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Iowa Senate OKs tax incentive overhaul, tax credit claw backs for job layoffs
Under the bill, the state could take back credits awarded to businesses that lay off workers and knowingly employ individuals not authorized to legally work in Iowa
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DES MOINES — A slate of Iowa tax credits would be repealed, created or adjusted under legislation making its way to Gov. Kim Reynolds' desk for approval.
Senate File 657 and its House companion, House File 1054, contain 17 provisions, including the creation of tax credits for film production, sustainable aviation fuel, as well as the elimination of older credit programs.
It also overhauls the Research Activities Credit, a program that provides tax incentives to businesses, replacing it with the Research and Development Tax Credit Program. The new program, administered by the Iowa Economic Development Authority, would provide tax credits to eligible businesses that incur qualified research expenses in Iowa.
Under the bill, qualifying businesses include those primarily engaged in sectors including second-generation food innovation, crop protection, diagnostic analytics and immunotherapies, chip technologies and microelectronics, medical equipment and supplies, software and technology, aerospace, pharmaceuticals, consumer products and others.
Republican Sen. Dan Dawson, of Council Bluffs, the bill’s sponsor, said the overhaul of business tax incentives makes the credit awards more up-front and makes the process less “cumbersome.”
“It's always important for us to look at some of our whole programs and figure out how we can modernize our new programs,” Dawson said.
The creation of the Research and Development Tax Credit Program includes a provision that would take back credits awarded to businesses that lay off workers and knowingly employ individuals not authorized to legally work in Iowa.
This provision comes from a bill introduced earlier in the session that would’ve clawed back Research Activities tax credits from businesses that implemented “mass layoffs” in 2024. The legislation was aimed at Deere & Co. after workforce layoffs over the past few years.
Republican Rep. Bobby Kaufmann, of Wilton, who chairs the House Ways and Means Committee, said the provision would make sure that state funds don’t go to companies that lay off Iowa workers.
“Both provisions are designed to punish a company that knowingly hires undocumented immigrants and/or ships jobs out of the country or out of the state,” Kaufmann told reporters Monday. “If you're doing either of those practices, you do not deserve our tax credits. I would have preferred a chain saw approach. This is a scalpel approach, but at least it gives them (IEDA) a hammer.”
During Deere’s 2022 layoffs, it announced that work from the 250 jobs at the Waterloo facility would be moved to Ramos Component Works in Mexico, which was completed last year. The company has, however, repeatedly affirmed its commitment to U.S. manufacturing and has said the layoffs are responses to changes in the farm economy, not an effort to move jobs out of the U.S.
The House passed the legislation 84-3 and the Senate passed it 44-1.
Democratic Sen. Bill Dotzler, of Waterloo, backed the bill, adding that state funding should go to companies that keep jobs in Iowa.
“If we're giving large amounts of money to a business and they have a major layoff, we should be clawing back those resources and using them in the right spot,” Dotzler said during Senate debate Tuesday.
The legislation also would keep, but pare down, Endow Iowa after a full cut of the program was originally floated.
The Endow Iowa program awards tax credits to people who make donations to qualified community foundations across the state. The bill would reduce its funding to $3.5 million for FY 2026 from the $6 million provided in 2025.
The adjustment to the program is projected to increase Iowa general fund revenues by $2.3 million in FY 2027.
Here is what else the bill would do:
- Repeal the Employer Child Care Tax Credit, which was established in 2022 to encourage Iowa businesses to address talent, recruitment and retention efforts through child care benefits. Repealing the credit will increase general fund revenue by $740,000 in FY 2026 and $800,000 beginning in FY 2027.
- Eliminate the High Quality Jobs Program. The program provides business assistance to offset some of the costs incurred to locate, expand or modernize an Iowa facility. The elimination will increase general fund revenue by $1.8 million in FY 2027.
- Eliminate the Investments in Qualifying Business Tax Credit Program, The program is expected to increase general fund revenues by $1.3 million in FY 2027.
- Repeal the Assistive Device Tax Credit. The tax credit is awarded to small business owners purchasing, renting or modifying an assistive device or making workplace modifications for an individual with a disability. The incentive was never utilized and repealing it will not have any financial impact on the state.
- Create tax credit limits for the Workforce Housing Tax Incentives Program. The program, which provides tax benefits to developers to provide new housing, would receive an $8 million boost to a $43 million annual allocation.
- Create the Sustainable Aviation Fuel Production Tax Credit, which would be awarded to sustainable aviation fuel producers. The credit distribution would be capped at $10 million and combined with the current Chemical Production Tax Credit. The program would be sunset in 2037.
- Create the Iowa Film Production Incentive Program and Fund. The fund would be a two-year pilot program capped at $10 million in rebates to incentivize more in-state film production with tax credits. The rebates could be used for expenditures related to film production.
Erin Murphy of The Gazette contributed to this report.
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