A bill offered this week in the Iowa Senate would make the sale price of metered water delivered to residential customers exempt from state sales tax, but would instead create new “water tax” provisions for both the state and local governments.
Senate Study Bill 1220, offered by the Senate Ways and Means Committee chaired by state Sen. Joe Bolkcom (D-Iowa City), creates a state excise tax on metered water for use at residential dwellings and units of apartment and condominium complexes used for human occupancy. If approved, the rate would start at 6 percent – the same as the current state sales tax – and would decrease by 1 percentage point annually over the next four fiscal years.
The rate of the state excise tax will be set at 1 percent from July 1, 2020, through Dec. 31, 2029. That date coincides with the current sunset date for the 1-percent Secure an Advanced Vision for Education sales excise tax.
SSB 1220 would require that a portion of the revenues collected each year be transferred to ensure the SAVE Fund does not see a loss of revenue due to the state sales tax exemption. The remainder of the funds collected through the new water sales excise tax would go to the state General Fund.
The proposed legislation also allows counties and municipalities to impose a voter-approved local-option water sales excise tax. It requires cities and counties that have local-option sales and services taxes to impose a water sales excise tax at the same rate.
“The city or county shall continue to collect the required local residential metered water tax until the city’s or county’s sales and services tax in effect on July 1, 2015, is repealed,” the bill’s explanatory statement says. “The Director of Revenue is required to administer the state and local residential metered water tax as nearly as possible in conjunction with the administration of the state sales and use tax law, and to that end the bill incorporates by reference numerous Code sections that relate to general tax administration and the sales and use tax laws.”
The Iowa Association of Municipal Utilities and the Iowa Rural Water Association are in favor of passage of the bill. The Iowa Association of Business and Industry, the Iowa Society of Certified Public Accountants, the Iowa Water Well Association, and the cities of Coralville and West Des Moines are all “undecided.”