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Iowa Governor Approves Tax Relief Bill

Posted on June 18, 2021

Iowa Gov. Kim Reynolds (R) has approved a bill that will reduce income tax rates and provide tax relief for individuals and businesses. 

S.F. 619, signed into law June 16, will reduce the number of individual income tax brackets from nine to four and lower the top rate from 8.53 percent to 6.5 percent beginning January 2023, regardless of whether the state has met the revenue thresholds enacted under 2018 tax reform legislation. The rate reduction under the 2018 measure was contingent on meeting two net general fund revenue targets. 

The bill was approved by the House May 18 on a 64-28 vote and by the Senate May 17 on a 29-15 vote.

“Today’s legislation ushers in a new era of growth and opportunity in Iowa,” Reynolds said in a June 16 release. “But we are not done yet. Next year, I’ll be proposing additional income tax cuts as we continue to make Iowa the most attractive place in America to open a business, raise a family, and start a career.”

S.F. 619 will also phase out the state inheritance tax over four years. The tax will be reduced by 20 percent for property passed on or after January 1, 2021; by 40 percent for property passed on or after January 1, 2022; by 60 percent for property passed on or after January 1, 2023; and by 80 percent for property passed on or after January 1, 2024. The inheritance tax will be fully repealed by January 1, 2025. According to the release, the provision will save taxpayers almost $100 million.

The measure expands the beginning farmers tax credit to include agricultural improvements — fixtures, buildings, or structures — as an agricultural asset. It also allows taxpayers to enter into agreements with multiple beginning farmers and increases the amount of tax credits to $50,000 per agreement instead of $50,000 for all agreements.

Under the bill, tangible personal property and services provided to a nonprofit food bank will be exempt from sales and use tax. It also increases the eligibility threshold for the child care tax credits from families making $45,000 to $90,000.

S.F. 619 will increase the workforce housing tax credits from $25 million to $40 million for fiscal 2022 and to $35 million for following years. It also extends the redevelopment tax credit (brownfields and grayfields) program for 10 years, to June 30, 2031, and increases funding from $10 million to $15 million.

The bill also exempts state-administered COVID-19 grants issued between March 17, 2020, and December 31, 2021, from corporate and individual income taxes.

The bill will also fund state services for mental health from the general fund, according to the release.

Reynolds’s office did not respond to a request for comment by press time.

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