Iowa State Tax Updates

August 14, 2024

On July 24, 2024, the Iowa Department of Revenue adopted changes to sales and use tax rules, including the state’s resale exemption, manufacturing and processing exemption, taxability of bundle transactions, and affiliated corporation sales, effective August 28, 2024. As an administrative change, the Department has clarified and removed language for statutes applying to retailers who qualify for those industry-specific sales tax exemptions, the taxability and exemptions applicable to manufacturing and processing taxpayers, and the taxability of bundled transactions.

For additional information, please refer to Administrative Rules – Adopted & Filed | Department of Revenue.

If you have questions about Iowa sales tax, please reach out to a member of the Withum SALT Team.

December 22, 2023

Iowa has historically provided a sales tax exemption for purchases of computers and computer peripherals by insurance companies, financial institutions, and commercial enterprises. Pursuant to Senate File 2367, this exemption expires on December 31, 2023. Effective January 1, 2024, insurance companies, financial institutions, and commercial enterprises will be subject to sales tax on their computer purchases.

If you have questions about whether your business purchases are subject to sales tax, please reach out to a member of the Withum SALT Team.

December 9, 2023

The Iowa Department of Revenue has extended the deadline to make a Pass-Through Entity Tax (PTET) election for the tax year 2022 from January 2, 2024, to April 30, 2024. As a result, a tax year 2022 PTET election must be made by the later of the following dates:

PTET elections for tax year 2022 are made by filing the 2022 PTET form on GovConnectIowa. If you have questions about state PTET elections, please reach out to a member of the Withum SALT Team.

May 30, 2023

Authored by: Breea Boylan and Courtney Easterday, MS

Effective May 11, 2023, Iowa enacted retroactive entity-level tax election for pass-through entities for tax years beginning on January 1, 2023. This election is a state and local tax (SALT) limit workaround of the SALT cap imposed by the 2017 Tax Cut and Jobs Act. This election allows a partner or shareholder to make a voluntary election to claim a credit against the individual and franchise taxes paid. Taxpayers have to make a separate election for each tax year. This election is irrevocable once made and is binding on the taxpayer and all partners or shareholders.If the election is made, a taxpayer is not required to file a composite return for the same tax year.

For questions about state Pass-Through Entity Tax elections, please reach out to a member of Withum’s SALT Team.

November 4, 2022

Authored by: Breea Boylan, MSA and Katie Szymanski, CPA

The State of Iowa recently rolled out their new electronic filing system “GovConnectIowa.” The second rollout will launch on November 14, 2022. The new items available in GovConnectIowa after the second rollout include the following:

October 21, 2022

Authored by: Katerine Velasquez, Jensel Feliciano, and Courtney Easterday, MSA

In a multi-year effort to modernize their online tax filing system, the state agencies of Iowa have been transitioning various tax types from Quick File over to the new GovConnectIowa website. The implementation began in 2020, and they plan on migrating tax types every November. In November 2021, Iowa state agencies began their first rollout, moving several tax types such as: sales and use, income tax withholding, and fuel tax. Beginning November 10, 2022, Quick File will no longer be available to file returns for sales and use, withholding, and fuel tax. To continue filing returns, businesses subject to these tax types must create a GovConnectIowa logon and request access to their tax accounts. This November, the State has announced that more tax types will migrate over to their new system. This rollout will include Corporate Income Tax, Franchise Tax, and Tax Credits.

June 30, 2022

On June 17, 2022, Iowa Gov. Kim Reynolds signed Senate File No. 2367 amending various sections of the state tax code. Diapers, feminine hygiene products, specified digital products, computer software, and services sold to public utilities will be exempt from sales tax starting January 1, 2023. There will be no more sales/use tax exemption for the sale and rental of computers by an insurance company, financial institution, or commercial enterprise effective January 1, 2024. The bill will also gradually reduce Iowa’s bank franchise tax from the current 5.0%. For 2027 and after it will remain at a fixed 3.5%.

June 28, 2022

Starting in 2023, Iowa will no longer charge sales tax on menstrual products and diapers. Legislators approved SF 2367 in May, and Governor Kim Reynold signed the bill in June. The products eligible for the tax exemption are tampons, panty liners, menstrual cups, sanitary napkins, and child or adult diapers, whether cloth or disposable.

March 11, 2022

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:

January 17, 2022

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

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

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:

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.

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

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.