Fiscal Note
Fiscal Services Division
SF 408 – Economic Development Authority Policy Bill (LSB1164SV.1)
Staff Contact: Molly Kilker (515.725.1286) molly.kilker@legis.iowa.gov
Fiscal Note Version – Revised (Division I)
Description
Senate File 408 relates to various programs within the Iowa Economic Development Authority
(IEDA). Table 6 summarizes the fiscal impact of SF 408.
Division I — Tax Credit Programs
Description
Division I of the Bill amends the Innovation Fund Tax Credit (IFTC), Qualifying Business Tax
Credit (QBTC), and Renewable Chemical Production Tax Credit (RCPTC) programs. The
Division changes the annual cap on the allocation of tax credits from $2.0 million for the QBTC
program and $8.0 million for the IFTC program to an aggregate annual cap of $10.0 million for
both programs.
The IFTC is amended by eliminating the wait list and extending the time the IEDA may certify an
Innovation Fund from FY 2023 to FY 2028.
The Division is effective July 1, 2023, for investment tax credit program applications submitted
to the IEDA for investments in Innovation Funds or qualifying businesses.
The Division removes serine, threonine, lysine, and nonfuel ethanol from the definition of
“building block chemical” and increases the annual tax credit limit for companies that have been
in existence for five years or more to $1.0 million. The Division extends the availability of the tax
credit to July 1, 2036, and extends the future repeal date to July 1, 2039. Division I of the Bill
also extends the future repeal date for taxes imposed under Iowa Code sections 422.10B and
422.33 from January 1, 2033, to January 1, 2041.
The Division amends Iowa Code section 15E.44 by adding that in addition to the current
requirements, a business must also be engaged primarily in advanced manufacturing,
biosciences, finance, insurance, information technology, or educational technology to qualify for
the QBTC. Iowa Code section 15E.44 is also amended to shorten the requirement for an
investor in a qualifying business to provide required information to the IEDA from within 120
days to within 60 days of the first investment. The Bill also requires that the IEDA verify the
eligibility of a qualifying business and an investor’s investment in the qualifying business prior to
issuing a credit certificate.
Background
The IFTC allows equity investments to be made into a qualifying Innovation Fund, which is
administered by the IEDA. A certified Innovation Fund makes investments in promising
early-stage companies whose principal business operations are located in Iowa if those
companies are engaged primarily in advanced manufacturing, biosciences, and information
technology. Iowa Code section 15E.52 defines an “innovative business” as one that engages
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primarily in advanced manufacturing, biosciences, and information technology. The Bill adds
“educational technology” to this definition.
The IEDA is also responsible for the QBTC, which is focused on “angel investors” that make
investments directly into start-up companies.
In order to be a qualifying business, the business must meet all of the following criteria:
• The principal business operations are located in Iowa.
• The business has been in operation for six years or less.
• The business is participating in an entrepreneurial assistance program.
• The business is not primarily engaged in retail sales, real estate, or the provision of health
care or other services that require a professional license.
• The net worth of the business does not exceed $10.0 million.
• At the time of the application, the business has secured at least two investors and total
equity financing, binding investment commitments, or some combination thereof, equal to at
least $500,000, from investors.
Because demand exceeds the existing annual cap, the IEDA is not currently accepting
applications for the QBTC tax credit, effective April 1, 2022. The IEDA has waitlisted
applications that were received and have not yet been awarded because the cap was reached.
The wait list is projected to be fully awarded after July 1, 2025.
The RCPTC is available to approved businesses that produce renewable chemicals from
biomass feedstock in Iowa. The tax credit is equal to $0.05 per pound of renewable chemicals
produced. To qualify for the credit, a business must apply to and enter into an agreement with
the IEDA prior to the production of any pound of chemical that will earn the tax credit. The tax
credit is available for qualified renewable chemicals produced from January 1, 2017, through
December 31, 2035.
Assumptions
• Applications for the QBTC that are currently waitlisted will be awarded tax credit
certifications in FY 2024, and no new applications for the QBTC will be accepted until the
wait list is cleared.
• Claims will be made over the projected years at the current claim rate.
• The IEDA will allocate all of the $10.0 million in tax credits available for FY 2024 to FY 2028
in the proportions based on past award information.
• Claim rates of tax credits will be similar to historical claim rates for both credits.
Angel Investor
(QBTC) Tax Credit Innovation Fund Tax
Claim Rates Credit Claim Rates
Year 0 0.0% Year 0 2.0%
Year 1 33.0% Year 1 24.0%
Year 2 37.0% Year 2 37.0%
Year 3 8.0% Year 3 14.0%
Year 4 3.0% Year 4 7.0%
Year 5 2.0% Year 5 4.0%
Year 6 1.0% Year 6 2.0%
Total 84.0% Total 90.0%
• All current requirements regarding minimum and maximum investments per company or
fund, and maximum claims per taxpayer, are assumed to remain in place and to be met by
applicants under the Bill.
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• The QBTC and IFTC tax credit claims are estimated to begin in FY 2025, with Year 0 of the
claim beginning in FY 2024.
• For the purposes of this estimate, 50.0% of the IFTC will have a local surtax impact, and
66.0% of the QBTC will have a local surtax impact.
• The proposed changes to the RCPTC program will not impact current RCPTC award
recipients. Participating companies will continue to receive certificates prior to the existing
deadline until five certificates have been awarded to each eligible business.
