Iowa research tax credit should go back to incentivizing high-paying jobs

Iowa research tax credit should go back to incentivizing high-paying jobs | Opinion

Posted by author January 28, 2025 Jobs

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The Research Activities Tax Credit changes increased compliance costs for taxpayers and make the credit even more challenging for the state to administer.

Nate Ristow
| Guest columnist

Since its formation in 1935, the Iowa Taxpayers Association’s mission has been to educate and inform Iowans about sound fiscal policy; provide state policymakers with objective, nonpartisan research about the impact of specific tax and spending policies; and advocate for the adoption of rational public fiscal policy as it relates to business taxes. ITA advocates for sound tax policy that is neutral, competitive, fair, simple, and consistent; these are our Guiding Principles for Sound Tax Policy.

Research is important for Iowa’s economic growth, and Iowa businesses invest billions of dollars in research that is performed here in Iowa. Tens of thousands of Iowans work in research jobs for these businesses. These businesses also employ tens of thousands of Iowans in the agriculture and manufacturing industries.

Historically, Iowa incentivized research activities with the Research Activities Tax Credit because research is an important driver for the state’s economy overall. The research credit incentivizes Iowa job creators to perform research here, in Iowa, employing Iowans.

ITA recently surveyed its membership and found that, among those respondents, over $800 million was invested on average annually in research activities in Iowa. The work of over 5,000 Iowans each year on average contributed to the research activities for which a credit was claimed. We estimate our survey captures 25% of the total research investment made by Iowa companies that claim the research credit.

These research jobs paid on average over $105,000 per year. These are the high-paying jobs Iowa should want to retain and grow. Furthermore, the income tax collected on these wages outpaced the research credit incentives.

However, in tax year 2023, the research credit incentive was rolled back and became more complex to calculate, adding more burden to Iowa companies while reducing the benefit. The changes reduce the number of Iowans employed in research activities that are counted toward the credit going forward.

Changes to the Research Activities Tax Credit were not sound tax policy under two of ITA’s guiding principles: competitive and simple.

Competitive tax policy should support the state’s economic growth initiatives and create a good business climate. Reducing the incentives for Iowa employers to retain and expand their research workforce in Iowa runs counter to creating a good business climate and supporting economic growth. Prior to 2023, Iowa had one of the most beneficial research and development credits as compared with other states. That is no longer the case. Iowa risks losing jobs or stalling growth in research.

Simple tax policy should be transparent and easy to understand, comply with, and administer. Tax law should allow for cost-effective compliance by taxpayers and straightforward administration by the state. The Research Activities Tax Credit changes increased compliance costs for taxpayers and make the credit even more challenging for the state to administer.

While businesses certainly weigh many factors when deciding where to expand their operations, such as infrastructure, workforce, and natural resources, a competitive tax environment is important. Having a competitive incentive for creating and retaining research jobs in Iowa is an important tool when Iowa is competing with states that have other advantages over our state.

As the Legislature continues its work in 2025, the Iowa Taxpayers Association encourages lawmakers to revisit the incentive structure for research activities in Iowa. Research drives innovation and economic growth, and ultimately job creation in our state. The incentive structure should be simple and create certainty for Iowa job creators, while keeping Iowa competitive with other states’ business climate.

Nate Ristow is president and CEO of the Iowa Taxpayers Association.

This essay has been updated to correct the author’s name, which was incorrect because of an editing error.