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Tax Update Blog: Iowa Bonus Depreciation Archives

Still no tax fairy

February 17, 2012

There is no tax fairy, or tax lady, to get you out of your taxes at pennies on the dollar. Find out why at my new post at IowaBiz.com, the Des Moines Business Record group blog for entrepreneurs.



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The morning after the Iowa bonus depreciation veto

April 22, 2011

Now that the Governor has vetoed bonus depreciation for Iowa, what happens now?

From the Des Moines Register coverage, it sounds like the Democrats are truly unhappy with the veto message because it also blocks an increase in Iowa's Earned Income Tax Credit:

Rep. Tyler Olson, D-Cedar Rapids, accused Branstad of reckless action that unraveled a carefully crafted compromise. "His insistence on rewarding special interests and big corporations at the expense of small businesses and middle-class families is bad for Iowa and a serious blow to bipartisanship," Olson said.

The Republicans, in contrast, don't sound like they are all that upset:

Iowa House Speaker Kraig Paulsen, R-Hiawatha, said: "I'm pleased the governor signed the Taxpayers Trust Fund, giving Iowa taxpayers a seat at the table. Obviously, I'm disappointed that he chose to veto portions of the bill. House Republicans will continue to fight for tax relief for Iowans."

That doesn't sound like somebody ready to lead a veto override battle, and the Democrats won't be able to override the veto without help.

While tax conformity is always good, Iowa has been non-conforming with bonus depreciation for so long that one more year probably isn't that big of a deal. I do like this part of the veto message:

As earlier indicated, it is my desire to approach tax policy in a comprehensive and holistic manner. As such, I urge members of the House and Senate to continue to work with my office on an overall tax reduction package that both fits within our sound budgeting principles while reducing those taxes that are impeding our state’s ability to compete for new business and jobs.

If the Governor is really willing to deal with Iowa's real tax problem -- a ridiculously complex income tax with absurdly high rates undermined by dozens of special interest deductions and tax credits -- then maybe it's all worth it. Maybe - just maybe - the time is right for real tax reform in Iowa.

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Link: Radio Iowa Coverage

Prior Tax Update coverage:

Bonus depreciation for Iowa -- not so fast?
Conference Committee agrees to bonus depreciation for Iowa for 2011

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Bonus depreciation for Iowa -- not so fast?

April 21, 2011

Update, 4:15 pm: Governor item-vetoes 2011 Iowa bonus depreciation, enhanced earned-income credit. An insider tells me that since he let the "taxpayer relief fund" stand, there probably will not be an override. We'll see.


Nothing seems easy in Iowa tax policy this year. Now it looks like the Governor may veto the bonus depreciation provisions passed Tuesday by the legislature. The Des Moines Register reports:

Iowa Senate Majority Leader Michael Gronstal on Wednesday offered what he described as a compromise to break a stalemate over the state's budget, but it was quickly rejected by Gov. Terry Branstad.

The Republican governor also indicated he may veto portions of a tax relief and supplemental spending bill approved earlier this week by the Iowa Legislature. The situation could be an ominous sign as the House and Senate try to move towards adjournment of their annual session next week.

Governor Branstad appears mostly upset with the bill's setting a budget for only one year at a time. The Governor is trying to reinstate two-year budgeting in Iowa. But bonus depreciation may also be a problem:

"Other issues, involving the taxes, I think are better to be resolved in a bill that deals with taxes, not supplemental appropriations," Branstad said.

Stay tuned.

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Legislature sends 2011 Iowa bonus depreciation to Governor

April 20, 2011

The Iowa House of Representatives yesterday sent SF 209 to Governor Branstad for signature. The bill allows Bonus depreciation on Iowa returns for tax years beginning on or after January 1, 2011.

2011 will be the first year that Iowa has coupled with federal bonus depreciation since 2005.

Earlier this month the Governor approved "coupling" provisions of SF 512. That bill tied Iowa's 2010 tax rules to federal rules, with the exception of bonus depreciation. That means the Iowa Section 179 limit is $500,000 for 2010 and 2011. Bonus depreciation, though, is only available on Iowa returns starting in 2011.