• Changes to program limits will not have a significant impact to the General Fund and are not
included in the fiscal estimate.
• One new renewable chemical facility will qualify under the terms of Division I in each of the
next three years.
• For the first renewable chemical facility, production will begin in CY 2025, the first certificate
will be issued in FY 2026, and the first fiscal impact will occur in FY 2027. Additional
facilities will follow the same fiscal pattern as the first renewable chemical facility.
• The production in all new facilities will be sufficient to be awarded the maximum credit of
$1.0 million per year for five years.
• The timing of future RCPTC claims will be similar to the historic timing of claims.
• Eliminating the wait list for the RCPTC and the IFTC will not reduce revenue, as neither
program has reached the tax credit cap.
• There will be a negligible net impact to the General Fund for currently participating
companies that have been in existence for five or more years.
• Table 1 shows the timing of RCPTC claims by year based on historical trends.
Table 1
Timing of Refundable
Tax Credits
Year 1 35.4%
Year 2 37.6%
Year 3 26.1%
Year 4 0.9%
Total 100.0%
Fiscal Impact
Senate File 408 would increase investment tax credits awarded and claimed each year, thus
decreasing revenues to the General Fund. The fiscal impact of expanding the definition of an
“innovative business” and expanding the criteria for a “qualifying business” cannot be estimated
with current data. Table 2 shows the estimated General Fund revenue reduction for the IFTC.
Table 3 shows the estimated General Fund revenue reduction for the QBTC.
Table 3 — QBTC Expected Claims ($ in Millions)
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
QBTC Under Current Law $ -1.7 $ -1.7 $ -1.7 $ -1.7 $ -1.7
QBTC After Proposed Law -1.7 -2.7 -3.7 -3.6 -3.6
Revenue Reduction $ -0.0 $ -1.0 $ -2.0 $ -1.9 $ -1.9
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Table 4 shows the local surtax impact of the IFTC and the QBTC.
Table 4 — Local Surtax Impact
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
IFTC $ 1,250 $ 16,313 $ 40,375 $ 35,856 $ 55,288
QBTC 111 16,218 33,264 33,969 56,908
Total $ 1,361 $ 32,530 $ 73,639 $ 69,825 $ 112,195
The initial impact of the RCPTC program to the General Fund under Division I is projected to
occur by FY 2027. The revenue reductions in the first four years, FY 2028 to FY 2031, are a
result of the new awards and additional companies participating in the RCPTC program. The
RCPTC program is estimated to reduce General Fund revenue by a total of $9.3 million by
FY 2031, as shown in Table 5.
Table 5
General Fund
Revenue Reduction
($ Millions)
FY 2027 $ -0.4
FY 2028 -1.1
FY 2029 -2.1
FY 2030 -2.7
FY 2031 -3.0
Division II — Iowa Wine, Beer, and Spirits Promotion Board
Description
Division II of SF 408 broadens the membership of the Iowa Wine and Beer Promotion Board to
include spirits. Correspondingly, the Board’s membership is increased from three members to
four, each representing one of the three entities of the Board (wine, beer, and spirits) with a
single representative from the IEDA. Moneys appropriated to the IEDA from the Wine
Gallonage Tax, Barrel Tax Revenue, and Beer and Liquor Control Fund, as well as moneys
transferred to the IEDA, may be used by the IEDA to promote Iowa wine, beer, and spirits,
including administrative expenses incurred under the promotion.
Division II transfers the lesser of $250,000 or up to 1.0% of native distilled spirits revenue to the
Board. The transfer from the Department of Commerce to the IEDA would be used to promote
beer, wine, and spirits made in Iowa, as well as for administrative expenses related to the
Board.
Assumptions
• Native distilled spirit sales are estimated to be between $1.4 million and $1.6 million annually.
• The predictions are based on historical sales data.
Fiscal Impact
Senate File 408 decreases revenue to the General Fund by between $130,000 and $160,000
per year beginning in FY 2024 and transfers the moneys to the IEDA to be used to support the
Wine and Beer Promotion Board.
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Summary of Fiscal Impact
Table 6 summarizes the estimated fiscal impact to the General Fund of SF 408.
Table 6 — Estimated Total Fiscal Impact ($ in Millions)
Division General Fund Impact FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
I Renewable Chemical Production Tax Credit $ 0.0 $ 0.0 $ 0.0 $ -0.4 $ -1.1
I Innovation Fund Tax Credit -0.1 -1.3 -3.2 -2.9 -4.4
I Qualifying Business Tax Credit 0.0 -1.0 -2.0 -1.9 -1.9
I Local Surtax Impact 0.0 0.0 -0.1 -0.1 -0.1
II Wine and Beer Promotion Board -0.1 -0.1 -0.1 -0.1 -0.1
Total Revenue Reduction $ -0.2 $ -2.4 $ -5.4 $ -5.4 $ -7.6
Sources
Iowa Department of Revenue
Iowa Economic Development Authority
Alcoholic Beverages Division, Department of Commerce
Tax Credit Award, Claim, and Transfer Administration System (CACTAS)
/s/ Jennifer Acton
April 7, 2023
Doc ID 1371238
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
www.legis.iowa.gov
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Statutes affected:
Introduced: 15.119, 15.316, 15.318, 15.315, 15E.44, 533.329, 15E.52, 422.10B, 422.12, 422.33, 15E.117, 123.143