Research Activities Credit Under Attack

From this week’s House Republican Newsletter:

The Research Activities Credit (RAC), also commonly referred to as the R&D credit, has been a topic of discussion as a result of the Governor’s proposal to eliminate $13 million from the program in his budget recommendations.

RAC is equal to 6.5% of qualified research expenditures. The credit is allowed for the portion of a company’s research expenditures that can be apportioned to Iowa. It is a refundable credit in the year claimed, meaning companies receive tax refunds if tax liability does not exceed the value of the credit. Very few states have the refundable component tied to it, a key to attracting and retaining businesses and jobs.

As the members of the Economic Growth Committee learned Thursday, February 5, 2009, RAC is a critical tool used to lure employers to conduct their business in Iowa. The full committee received testimony from representatives of Iowa’s biotechnology sector on the importance of fighting efforts to weaken RAC and enacting policies to strengthen it. Representatives from the Iowa Biotechnology Association, Monsanto, Pioneer, Cellular Engineering Technologies and Kemin Industries spoke on the current economic climate and the future of biotechnology in Iowa. A common theme from those who presented was clear: if the legislature is going to change RAC in any way, increase the program; do not cut it. Legislators asked the guests why they chose Iowa to do business. While RAC was not the sole factor in their selection process they each answered that it was an issue they considered as they studied each state’s tax structures, it did make Iowa more attractive than other states.

With the current economic conditions in mind, House Republicans are asking three questions when considering the Fiscal Year 2010 budget and other important policies as they relate to the livelihood of Iowa’s economy. And, have applied this test to RAC:

Will it provide incentives to businesses to locate their operations in Iowa? Yes.

Will it create jobs? Yes.

As a result, will it strengthen our economy? Yes

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Dansette