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Federal Headlines
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House and Senate negotiators announced on May 8 that they have reached a final conference agreement on the Food, Conservation, and Energy Act of 2008 (HR 2419). The comprehensive farm policy bill includes a host of agricultural tax provisions that were negotiated by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., and Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont. Despite what looks to be substantial bipartisan and bicameral support, the bill has generated a veto threat from the President Bush. House Majority Leader Steny Hoyer, D-Md., said the farm bill conference report is likely to come to the House floor on May 14.
According to information released by the SFC, the farm bill would update the agricultural tax-exempt bonds program for loans to first-time farmers and ranchers. It would also exempt from self-employment taxes any Conservation Reserve Program payments made to retired or disabled individuals. The farm bill also would provide a tax credit to help defray the cost of criminal activity associated with agricultural chemicals or pesticides, create a uniform depreciation period for race horses, and allow tax free exchanges of stock that represent a holding of water rights, just as allowed for real property under Code Sec. 1031. The bill also provides temporary tax relief to victims of tornados and storms in Greensburg, Kansas.
Negotiators also included a provision intended to provide a boost to the development of cellulosic biofuels, paid for by reducing the tax credit for ethanol. The bill includes a five-year production tax credit for up to $1.01 per gallon at a cost of $403 million over ten years. The bill would reduce the 51-cents-per-gallon credit for ethanol by 6 cents, which would generate $1.203 billion over the next 10 years. The farm bill also includes an extension of the tariff on imported ethanol through 2010, an exclusion of denaturant from the alcohol fuels credit, and a duty drawback on certain imported ethanol, according to the finance committee release.
Veto Threat
President Bush will veto the farm bill because it does not provide meaningful program reform and expands the size and scope of the federal government, according to Agriculture Secretary Ed Schafer. "At a time of record farm income, Congress decided to further increase farm subsidy rates, qualify more people for taxpayer support, and move programs toward more government support," Schafer said in a written statement on May 8.
By Stephen K. Cooper and Paula Cruickshank, CCH News Staff
SFC Release: 2008 Farm Bill Tax Package --Homegrown Energy Independence
SFC Release: 2008 Farm Bill Tax Package --Farm Tax Reforms
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State Headlines
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The Iowa state sales and use tax rate is increased from 5% to 6% and the school infrastructure local option tax (SILO) is repealed.
State Sales and Use Tax Rate
The 6% state sales and use tax rate is applicable to:
-- sales of tangible personal property sold at retail in the state;
-- the sale or furnishing of gas, electricity, water, heat, pay television service, and communication service, including the sales price from such sales by any municipal corporation or joint water utility that furnishes such items or services to the public in its proprietary capacity, except as otherwise provided, when sold at retail in the state to consumers or users;
-- the sales price of all sales of tickets or admissions to places of amusement, fairs, and athletic events except those of elementary and secondary educational institutions, the sales price of entry fees or like charges imposed solely for the privilege of participating in an activity at a place of amusement, fair, or athletic event (unless the sales price of tickets or admissions charges for observing the same activity are taxable), and that part of private club membership fees or charges paid for the privilege of participating in any athletic sports provided club members;
-- the sales price derived from the operation of all forms of amusement devices and games of skill or chance, raffles, and bingo games, as defined, and card game tournaments conducted, as specified, that are operated or conducted within the state;
-- the sales price of furnishing services, as defined;
-- the sales price from the sales, furnishing, or service of solid waste collection and disposal service;
-- the sales price from sales of bundled transactions; and
-- the sales price from any mobile telecommunications service that Iowa is allowed to tax under the provisions of the federal Mobile Telecommunications Sourcing Act, P.L. 106-252.
The 6% state sales and use tax rate is reduced to 5% effective January 1, 2030.
The legislation specifies that it is the General Assembly's intent that the increase in the state sales, services and use taxes, as specified, from 5% to 6% on July 1, 2008, be used solely to provide revenues to local school districts to be used solely for school infrastructure purposes or school district property tax relief.
School Infrastructure Local Option Tax (SILO)
After July 1, 2008, all local sales and services taxes for school infrastructure purposes imposed under chapter 423E are repealed. After that date, a county no longer has the authority under chapter 423E or any other provision of law to impose or extend the SILO. According to the legislation, the state sales and use tax rate increase from 5% to 6% will replace the repeal of the SILO. Formerly, local jurisdictions could impose a SILO of up to 1%. According to the Fiscal Note, all 99 Iowa counties approved the SILO and 24 counties authorized extensions of the SILO as of December 2007. The provisions that repeal the school infrastructure local option tax and create the "Secure An Advanced Vision for Education Fund" are repealed effective December 31, 2029.
Construction Contractors
Construction contractors may apply to the Iowa Department of Revenue for a refund of the additional 1% tax paid due to the increase in the sales and use taxes from 5% to 6% for taxes paid on goods, wares, or merchandise under the following conditions:
-- the goods, wares, or merchandise are incorporated into an improvement to real estate in fulfillment of a written contract fully executed prior to July 1, 2008 (the refund is inapplicable to equipment transferred in fulfillment of a mixed construction contract);
-- the contractor paid to the Department or the retailer the full 6% tax; and
-- the claim is filed on forms provided by the Department and is filed within one year of the date the tax was paid.
A contractor who makes an erroneous refund application is liable for payment of the excess refund paid plus interest. In addition, a contractor who willfully makes a false refund application is liable for a penalty equal to 50% of the excess refund claimed.
H.F. 2663, Laws 2008, effective July 1, 2008; Fiscal Note, Fiscal Services Division, Legislative Services Agency, March 26, 2008.
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