Iowa Tax Update
By Rob Poterucha
The Tax Cuts and Jobs Act brought many changes to federal tax laws for the 2018 tax year. Today, Rob Poterucha gives a tax update about the upcoming changes that will take place to better conform Iowa with federal laws due to the #TCJA . #IowaTaxUpdate #LeadingTheWay #MHCScpa
Rob Poterucha, CPA | Supervisor
See below for the transcription of the above video:
Iowa Tax Update | by Rob Poterucha
Hello, my name is Rob Poterucha and I’m a tax supervisor here at McGowen Hurst Clark Smith. Today’s topic that we will be covering is Iowa tax reform and the changes that Iowa had as a result of the Federal Tax Cuts and Jobs Act, which was passed late in December of 2017 and greatly impacted the federal tax code, but as a result of that, also impacted Iowa. Since it was passed so late in 2017, Iowa hardly had any time to pass the things that they needed to pass to get it in place by the 2018 tax year. As a result, only a couple of provisions were in place by 2018 with many of the things not being in place and service until 2019; and a lot of them, not until 2023, also subject to certain revenue triggers.
The first thing I want to talk about is Section 179: Depreciation. This is a way to write off capital improvements that are normally depreciated over time in the year of purchase. Iowa usually has a smaller number than the federal number. As a result of the tax cuts and jobs act, the federal number in 2018 was $500,000, which means you could write off a piece of equipment up to $500,000 in the year of purchase in 2018. For Iowa, that number was only $70,000. In 2019, that number is going to increase to $100,000. Then in 2020, we are going to have the same number and limitation for both federal and Iowa.
The next thing I want to discuss are tax rates. So, in 2018 because the tax cuts and jobs act was passed so late, they didn’t have time to lower the rates for 2018. So, the 2018 rates were the same as they were in 2017. In 2019, there is going to be a slight decline of rates, and it is going to be the same rates for 2019 and the way through 2022. Then in 2023, subject to certain revenue triggers, the rates will decrease and there will be fewer brackets as well. Also in 2023, subject to the same revenue triggers, federal deductibility will also go away if the revenue triggers are met.
The next point I want to discuss is the Iowa Research and Development Credit. This is a credit for taxpayers, basically to incentivize tax payers in certain industries. It used to be very broad, but part of the tax bill that Iowa passed in 2018, they limited the number of industries that were allowed to take this credit. Some of the industries that can take this credit are manufacturing, life sciences, software engineering, aviation, and aerospace engineering. One industry that they left out that really hurts Iowa taxpayers is the agriculture industry. Previously, ag related industries’ companies could receive a tax credit, but they are no longer able to receive a tax credit under the new rules.
Lastly, this doesn’t really have to do with the tax bill that was passed in December of 2017, but want to touch on is sales tax. So, in 2018, sales tax really had a game changing moment in the case that went all the way to the supreme court called the Wayfair case. It basically allowed companies without a physical presence to be subjected to tax in certain states. So, for example, if you’re an Iowa retailer and you sell things online to person in Missouri or Illinois, you might have a Missouri or Illinois sales tax obligation. You might have to charge your clients sales tax. Almost every state has responded to this, and more and more are jumping on the bandwagon and forcing out of state retailers to charge sales tax because it is an easy way for them to generate a little extra revenue. So, it is important to know that you do no need physical presence. In the past you did, but now you don’t; so that is really important and can cause a lot of headaches for compliance because sales tax can be very detailed and very complex depending on the state.
So that wraps up our Iowa Tax Update please reach out to us on our Youtube Channel. Please like and subscribe. We have a bunch of different topics that we’ve covered. If you have any questions, please feel free to reach out to us. We are always here to help.