Fiscal Note
Fiscal Services Division
SF 619 – Taxation and Other Provisions (LSB2832SV.3)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Michael Guanci (515.725.1286) michael.guanci@legis.iowa.gov
Jess Benson (515.281.4611) jess.benson@legis.iowa.gov
Lora Vargason (515.725.2249) lora.vargason@legis.iowa.gov
Adam Broich (515.281.8223) adam.broich@legis.iowa.gov
Fiscal Note Version – Final Action
Description
Senate File 619 relates to State and local taxation, tax policy, and economic incentive
programs. The Bill also contains provisions related to:
• Telehealth coverage through health insurance.
• A new Manufacturing 4.0 Technology Investment Program.
• A new Energy Infrastructure Revolving Loan Program.
• A new Downtown Loan Guarantee Program.
• A new Disaster Recovery Housing Assistance Program and Fund.
Provisions of the Bill have various effective dates, including retroactive effective dates. Figures
9, 10, and 11 summarize the fiscal impact of the various Bill divisions and can be found at the
end of this fiscal note.
Division I — Contingent Income Tax System Triggers
Description and Background
2018 Iowa Acts, chapter 1161, Division IX, made future changes to how Iowa individual income
tax liability is calculated. The effective date of Division IX of the 2018 legislation is contingent
upon Iowa General Fund revenue reaching two revenue targets, or triggers, at the conclusion of
a fiscal year. The two triggers are:
• Actual General Fund net revenue for the fiscal year equals or exceeds $8,314.6 million.
• Actual General Fund net revenue for the fiscal year equals or exceeds 104.0% of the actual
General Fund net revenue for the previous fiscal year.
Under the provisions of section 133 of the 2018 legislation, the first year that the two targets
may be met is FY 2022, and the first year that the changes in Division IX of the 2018 legislation
may become effective is TY 2023.
At the March 2021 meeting of the Revenue Estimating Conference (REC), the REC established
an FY 2022 General Fund estimate of $8,385.6 million and a growth rate of 3.8% compared to
the FY 2021 estimate of $8,078.9 million. The FY 2022 revenue projection is therefore
$71.0 million above the dollar trigger but 0.2 percentage points below the required 4.0% growth
trigger. While the REC projection does not meet the trigger requirements, it does not mean that
both triggers will not or cannot be met at the conclusion of FY 2022, but it does mean that the
triggers are not projected to be met for FY 2022 at this time.
The Bill amends the 2018 Iowa Acts by striking the two conditions necessary for the trigger to
occur and specifies that the provisions in the 2018 law take effect January 1, 2023.
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Assumptions/Fiscal Impact (Division I)
• The first fiscal year both triggers may be met under current law is FY 2022, and if both
triggers are met that fiscal year, the contingent income tax system becomes effective for
TY 2023 and after. However, in March 2021, the REC established an FY 2022 revenue
estimate that does not achieve both triggers at the conclusion of that fiscal year. Therefore,
the current-law projection assumes FY 2023 will be the first year that both triggers are met
and that the contingent income tax system will become effective for TY 2024 and after.
• The Department of Revenue utilized the individual income tax micromodel to calculate the
tax reduction associated with the change to the contingent income tax system for TY 2023.
The fiscal impact was determined by comparing model results of tax liability under current
law (existing individual income tax system for TY 2023) versus tax liability under the Bill
(contingent income tax system for TY 2023). Although removing the triggers only directly
changes the tax system for one year (TY 2023), the change also has a projected impact in
TY 2024 as taxpayers adjust for federal tax payments made and refunds received in
TY 2024 that relate to TY 2023 and before. The change also has an ongoing impact on
income tax brackets as the brackets are established in the contingent system as specific
income levels that are then indexed each tax year after the first implementation year.
