New Law Modifies Many Iowa Tax Provisions

Called the 2020 Omnibus Bill, HF 2641 makes a number of changes to Iowa tax law. Signed into law by the Governor on June 29, 2020, the primary intent of the bill was to streamline the administration of Iowa’s tax laws and coordinate their interaction with federal law. The provisions generally went into effect immediately, and many changes were retroactive. Highlights from the new law are summarized below.

Division One: Tax Administration and Penalties

• The law allows the Iowa Department of Revenue (the Department), through agreements, to collect taxes and fees from sellers making sales at the State fair and at county fairs.

New Penalties

• This division assesses new penalties for failure to timely file some tax returns or deposits or for willfully committing a fraudulent practice.
  • The law assesses a new minimum penalty of $200 and a maximum penalty of $25,000 if a specified business fails to timely file an income return where no tax is due. The penalty is the larger of $200 or 10 percent of the business’s imputed Iowa tax liability, calculated by multiplying Iowa net income by 12 percent, Iowa’s top corporate income tax rate.
    • These penalties, as under prior law, can be waived upon a proper showing of a number of factors. The exception typically flowing from paying 90 percent of tax due by the deadline, however, does not apply if the business did not owe any tax.
  • In the case of a willful failure to file with the intent to evade a filing requirement or willful failure by a specified business to file an income return with no tax due with intent to evade the filing requirement, the penalty will be the greater of $1,500 or 75 percent of imputed tax liability of the business.
  • In the case of willfully submitting false information, making a frivolous application for a refund or credit, or willfully submitting false information or false documents, the penalty is 75 percent of the refund, credit, exemption, reimbursement, rebate, or other payment or benefit being claimed.
• Additionally, if a taxpayer fails to file a return within 90 days of written notice from the Department, a penalty of $1,000 will be added to any other applicable penalty.
• Forms, applications, or documentation requested by the Department must be certified by the taxpayer under penalties of perjury. A person who commits perjury under this section commits a Class “D” felony if there was an intent to evade tax, if the person sought an unlawful refund or credit, or if the person knowingly made a false affidavit or affirmation.

Power of Attorney and Authority

• The law allows a taxpayer to authorize an individual to act on his or her behalf by filing a power of attorney with the Department on a form prescribed by the Department.
  • The taxpayer may at any time revoke the power of attorney.
• The law provides that the Department may authorize a guardian, conservator, custodian, receiver, fiduciary, attorney, or parent to act on behalf of the taxpayer for a specific purpose.
• The law also provides that in lieu of a power of attorney, the Department may enter into a memorandum of understanding with the taxpayer for each employee, officer, or member of a third-party entity engaged by the taxpayer to handle tax matters.

Communication and Disclosure

• The law allows the Department to distribute information about taxpayers’ rights and obligations on its website instead of distributing this information via paper.
• The law provides that taxpayers may elect to receive all notices, correspondence, and other communications electronically instead of by regular mail.
• The law provides clarification to last year’s new law regulating “tax return preparers” and states that it applies only to those filing income tax returns and claims for refunds.
• The law adds a “willful or reckless” requirement to the provision making it a crime to disclose taxpayer data.
• The law states that the Director of the Department may disclose the tax return of a partnership, limited liability company, or S corporation, any return information, or any investigative information related to the return, to any person who was a partner, shareholder, or member of such an entity during any part of the period covered by the return.
• The law adds “willful or reckless” as a requirement for the Director or a Department employee to be found responsible for improperly divulging investigative information.
• The law requires the Department to redact certain personal information from records made public in a contested case. Redaction will be required for non-listed information if the taxpayer can show by “clear and convincing evidence that the release of such information would disclose a trade secret or be a clear, unwarranted invasion of personal privacy.”

Other Provisions

• The law provides that there is no statute of limitations to recover incentives or assistance awarded by the Economic Development Authority to a taxpayer that subsequently failed to meet or maintain the requirements for the program.
• The law allows counties to transfer information to the Iowa Land Records electronically, requires county recorders to record declarations of value at no cost to a person transferring property, and removes the requirement that the declaration of value be transmitted to the Department, since the value is available through Iowa Land Records.
• The law removes the Department from the process of reinstating an Iowa corporation that has been administratively dissolved.
• The law codifies current practice with respect to credit union returns. The due date is the last day of the fourth month following the end of the taxpayer’s tax year (April 30 for calendar year filers) for the credit union moneys and credits tax.

Division Two: Sales and Use Tax

• The law allows county recorders to collect sales and use tax on the sale of ATVs and snowmobiles if the owner (when registering the vehicle) does not present satisfactory evidence that the tax has been paid.
• The law applies the sales tax exemption for preserve whitetail deer to the commercial service of preserve whitetail deer hunting.  The exemption applies to sales that occurred between July 1, 2005, and December 31, 2015, but the provision applies only to taxpayers who have not yet paid this tax. Refunds are not allowed.
• The bill clarifies the obligations for retailers to collect sales or use tax. It also clarifies that a retailer and a purchaser may be jointly liable for tax not initially collected by the retailer. If a purchaser remits use tax, the retailer is still liable for the unpaid local option sales tax.

Division Three: Income Tax (NOLs)

• The law allows Iowa taxpayers to elect to waive an entire carryback period with respect to the Iowa net operating loss for any tax year beginning on or after January 1, 2020. The irrevocable election should be made by the due date of the return, including extensions. When the election is made, the loss will be carried forward 20 years.
  • This law was put in place to fix a glitch in the interplay between federal and state law. The Tax Cuts and Jobs Act eliminated the federal two-year carryback for most non-farming businesses and restricted farmers to a two-year carryback instead of five. Iowa did not conform to this change and maintains prior net operating loss rules, allowing a two-year carryback and 20-year carryforward for general businesses and five-year carryback and 20-year carryforward for farmers. Iowa law also allows losses incurred in a Presidentially-declared disaster areas to be carried back three years. Iowa did not, however, provide a state-specific option for revoking a carryback. Rather, the federal election was applied. When the federal carryback was eliminated, there was no state means to revoke a carryback, and all Iowa taxpayers were required to carry back their NOLs. The new law fixes this problem.
    • Note that the CARES Act has changed federal NOL laws again, now providing a five-year carryback and unlimited carryforward for all businesses for tax years 2018, 2019, and 2020.

