Iowa Research and Development Tax Credit Summary

The Iowa Research Activities Tax Credit is similar to the federal R&D 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 R&D Tax Credit and the Iowa Research Activities Tax Credit.

  • The Iowa Research Activities Tax Creditis 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 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 Research Activities credit, but had not done so in recent years. This project involved a three year study to claim credits for years 2011 through 2013. 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. Summary of credits:

Year Total QREs Credit Total QREs Credit
2013 $2,387,778 $95,853 $2,387,778 $30,827
2012 2,258,977 75,843 2,258,977 24,649
2011 2,598,748 87,338 2,598,748 43,669
Total $7,245,503 $305,063 $7,245,503 $99,145

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