O Kay Henderson has more.

Update, 4/21/2011 Maybe not.

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GOVERNOR SIGNS BILL MAKING REBATES IOWA TAX-FREE

March 27, 2008

Governor Culver yesterday signed HF 2417, exempting the federal "stimulus" rebates from Iowa income tax. The Des Moines Register has details.

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MILLIONS FOR MICROSOFT, DIDDLY FOR YOU

March 14, 2008

We reported that the budget hit to Iowa of coupling Iowa's depreciation and Section 179 rules with the federal "stimulus" package would be about $33 million. Now we see from Tax Analysts ($link) that it's $13.5 million.

Compare that to carpetbagging Google, which by one account has received tax breaks from Council Bluffs alone worth up to $48 million, not counting their state sales tax exemption; or to Microsoft, which will receive an identical bribe.

That's our Legislature: a banquet to big, well-lobbied clients, but not even a bone to your business or your employer.

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IOWA DEPARTMENT OF REVENUE OUTLINES IOWA TREATMENT OF STIMULUS PROVISIONS

March 10, 2008

The Department of Revenue has posted a tentative summary of how the provisions of the stimulus package will affect Iowa taxpayers. The summary is tentative, as the legislature still hasn't passed the bills that address this. Short version:

- Stimulus payments will be exempt from Iowa income taxes, and
- Iowa probably won't conform to federal depreciation and Sec. 179 changes.

That means Iowa taxpayers can look forward to years of notices asking why Iowa and federal income are different, because Iowa's legislators are more concerned about Microsoft than the businesses that have always been here. Oh, and because the Department of Revenue can't be bothered to design a form that reconciles federal and Iowa taxes, so they issue annoying notices asking taxpayers do do their own reconciliations later.

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IOWA BONUS DEPRECIATION FAILS FUNNEL

March 07, 2008

The "funnel day" for the Iowa Legislature has passed, and with passes the best chance to avoid a repeat of a costly mistake they made in 2002.

Bills that fail to pass a committee of either the Iowa House or Senate by funnel day are pretty much dead for the session. The legislators have failed to conform Iowa's rules to the recently passed federal "bonus depreciation" and Section 179 changes. Unless they fix this by amending a bill that has already cleared the funnel, Iowa businesses will have to maintain separate depreciation records at their own expense. That won't be the only cost to businesses; the Department of Revenue still is generating notices because it doesn't seem to understand what happened in 2002; tax people have to charge their clients to set the Department straight.

The legislature is doing this because it doesn't want to part with about $30 million of revenue. This is the same legislature that has given tax breaks to both Google and Microsoft. Meanwhile, tax collections are running about $400 million ahead of last year. If they are spending so much that they can't spare $30 million to be shared by every Iowa business, they should all resign and go home before they do any more damage.

Related: GOVERNER GIVES MONEY TO MICROSOFT WHILE HOUSE STIFFS OTHER BUSINESSES

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GOVERNER GIVES MONEY TO MICROSOFT WHILE HOUSE STIFFS OTHER BUSINESSES

February 29, 2008

Governor Culver yesterday signed the big tax break for the server farm Microsoft has been dangling over the state. Meanwhile, the Iowa House yesterday passed two bills that show their attitude to the businesses that are already here.

The House passed a bill to exempt the federal individual tax stimulus checks from Iowa taxes yesterday (HF 2417). The bill doesn't extend to Iowa the federal bonus depreciation and Section 179 asset expensing provisions of the federal stimulus package; nor does the "code conformity" bill passed yesterday in the House (SF 2123) that otherwise adopts federal tax computation rules to Iowa. In doing this Iowa repeats the mistake it made in failing to conform Iowa to similar provisions in the 2001 stimulus bill, a mistake that required a special session to only partially correct. As a result, taxpayers filing Iowa returns will have to keep different sets of fixed asset records for Iowa at their own expense. They will also have to pay for years of idiotic Department of Revenue notices that the differences between federal and Iowa taxes will cause.

The Moral? The politicians love big, headline generating business openings, but they care a lot less less for the small businesses that don't have lobbyists -- the ones that pay the costs of running the government on behalf of Microsoft and Google.

