Iowa R&D Tax Credit Summary
Research Activities Tax Credit
Starting in 1985, a credit became available for 6.5% of Iowa's apportioned share of qualifying expenditures for increasing research activities. The Iowa Research Activities Tax Credit is based on the federal research and experimentation tax credit. The Iowa R&D Tax Credit is fully refundable after a company's tax liabilities are met. Only expenses incurred in Iowa can be captured towards the Iowa research activities credit.
A taxpayer may choose each year how to compute the Research Activities Tax Credit (Regular or Alternative Simplified Method) for Iowa tax purposes. Any credit in excess of the tax liability may be refunded or credited to the tax liability for the following year. See Sections 422.10 and 422.33(5) and 15.335.
Iowa R&D Credit Summary
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Regular Method: 6.5% of the excess of qualified research expenses during the tax year over a computed base amount of expenditures using Iowa's apportioned share of research expenses.
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The tax credit is claimed on the IA128.
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Base amount means the product of the fixed-based percentage multiplied by the average annual gross receipts of the taxpayer for the four taxable years preceding the taxable year for which the credit is being determined - but in no event shall the base amount be less than fifty (50) percent of the qualified research expenses for the credit year. This is a clarification of an existing law and therefore applies to all tax years - past and present.
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Alternative Simplified Method: 4.55% of the difference between the current year's IA QREs and 50% of the average of the prior 3 years' IA QREs.
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This credit is claimed on form IA 128S.
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Effective in tax year 2010, the tax credit can be calculated using the "Alternative Simplified Research Activities Tax Credit".
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Supplemental Research Activities Tax Credit (see below for additional info)
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Companies that receive awards from the Iowa Economic Development Authority under the (1) Enterprise Zone Program or the (2) High Quality Jobs Program may calculate a Supplemental Research Activities Credit. The Supplemental Credit is an additional 10% of a company's qualifying incremental research expense for gross revenues less than $20 million and 3% for a company with gross revenues over $20 million.
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Taxpayers who are approved under the (1) Enterprise Zone Program OR the (2) High Quality Jobs Program may double their Research Activities Tax Credit claimed on either form IA 128 or IA 128S.
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For tax years beginning on or after January 1, 2017, the second modification requires businesses to meet the following two requirements below to be eligible for the credit:
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1. Claim and be allowed a Federal Research Credit for qualified research expenses under Internal Revenue Code section 41 for the same taxable year.
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2. Be engaged in one of the following industries:
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(A) Manufacturing - Activities commonly understood within the ordinary meaning of the term and includes refining, purifying, combining of different materials, packing of meats, activities subsequent to the extractive process of quarrying or mining, such as crushing, washing, sizing, or blending of aggregate materials.
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(B) Life sciences - The sciences concerned with the study of living organisms, including agriscience, biology, botany, zoology, microbiology, physiology, biochemistry, and related subjects.
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(C) Software Engineering - The detailed study of the design, development, operation, and maintenance of software.
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(D) Aviation & Aerospace - The design, development or production of aircraft, rockets, missiles, spacecraft and other machinery and equipment that operates in aerospace.
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In addition to meeting the two requirements above, the business CANNOT be any of the following:
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Engaged in agricultural production or agricultural cooperatives;
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Contractors, subcontractors, builders or contractor-retailers engaged in commercial and residential installation / repair including but not limited to:
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HVAC installation / repair;
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Plumbing and pipe fitting;
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Security system installation;
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Electrical installation / repair;
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Accountants;
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Architects;
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Collection agencies;
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Finance or investment companies;
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Publishing companies;
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Real estate companies;
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Retailer;
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Transportation companies; and
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Wholesalers
Qualified expenditures in Iowa are:
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Wages for qualified research services performed in Iowa
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Costs of supplies used in conducting qualified research in Iowa
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Rental or lease cost of personal property used in Iowa in conducting qualified research
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65% of contract expenses paid by a corporation to a qualified organization for basic research performed in Iowa
Eligible Entities: C-Corporations, S-Corporations, LLCs, Partnerships
Deadline for Tax Filing: Due with Iowa Tax Return
Data Required to Compute Credit:
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Claim Period Federal Qualified R&D Expenses (QREs)
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Claim Period IA QREs
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IA QREs for Prior 3 Years
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IA Gross receipts of the taxpayer for the four taxable years preceding the taxable year
Credit Carryforward: None; Any R&D tax credit in excess of tax liability can be refunded or credited to tax liability for the following year.
Refundable/Transferable Tax Credit: Yes
Supplemental Research Activities Tax Credit
(1) High Quality Jobs Program
The research credit can also be doubled under the High Quality Jobs Program for taxpayers approved by the Iowa Economic Development Authority if certain criteria is met. For approvals on or after July 1, 2010, the amount of the Supplemental Research Activities Tax Credit depends upon the gross revenues of the eligible business.
