For the latest news and updates on Iowa state and local tax

March 11, 2022

Iowa’s Tax Reform Bill Signed

On March 1, 2022, Governor Kim Reynolds signed a tax reform bill that reduces Iowa individual income tax rates and brackets for tax years beginning January 1, 2023 through December 31, 2025, and implements a flat income tax rate beginning January 1, 2026. The state provides the following tax rate reductions:

  • For taxable years beginning 2023, the top tax rate is 6.00%;
  • For taxable years beginning 2024, the top tax rate is 5.70%;
  • For taxable years beginning 2025, the top tax rate is 4.82%;
  • For taxable years beginning 2026, the tax brackets will be reduced to a single tax bracket and a flat income tax rate of 3.90%.

January 17, 2022

Iowa Governor Announces Comprehensive Bill to Eliminate Tax Brackets

During the Condition of the State Address, Governor Reynolds announced a comprehensive bill that will significantly cut taxes for Iowa personal income tax payers. This bill would focus on eliminating the multiple tax bracket system between 2022 and 2026 ultimately resulting in a flat 4% personal income tax rate. Governor Kim Reynolds estimates that this bill when fully implemented in 2026 will result in an average tax savings of over $1,300 per family.

November 4, 2021

Iowa – Taxability of Web Hosting

The Iowa Department of Revenue recently reversed its position on the taxability of web hosting. Web hosting is not defined in Iowa by code or regulation – but it has traditionally been considered taxable as the storage of electronic records. Pursuant to guidance issued on October 26, 2021, Iowa has reversed its position that the goal of web hosting is storage and has now determined that the goal of web hosting is the publication of information. Since Iowa presently only taxes SaaS, web hosting is now an exempt item. Taxpayers who paid sales tax on web hosting services in Iowa may wish to pursue refund claims and should check future invoices to ensure that their vendors have ceased charging sales tax on web hosting services.

October 14, 2021

Iowa Implements Corporate Income Tax Changes for 2021

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%
Over $250,000 12% 9.8%

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

Extended Income Tax Withholding Deposit Due Date

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.

October 2019

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).

July 2019

Updated Sales Tax Requirements

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.