Related: The Race to Feed Microsoft

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IOWA SENATE RACES TO GIVE MONEY TO MICROSOFT

February 21, 2008

Only eight days after its introduction, the bill to give Microsoft $36 million in tax breaks cleared its final hurdle in the Iowa Legislature, passing on a 48-2 vote.

Meanwhile, the legislature shows no urgency to help all Iowa businesses by conforming Iowa's depreciation rules to the new federal rules. Too bad Microsoft couldn't have lobbied for that, too.

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IOWA - TAX BREAKS FOR GIANT BUSINESSES ONLY?

February 17, 2008

The big tax news out of the Iowa Legislature last week was the introduction and speedy passage by the House of HF 2233, the big tax giveaway for Microsoft.

Meanwhile, the Iowa Senate was quietly passing another bill that affects every business that files an Iowa tax return. SF 2123 is the annual bill that updates Iowa's tax computations for changes in the Internal Revenue Code. This one updates Iowa's tax law retroactively to the beginning of 2007 for changes made in the federal law up through January 1 of this year

That's all fine, but the federal government has made an important change in business tax rules not covered by the Iowa bill: the "bonus depreciation" and increased "Section 179" deductions in the economic stimulus bill. Unless Iowa updates its "code conformity" rules, businesses will have to compute depreciation and asset writeoffs using different rules for their federal and Iowa taxes.

WHAT HAPPENED LAST TIME

That happened in 2001 when Congress last tried to goose the economy with bonus depreciation and extra Section 179 deductions. Iowa initially refused to match up with the federal rules. Businesses got so annoyed that the legislature finally conformed to the federal rules in a special 2004 session, but it never did match up the rules for 2001 and 2002. Taxpayers are still battling the Department of Revenue as a result.

The Legislature didn't want to go along with the federal rules in 2001 because they were more generous than the rules they replaced. In other words, they needed the money. They need it even more this year. Last week legislative Democrats announced the death of the Governor's only big revenue-raising proposals, combined corporate reporting and the bottle tax, so it's back to the drawing board to find ways to pay for last year's spending spree. With receipts slowing with the economy, they have a problem.

THE TEMPTATION OF EXTRA REVENUE

The legislature will be sorely tempted to "de-couple" Iowa's depreciation computations from the new federal rules to help raise some of that revenue. While legislative leaders and the Governor have said they won't tax the "rebates" in the stimulus plan, they've so far been silent on the depreciation rules.

If Iowa "de-couples," they will add force every business to spend time and money keeping two extra depreciation schedules, and then answering brainless Department of Revenue notices a few years later when the depreciation computations "turn around" and the Iowa deductions exceed the federal write-offs.

Let's hope the legislature doesn't make the same mistake this year that they made in 2001. So far they find it much more urgent to appease Microsoft than to pass a bill that affects every business in the state.

Follow the progress of tax bills through the Legislature on our 2008 Iowa Tax Legislation page.

UPDATE: They really do want to screw this up:

House Speaker Pat Murphy, a Democrat from Dubuque, says Iowans will not pay state taxes on those federal rebate checks headed their way, but Murphy suggests the state can't afford to be as generous as the feds when it comes to the business tax break for equipment depreciation. "We're not like Washington, D.C. We can't print money," Murphy says. "...We are going to be fiscally responsible. We're going to be prudent. We're going to look at what we can afford to do and what not to do."

Murphy says Democrats who control the legislature's agenda will make a decision about that business tax break "later" -- perhaps as late as 2009. "We're not going to make any guarantees at this point," Murphy says. "...Stay tuned."

If you can't print money, maybe you shouldn't be giving it away to Microsoft and Google.

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IRS SAYS DON'T GET FANCY WITH TRAVEL PER-DIEM REIMBURSEMENTS

November 10, 2006

Many taxpayers reimburse their employees for out-of-town travel meals using the IRS-approved "per diem" rates. Instead of making the employees turn in meal receipts, the employer pays a fixed amount for each day of travel. The employee gets a deduction, subject to the 50% disallowance for meals and entertainment, and the employee doesn't have to pick up the per diem as income.

