News from the Hill…
One of the phrases that keeps getting repeated here at the capitol is, “This is one of the strangest session years I have seen.” The number of bills that have been filed and moving through the process is greatly reduced from prior sessions. This was the second funnel week and usually committee meetings go into the evening. This year, many of the committee meetings are being cancelled. There is approximately 4 weeks left of session, only one of the budget bills have come over from the Senate. Each year the House starts half of the budget bills and the Senate starts the other half. The House has passed most of the bills we were to begin and the Senate has only passed one budget bill and that wasn’t until April 3. Bills are sitting in the Senate!
Iowa Inheritance Tax…
Iowa does not have an estate tax; it has an inheritance tax for the heirs of an estate. Presently, parents, grandparents, great grandparents, children, stepchildren, grandchildren, great grandchildren and other lineal ascendants and lineal descendants are exempt from Iowa Inheritance Tax. However, all other heirs would have to pay Iowa Inheritance Tax. This can be quite burdensome and result in the liquidation of assets to pay the Federal Estate tax and Iowa Inheritance Tax. This is not right and unfairly discriminates against step grandchildren and step great grandchildren. My personal belief is there should not be any tax on Inheritance. But that does not seem possible to get passed in the Senate. Therefore, we will be moving a bill out of committee that exempts the first two million dollars for each heir and a flat rate for inheritance over two million dollars. But lineal ascendants and lineal descendants would still be totally exempt.
Ways and Means Committee…
One of the bills we passed out of the Ways and Means Committee this week was HSB 225, which is now HF 625. This bill is an act relating to the School Tuition Organization (STO) Tax Credit by allowing the tax credit for contributions made by certain entities, increasing the amount of total approved tax credits. Presently the Tax Credit cap is $8.75 million; this bill raises the cap to $12 million effective for tax year 2014. The bill also amends the STO Tax Credit to allow a contribution made by a partnership, LLC, S Corporation, estate or trust electing to have the income taxed directly to the individual to qualify for the tax credit. This provision of the bill is retroactive to January 1, 2013.
State Revenue Growth…
LSA released the latest 2013 Revenue report Monday afternoon. While actual revenue continues to outpace the projections of the Revenue Estimating Conference (REC), the pace of growth was not as robust as had been seen in the past two months.
State revenue in March 2013 actually fell 5.8 percent or $21.8 million as compared to March last year. Annual revenue growth still remains strong, running at 7.8 percent over FY 2012. This is still above the revised REC projection for the year of 5.2 percent growth.
While some may point to the drop in March revenue as a sign of a slowing Iowa economy, other factors may be the cause. Due to not completing action on federal tax policy until after the New Year, Congress provided a one-time extension on when farmers had to file their taxes. Instead of being required to file by March 1, farmers were given until April 15. This change is believed to be one of the reasons that personal income tax collections fell in March by $34.9 million as compared to last year.
On an annual basis, personal income tax revenue growth is now running below the REC projection. REC has estimated this category will grow by 8.9 percent, while the number through March is 7.6 percent growth. Due to the filing date change, April will present a clearer picture on the personal income trend.
Sales and Use tax also declined in March. Revenue from this category fell by 3 percent over last March. This pulled down the annual growth number to 2.5%. The REC projected growth of 3.1%.
On the positive side, corporate income tax revenue turned positive again in March. Corporate tax collections grew by 12.1 percent over last March. That, combined with the strong end to 2012 has the annual growth rate climbing to 11.1 percent. This is significantly higher than the revised REC projection of 6.5 percent growth for FY 2012.
The individual Income Tax supplies about 50% of the general fund revenues and Sales and Use Tax supplies an additional one 30%. These two categories have a major impact on Iowa general fund revenues.
The conflicting March numbers still have Iowa’s economy growing. April’s numbers will either confirm that this was an anomaly created by Washington or that the state’s strong economic growth of the past two years is starting to moderate.
“We must reject the idea that every time a law’s broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions.”
– Ronald Reagan
For more information on these and other bills: www.legis.iowa.gov
-Tom Sands