Governor Terry Branstad’s proposal to erase state sales taxes on the “consumable supplies” used in Iowa manufacturing plants has made it through a legislative committee’s initial review.
Branstad’s Department of Revenue has drafted the proposal as a rule that will go into effect July 1, 2016.
“I don’t believe it’s ever been done, to use the rule-making process to cut taxes. That seems like a heck of a precedent,” says AFSCME Council 61 Danny Homan, head of the union that represents the largest share of state workers.
He says all 150 legislators should vote on the proposal and Homan accuses Branstad of abusing executive power to try to cut taxes for corporations.
“After, on July 2, the governor vetoed $55 million in one-time appropriations for schools and vetoed funding for the MHIs in Clarinda and Mount Pleasant,” Homan says. “It seems like he’s got money to reward his friends, but he doesn’t have money for education and he doesn’t have money for folks that are suffering from mental illness.”
Iowa manufacturers would save an estimated $46 million in state sales taxes on “consumable supplies” like hydraulic fluid and drill bits once the rule takes effect. Nicole Crain, a lobbyist for the Iowa Association of Business and Industry, says manufacturers struggle to comply with current rules describing which supplies or “inputs” are subject to the state sales tax and which aren’t.
“In the manufacturing process, you should tax the outputs, not the inputs,” Crain says.
Iowa Chamber Alliance president John Stineman says ingredients used up in the manufacturing process should not be taxed.
“This has been something that’s been in dispute for a number of years,” Stineman says. “Appeals on this single item represent 15 percent of all appeals that go through the Department of Revenue.”
A 10-member legislative committee reviewed the proposed rule Tuesday and an objection to the rule failed on a 5-5, party-line vote. A public hearing will be held on the proposal, but it’s unlikely any of the Republicans on the committee will change their vote when the proposal comes up for final review.