DES MOINES - Every year, the state hands out tens of millions of dollars in tax credits to Iowa companies large and small to encourage research investments in the state.
And because the tax credits are refundable, Iowa companies can in some instances get a payout from state government if their credit is larger than what they owe in taxes.
A key lawmaker says the research credit is likely to come under review.
Sen. Joe Bolkcom, D-Iowa City, who chairs the Senate Ways and Means Committee, said he expects a series of proposals in the coming legislative session to lend more oversight and accountability to state tax credits, including the research activities tax credit.
"It represents a substantial financial commitment by state taxpayers, and I think we owe it to the taxpayers to make sure we're getting our money's worth," Bolkcom said.
The research activities tax credits amounted to $46.1 million in fiscal year 2009, up sharply from the $25.3 million awarded in 2000, and according to figures from the Iowa Department of Revenue.
The roster of businesses that have enjoyed benefits from the credits include a "who's who" of companies with Iowa operations such as Deere & Co., Archer Daniels Midland, HNI Corp., Rockwell Collins, Wells' Dairy and a long list of others.
Iowans currently have no guaranteed access to information about how much has been awarded to each company through the state's research activities tax credit. Until this year, the information has been considered confidential.
Companies that receive more than $500,000 from the credit after July 1, 2009, will have to be disclosed, the result of legislation passed last session.
"We were writing checks for millions of dollars to Iowa companies, and there's just a feeling that we should have some transparency to make sure we're getting (a) good investment," Bolkcom said.
An analysis by the revenue department shows the credits can be a substantial benefit to the companies' bottom lines.
A report issued last year by the department showed the average claim totaled more than $795,000 between 2000 and 2005 for firms with 500 or more employees.
Employers of that size made up more than 85 percent of the total claims. That report also found that 80 percent of the total corporate claims were made by firms in the manufacturing sector over the last 20 years.
Bolkcom said overall, the investment the state is making is a worthy one.
"The companies that get it are some of our best employers. I think we want to recognize that and use this credit in a way that has good oversight," Bolkcom said.
Proponents of the tax credit argue it keeps research and jobs in Iowa that could go elsewhere.
The research activities credit has been important for HNI Corp. in Muscatine, said Gary Carlson, the company's vice president of member and community relations.
He pointed to the development of new products and components for the office furniture and hearth products manufacturer, citing products made from sustainable resources as an example.
He said often, research and development work is done near where future products are going to be manufactured.
"Everything that the legislators can do to encourage research and development is critical to the long-term future of this state," Carlson said, noting that other states have increased their incentives.
He declined to say how much the company has received in Iowa's research activities credits.
Critics have said the tax credit is simply a giveaway to some of Iowa's biggest employers, and they would like to see it curtailed.
Victor Elias, senior policy associate with the Iowa Fiscal Partnership, questions whether the state should be paying profitable companies to do research he says they already would be doing.
Elias said there's no evidence that the credits have resulted in research that would not have been done without them.
"If you pay somebody to do something they're going to do anyway, that's not an incentive; that is waste," Elias said.
Companies can receive a tax credit of 6.5 percent for their research expenditures. That percentage can be increased, up to double, by the Iowa Department of Economic Development's board if the company qualifies for other tax incentive programs.
Elias questions using scarce tax dollars at a time when state government is laying off workers.
Elias said only a handful of states have refundable credits like Iowa's, and even those states have limits. Elias is in favor of limiting the credits each company can get each year to $250,000 or $100,000.
He also suggests an online database where the public can see which companies are getting the research credit or any business tax credit.
"I think anybody that gets the credit ought to be publicly identified," he said. Elias said there is a logical argument for giving a refundable credit to help start-up companies that need research to develop their products and processes, but not big, profitable companies.
The supplemental research credit will be a part of a $185 million cap lawmakers passed this year to limit the amount that can be claimed under five specific tax credits.
Ed Wallace, president of the Iowa Taxpayers Association, called the research activities credit one of the best credits Iowa offers. The organization advocates for tax policies on behalf of businesses.
The research credit allows many companies in the state to expand their research and development to employ scientists and engineers and encourages entrepreneurs and start-up companies, Wallace said.
He said firms have gotten used to Iowa's research credit, and making it less predictable for them could open the door to them considering doing their research elsewhere.
"There are a lot of states that are looking at expanding their research and development offerings in the hope of luring good, solid employers that would employ people at above a median wage," Wallace said.
John Gilliland, senior vice president for government relations with the Iowa Association of Business and Industry, concurs.
"The research activity credit in Iowa is one of Iowa's best and most successful economic incentives," he said. "The amount of private-sector investment and research that the Iowa credit generates far exceeds the return on investment of any other incentive programs the state has."