The Senate proposal impacts a wide variety of taxes such as individual and corporate income tax. Most notably, the legislation restructures the existing local option sales tax (LOSST) as a new statewide sales tax that would be distributed to local governments.
The League is working with legislators, state agencies, cities, and local government partners in order to understand the impacts of this significant change. Most of the financial impacts will occur for cities that currently collect LOSST and are located in a county that does not collect LOSST county-wide.
The Iowa Department of Revenue has projected the impact of this proposal. Cities that overlap county borders will likely see distributions in each of their counties.
Note that these are assumptions and not estimates to be used for budgeting. Although the current understanding is that the existing LOSST distribution formula would remain, the League is working to verify how tax collections will be attributed.
- Revenue purpose statement – an amendment has already been made to clarify that revenue purpose statements approved at elections prior to the effective date of the proposal would remain valid. Because this bill requires that any jurisdiction without a revenue purpose statement, or whose revenue purpose statement sunsets or is amended after the effective date of the bill, must use 50% or more of its distributions for property tax relief, the flexibility of the LOSST funds may be reduced and there may be an impact to some jurisdictions that have existing projects.
- Timing – since the proposed effective date of this bill is January 1, 2023, this bill impacts the second half of the fiscal year that many cities have already begun public hearings and certifications to set budget maximums. This may concern those jurisdictions impacted by the bill, and others due to the new 50% property tax relief requirement.
SSB 3074 was passed out of Ways & Means Committee in the Senate and received a new bill number: SF 2206.