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FIND THE LOOPHOLE

January 14, 2004

Governor Vilsack, like governers nationwide, is looking for revenue, and not just from accountants. In yesterday's "condition of the state" address, he mentioned another target:

"A number of corporations, particularly non-Iowan, out-of-state corporations shift income and expenses to avoid paying millions of state taxes owed here...This corporate loophole should be closed..."

Iowa's 12% top corporation rate is the highest in the country, so sensible corporations structure their affairs to avoid Iowa income. We assume that the Governor plans to again ask the legislature to require corporations to report their income in Iowa on a "combined" basis. This would subject income of some otherwise Iowa-exempt C corporations to Iowa income tax if a related corporation has Iowa operations.

Out of state corporations don't vote here, so they are popular targets of tax increases. If any tax increase passes this year, this might be it. Still, this idea was floated last year and died. It's unclear whether the legislature would vote a parking spot for the Governor after his item veto of the Republican parts of last year's budget "compromise."

No legislative language is yet available for the proposal, but you can go here to see what it might look like.

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