For businesses with gross receipts of $20 million or less, the supplemental credit cannot exceed 10% of the Research Activities Tax Credit. For businesses with gross receipts exceeding $20 million, the supplemental credit cannot exceed 3% of the Research Activities Tax Credit.
When the tax credit is awarded, the taxpayer will receive a tax credit certificate number that must be reported on the IA 148 Tax Credits Schedule when the tax credit is claimed. Any credit in excess of the tax liability may be refunded or credited to the tax liability for the following year. Sections 422.10 and 422.33(5) and 15.335
The High Quality Jobs (HQJ) program provides qualifying businesses assistance to off-set some of the costs incurred to locate, expand or modernize an Iowa facility. This flexible program includes loans, forgivable loans, tax credits, exemptions and/or refunds. The Iowa Economic Development Authority (IEDA) offers this program to promote growth in businesses, which employ Iowans in jobs defined as high-quality by state statute.
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Actual award amounts based on the level of need; quality of the jobs; percentage of created or retained jobs defined as high-quality; and the project’s economic impact
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Local property tax exemption of up to 100% of the value added to the property to a period not to exceed 20 years may be available
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Investment tax credit equal to a percentage of qualifying investment
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amortized over 5 years, which offsets Iowa income taxes owed
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tax credit earned when corresponding asset is placed in service
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credit can be carried forward for up to 7 additional years or until depleted, whichever occurs first
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Refund of state sales, service or use taxes paid to contractors or subcontractors during construction
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Refund of sales and use taxes paid on racks, shelving and conveyor equipment for distribution projects
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State's refundable research activities credit may be increased while participating in the program
Eligibility
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Must apply prior to the beginning of the project
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Priority to projects with significant local economic impact
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Must meet wage threshold requirements:
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Created jobs must pay at least 100% of the qualifying wage threshold at the start and 120% of the qualifying wage threshold by project completion and through the maintenance period unless in a distressed area
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Retained jobs must pay at least 120% of the qualifying wage threshold by project completion and through the maintenance period
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Must provide a sufficient benefits package to all full-time employees, which includes at least one of the following:
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Business pays 80% of medical premiums for single coverage plans, OR
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Business pays 50% of medical premiums for family coverage plans, OR
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Business pays for some level of medical and dental coverage and provides the monetary equivalent value through other employee benefits
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How to Apply
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Complete the Iowa Project Questionnaire (IPQ) pre-application so IEDA staff are able to provide individual assistance and guidance to ensure access to programs that best fit your needs. Upon completion of the IPQ, applicants invited to apply for financial assistance may complete the Application for Financial Assistance.
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Visit wage requirements to view the requirements for wage thresholds.
(2) Business Enterprise Zone Projects
Companies that receive awards from the Iowa Economic Development Authority under the Enterprise Zone Program or the High Quality Jobs Program can also calculate a Supplemental Research Activities Credit. The Supplemental Credit is an additional 10% of a company's qualifying incremental research expense for gross revenues less than $20 million and 3% for a company with gross revenues over $20 million.
Enterprise Zones are designed to stimulate development by targeting economically distressed areas in Iowa. Through state and local tax incentives, businesses are encouraged to make new investments and create new jobs in these areas. The goal of the program is to revitalize these areas and make them competitive with other locations throughout the state. Businesses locating or expanding in an established Enterprise Zone may be eligible to receive certain local and state tax incentives.
Eligibility Requirements
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The business must make a minimum qualifying investment of $500,000 over a three year period. Qualifying investment includes the cost of land, buildings, improvements to buildings, manufacturing machinery and equipment, and/or computer hardware.
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The business must create at least 10 full-time, project-related jobs over a three year period and maintain them for an additional 10 years.
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The business must provide all full-time employees with a standard medical and dental insurance plan of which the business pays 80% of the premiums for employee-only coverage or provide a monetarily-equivalent benefit package.
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The business must pay new employees an average starting wage which is equal to or greater than 90% of the average county or regional wage, whichever is lower. (Check with IDED for the community's current wage requirement.)
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The business can not be a retail establishment or a business whose entrance is limited by coverage charge or membership
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The business can not close or relocate its operation in one area of the state and relocate substantially the same operation in the Enterprise Zone.
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The local Enterprise Zone Commission and IDED must approve the business' application for Enterprise Zone program incentives prior to project initiation.
Tax Incentives
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A local property tax exemption of up to 100% of the value added to the property to a period not to exceed 10 years.
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Additional funding for training new employees. If applicable, these funds would be in addition to those authorized under the Iowa New Jobs Training Program.
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A refund of state sales, service, or use taxes paid to contractors or subcontractors during construction.
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For warehouse or distribution center projects, a refund of sales and use taxes paid on racks, shelving, and conveyor equipment.
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An investment tax credit of up to a maximum of 10% of the qualifying investment, amortized over 5 years.
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This tax credit is earned when the corresponding asset is placed in service and can be carried forward for up to seven additional years or until depleted, whichever occurs first.
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The State's refundable research activities credit may be doubled while the business is participating in the program for up to a maximum of 10 years.
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