Early in the legislative session, the House, Senate and Governor each proposed tax reform packages with steep cuts to personal income taxes and the elimination of income taxes on retirement income. It was anticipated that each proposal would be negotiated and arrive at a consensus sometime over the month. Then, Governor Reynolds was selected to deliver this Tuesday’s Republican response to President Biden’s State of the Union Address. The Legislature and Governor made a decision to rally around the common pieces in the bills and get a consensus package passed and to the Governor before she delivers her speech.  

On Thursday, February 24th, the Senate and House debated and passed the largest tax reduction package in Iowa history, one that will move Iowa’s income tax rate from the 8th highest in the country to the 4th lowest. The compromise bill, when signed by the Governor in the next day, includes the following provisions:

• Cuts personal income taxes in Iowa to a 3.9% flat tax over three years. Currently, the top tax rate is 6.5%. Reduces the number of tax brackets to one.
• Eliminates taxes on all retirement income, as well as lease income for retired farmers.
• Ratchets down corporate income tax rates over a period of years, based on available funding, until it hits 5.5%. Currently, the top rate is 9.8%.
• Phases in a reduction to 75% refundability to some tax credit programs, including the Historic Preservation Tax Credit and the Redevelopment Tax Credit. Phases in a 50% reduction in refundability to the Research Activities Tax Credit.

HF 2317 was passed largely on a party-line vote.
 
You can review a one page summary of the bill HERE.
 
Marion Economic Development Corporation worked with our statewide partners to voice concern regarding a provision of the Senate’s tax bill that would manipulate local option sales tax revenue approval by Marion voters in 2021. We will continue to track this proposal that may surface later this session in additional tax bills.
 
Follow other bills being monitored by our partners at Professional Developers of Iowa here: https://www.ialobby.com/billtracker/pdi