Dems: Ways & Means – week of March 14, 2016

March 21, 2016

SF 2300 – Renewable Chemical Production Tax Credit

HF 2433 – Tax coupling for 2015 and sales tax exemption for supplies used in manufacturing



SF 2300 establishes a Renewable Chemical Production Tax Credit administered by the Iowa Economic Development Authority (IEDA) to encourage industries to turn byproducts from biomass feedstock into higher-value building-block chemicals. The tax credit is awarded by weight: $0.05 per pound of renewable chemical produced in excess of the business’s pre-eligibility production threshold. The tax credit is limited to $1 million for start-ups and $500,000 for established businesses each production year. An eligible business may not receive more than five credits under the program.


The Renewable Chemical Production Tax Credit is capped at $10 million per year under IEDA’s $170 million aggregate cap. The credit is refundable and can be used against individual and corporate income taxes. The bill decreases the High Quality Jobs Program tax credit (also under the $170 million cap) by $25 million for five fiscal years. In FY22, IEDA will reduce the High Quality Jobs Program allocation by another $25 million for one more fiscal year if renewable tax credits awarded on or after July 1, 2019, but before July 1, 2021, equal or exceed $27 million.


The credit is available for chemicals produced between January 1, 2017, and December 31, 2026. The first tax credits cannot be awarded until July 1, 2018, and no credits can be claimed prior to September 1, 2018. Tax credits are awarded on a first-come, first-served basis.


The Renewable Chemical Production Tax Credit is added to the Legislative Tax Expenditure Committee review schedule. The bill requires IEDA to report to the Legislature and the Governor on the program. An amendment adopted on the floor clarified tax credit reporting information that will be included in the report. The tax credit information will be reported in the same manner as the Research Activities Credit.

[3/16: 46-3 (Bolkcom, Dearden, and Quirmbach “no”, Bertrand absent)]



HF 2433 (substituted for SF 2303) couples Iowa’s tax code with the federal tax changes for 2015, bringing tax relief to Iowa farmers, small, business owners, teachers and others. The largest portion of this update to the tax code is the expanded Section 179 expensing used by farmers and small business owners.


The bill also exempts consumable supplies used in the manufacturing process from sales taxes. There is an existing sales tax exemption for computers, machinery and equipment used by manufacturers and those engaged in processing, including replacement parts. Supplies would now qualify under that exemption. Examples include drill bits, grinding wheels, punches, taps, reamers, saw blades, lubricants, coolants, sanding discs, sanding belts and air filters.


This issue has been debated in the Legislature over the last three years, but a bill has never become law. Last fall, Governor Branstad and the Department of Revenue issued new administrative rules that would have enacted this sales tax exemption for consumable supplies without legislative approval. The rules included another sales tax exemption related real property used by manufacturers. This bill rescinds those rules.


The legislation updates the Iowa Internal Revenue Code to “couple” with federal tax law changes. Some of these changes to state tax law for tax year 2015 include extending:

  • Deduction of up to $250 for out-of-pocket expenses by teachers.
  • Up to $4,000 tuition and fees deduction for higher education expenses.
  • Choice to deduct state sales and use taxes in lieu of the standard deduction.
  • Some tax-free IRA contributions to eligible charities.
  • Allowing small businesses to expense, rather than depreciate, the first $500,000 of equipment costs (Section 179 expensing).
  • Premiums for mortgage insurance deductible as qualified residence interest.
  • Enhanced charitable deduction for contributions of food inventory.
  • Basis adjustment to stock of S corporations making charitable contributions.


The bill applies these changes for tax year 2015 only. These are taxes that are due this year. Farm taxes were scheduled to be filed by March 1, but the Department of Revenue delayed the filing deadline for those taxpayers to April 30, which is the filing deadline for all other taxpayers.


One change to federal legislation that is not included is the provision to provide a first-year depreciation allowance, known as 50 percent bonus depreciation. Iowa has not coupled its tax code to match this provision since it was included in the federal tax code in 2008. Businesses instead use standard depreciation schedules for these qualified expenses.


Consumable supplies have previously not been eligible for the sales tax exemption, which has been in place since 1998. These items were specifically listed as not qualifying for the exemption under administrative rules that had been in place since the exemption was created. It is estimated to save Iowa manufacturers and processors nearly $22 million in sales taxes in FY 17.

[Floor 3/15 HF 2433: 50-0; Committee 3/10 SF 2303: short form]

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