Implementing the contingent tax system one year earlier will mean that tax brackets are
lower by one year’s worth of indexing for all future years. The Department model estimates
the TY 2023 change will reduce State individual income tax liability by the following
amounts:
• TY 2023 = $297.6 million
• TY 2024 = $43.7 million
• TY 2025 and after = $8.0 million per tax year
• The tax year impacts are assumed to be distributed 52.0% to the fiscal year that ends during
the tax year through reduced withholding and estimate payments, and 48.0% to the
succeeding fiscal year through reduced withholding, estimate payments, payments with tax
returns, and increased tax refunds. Reductions by fiscal year:
• FY 2023 = $154.6 million
• FY 2024 = $160.2 million
• FY 2025 and after = $30.1 million per year
• Other changes made within the contingent income tax system (2018 Iowa Acts, chapter
1161, sections 128 through 130) are projected to reduce FY 2024 corporate income tax
liability by $17.9 million and bank franchise tax liability by $2.0 million.
• The reduction in State income tax liability will reduce the amount raised by the local option
income surtax for schools by 3.0% of State income tax reduction.
Division II — Early Childhood and Child and Dependent Care Tax Credits
Description and Background
The Bill increases the maximum net income amount used in determining eligibility for the Early
Childhood Development (ECD) and Child and Dependent Care (CDC) Tax Credits. The
maximum is increased from $45,000 to $90,000. The change is retroactive to tax years
beginning on or after January 1, 2021.
The ECD is equal to 25.0% of the first $1,000 in early childhood development (preschool)
expenses the taxpayer pays to others for each dependent aged three through five.
The federal CDC Tax Credit is equal to up to 35.0% of eligible child care expenses for qualified
children and dependents. The Iowa CDC Tax Credit is calculated as a percentage of the
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federal CDC Tax Credit. The Iowa credit is refundable. The Iowa CDC Tax Credit ranges from
75.0% of the federal credit for taxpayers with net income of less than $10,000, to 30.0% for
taxpayers with net income of $40,000 to $44,999. The Iowa CDC Tax Credit is not available to
taxpayers with net income of $45,000 or more. The Bill increases the $45,000 income limit for
the 30.0% tax credit to $90,000.
Assumptions/Fiscal Impact (Division II)
The number of taxpayers benefiting from the increase in the maximum net income amount for
the CDC and ECD Tax Credits, as well as the tax credit value, was estimated by the
Department of Revenue using the Department’s computer model of Iowa income tax returns.
That model utilizes actual State and federal tax return data from TY 2019 to simulate tax returns
filed for future tax years. The model gives the Department the ability to change tax parameters
and determine the estimated fiscal impact of those changes on tax liability and State General
Fund revenue.
Figure 1
CDC and ECD Tax Credit Net Income Maximum Increase
Estimated Taxpayer Benefit by Tax Year
Resident Taxpayers Nonresident Taxpayers All Taxpayers
Number of Average Tax Credit Number of Average Tax Credit Number of Average Tax Credit
Taxpayers Tax Credit Total Taxpayers Tax Credit Total Taxpayers Tax Credit Total
TY 2021 24,530 $ 171 $ 4,194,672 1,555 $ 68 $ 105,746 26,085 $ 165 $ 4,300,418
TY 2022 24,082 171 4,117,953 1,488 69 102,674 25,570 165 4,220,627
TY 2023 23,511 171 4,020,366 1,410 71 100,132 24,921 165 4,120,498
TY 2024 25,710 180 4,627,775 1,765 70 123,562 27,475 173 4,751,337
TY 2025 25,955 186 4,827,594 1,682 70 117,760 27,637 179 4,945,354
TY 2026 26,947 190 5,120,000 1,806 72 130,000 28,753 183 5,250,000
To convert tax year impacts to fiscal year impacts, the following timing assumptions are made:
• Fiscal year 2021 ends June 30, 2021. Given the retroactive application to TY 2021, 15.0%
of the TY 2021 impact is assumed to fall in FY 2021 and 85.0% in FY 2022.
