Are R&D Tax Credits Available in Iowa?

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.

• Only expenses incurred in Iowa can be captured towards the Iowa research activities credit.
• Taxpayers in the following industries are eligible to claim the Iowa research credit:
  • Manufacturing
  • Life sciences
  • Agrisciences
  • Software engineering
  • Aviation and aerospace
• The Iowa research credit is calculated by adding:
  • 6.5% of the excess of Iowa QREs over the base amount, and
  • 6.5% of basic research payments.
• The base amount is calculated by multiplying a fixed-base percentage by the taxpayer’s average annual gross receipts for the 4 prior tax years. The base amount may not be less than 50% of QREs.
• There is also an alternative simplified credit (ASC) calculation method available to calculate the Iowa research credit, and is similar to the federal ASC method. Iowa's Alternative Simplified Credit is 4.55% of expenditures that occurred in Iowa for the past three years.
• For tax years beginning in 2023, Iowa taxpayers that elected or were required to use the ASC method for federal tax purposes must also use this method for the Iowa research credit calculation for the same tax year.
• Excess Iowa research credit may be refunded to the taxpayer, or is carried forward to the following tax year.
• 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. Different percentages are applied for companies using the ASC method.