Unless. Unless the employer is a bit too generous and routinely reimburses in excess of the allowed per-diem. Then the employee has to pick up the entire payment - not just the excess - in income. That's the holding in Revenue Ruling 2006-56, issued yesterday by the IRS.

The ruling lays out the case of a trucking company that reimburses employees for meals based on miles traveled; the formula leads to reimbursements that often exceed the per-diem amounts. This fails the requirement that the reimbursement be under an "accountable" plan, so the entire payment becomes taxable.

The current per diem rates can be found at the US General Services Administration website.

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GOVERNOR SIGNS DEPRECIATION BILL

February 25, 2005

Press release from the Governor's office:


Thursday, February 24, 2005

DES MOINES - The Governor signed HF 102 late today, a bill allowing taxpayers an additional method to take advantage of depreciation allowances enacted in HF 2581. HF 102 allows taxpayers to include the additional depreciation as part of their tax return for the next year. Under HF 2581, the taxpayer was restricted to filing amended returns in order to receive the benefit. The bill is effective upon enactment and applies retroactively to tax years ending after May 5, 2003.

UPDATE: The Department of Revenue has sent its guidance on the new depreciation rule to its email list. The text is available if you click the "read more" section below. It is similar to the draft guidance we noted Wednesday; it adds the provision that you can skip the Iowa 4562A if you have no pre-May 6, 2003 bonus depreciation, and it says that you can continue to decouple Iowa depreciation from federal bonus depreciation is you want to.

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IOWA DEPARTMENT OF REVENUE AND FINANCE DRAFTS DEPRECIATION GUIDANCE

February 23, 2005

The Department of Revenue and Finance has put together draft guidance on the depreciation "catch-up" passed recently by the Iowa legislature. We understand that it is to be released in final form when the Governor signs HF 102.

The guidance notes that if you have already filed 2004 returns without catch-up 2003 depreciation, you will be able to catch up on the 2005 return.

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IOWA DEPRECIATION SUMMARY

February 21, 2005

The Iowa Senate passed HF 102 last week to smooth over some of the depreciation confusion caused by last year's special session. While Governor Vilsack has not yet signed it into law, the combined House-Senate approval margin of 148-0 makes a veto unlikely.

WHAT THE SPECIAL SESSION DID LAST YEAR

The 2003 tax law made two big changes in federal depreciation rules:

-It increased the "bonus depreciation" rate to 50% for new assets placed in service after May 5, 2003, and

-it increased the maximum Section 179 deduction to $100,000. Section 179 allows taxpayers to deduct amounts paid for fixed assets that would otherwise have to be capitalized and deducted through depreciaton over a period of years.

Iowa originally declined to go along with these new rules. The special session last finally adopted the new rules, but by then most 2003 Iowa returns had already been filed without using the deductions. The Department of Revenue ruled (unwisely) that the only way to claim the increased deductions was to file amended returns.

WHAT THE NEW LAW DOES

The new law gives Iowans three options for catching up with depreciation:

1. File an amended 2003 return to claim the increased depreciation.
2. "Catch up" the 2003 depreciation on 2004 returns - saving you the headache of filing an extra 2003 return.
3. Continue to compute Iowa depreciation for 2003 asset purchases under the old rules (no bonus depreciation, $25,000 maximum 179 deduction).

WHAT THE BILL DOESN'T DO

The bill does not change the rules for bonus depreciation for assets placed in service before May 6, 2003. Federal bonus depreciation took effect September 11, 2001. Taxpayers must continue to maintain separate federal and Iowa depreciation schedules for assets placed in service from 9/11/2001 through May 5, 2003.

The bill also doesn't give exact procedures for claiming "catch-up" depreciation on 2004 returns. We believe the Department of Revenue will not be too fussy about how this is claimed; we will post any additional guidance they might issue.

The legislature gets some credit for a sensible fix before tax season got entirely away. Of course, they created the mess in the first place, but they fixed what they broke.

It would have been better to allow taxpayer to match up their Iowa depreciation back to 2001, but we can't wish for everything.

