Fiscal Note
Fiscal Services Division
HF 642 – Economic Development Authority, Major Economic Growth Attraction Program
(LSB1228XD)
Staff Contacts: Evan Johnson (515.281.6301) evan.johnson@legis.iowa.gov
Molly Kilker (515.725.1286) molly.kilker@legis.iowa.gov
Fiscal Note Version – New
Description
House File 642 creates the Major Economic Growth Attraction (MEGA) Program under the Iowa
Economic Development Authority (EDA). The Bill allows foreign businesses to acquire
agricultural land in Iowa and receive tax credits if the foreign business is from an allied country,
the land is a certified MEGA site, and the business meets necessary requirements set by the
EDA. Program tax credits under the Bill include a Qualifying Investment Tax Credit, a sales tax
refund, and a withholding tax credit.
Applications for the MEGA Program will be submitted to the EDA and must include an
application fee set by the EDA. The terms and value of tax incentives under the Program may
be negotiated by the EDA and the eligible business. If the eligible business fails to comply with
requirements of the Program or agreements with the EDA, the eligible business may be
required to repay tax incentives or may be subject to a reduction or elimination of tax incentives.
To be eligible for the MEGA Program, businesses must meet all of the following requirements:
• The proposed project must be located at a certified site greater than 250 acres.
• The business’s investment in the proposed project must exceed $1.000 billion.
• The community in which the proposed project is located must approve the project.
• The business must be primarily engaged in advanced manufacturing, biosciences, or
research and development.
• The business must not be solely relocating operations from one area of the State to another.
• The business must create jobs that pay at least 140.0% of the qualifying wage threshold as
part of the proposed project.
• The business must provide comprehensive benefits to each employee in a project job.
• The business must not have a record of violations of the law or regulations, as determined
by the EDA.
The following criteria will be used by the EDA to determine whether a business is eligible to
participate in the MEGA Program:
• The quality of jobs created as a result of the project.
• The project’s impact on the business’s existing competitors within the State.
• The project’s impact on the State economy.
The EDA may authorize an investment tax credit for an eligible business of up to 5.0% of the
business’s qualifying investment in a certified site. The tax credit is allowed against individual
and corporate income taxes, the franchise tax, the insurance premiums tax, and the moneys
and credits tax. The tax credit may not be claimed until after the project has been placed in
service and at least 50.0% of the project jobs specified in the contract have been created.
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An eligible business that has been issued a tax incentive under the Program will receive a
refund of the sales and use taxes paid for gas, electricity, water, and sewer utility services;
tangible personal property; or services rendered, furnished, or performed that contributed to the
construction or equipping of the facility. The refund will be paid by the Iowa Department of
Revenue (IDR) equally over five years. A contractor or subcontractor who willfully makes a
false report of tax paid under the Program commits an aggravated misdemeanor.
An eligible business may claim a withholding tax credit of up to 3.0% of the gross wages paid to
each employee in a project job that pays at least the qualifying wage threshold under the
agreement. If the amount withheld is less than 3.0% of the gross wages, the business will
receive a credit against the remaining withholding tax due, or the business may carry forward
the credit up to five consecutive years or until depleted.
An eligible business may apply for additional federal, State, and local incentives except for
those under the High Quality Jobs Program, the Targeted Jobs Withholding Tax Credit, or other
incentives at the discretion of the EDA.
A community in which an eligible business’s project is located may grant the eligible business a
property tax exemption for the actual value added by improvements to real property directly
related to the eligible business’s project jobs. The exemption is not applied to levies on school
districts within the taxing jurisdiction.
Background
Under current law, a foreign business may not acquire agricultural land in the State except as
stated in Iowa Code section 9I.3(3). A foreign business is defined under Iowa Code section 9I.1
as a corporation incorporated under the laws of a foreign county, or a business entity whether or
not incorporated, in which a majority interest is owned directly or indirectly by nonresident
aliens. Legal entities, holding companies, multiple corporations, and other business
arrangements do not affect the determination of ownership or control of a foreign business.