Division Five: Partnership and Pass-Through Entity Audits and Reporting of Federal Adjustments

• The law provides the procedure for taxpayers to report to Iowa changes to federal taxable income resulting from the new federal centralized partnership audit regime. The procedures are based upon the model uniform statute created by the Multistate Tax Commission.
• The law also provides that for tax years beginning on or after January 1, 2020, any adjustments to a partnership's or pass-through entity's items of income, gain, loss, expense, or credit, or an adjustment to such items allocated to a partner that holds an interest in a partnership or pass-through entity for the reviewed year by the Department as a result of a state partnership audit, shall be determined at the partnership level or pass-through entity level. These audits will be conducted through a state partnership representative, who can be different than the federal partnership representative.

Division Seven: Married Taxpayers – Joint Liability

• The law provides that spouses are entitled to relief from joint and several liability for Iowa tax purposes if they meet federal tax law requirements.  The nonrequesting spouse will be given notice and an opportunity to intervene in the Department’s process for deciding whether to grant relief.

Division Eight: Business Interest Expense Deduction and GILTI

• The law decouples Iowa from the federal business interest deduction limit imposed by IRC § 163(j). This limit will not apply in Iowa beginning with tax year 2020. 
• The law decouples Iowa from the federal Global Intangible Low-Taxed Income (GILTI) tax provisions, allowing Iowa businesses to exclude GILTI from Iowa business taxable income beginning with 2019 tax years. The law correspondingly repeals Department rules related to GILTI.

Division Ten: Computer Peripherals and Sales Tax

The law allows the sale of computer peripherals to be exempted from sales tax in the same manner as the sale of computers. “Computer peripheral” is defined as “an ancillary device connected to the computer digitally, by cable, or by other medium, used to put information into or get information out of a computer.”

Division Eleven: School Tuition Organization Tax Credit

• The law increases the total annual maximum dollar amount of School Tuition Organization Tax Credits that may be issued beginning with calendar year January 1, 2022.  The current annual maximum is $15 million.  Under the law, the maximum can reach $20 million under a formula considering prior year credits and current tax credits. The law also removes the restriction limiting corporate taxpayers to no more than 25 percent of the annual maximum amount of School Tuition Organization Tax Credits allowed for a calendar year.

Division Twelve: Broadband Infrastructure Taxation

• The law excludes from Iowa income taxation the amount of any federal, State, or local grant provided to a communications service provider for the purpose of installing broadband infrastructure in targeted service areas.  This applies beginning with 2019 tax years.

Division Thirteen: Local Assessors

• The law requires local assessor appointments to be confirmed by the Department before the appointment is effective and prohibits local assessors from personally assessing property of an immediate family member.

Division Fourteen: Paycheck Protection Program

• The law provides that forgiven PPP loans will be excluded from taxable income for Iowa purposes.

Division Fifteen: CARES Act Emergency Student Grants

• The law excludes emergency student grants issued through CARES Act funds from Iowa net income.

Division Sixteen: Iowa Income Tax Exclusion for Stimulus Checks

• The law excludes economic impact payments provided under the CARES Act from Iowa taxation.

Division Seventeen: Pro-Rata Share of Entity-Level Tax Paid by Shareholders or Beneficiaries

• The law provides that an Iowa resident who is a partner, S corporation shareholder, or beneficiary of an estate or trust will be deemed to have paid their pro-rata share of entity-level income tax paid by the entity to another state or foreign country, where the income is also subject to Iowa income tax. The entity must provide a statement documenting the share of income from the other state or foreign country and the income tax paid to that state or foreign country. This amount applies to the credit against Iowa income taxes allowed when Iowa income is taxed by another state or foreign country.

Division Eighteen: Iowa Small Business Relief Grant Program

• The law exempts a grant provided to a business by the Iowa Economic Development Authority under the Iowa Small Business Relief Grant Program from Iowa income tax.

Division Nineteen: Section 179 Expensing

• The law provides that Iowa law will automatically couple with any future changes to the federal section 179 deduction (IRC § 179).

Division Twenty: Iowa Educational Savings Plan Trust (529 Plans)

• The law allows expenses for the participation in certain apprenticeship programs to be “qualified education expenses,” eligible to be paid from section 529 plan funds.

Division Twenty-One: Iowa Educational Savings Account and First-Time Homebuyer Account Extensions

• The law extended the 2019 contribution date for these programs through July 31, 2020.

Division Twenty-Two: Iowa Educational Savings Plan Trust (529 Plans) Recontributions

• The law provides the conditions under which a refund of qualified higher education expenses can be recontributed to a section 529 plan.

Division Twenty-Three: Qualifying Personal Protection Equipment – Donation

• The law exempts materials used to create donated PPE from the Iowa use tax, retroactive to January 1, 2020.

Division Twenty-Four: Food Operations Trespass Law

• The law modifies the newly enacted food operations trespass law to specifically exclude food establishments and farmers’ markets from the definition of a food operation.

Division Twenty-Five: Short-term Rental Properties

• This law prohibits cities and counties from adopting or enforcing ordinances prohibiting short-term rental properties. A short-term rental includes a home or other dwelling that is offered for a fee for thirty days or less.