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SENATE PASSES DEPRECIATION CATCH-UP

February 17, 2005

The Iowa Senate passes HF 102! 49-1. Now it's up to the Governor.

UPDATE: The Legislature's web site now shows the vote has 49-0.

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CATCH-UP DEPRECIATION: IS TODAY THE DAY?

February 17, 2005

The depreciation catch-up bill (HF 102) is on the agenda for debate today in the Iowa Senate. The Tsumami deduction bill is also up for debate. Stay tuned.

Update: Done.

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WHAT, ME HURRY?

February 16, 2005

Returns held hostage by Iowa Senate, Day 14. Today's Iowa Senate action:

The Senate convened at 8:34 a.m.

The Journal was approved.

The Senate adjourned at 8:39 a.m. until 8:30 a.m. Thursday, February 17, 2005.

February 22 marks the tax season midpoint. No hurry, guys.

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IOWA BONUS DEPRECIATION CATCH-UP CLEARS HOUSE

January 26, 2005

The Iowa House yesterday passed HF 102 (formerly HF 23). The bill is an effort to clean up the depreciation and Section 179 mess left at the end of last year's special session.

The new bill would permit taxpayers to claim on 2004 returns the extra 2003 bonus depreciation and Section 179 deduction allowed in the Legislature's September 2004 special session. It would also allow taxpayers to simply continue to use the depreciation rules that were in effect before the special session.

The 2004 special session allowed Iowa taxpayers to claim bonus depreciation for assets eligible for federal 50% bonus depreciation. It also increased the Iowa maximum Section 179 deduction to $100,000 (from $25,000) to match the federal maximum. These changes were effective for 2003 returns, but were not passed until after most 2003 returns had been filed. The Department of Revenue then announced that the only way to use the deduction would be to file amended returns.

A Senate version of the bill (SSB 1061) was referred today to the Senate Ways and Means Committee.

WHAT WILL THE GOVERNOR DO?

The bill passed the house 99-0. No opposition has yet been noted, but the Governor's office has not committed to sign the bill. An aide to the Governor's office said, "Before the Governor can take a position, we like to see the bill in final form. The Senate has been known to frequently change and amend House Files."

Given the 99-0 margin in the house, it seems that the bill is an unlikely veto target.

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IOWA BONUS DEPRECIATION CATCH-UP CLEARS HOUSE

January 26, 2005

The Iowa House yesterday passed HF 102 (formerly HF 23). The bill is an effort to clean up the depreciation and Section 179 mess left at the end of last year's special session.

The new bill would permit taxpayers to claim on 2004 returns the extra 2003 bonus depreciation and Section 179 deduction allowed in the Legislature's September 2004 special session. It would also allow taxpayers to simply continue to use the depreciation rules that were in effect before the special session.

The 2004 special session allowed Iowa taxpayers to claim bonus depreciation for assets eligible for federal 50% bonus depreciation. It also increased the Iowa maximum Section 179 deduction to $100,000 (from $25,000) to match the federal maximum. These changes were effective for 2003 returns, but were not passed until after most 2003 returns had been filed. The Department of Revenue then announced that the only way to use the deduction would be to file amended returns.

A Senate version of the bill (SSB 1061) was referred today to the Senate Ways and Means Committee.

WHAT WILL THE GOVERNOR DO?

The bill passed the house 99-0. No opposition has yet been noted, but the Governor's office has not committed to sign the bill. An aide to the Governor's office said, "Before the Governor can take a position, we like to see the bill in final form. The Senate has been known to frequently change and amend House Files."

Given the 99-0 margin in the house, it seems that the bill is an unlikely veto target.

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IOWA BONUS DEPRECIATION FIX GOES TO HOUSE FLOOR

January 20, 2005

The bill that would permit Iowa taxpayers to "catch up" their 2003 50% bonus depreciation and added Section 179 deduction has cleared its first hurdle. The bill, HF 23, cleared the House Ways and Means Committee Tuesday, according to an e-mail newsletter from House Speaker Christopher Rants.

