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MINUTES

NONBUSINESS TAXATION STUDY COMMITTEE

November 28, 1995 -- Third and Final Meeting

MEMBERS PRESENT

MEETING IN BRIEF

Minutes prepared by Richard Nelson, Legal Counsel
Organizational staffing by Susan Crowley, Legal Counsel

  1. Procedural Business.
  2. Value-added Tax Credit (Livestock Production Credit).
  3. Property Tax Credits and Exemptions for Veterans of Military Service.
  4. Agricultural Land Productivity Formula.
  5. Recommendations.
  6. Written Materials Provided at Meeting.

COMMITTEE BUSINESS

1. Procedural Business

Call to Order
Chairperson Halvorson called to order the third and final meeting of the Nonbusiness Taxation Study Committee at 10:21 a.m., Tuesday, November 28, 1995, in Committee Room 22, State Capitol, Des Moines, Iowa.
Minutes Approved
The minutes of the November 3 meeting of the Nonbusiness Tax Committee were approved by the members without change.
Adjournment
The Committee recessed from 12:00 noon to 1:25 p.m. The meeting was adjourned at 2:45 p.m.

2. Value-added Tax Credit.

Dr. John Lawrence
Economist John Lawrence, Iowa State University, presented an expanded analysis of the value-added tax credit for livestock preliminarily discussed at the November 3rd meeting. Dr. Lawrence reiterated that there is a direct correlation between local livestock production and economic activity in the community, and that a value-added tax credit to livestock producers each year, based on corn usage rates, would increase livestock production and corn utilization.
The positive economic impact resulting would extend beyond the local trade area, benefiting the related feed and grain, trucking, veterinary, and construction industries, and improving the economic health of the state as a whole. At present, only approximately 25 percent of corn grown in Iowa is typically fed in the state, and research suggests that Iowa grain producers receive higher prices from grain and oilseeds fed locally than from those exported. When questioned as to the projected economic impact of an increase from 25 percent to 50 percent in-state corn utilization, Dr. Lawrence indicated that, while he would hesitate to predict a corresponding full 50 percent increase in revenue, the potential does exist. Dr. Lawrence acknowledged that the environmental impact of increased livestock production is a concern, but noted that the amount of land allocated to increased corn production also increases the area available for nutrient disposal, and that with proper handling the impact of increased manure production should be absorbed. The possibility of targeting small-scale family farming operations for the credit, with relatively large producers receiving a smaller incentive, or none at all, was discussed. Dr. Lawrence recommended review of Briefing Paper 95-BP9, by Dermot J. Hayes, published by the Trade and Agricultural Policy Division, Center for Agriculture and Rural Development, Iowa State University, for additional insight into the impact of exports on Iowa farmers.

3. Property Tax Credits and Exemptions for Veterans of Military Service.

Mr. Hugh E. Griffin.
Mr. Hugh Griffin of the Department of Veterans Affairs, and a member of the Governor's Task Force on Veterans Issues in the State of Iowa, discussed real estate tax issues being considered by a Task Force subcommittee in an effort to curb the loss of veterans moving out of state. Mr. Griffin cited figures estimating a loss of 15,000 veterans to other states between 1990 and 1994, and indicated that this is a proportionately greater number in comparison to other states' statistics. Age, health, and climate related factors appear primarily responsible. The subcommittee is currently examining three proposals for providing increased incentives for veterans to remain in Iowa, and return if they have previously relocated:
Discussion
In response to an inquiry as to how Iowa compares to other states in tax incentives to veterans, Mr. Griffin indicated that Illinois is the only other state with benefits beyond those available at the federal level. Mr. Griffin also indicated that the subcommittee is investigating the question of whether Iowa's income tax is a primary contributor to veteran relocation to other states.

4. Agricultural Land Productivity Formula.

Department of Revenue and Finance.
Mr. Richard Stradley of the Department of Revenue and Finance, presented an overview of the agricultural land productivity formula. Agricultural real estate in Iowa is assessed according to its productivity value calculated over a five year period, as opposed to the fair market value method applied to non-agricultural residential and commercial realty.
Based on this approach, farm assessments are now running approximately 48 percent of market value. Mr. Stradley provided a sample agricultural assessment formula calculation, and noted that agricultural assessments based on productivity result in greater stability when compared with market value assessments. The productivity levels will decrease, however, with a decrease in federal agricultural financial assistance. Agricultural and residential assessments are the major property tax components, and are tied together. This practice results in a shifting of the tax burden to commercial and industrial property.

5. Recommendations.

Approved recommendations will be incorporated into the Study Committee's final report which is to be submitted to all members of the General Assembly in the 1996 Legislative Session.

Inheritance Tax Exemption Increase.
Representative Blodgett proposed for recommendation a bill increasing the Iowa state inheritance tax exemption, currently $50,000 per child and $10,000 per grandchild, to $250,000 each. He is also considering provisions to phase out the inheritance tax over a five year period. The committee discussed the extent to which the current structure of the inheritance tax encourages retiree relocation, and the potential for increased retention of family farms and businesses if these provisions were enacted. The recommendation failed by roll call vote, passing the House and failing the Senate.
Sales and Use Tax Exemption.
Representative Halvorson proposed for recommendation a bill establishing a sales and use tax exemption for packaging materials used in agricultural, livestock, or dairy production (LSB 3271HH). The exemption would also apply to commercial greenhouses. The recommendation passed on short form vote.
Federal Deductibility.
Senator Palmer proposed for recommendation a bill providing for the decrease of federal income tax deductible in determining state individual income taxes by 5 percent annually over a 10 year period (LSB 3239XSL). For tax years beginning on or after January 1, 2005, a maximum of 50 percent of federal income tax paid or accrued could be deducted. The recommendation failed by roll call vote.
Livestock Production Tax Credit.
Senator Palmer proposed for recommendation a bill providing a maximum livestock production tax credit of $2500 per livestock operation based upon the amount of corn or corn equivalents used by hog, livestock and dairy, and poultry operations (LSB 3240XS). The bill would also repeal the agricultural land tax credit and family farm tax credit. A motion to amend the bill to increase the credit to 10 cents per corn equivalent, not to exceed $5000 per operation and per taxpayer, on a refundable basis, was adopted. Representative Weigel proposed an amendment preserving the agricultural land and family farm tax credits. The amendment proposal failed. The recommendation on the amended bill passed unanimously by roll call vote.
Tax Repeal and Reform.
Representative Halvorson proposed for recommendation a bill providing for the repeal, within three years, of the tax credits, exemptions, and deductions presently applicable to state individual and corporate income, franchise, inheritance, sales and use, and property taxes. (LSB 3235YH). The objective would be to examine the entire tax structure presently in place within a three-year period. The recommendation passed the House, and failed the Senate, by roll call vote. Two related recommendations were proposed. Senator Bennett proposed the repeal of all property tax legislation to facilitate review and revamping of the provisions. The recommendation failed. Senator Palmer proposed that all tax credits be evaluated under a systematic review, spread out over a six-year period. The recommendaiton passed the House, and failed the Senate.

6. Written Materials Provided at Meeting.

OTHER INFORMATION FOR THIS COMMITTEE:

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