MLR

Maybe Iowa built a time machine

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What does a state legislature do after collecting $20 million or $30 million by mistake? Do they give it back – or change the law?

That was the conundrum facing the Iowa state legislature after a law the legislators passed in 2008 accidentally repealed the state’s tax on heavy equipment purchases.

No one intended to repeal the tax. In fact, no one knew the tax had been repealed. In an attempt to write an exemption from the tax for heavy equipment purchased by tax-exempt organizations, the tax was removed in its entirety.

The state went ahead collecting the tax, and taxpayers continued to pay the tax, with no objections. It was not until recently that someone – perhaps a newcomer to the state – asked the Iowa Department of Revenue about the tax. That is when the error was discovered.

The Iowa legislature was then faced with the possibility of having to refund $20+ million plus interest – money that would have to come from somewhere else. Taking a cue from the movie Back to the Future, the legislature opted instead to reinstate the tax retroactively to the date of repeal.

In the movie, Michael J. Fox traveled through time in a DeLorean. In Iowa, presumably they would use a John Deere.

“In the business world, the rearview mirror is always clearer than the windshield.” – Warren Buffett