In last September's special session, the liegislature permitted taxpayers who claimed bonus 50% depreciation on their 2003 returns to claim it for Iowa purposes. They also changed Iowa rules to conform to the federal $100,000 Sec. 179 deduction limt (it had been $25,000 for Iowa).

Unfortunately, the Department of Revenue decided that the only way to claim the extra deductions was to file amended returns. By the time Iowa allowed these deductions for 2003, almost all 2003 returns were already filed. For smaller taxpayers, or for S corporations and partnerships with many partners, the cost of amending returns makes the deduction too expensive to use.

HF 23 will allow taxpayers to "catch up" the deductions in 2004, instead of filing amended returns. The leadership is behind it, so we can hope it passes soon enough for taxpayers to use this filing season. The bill has yet to start its way through the Iowa Senate.

To see the entire text of Speaker Rants' e-mail, click "read more."

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WILL IOWA ALLOW 2003 BONUS DEPRECIATION ON 2004 RETURNS?

January 13, 2005

dcarroll.jpgDanny Carroll (R-Grinnell), Iowa House Speaker Pro Tempore, has introduced a bill (HF 23) to allow Iowans to take their 2003 "bonus" depreciation on 2004 returns. The bill would also allow taxpayers to "catch up" their 2003 Iowa Section 179 deductions on 2004 returns.

Legislation enacted last September allows Iowans to take "bonus" depreciation on assets placed in service after May 5, 2003; the legislation also conformed the limit for Iowa Section 179 deduction to the federal level of $100,000 for 2003. Of course, most Iowans had already filed their 2003 returns by the time this law was enacted.

The Department of Revenue has taken the misguided position that the only way for Iowans to take advantage of the law change is to amend their 2003 returns. It would be much more reasonable to permit Iowans to "catch up" the depreciation on 2004 returns, eliminating the need to pay preparers to amend returns. The cost of amending returns effectively denies the advantage of the deduction to many Iowans.

The bill to do legislatively what the Department refuses to do administratively is co-sponsored by Linn County Democrat Rob Hogg, so it doesn't appear to be a partisan issue. With Rep. Carroll pushing the bill, we can hope it will move quickly; otherwise it will be too late in the filing season to be of much use. No Senate counterpart of the bill has yet been introduced, as far as we can tell.

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IOWA POSTS EXPLANATION OF EXASPERATING DEPRECIATION STANCE

November 04, 2004

The Iowa Department of Revenue has put a Q&A-format discussion of the new Iowa bonus depreciation and Section 179 rules on their website. It has a good explanation of how they (wrongly, in our view) apply the law coupling federal and Iowa depreciation rules for new property placed in service after May 5, 2003.

Unfortunately, they have failed to permit taxpayers to make the change on 2004 returns. This means many taxpayers will lose the benefit of the depreciation changes because they will not be able to justify the cost of filing amended 2003 returns.

Many taxpayers are waiting to see if the legislature will help when they return in January. Some legislators are sympathetic to taxpayers on this issue. Still, it is uncertain whether the legislature will act. With the Iowa Senate apparently split evenly between Democrats and Republicans, it's not clear whether they will be able to agree on when to eat lunch, let alone any legislation.

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IOWA ON 2003 BONUS DEPRECIATION: YOU MUST AMEND

October 20, 2004

The Iowa Department of Revenue stands by its decision to require amended returns for taxpayers who took the 50% "bonus depreciation," or Section 179 deductions in excess of $25,000, on their 2003 federal returns. The Iowa legislature last month retroactively allowed taxpayers to take these extra deductions for 2003.

The Iowa State Bar Association Tax Council had sent a letter urging the Department to permit taxpayers to treat the change as an accounting method change, allowing taxpayers to take the extra deductions on their 2004 returns. This would save millions of dollars in compliance costs for taxpayers who will now have to pay for otherwise unnecessary amended returns to take the new deductions.

Allowing the "accounting method" approach would harm no taxpayers and help many. The Bar Tax Council feels the department has the authority to do so; it therefore seems the Department has at least a credible argument for permitting accounting method treatment. Nobody would be harmed by that position, and nobody would have challenged it.

