortunately, the current amnesty program is not accompanied with fundamental tax reform that would make Iowa tax law simpler or easier to comply with (thus increasing tax compliance). Instead, in recent years, the legislature has added targeted tax incentives without lowering rates or broadening the tax base (both moves which increase tax revenue and the rate of taxpayer compliance). Thus, the amnesty program will only serve as a short-term revenue-raising device that does nothing to benefit Iowa taxpayers that have diligently paid their taxes in full and on time.
The IDOR estimates that the program will generate $53.9 million in additional tax revenue, including $16 million that would not be paid otherwise. By comparison, the 1986 amnesty program generated $37 million in additional revenue with $21 million of that coming from corporate taxes.