Are R&D Tax Credits Available in Iowa?

Yes. The state of Iowa provides the Research Development (R&D) Tax Credit similar to the federal Tax Credit version in that it allows the credit to be calculated using either the Regular or Alternative Simplified Credit Method. Additionally, the definition of qualifying research is the same as defined in IRC Sec. 41. Below are some of the differences between the federal Tax Credit and the Iowa Tax Credit.

  • The Iowa Tax Credit is fully refundable after a company's tax liabilities are met.
  • Only expenses incurred in Iowa can be captured towards the Iowa research activities credit.
  • The Iowa regular credit is 6.5% of the lower of qualifying research expenditures that exceed a base amount or 50% of qualifying research expenditures.
  • Iowa's Alternative Simplified Credit is 4.55% of expenditures that occurred in Iowa for the past three years.
  • Companies that receive awards from the Iowa Economic Development Authority under the Enterprise Zone Program or the High-Quality Jobs Program can calculate a Supplemental Research Activities Credit. The Supplemental Credit is an additional 10% of a company's qualifying incremental research expense for gross revenues less than $20 million and 3% for a company with gross revenues over $20 million.
  • The Supplemental Research Activities Credit must be calculated using the same method that the Research Activities Tax credit was calculated.

Iowa R&D Tax Credit Case Study

A Company that has a development and design facility in the automotive field in Iowa had previously taken the R&D Tax Credit, but had not done so in recent years. This project involved a three year study.

The Company qualified for the federal R&D Tax Credit of $305,063 and an additional $99,145 in refundable Iowa state R&D Tax Credit.

Total QREs
Total QREs
Year 3
Year 2
Year 1
Total $7,245,503 $305,063 $7,245,503 $99,145

You can read more about this Iowa tax credit case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.