• Impacts for tax year 2022 and after are assumed to fall 65.0% in the first fiscal year and
35.0% in the second fiscal year.
The changes to the Iowa CDC and ECD Tax Credits contained in the Bill are projected to
reduce net General Fund revenue by the following amounts:
• FY 2021 = $0.6 million
• FY 2022 = $16.2 million
• FY 2023 = $4.2 million
• FY 2024 = $4.5 million
• FY 2025 = $4.9 million
• FY 2026 and after = $5.1 million
As refundable tax credits, the changes do not impact the calculation of the local option income
surtax for schools. Expected implementation costs for the Department of Revenue are
assumed to be minimal. Given the expanded number of taxpayers projected to claim the
credits, enforcement costs for the Department will increase.
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Division III — COVID-19 Grant Tax Exemption
Description and Background
The Bill exempts the proceeds of grants received by a taxpayer from COVID-19 assistance
programs administered by the Economic Development Authority (EDA), the Iowa Finance
Authority (IFA), and the Department of Agriculture and Land Stewardship (DALS) from the State
corporate and individual income tax. The income exclusion provided in the Bill is repealed on
January 1, 2024, and does not apply to tax years beginning on or after that date.
Assumptions/Fiscal Impact (Division III)
The exemption is expected to apply to 14 grant programs administered by the EDA and/or IFA
and five grant programs administered by the DALS. The Department of Revenue estimates that
$307.8 million in COVID-19 assistance grants has been distributed through these grant
programs. Assumptions include:
• A total of $114.9 million was distributed to tax-exempt entities, and a total of $192.9 million
was distributed to entities subject to the individual or corporate income tax.
• The average marginal income tax rate will be 5.3% for taxed entities.
• The timing of tax return or amended tax return filing will result in 90.0% of the tax reduction
occurring in FY 2021 and 10.0% occurring in FY 2022.
The fiscal impact is estimated to be a reduction of $9.2 million in FY 2021 and $1.0 million in
FY 2022.
Division IV — Paycheck Protection Program Taxation
Description
The Bill expands an existing tax preference available for the income and deductions associated
with a forgiven federal Paycheck Protection Program (PPP) loan to include taxpayers who
received a PPP loan within the taxpayer’s 2019 tax year (TY).
Existing Iowa law provides an income tax exemption and associated expense deduction for
forgiven federal PPP loans for tax years beginning on or after January 1, 2020 (TY 2020). This
change extends the same benefit to taxpayers whose tax year is not the calendar year and who
received PPP income in TY 2019.
Assumption/Fiscal Impact (Division IV)
The Department of Revenue estimates that Iowa businesses that do not have a tax year that
coincides with a calendar year have a total of $107.8 million in net PPP income that will be
subject to Iowa income tax under existing law. The net PPP income amounts, average marginal
tax rates, and income tax reductions assumptions are shown in Figure 2. It is anticipated that
taxpayers will file returns or amended returns for TY 2019 prior to the end of FY 2021.
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 Figure 2
Paycheck Protection Program Tax Exemption
Projected General Fund Revenue Reduction
Dollars in Millions
PPP Net Marginal Tax
Taxpayer Type Income Tax Rate Reduction
Nonprofits $ 19.7 0.0% $ 0.0
C Corporations $ 43.2 6.40% $ 2.8
S Corps & Partnerships $ 38.2 5.58% $ 2.1
Individuals $ 6.7 5.35% $ 0.4
$ 107.8 $ 5.3
Division V — Inheritance Tax
Description and Background
Under current law, an inheritance received by a lineal ascendant or descendant of the deceased
is exempt from the Iowa inheritance tax no matter the value of the estate or the amount
inherited. Tax rates from 5.0% to 15.0% may apply to inheritances that are not otherwise
exempt under Iowa Code chapter 450. Inheritance tax returns are generally due nine months
after the death of the decedent.
A gross total of $81.5 million in Iowa inheritance tax was deposited to the State General Fund in
FY 2020. Over the past six years, refunds of Iowa inheritance tax have averaged $2.4 million.
