State tax credit report provides partial view

DESMOINES – It could take another year before state lawmakers have a complete picture of state tax credits being paid to corporations for research activities after the first required report produced partial data, officials said Tuesday.

The state Department of Revenue released data showing 119 corporations filed research activities tax credit claims for nearly $8.74 million during a six-month period that ended last Dec. 31.

Of that total, more than $6.6 million was refunded via direct payments to corporations that paid some or no state income tax in 2009, according to the first report established by legislation approved and signed last session.

“I think it's a good first start, a good beginning on making sure the public is aware of how their money is being spent,” said Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee.

However, Bolkcom said it appeared a number of corporations that likely are the largest beneficiaries of the program “raced ahead” and filed returns before July 1, 2009, to avoid coming under the new transparency and accountability procedures.

In an earlier tax credit report, state revenue officials noted there was a “dramatic increase” in research-related tax credit claims ahead of new disclosure requirements for claims exceeding $500,000. The claims for fiscal 2009 total nearly $70.86 million, compared to $38.2 million in fiscal 2007 and $42.6 million in fiscal 2008. The projected claims for the current fiscal year are $23.3 million.

“I don't think there was anything all that surprising in the first report,” Bolkcom said. “We're just going to have to wait another year to get a better sense of the overall activity and what companies are taking advantage and getting benefit from this particular credit.”

According to the state report, five corporations made tax credit claims topping the $500,000 threshold – Vermeer Manufacturing, $1,352,069; Hon Industries, Inc., $892,396; CNH America, LLC, $708,338; Interstate Power and Light Co., $576,438; and Syngenta Seed Inc., $503,748.

David Osterberg of the Iowa Fiscal Partnership issued a statement noting that 46 percent of the overall $8.7 million payout when to five companies.

“It shows a lot of money is involved; the vast majority is being paid out as checks to companies that pay no income tax, and, a large share is going to few companies – and large companies, not startup entrepreneurial operations as the law intended,” Osterberg said.

The report pointed up “big holes in the information-gathering process” and raised the question “what does this credit encourage that would not happen anyway?” he added.

The state offers a regular research activities tax credit of 6.5 percent for qualified expenditures. Another supplemental credit of up to 6.5 percent can be awarded by the state Department of Economic Development under either the enterprise zone program or the high-quality jobs program, however, that payout falls under the state's current $185 million cap.

Bolkcom said discussions are under way this session when to lower the state cap or take other action to better assess the return on investment provided by various state tax credits. He also expected the Legislature to suspend the state's film tax credit program pending further review and possible revamping.