October 14, 2020
In 2018, Iowa enacted tax changes that are to be phased in over several years. The Iowa Department of Revenue has released updated guidance on changes to Iowa’s corporate income that take effect on January 1, 2021. These changes include reductions to corporate income tax rates, elimination of deduction for federal taxes paid, repeal of the Iowa corporate income Alternative Minimum Tax, and allowance for the bonus depreciation for property placed in service on or after January 1st, 2021.
Reduced Tax Rates
Beginning January 1st, 2021, Iowa corporate income tax rates were reduced, and the number of corporate income tax brackets decreased from four to three. Following, please find a summary of the prior tax brackets and the brackets taking effect January 1, 2021:
|Iowa Tax Bracket||Tax Rates 1981-2020||Tax Rates Effective 1/1/21|
|$0 to $25000||6%||5.5%|
|$25,000 to $100,000||8%|
|$100,000 to $250,000||10%||9.0%|
Deduction for Federal Taxes Paid Eliminated
For the tax year 2021, the Iowa deduction for federal income tax paid is a maximum of 50% of the qualifying federal tax payments. Corporations must add back federal income tax refunds received in 2021 to the extent the tax payment refunded was deducted on a prior period return. Note that the deduction for federal taxes paid is eliminated on January 1, 2022.
Iowa Corporate AMT Repeal
The Iowa corporate AMT was repealed as of January 1, 2021. The AMT repeal provides for a final transition year so corporations can use their remaining AMT credits. The Iowa AMT credit is allowed for tax years on or after January 1, 2022. This credit is limited by the taxpayer’s regular tax liability in 2021. No refunds or credits will be issued or permitted for AMT credit that the taxpayer cannot use before the 2022 tax year.
Bonus Depreciation Conformity.
Effective January 1, 2021, Iowa now conforms to the additional first-year depreciation under IRC § 168(k) (bonus depreciation) for property in service beginning on or after January 1st, 2021. Iowa taxpayers claiming the bonus depreciation in 2021 or later will not need to make depreciation adjustments on their Iowa returns for those assets. Iowa-specific depreciation adjustments may be mandated for property in service in earlier years when Iowa did not conform with bonus depreciation or other federal expenses and depreciation provisions.
March 21, 2020
On March 19, 2020, the Iowa Department of Revenue extended one income tax withholding deposit due date for certain taxpayers in order to provide flexibility to those adversely impacted by Covid-19. The extension is the result of an order signed by the Director of Revenue, which extends the income tax withholding deposit due date for the period ending March 15, 2020, from March 25, 2020, to the new deposit due date of April 10, 2020. This extension applies to Iowa residents or other taxpayers doing business in Iowa who remit income tax withholding on a semi-monthly basis. Furthermore, there will be no late-filing or underpayment penalties for those qualifying taxpayers who comply with the extended filing and payment deadlines. Interest on unpaid taxes will start to be due on April 11, 2020. Learn more here.
The Iowa Department of Revenue has issued guidance relating to changes enacted under Iowa’s tax reform law (L. 2018, S2417), relating to digital products, software, and services. Specifically, the guidance mentions that beginning January 1, 2019, prewritten computer software is subject to sales tax whether delivered or accessed in physical form or electronically. Custom software sold in either physical or electronic form will be taxed in the same manner as prewritten computer software. The guidance also discussed Iowa sales tax, local option sales tax, and use tax as it applies to “specified digital products,” which are non-tangible products that are transferred electronically and are usually purchased over and downloaded from or accessed through the Internet. Furthermore, the sale of certain storage services are newly taxable services. The guidance also discusses exemptions for “commercial enterprises” and “non-end user” exemptions which were enacted under Iowa Code section 423.3(104).
Effective July 1, 2019, sellers in Iowa are required to collect and remit sales tax if it has $100,00 in sales for the past or current year. The 200 transaction threshold has been repealed.
Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.