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Iowa lawmakers move to reinstate tax mistakenly repealed

Iowa lawmakers move to reinstate tax mistakenly repealed

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DES MOINES | Representatives of the heavy equipment industry indicated Tuesday they would not resist legislative efforts to correct a mistake made in 2008 and caught last summer that repealed the state sales tax assessed on machinery purchases made in Iowa.

“We believe this was an unintended law change,” Scott Newhard of the Associated General Contractors of Iowa told members of a Senate subcommittee that is considering a state Department of Revenue technical bill that contains language to correct the error and reinstate the tax retroactive to July 2008.

If the Legislature and Gov. Terry Branstad fail to undo the unintended repeal of the sales tax on heavy machinery, the state likely would have to provide refunds and interest to customers of about 185 retailers who have paid the tax even though it has not officially been on the books since July 2008, said Victoria Daniels, revenue agency spokeswoman.

Daniels said preliminary estimates indicated the money owed in refunds and interest likely would be in the range of $20 million to $30 million and the state would forego future revenue of about $7 million a year if the state sales tax was no longer collected on purchases of construction and other heavy machinery.

Newhard and representatives of the Iowa-Nebraska Farm Equipment Dealers Association said they understood that the mistake was made while the department and Legislature was trying to preserve a sales tax exemption on the rental and leasing of heavy equipment. However, if no change is made to the new status quo this session, Newhard said the industry would view that as “an affirmative action” and stop paying the tax.

“This is something that we’ve always paid and that we owe,” said Frank Chiodo, a former state legislator who represented the farm equipment association. “We’re OK.”

The inadvertent change – which slipped by the department, the legislative code editors, and lawmakers and their staffs in the vetting process -- didn’t come to light until last summer when an attorney contacted the department about the Iowa Code section and it was determined by legal staff at the department and the Iowa Attorney General’s office that the 2008 action had “rendered that tax obsolete,” Daniels said.

Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee and one of the three subcommittee members who approved the department bill Tuesday, thanked the industry representatives for their cooperation to fix the “botched” code section.

“We understand this occurred under the previous administration,” said Jimmy Centers, spokesman for Gov. Terry Branstad. “If it was truly an inadvertent mistake, it would be up to the Legislature to resolve the matter.”


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