Policy Points from Iowa Fiscal Partners

Posts tagged Iowa Research Activities Credit

IFP News: Giveaway costs grow

  • Research Activities Credit cost leaps in 2019 to record $78 million
  • Non-taxpaying companies receive record $53 million in ‘refund’ checks

IOWA CITY, Iowa (March 12, 2020) — Iowa businesses large and small made record use of the state’s generous research tax credit in 2019, a $78.4 million cost to taxpayers with most —$53.5 million — going out as checks to companies that paid no income tax.

The cost of the credit has risen 62 percent in 10 years, with very large businesses taking 78 percent of the benefit in 2019, or $60.8 million.

“Over the last 10 years, this unaccountable program has given away nearly $600 million — 73 percent of it in checks to companies that pay no state income tax,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project (IPP).

“This troubling trend comes as Governor Kim Reynolds continues to push legislators to give new tax breaks to the wealthiest Iowans at the expense of poor- and moderate-income taxpayers, and of public services including education and health care,” Owen said.

The Iowa Department of Revenue on Thursday issued its 2019 annual report on the Research Activities Credit (RAC), the 10th full-year report since lawmakers required the disclosure in 2009.

The report showed:

  • Both tax credit claims and so-called “refunds” — checks for the value of tax credits not needed to meet tax obligations — hit record levels for corporations in 2019: $55.8 million in claims and $46.6 million in refund checks.
  • The number of individual claims — by businesses filing as individuals — expanded dramatically in 2019, from 5,305 claims in 2018 to 7,083 in 2019. The cost also has grown sharply, from $11.3 million in 2017, to $15 million in 2018, to $22.5 million last year.
  • Rockwell Collins and Deere, and associated businesses, are the largest claimants as usual, accounting in 2019 for $23.4 million, or 30 percent of all claims.
  • Very large companies, with more than $500,000 in claims, accounted for 78 percent of the cost of the credit, and 81 percent of the “refunds.”

The RAC and a supplemental credit are refundable, which means companies receive a payment from the state for the amount of their credits above what they need to reduce or eliminate taxes.

“The dominance of large operations is important,” Owen said, “because this tax credit was designed to help small start-up operations. Deere, Rockwell Collins and many others do not need state help to do research, and certainly do not need refunds for taxes they didn’t have to pay.”

A special tax-credit review panel urged an end to RAC refunds for large companies in 2010. Lawmakers in recent years have acknowledged the concern about those uncontrolled subsidies but have not acted to restrain them, and the most powerful business lobbying interests have fought to keep them in place.

“How can Iowa defend giving so many millions to giant companies for research they would do anyway?” said Anne Discher, executive director of the Child and Family Policy Center (CFPC) in Des Moines. IPP and CFPC form the Iowa Fiscal Partnership, which has tracked fiscal accountability issues with the research credit since before the official annual reports were provided.

“Iowa families need access to child care, pre-K-12 and higher education, and mental health services,” Discher added. “Somehow, lawmakers can never find enough money for those public priorities. But big companies never have to worry — their entitlement keeps coming, even when they don’t owe any taxes.”

Other noteworthy elements of the report, in the context of reports for recent years, are that ethanol operations have become big users of the credit, and in 2019, there was another big jump in the number of claims by businesses filing as individuals rather than as corporations.

The amount of individual claims nearly doubled in two years, to $22.5 million in 2019, and nearly quadrupled in five years, from $5.9 million in 2014.

The Iowa Fiscal Partnership reports are available at

The official Department of Revenue report is available at this link:

Tax credit reform, yes — but what kind?

Posted March 9th, 2017 to Blog

Reform of business tax credits in Iowa is long overdue, so the natural instinct is to welcome with open arms the interest of state legislators in a review of Iowa’s runaway spending on tax credits.

Yet, optimism must be tempered. There is a great opportunity; there also are pitfalls.

Fooled us once

Iowa’s last look at tax-credit reform came in the wake of scandal in its film industry tax credit program. Despite a strong report with potentially game-changing recommendations from a special task force of state agency heads in 2010, not much came from the Legislature. As we noted then, legislators acted with fierce caution that no doubt sent the business lobbyists off to celebrate.

That time, the review resulted from a scandal of law and ethics. What remained, and remains today, is a scandal of fiscal ignorance and arrogance. Iowa’s spending on business tax breaks has soared in recent years, and this budget choice has been a contributing factor to the stagnant or declining commitment to public responsibilities: education, the environment, health and public safety.

Fool us twice?

Such skepticism should be understandable not only with the anti-bargaining and anti-worker legislation Iowans have seen in this session, but with comments by legislators. In one shot across the bow, Rep. Pat Grassley stressed legislators would put everything on the table, including the Earned Income Tax Credit (EITC), which benefits low- and moderate-income Iowans.

Past study already has shown that, unlike Iowa’s most lucrative business tax credit, the Research Activities Credit:

•   the EITC has obvious benefits to the economy and Iowa working families.

•   the EITC benefits only people who need the help, where RAC is unlimited and in fact benefits some of the most profitable companies in the country.

•   the EITC benefits people when Iowa’s regressive tax system is otherwise stacked against them, where the RAC benefits those who already do well by Iowa’s tax code.

Already we know that the individual state and local tax system in Iowa — all effectively governed by state law — demands that people at the bottom of the income scale (actually the bottom 80 percent) on average pay 10 percent of their income in tax. At the same time, the wealthiest and most well-connected pay much less — 6 percent at the very top.

Already we know that Iowa’s total state and local taxes on business — again, all effectively governed by state law — are below the national average and by one national business consultant’s measure are among the lowest in the nation.

In a nutshell, heading into this discussion, beware the false equivalencies and more of the same business-lobby spin that has produced the unaccountable and unfair system that makes it difficult to fund critical public services.

And be sure we do not lose some important pieces now in place, including the transparency we have on the RAC with annual reports from the Department of Revenue.

We have called for reform and better oversight for years. If legislators are serious about it, this could be a good thing. If it is merely cover to further burden the poor, reduce transparency, or heap new breaks on corporations that do not pay their fair share, it could be one more step in Iowa’s low-road march to the bottom.

Posted by Mike Owen, Executive Director of the Iowa Policy Project