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Using Iowa's Tax Credits and Incentives Programs to Finance Expansion Projects

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The Nyemaster Tax Law Blog is dedicated to current tax law and employee benefit/ERISA issues impacting individuals and businesses, at both the Iowa and federal levels. We hope you find this resource informative and appreciate your feedback.

The Iowa Economic Development Authority offers programs that provide funding in the form of tax credits and incentives for businesses that are looking to locate or expand operations within the state of Iowa.  Two programs that should be considered for both large and small projects are the High Quality Jobs Program and the Enterprise Zone Program.

Eligibility for the High Quality Jobs Program requires a business to create or retain qualifying full-time jobs and make an investment in land, buildings, improvements, manufacturing machinery and equipment, and/or computer hardware.  Created jobs must pay at least 100% of the average wage rate for the community at the start of the project, as determined by "laborshed" analyses performed by Iowa Workforce Development, and 120% of such wage rate by the end of the 3-year project completion period and through the 2-year project maintenance period.  Retained jobs must pay at least 120% of the laborshed wage rate throughout the project completion and maintenance periods. The business must also provide a benefits package to all full-time employees that includes certain levels of medical and dental insurance coverage, or the monetary equivalent of such coverage.

Under the Enterprise Zone Program, a business must locate its project within an approved Enterprise Zone.  The business must make an investment in land, buildings, improvements to buildings, manufacturing machinery and equipment, and/or computer hardware equal to at least $500,000 over a three year period.  The business must also create or retain at least 10 full-time, project-related jobs over a three year period and maintain them for an additional two years, and must pay such new or retained employees a starting wage which is equal to or greater than 90% of the average county or regional wage.  Finally, similar to the High Quality Jobs Program, the business must provide some level of medical and dental insurance coverage to all full time employees. 

The tax benefits provided to businesses that qualify under either the High Quality Jobs Program or the Enterprise Zone Program may include any or all of the following:

  • A local property tax exemption of up to 100% of the value of improvements related to the project.
  • An investment tax credit equal to a percentage of the qualifying investment.
  • A refund of state sales, service or use taxes paid by contractors on building materials used to construct buildings related to the project.
  • For distribution center projects, a refund of sales and use taxes paid on racks, shelving, and conveyor equipment.
  • The State's refundable research activities credit may be increased by 3% or 10% of qualifying expenses, depending on the business's total sales.

A business must show one of the following in order to be awarded State financial assistance:  (1) lack of funding from other sources, (2) a gap between the rate of return the business generally requires for its investments and the projected rate of return for the project without tax incentives, or (3) the potential to locate the project in another state.  Additionally, the amount of credits awarded for an expansion project is generally negotiable.  The Iowa Economic Development Authority will calculate a rate of return to the State – based on additional income, sales/use, and other taxes to be paid by the business and its employees – before deciding whether and how much in tax credits and incentives to be awarded.

Finally, it is important to note that state and local tax incentives applications are generally subject to Iowa's open records requirements. Accordingly, businesses that pursue and are awarded such financing must be prepared for some level of public scrutiny.

Please contact Dwayne Vande Krol if you are interested in analyzing whether Iowa's tax credits and incentives programs may provide a viable source of financing for your company's expansion project.


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