Iowa tax credit awards dip nearly 8 percent in 2011

The value of tax credits awarded by the State of Iowa fell nearly 8 percent to $168 million in fiscal 2011 due largely to the economy, according to a new report from the Iowa Deparment of Revenue.

The decline was due to the recession and to award caps implemented by the state in 2009 and 2010, according to the agency's annual Tax Credits Contingent Liabilities report.

The state's fiscal year ends June 30 and begins July 1. The $168 million worth of credits awarded in 2010 was down 51 percent from the record tax credit year of fiscal 2007, when $346.6 million in credits were awarded.

Some categories of credits increased dramatically, however. Awards under the Research Activities Tax Credit more than doubled from $15.8 million in 2010 to $45.4 million in 2011, the report said.

Iowa Policy Project Research Director Peter Fisher has studied Iowa's tax credit programs. He said the decline in tax credit awards was not surprising, "since a lot of them are tied to new investment and job creation, and that's not something a lot of companies do in a recession."

Fisher said the Research Activities Credit, one of the largest economic development tax credits, was actually just returning to levels of prior years in 2011 after falling steeply in 2010. The program rewards companies for increasing research spending in Iowa, so any pullback in research spending would eliminate rewards for a company in that year.

Iowa's cap on economic development assistance tax credit programs was set at $185 million effective July 1, 2009, and fell to $120 million effective July 1, 2010. Seven programs have been placed under caps, including the Enterprise Zone Program, High Quality Jobs Program and the currently suspended Film, Television and Video Project Promotion Program.

Revenue officials project that tax credit claims will continue to increase in 2012 and future years, but at a pace slower than in recent years.

Iowa offers two different categories of tax credits. Awarded credits require the taxpayer to apply and a specific award to be granted to claim the credit. The total amount of those credits may be capped.

Automatic credits may be claimed by any eligible taxpayers. The amount of claims is not capped.

Revenue officials said the amount of awarded tax credits rose rapidly between fiscal 2003 and fiscal 2007, then declined. The big increase from 2003 through 2007 was likely due to awards made to biofuel producers, the report said, while the decline was likely due to credit caps and the reduction in economic activity caused by the recession.

The biggest decreases in awards during 2011 were in the Housing Enterprise Zone program and the Film Tax Credits program due to the suspension of new projects, the report said.

Awards grew substantially during 2011 in the Enterprise Zone Program, which rose from $16.7 million to $21 million, and the Endow Iowa Tax Credit. Awards under the Agricultural Assets Transfer Tax Credit grew from $2.6 million to $3.6 million.

Fisher said he found it likely that economic conditions contributed more to the decline in overall tax credit awards than the caps.