Majority of Iowa R&D tax credit paid out as refunds in 2016

A Rockwell Collins customer support specialist, fits an F-35 Lightning ll Generation lll Helmet Mounted Display System. (U.S. Air Force photo/Wikimedia Commons)

A vast majority of an Iowa tax credit for research and development were paid out as payments to businesses last year.

Companies conducting research in Iowa, and individuals tied to those corporations, made $58.4 million worth of claims from the state’s Research Activities Tax Credit program in 2016, a recent Iowa Department of Revenue report shows. That’s the highest dollar amount of claims made since 2013.

The tax credit is refundable, meaning companies who get tax credits and have no Iowa tax liability receive money from the state.

More than 80 percent of tax credits last year — $40.4 million — went to 207 companies in the form of tax refunds. This continues a trend as between 68 and 95 percent of the tax credit claims in a given year have gone as refunds to corporations from 2010 through 2016.

Of the total claims last year, just 12 companies accounted for 76 percent, or $44.3 million. They include Rockwell Collins, which made $12.3 million in claims, Deere & Co. with more than $8 million in claims, and DuPont with about $5.1 million.

rd-tax-credit-table
This chart shows the companies that each had more than $500,000 in Research Activities tax credit claims in 2016. (From Iowa Department of Revenue report)

Arguments for and against the tax credit have been fairly cut and dry in the past.

Supporters have said the tax credit helps foster additional investment in Iowa and ensures research is done inside the state.

Critics have pointed out that the vast majority of the benefit goes to just a few companies and is not being spread to smaller firms. They’ve also criticized the state for giving money to large companies when Iowa is dealing with a budget crunch.

“This report illustrates a budget choice,” said Mike Owen, executive director of the Iowa Policy Project, in a recent memo. “Legislators this month approved about $40 million in additional state aid to local schools for (the) next budget year. This report suggests they could have doubled that if they were willing to cut back this tax break to simply excusing taxes owed.”

Nicole Crain, senior vice president for public policy for the Iowa Association of Business and Industry, told the Business Record last week the companies that receive the tax credit are “some of the best employers in the state.”

“They employ thousands of people and invest millions of dollars in research in Iowa. Otherwise they would not be able to claim this credit,” she told the Record.

Most the tax credit claims and the refunds – more than 84 percent and 90 percent, respectively – are attributed to corporations each year since 2010.

Matthew Patane is the managing editor and co-founder of Clay & Milk. Send him an email at mpatane@clayandmilk.com.