There is currently one development-ready MEGA site in the State.
An aggravated misdemeanor is punishable by confinement for no more than two years and a
fine of between $855 and $8,540.
Assumptions
Correctional Impact Assumptions
• The following will not change over the projection period: charge, conviction, and sentencing
patterns and trends; prisoner length of stay (LOS); revocation rates; plea bargaining; and
other criminal justice policies and practices.
• A lag effect of six months is assumed from the effective date of this Bill to the date of first
entry of affected offenders into the correctional system.
• Marginal costs for county jails cannot be estimated due to a lack of data. For purposes of
this analysis, the marginal cost for county jails is assumed to be $50 per day.
Fiscal Impact Assumptions
• The Program will be enacted on July 1, 2023; the first agreement will be entered into by the
EDA during FY 2024; and the first claims will be made in FY 2027.
• Because there are no program caps in the Bill, it is assumed that the full amount of the
award will be made for each of the tax credits proposed and that all credits will be fully
refunded rather than carried forward against future tax liability.
• All credits will be remitted in the same year they are claimed.
• Up to three projects may qualify under the terms of the Bill over the next five years.
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• The EDA will allocate the full amount of the award in the first year of the project, but claims
will not be made until three years after the award is granted, upon project completion.
• The 50.0% requirement for jobs created will be met in the first year of the project completion.
• The withholding tax credit will be remitted over a maximum of five years due to the
restriction of not withholding more than 3.0% of wages in any one year.
• An amount equal to 25.0% of a project investment will be subject to sales tax and sales tax
refund.
Correctional Impact
House File 642 establishes a new criminal offense, and the correctional impact cannot be
estimated due to a lack of existing conviction data. A conviction for a simple misdemeanor does
not result in a prison sentence but does carry the possibility of confinement for up to 30 days.
Marginal county jail costs are estimated to be $50 per day. Refer to the Legislative Services
Agency (LSA) memo addressed to the General Assembly, Cost Estimates Used for
Correctional Impact Statements, dated January 20, 2023, for information related to the
correctional system.
Minority Impact
House File 642 creates a new criminal offense. As a result, the minority impact cannot be
estimated due to a lack of existing conviction data. Refer to the LSA memo addressed to the
General Assembly, Minority Impact Statement, dated January 20, 2023, for information
related to minorities in the criminal justice system.
Fiscal Impact
The Bill is estimated to reduce General Fund revenue by $18.2 million to $18.9 million per
project per year when fully phased in. The fiscal impact of the property tax exemption will be
borne by the local government authority and is unknown.
Table 1 shows the estimated fiscal impact of the MEGA Program for one project over the
five-year period.
Table 1 — MEGA Program Award and Claim Assumptions (in Millions)
Qualifying
Investment Sales and Use Withholding Total Tax
Tax Credit* Tax Refund** Tax Refund*** Credits/Refunds
Award in Year 0 $ 50.0 $ 15.0 $ 27.7 $ 92.7
Claims by Year
FY 2025 $ 0.0 $ 0.0 $ 0.0 $ 0.0
FY 2026 0.0 0.0 0.0 0.0
FY 2027 10.0 3.0 5.2 18.2
FY 2028 10.0 3.0 5.4 18.4
FY 2029 10.0 3.0 5.5 18.5
FY 2030 10.0 3.0 5.7 18.7
FY 2031 10.0 3.0 5.9 18.9
*Qualifying Investment Tax Credit = 5.0% of $1.000 billion investment, claimed over five years.
**Sales Tax Refund = 6.0% of 25.0% of the $1.000 billion investment, claimed over five years.
***Withholding Tax Refund = 3.0% of withholding, claimed over five years.
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Sources
Department of Revenue
Economic Development Authority
Legislative Services Agency
/s/ Jennifer Acton
March 30, 2023
Doc ID 13706071370607
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: 9I.3