February 2017

No Coupling Leaves Some Taxpayers Abandoned

By Amy K. Frantz

It appears the Iowa Legislature will not consider “coupling” legislation for the 2016 tax year.  The good news is that state taxpayers finally know the status of this issue and can begin filing their state tax returns.  The bad news for many is that the lack of coupling will mean an increase in the amount of taxes owed to Iowa.

What does “coupling” mean?  In tax matters it allows taxpayers to benefit from some of the same laws when filing state taxes as they do when filing federal income taxes.  In past tax years, Iowa has coupled with federal law on deductions for individual income-tax filers such as for the purchase of supplies for classrooms by educators, and for higher education tuition and fees.

Section 179 of the federal tax code is the largest piece of the coupling question.  This provision essentially accelerates depreciation on items such as farm equipment, reducing taxes owed when first purchased but increasing the taxes owed later.  “The federal government passed legislation to permanently extend Section 179 asset expensing in late 2015, which allows for accelerated depreciation up to $500,000 in one year for both new and used equipment purchases.”[1]  Currently, without coupling, “for the 2016 tax year, the Iowa Section 179 deduction is back to $25,000.”[2]

The question of whether to couple or not to couple with federal law was also an issue in the 2015 tax year.  The Governor did not sign coupling legislation into law last year until March, forcing many taxpayers to delay filing their 2015 state taxes, hoping the Legislature and Governor would act, or to file an amended state tax return after the coupling bill became law.  If the Legislature and Governor had not acted on the coupling law last year, Iowa taxpayers who take advantage of those provisions would have paid an additional $97.6 million.  Section 179 expensing accounted for $77.8 million out of that total.[3]  Not adopting coupling for the 2016 tax year will result in a tax increase of a similar size for those affected.

Our elected officials in Iowa decided to spend the maximum of the previously projected level of available revenue for this fiscal year, and when revenue didn’t grow by as much as projected, they were forced to make cuts and raise additional revenue.  One of those measures is the decision by the State Legislature to not couple state tax law with federal tax law for the 2016 tax year.  This move may save the state some funds, but it will force many of Iowa’s small business owners, teachers, farmers, and others to pay more in state taxes.

Amy K. Frantz is Vice President of Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] Andrew Wheeler, “Securing dedicated water quality funding, coupling with federal tax policy, and protecting property taxpayers top Iowa Farm Bureau’s 2017 legislative priorities,” Iowa Farm Bureau, January 10, 2017, <https://www.iowafarmbureau.com/Article/Securing-dedicated-water-quality-funding-coupling-with-federal-tax-policy-and-protecting-property-taxpayers-tops-Iowa-Farm-Bureaus-2017-legislative-priorities> accessed January 23, 2017.

[2] Kristine A. Tidgren, “Prospects for Iowa Section 179 Coupling Unpromising,” The Ag Docket, Iowa State University Center for Agricultural Law and Taxation, January 13, 2017, <http://www.calt.iastate.edu/blogpost/prospects-iowa-section-179-coupling-unpromising> accessed January 17, 2017.

[3] Jeff Robinson, “HF 2433 Fiscal Note,” Legislative Services Agency, Fiscal Services Division, March 14, 2016, <https://www.legis.iowa.gov/docs/publications/FN/780438.pdf> accessed June 13, 2016.