Incentives Watch: Iowa Gives Credits Where Credits are Due

Spring is a time for new growth and improvement, both in nature and in society. Snow melts, flowers bloom and the weather improves. Baseball players start spring training. Most importantly, states have budget season to review and reevaluate their annual expenditures. Iowa’s recent assessment of its tax credits is a useful example of this stateside seasonal scrutiny.

The Iowa Department of Revenue recently released its Tax Credits Contingent Liabilities Report. The report compares the state’s tax credit awards from fiscal year 2016 to earlier years, and projects the state’s contingent tax credit liability and awards for fiscal year 2017. 

Overall, the dollar amount of credits awarded for fiscal year 2016 is down 5.8 percent from 2015 and 22.5 percent from 2012, according to the report. Looking forward, the report predicts Iowa’s tax credit awards to increase over the next two fiscal years. And not everyone is happy about it.

Some members of the state’s legislature are concerned about that possible trend and are seeking to reverse it. New legislation in the Iowa House of Representatives proposes to place a yearly limit on the number of credits that may be awarded and reduce the amount of credits to be awarded over the next four years, according to Radio Iowa.

While legislators often debate the merit of a tax credit’s purpose or the need to incentivize certain behaviors, the basic question is: does the benefit of the tax credit outweigh the cost? 

For example, take the debate surrounding S.F. 279, which proposes increasing the state’s scholarship tax credit. Supporters of the credit argue that the benefit of increased educational freedom is greater than the cost, while opponents of the credit argue that it is an improper use of state funds, according to The Des Moines Register

Reports like Iowa’s Tax Credits Contingent Liabilities Report help states weigh the cost and benefits of their tax credits. That is one of the underlying reasons why so many states have started reviewing their tax incentive programs

*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: How does your state evaluate income tax credits?

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