Forecasted Iowa inheritance tax gross receipts for FY 2021 and FY 2022 equal $88.0 million
and $91.3 million respectively. Iowa inheritance tax refunds are not forecasted separately.
The Bill phases out the inheritance tax rate in five stages by reducing the effective tax rate by
20.0% per year over four years and then eliminating the tax on January 1, 2025 (for deaths
occurring on or after that date).
Assumptions/Fiscal Impact (Division V)
The Department of Revenue analyzed a sample of 150 Iowa inheritance tax returns filed over
the past five years to produce this estimate. The tax involved with the future returns is assumed
to reach the State General Fund nine months after the death of the decedent.
The DOR estimates that a five-year phase out of the inheritance tax will reduce Iowa General
Fund revenue by the following annual amounts:
• FY 2021 = $0.5 million
• FY 2022 = $15.1 million
• FY 2023 = $34.1 million
• FY 2024 = $54.5 million
• FY 2025 = $76.6 million
• FY 2026 = $99.7 million
• FY 2027 = $107.4 million
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State Administration Issues
Division V of the Bill phases out and eliminates the State inheritance tax. The Bill provides for
the removal of inheritance tax references from the Iowa Code. There are certain situations
where the tax due under current law is deferred until a later date. While the Department of
Revenue states that the authority to collect the deferred inheritance tax likely will still exist
without the inheritance tax remaining in the Iowa Code, the Department recommends that the
authority to collect deferred inheritance taxes specifically remain as part of the Iowa Code until
all deferred taxes have been paid.
Division VI — Real Estate Transfer Tax to Housing Trust Fund
Description and Background
Iowa imposes a Real Estate Transfer Tax at a rate of $0.80 for every $500 of the price paid for
the property when real property is sold or otherwise transferred. The first $500 of property is
exempt. A list of exempt transfers is provided in Iowa Code section 428A.2. The tax is paid to
the county. The county retains 17.25% of the tax and remits the remaining 82.75% to the State.
Under current law, the State portion is deposited to three funds:
• 30.0% to the Housing Trust Fund, subject to a maximum fiscal year deposit of $3.0 million.
• 5.0% to the Shelter Assistance Fund.
• The remainder to the State General Fund.
The Bill raises the Housing Trust Fund maximum to $7.0 million per fiscal year, beginning with
FY 2022.
Assumptions/Fiscal Impact (Division VI)
• The FY 2020 State portion of the Real Estate Transfer Tax totaled $24.5 million. Of that
amount, the Housing Trust Fund received $3.0 million, the Shelter Assistance Fund received
$1.2 million, and the State General Fund received $20.3 million.
• State Real Estate Transfer tax receipts are assumed to exceed $23.3 million for FY 2022
and succeeding fiscal years; therefore, it is assumed that the Housing Trust Fund will
receive the full $7.0 million allocation each year, reducing General Fund revenue by
$4.0 million per year beginning in FY 2022.
Division VII — High Quality Jobs Program Day Care Centers
Description
The Bill amends the eligibility requirements under the High Quality Jobs Program to allow the
Economic Development Authority (EDA) to consider whether a proposed project will provide a
licensed child care facility for use by the business’s employees.
Assumptions (Division VII)
Allowing the EDA to consider the inclusion of a licensed child care facility when determining the
eligibility of a business for economic assistance under the High Quality Jobs Program is not
projected to have a significant fiscal impact beyond what is assumed for the High Quality Jobs
Program in general.
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Division VIII — Telehealth Parity
Description and Background
The Bill requires Iowa health carriers to reimburse health care professionals or facilities for
health care services for mental health conditions, illnesses, injuries, or diseases provided to a
covered person by telehealth on the same basis and at the same rate as the health carrier
would apply to the same mental health care services provided to a covered person by the health
care professional or facility in person. This requirement would become effective upon
enactment, and is retroactive to January 1,