Iowa Basic Business Taxes 2010
Iowa's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include corporate income tax, property tax exemption, and sales and use taxes.
Iowa corporate income tax is a non-unitary, single-factor formula based only on profits from sales in the state. Iowa also allows a 50 percent deduction of federal corporate income tax apportioned to Iowa in computing state taxes. Tax rates vary from 6 percent to 12 percent depending upon income produced. Payroll and property owned or leased in Iowa are not taken into consideration in the sales formula.
Job creation tax credit:
A new jobs tax credit may be deducted from corporate gross income (to the extent that it increased federal taxable income) for state income tax purposes. Firms entering a job training agreement under Iowa Code Chapter 260E and increasing base employment by 10 percent, and new industries creating jobs, get a credit against personal or corporate income taxes. For 2009, the jobs tax credit equals $1,422 per new employee.
Research and development:
A refundable corporate income tax credit of 6.5 percent is available for research expenditures within the state. The income tax credit for increasing research activities is 6.5 percent of the taxpayers' apportioned share of qualifying research expenditures in Iowa. The research and development credit is doubled (up to 13 percent) under the High Quality Jobs Creation Program and in enterprise zones. A sales tax exemption applies to certain property purchased for research and development.
Cities and counties with areas of economic distress may receive certification of enterprise zones to offer added incentives for business investments. Employers locating in enterprise zones may receive the following benefits: property tax exemptions on land and buildings; an investment tax credit of up to 10 percent against state corporate income taxes; refunds of sales, services, or use taxes paid to contractors during construction; up to 13 percent research-and-development activities credit against corporate income taxes; and double the usual income tax withholding increment to use for job training. To receive the benefits, businesses must invest at least $500,000, hire at least 10 persons at target wage and benefit levels; and not be retail establishments.
Taxes on property are levied by cities, counties, townships and school districts. All property is assessed at 100 percent of market value. However, agricultural property market value is based on a productivity factor within the taxing jurisdiction. The tax on personal property has been eliminated.
Business inventory tax:
Business inventories are exempt from tax.
Air and water pollution-control equipment is exempt from property tax.
Property tax exemption:
A city or county may provide a partial exemption from property taxation of the actual value-added to industrial real estate, research-service facilities, warehouses, distribution centers, and owner-occupied cattle facilities by new construction. For year one, the reduction is 75 percent, and it decreases by 15 percent per year until the sixth year, when it returns to normal assessment. The state's Urban Revitalization Act helps stimulate redevelopment of blighted or deteriorated areas. All qualified real estate is eligible to receive an exemption from taxation on the actual value-added by improvements. Businesses are allowed to take a three-year, 100 percent exemption or a declining scale exemption for a 10-year period. Larger exemptions are available under the New Jobs and Income Program.
Machinery and equipment used in the process of recycling and conversion of waste plastic, wastepaper products, or waste paperboard into new raw materials or products composed primarily of recycled materials are exempt from property tax.
Industrial machinery and equipment:
Railroad rolling stock is exempt from sales tax. Industrial machinery, equipment, and computers are exempt from sales taxes. Iowa has repealed property tax on machinery, equipment, and computers.
Sales and use taxes:
A 6 percent sales tax is imposed on gross receipts from retail sales of tangible personal property, admissions, rentals, and certain services. Property subject to sales tax is exempt from use tax if sales tax has previously been paid. Industrial machinery, equipment, and computers assessed as real property and used for manufacturing or to process data by insurance companies, financial institutions, or certain commercial enterprises are exempt from sales tax. Interstate telecommunications services are also exempt from sales tax. Purchases of electricity or natural gas used directly in the manufacturing process are exempt from sales tax.
Industrial fuels and raw materials:
Industrial chemicals directly used, consumed, dissipated, or depleted in processing personal property for resale are exempt from sales and use taxes. Containers and packaging materials, fuels, industrial steam, and electricity directly used in processing are exempt from sales tax.
Energy and fuel conservation measures:
The federal alcohol fuel credit may be deducted from the gross corporate income for state income tax purposes. Sale of gasohol is exempt from sales tax when used in an over-the-road vehicle. Installation of a solar energy system on commercial or industrial property does not increase the taxable value for purposes of property taxation for five years.
Iowa State Contact:
Iowa Department of Economic Development
200 East Grand Avenue
Des Moines, IA 50309
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.