The Department has failed to implement the new depreciation rules in a sensible, taxpayer-friendly way. This seems an odd approach to implementing "economic development" legislation.

LEGISLATURE MAY STEP IN

The legislature may enact legislation in January to permit taxpayers to make the change on their 2004 returns. If amending returns is not cost-effective for you, it makes sense to wait for the legislature.

Even if the legislature fixes thse problem in January, it is a second-best solution; if it comes at all, it will come in the middle of filing season, making implementation awkward.

Links:

Text of Department's response to The Iowa State Bar Association Tax Council letter.

The Iowa State Bar Association Tax Council letter

Prior Tax Update Coverage.

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IOWA ISSUES NEW DEPRECIATION FORM TO REFLECT SPECIAL SESSION CHANGES

September 08, 2004

An email issued today by the Iowa Department of Revenue:

   In a special session held in September 
   2004, the Iowa legislature passed 
   legislation to couple with the 
   additional 50% first-year depreciation 
   allowance (bonus depreciation) for 
   assets placed in service after May 5, 
   2003, but before January 1, 2005. In 
   addition, this law also coupled with 
   the increase in Section 179 expensing 
   allowance from $25,000 to $100,000 for 
   tax years beginning on or after January 
   1, 2003. These provisions were provided 
   in the federal Jobs and Growth Tax 
   Relief Reconciliation Act of 2003.
   Previously, the Iowa legislature had 
   decided not to adopt these provisions 
   in Iowa law. For taxpayers who have 
   filed a tax return which reflected 
   either the disallowance of 50% bonus 
   depreciation or the disallowance of 
   the increased Section 179 expensing, 
   amended returns must be filed to 
   reflect this change. 
   Iowa continues to decouple with the 
   30% bonus depreciation provision set  
   forth in the federal Job Creation and 
   Worker Assistance Act of 2002. Form 
   IA4562A will still need to be filed 
   for any assets placed in service after 
   September 10, 2001 but before May 6, 
   2003 to account for the difference in 
   depreciation.
   Form 2003 IA4562A has been updated to 
   reflect this change. 
   2003 Line 14 online Expanded 
   Instructions

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WILL VALUES FUND EXTENSION FIX IOWA DEPRECIATION RULES?

August 25, 2004

The Des Moines Register today reports that Governor Vilsack will call a one-day legislative session to re-enact the "Grow Iowa Values Fund." The paper cites the Governor as saying he has reached a "general" agreement with legislative leaders on a plan to restore the GIVF in a package that also re-couples federal and Iowa depreciation rules and changes workers compensation rules.

The Iowa Supreme Court nullified the law that originally enacted the GIVF, finding that the Governor's item-veto of tax cuts and other provisions in the enacting legislation rendered the entire bill invalid. The fund has been in limbo since then.

It is not yet clear how the depreciation fix will work. Iowa refused to go along with federal "bonus" depreciation enacted for assets placed in service from 9/12/01 through 12/31/04. Iowa taxpayers have been required to keep separate depreciation records for state regular tax and alternative minimum tax ever since. This affects a number of other Iowa tax computations, including inventory valuation. Iowa has also failed to increase the cap for "Section 179" expensing to the current federal level of $100,000. Section 179 allows taxpayers to deduct in the year of purchase fixed asset costs that would otherwise be recovered by depreciation.

One solution would be to allow taxpayers to file amended returns taking the federal deduction amounts for Iowa; this seems unlikely, as it would cause the state to pay interest on the refunds. A more likely solution would be to allow a "catch-up" deduction for Iowa returns, enabling taxpayers to write off in 2004 the difference between accumulated federal and Iowa depreciation. A truly lame solution would only couple federal and Iowa depreciation for assets purchased from a given date - say, starting 1/1/2004. This solution would require taxpayers to continue to maintain separate federal and Iowa depreciation schedules for years to come, until assets purchased under the federal "bonus" depreciation rules run out their lives.

This depreciation mess could have been avoided, but they just wouldn't listen.

UPDATE: Not everyone wants the fund revived. Good points, but we find the "Cassandra" reference confusing.

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