On February 1, 2022, HF 2180 was introduced into the Iowa House of Representatives. This proposed legislation would lower sales tax imposed on products manufactured primarily in the United States. The state’s sales tax would drop from 6% to 3% on the sales price of personal property that is certified by the manufacturer to be produced primarily in this country. The lower sales tax rate would apply to American-made personal property sold at retail in the state or American-made tangible personal property used within the state.
The purpose of the proposed bill is to encourage domestic manufacturing. The sponsor of the bill, Representative Dean Fisher commented that the lost sales tax revenue from this bill would be far less than the revenue generated by jobs created by domestic manufacturing. By lowering the tax rate, further awareness would be brought to the idea of products made in the USA.
Based on prior U.S. Supreme Court litigation such as Bacchus Imports1 and Kraft,2 a constitutional challenge of this proposal is likely to, and would almost certainly, overturn this legislation. In Bacchus, the Court determined that Hawaii’s tax exemption for locally manufactured wines discriminated against interstate commerce and was therefore unconstitutional. In Kraft, under the dormant Foreign Commerce Clause, the Court prevented the states from taxing a U.S. company’s dividends received from foreign subsidiaries engaged in a single unitary business, claiming that the disparate treatment of domestic and foreign subsidiary dividends violated the Commerce Clause of the Constitution.
Despite these issues, the proposal has been referred to the Iowa House Ways and Means Committee for consideration. We will keep you posted on this proposal in Iowa.
1 Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 268 (1984).
2 Kraft General Foods, Inc. v. Iowa Department of Revenue and Finance, 505 U.S. 71 (1992).
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