Iowa provided 19 companies a combined $36.2M in refundable tax credits last year

The Iowa Department of Revenue on Monday declared 19 companies earned Research Activities Tax Credits exceeding $500,000 last year.

Based on IA 128 or IA 128S forms filed for 2021, the companies earned a total of $36.2 million in refundable tax credits, the department said.

To qualify for the Iowa Research Activities Tax Credit, based on IRS Code Section 41, businesses’ research in Iowa must be “experimental” and be aimed at discovering technological information and developing a new product. Wages, supply costs, personal property rental or lease costs, and contract expenses that occur in Iowa are qualified research expenditures.

During the 2018 and 2019 legislative sessions, the Iowa Research Activities Tax Credit was limited for tax years beginning in January 2017 to businesses in manufacturing life sciences, agriscience, software engineering, or aviation and aerospace. Companies must claim and be eligible for the Federal Credit for Increasing Research Activities under IRC section 41 for the expenses for the same tax year.

Research expenditures must exceed a base amount: 6.5% of qualified research expenditures over a base amount or 50% of current year expenditures, whichever is larger. Businesses with annual gross revenues less than $20 million can claim up to an additional 10% of qualifying incremental research expenditures made in the state in applying for the Iowa Economic Development Authority’s High Quality Jobs awards. Companies with annual gross revenues of at least $20 million can earn an additional 3% supplemental tax credit.

The following companies received more than $1 million in research activities tax credits:

• Deere & Company $11,394,443.
• Corteva, Inc. and Subsidiaries $5,874,741.
• EI du Pont de Nemours & Co $2,513,356.
• Poet Biorefining, LLC $2,272,578.
• John Deere Construction & Forestry $1,357,495.
• Elite Octane, LLC $1,320,129.
• Vermeer Manufacturing Co. $1,289,512.
• Bayer Corporation $1,237,525.
• Syngenta Corporation $1,190,546.
• Homeland Energy Solutions, LLC $1,160,033.
• HNI Corporation $1,109,281.

In 2020, the largest tax credits went to:

• Raytheon Technologies $10.2 million.
• Deere & Co. $8.6 million.
• John Deere Construction & Forestry $4.2 million.
• Poet Biorefining $2.9 million.

Iowa Chapter of the Sierra Club Director Pam Mackey Taylor told The Center Square in an emailed statement Monday the levels of tax credits and tax credit refunds is “stunning.”

“All the while we are giving these tax credits to some of the largest corporations in the state, we are starving the universities in Iowa,” she said. “It is time for an evaluation of whether the tax credit is incenting business activity or is merely a welfare payment to companies who do not need the financial assistance of the taxpayers.”

The refundability of the tax credit is its biggest flaw, Americans for Prosperity Iowa State Director Drew Klein told The Center Square.

“The effect of this program is that Iowa redistributes the cost of state government away from large corporations onto other taxpayers in the state of Iowa,” he said. “We absolutely want to attract business to the state of Iowa, but we shouldn’t bribe them with other people’s money.”

Passthrough entities’ actual claims could be lower if there were shareholders who did not report earning their share of the tax credit, the department said in the report. Some of the listed companies may have reported earning additional credits for different tax credits that did not meet the threshold for reporting. Three businesses met requirements for the first time since the report began being published in 2009, but some of the cases may be reorganizations of companies that have previously appeared in the report, the department said.

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