Business groups are hoping to convince legislators not to go along with Governor Culver’s call for ending a tax break for companies that make big expansions in the state. If companies make multi-million dollar investments, the state currently grants the company an enhanced research and development tax credit.
Iowa Taxpayers Association president Ed Wallace says his group and others are worried legislators may go even farther and get rid of another research activities tax credit at the state level for every Iowa company that qualifies for the federal research and development tax break.
"Missouri and Nebraska are starting to expand their credit offerings as far as R-and-D is concerned," Wallace says. "We’re the only state in the country right now that is looking at taking away incentives for research and development."
During the Farm Crisis of the 1980s, former Governor Terry Branstad and the Democratically-led legislature tried to stimulate the economy through a state-level research and development tax credit. More than a decade later, state leaders created an enhanced package of tax incentives that helped lure IPSCO to build a huge steel plant in eastern Iowa. Wallace says now is not the time to take that credit away from companies like IPSCO — or from the small companies that qualify for the smaller state research and development credit that mirrors the federal credit.
"If the research activities credit were to be modified, it would be one opportunity for a company not to look at coming to Iowa and certainly be one opportunity for a company to say ‘We could go somewhere else and do this in a different state,’" Wallace says.
Labor leaders and consumer advocates complain that over the last 24 years Iowa businesses qualified for $265 million in tax breaks because of that research and activities credit. Wallace says that credit is "absolutely pivotal" to companies doing business in Iowa, especially at this point in the recession.
"Historically we’ve seen where an economic downfall occurs, you seen an increase in research and development for streamlining processes," Wallace says. "That’s why so many other states are beginning to expand their offerings for research and development to provide economic development opportunities."
On another, tax-related matter: early this afternoon a House subcommittee will start its review of a bill Democrats say will provide a "middle class" tax cut and get rid of a tax break that allows Iowans to deduct their federal tax bill from their income before calculating their state income taxes. Backers of the tax break say Iowans shouldn’t be "doubled taxed" while critics say it’s an antiquated tax break that just Iowa and three other states maintain.