Independent Analysis and Information on Iowa Tax and Budget Issues

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Tax-Credit Transparency — More, Eventually

Corporations Take End-Around on Iowa Law to Disclose RAC Benefits
Backgrounder (1-pg PDF, also below) February 9, 2010
Statement (1-pg PDF) February 15, 2010
Official Dept of Revenue Report (2-pg PDF) February 15, 2010

While transparency is good, and will result from a new law passed last year, the initial report on Research Activities Credits (RAC) will show only limited information about specific corporations benefiting from the RAC.

rac claims FY07-14

It will take a year or more before the new transparency provisions have a chance to work. Previous Iowa Department of Revenue reports have demonstrated that its benefits are concentrated in a handful of companies that receive millions of dollars in subsidies without paying income tax. One company received $16.8 million in 2007, the Governorís tax credit review disclosed.* But those reports did not identify recipients.

This is due to change. Lawmakers last year ordered annual public disclosure of RAC recipients with claims exceeding $500,000. The first annual report from the Department of Revenue is due February 15.

The new rules, however, did not take effect until July 1, 2009, though the law was passed in April. That gave companies two months to file claims before the information gathering would begin ó a window to avoid disclosure. Some jumped through that loophole, with an estimated $25 million. Other corporations may get extensions to delay filing until 2010, so they also will not be part of the initial reporting.

The Department of Revenue reported on this in its December Contingent Liabilities report for the Revenue Estimating Conference. After estimating RAC claims for FY2009 at $45.5 million and $46.1 million in August and October reports, that number spiked to $70.9 million in the December report. (Graph above, table below)

The DOR report itself attributed the spike in the estimate to the new transparency law:

The majority of the increase in FY 2009 claims is a result of corporations filing claims early, before the July 1, 2010, effective date for a new disclosure requirement for Research Activities Tax Credit claims exceeding $500,000. As a result the estimate for FY 2010 was lowered to account for those claims moving forward a fiscal year. (emphasis added)

Research Activities Credit Claims FY2007-14 (FY10-14 projected)
FY2007— $38,192,930  
FY2008— $42,597,828  
FY2009— $70,856,654   
FY2010— $23,268,082 
FY2011— $52,045,063  
FY2012— $54,570,36  
FY2013— $59,442,871 
FY2014— $66,728,662 
Source: Iowa Department of Revenue, Contingent Liabilities Report, December 2009

* State agency report on tax credits prepared for Governor's Tax Credit Review Panel, p. 88. That report disclosed that the maximum claim from the Research Activities Credit and the Supplemental Research Activities Credit was just under $6 million in 2002, increasing yearly to reach almost $12.2 million in 2006 and $16.8 million in 2007.

A joint effort of the Iowa Policy Project and the Child & Family Policy Center (logos).