Tax Advantages & Incentives
In Greater Des Moines (DSM), “greater” isn’t just part of our name. Here, we’re doing something greater. As a top 10 metro for the number of economic development projects in our population class (200,000-1 million, Site Selection Magazine, 2023), businesses are growing and expanding in the region. One of the reasons? New and existing businesses in DSM enjoy a number of corporate tax advantages and one of the best business climates in the country.
Learn more about these advantages and how they can give your business a profitable edge and empower you to do something greater.
Tax Advantages
Iowa Income Tax
On March 1, 2022, Iowa's Governor signed a tax reform bill that will significantly reduce Iowa individual income tax rates and brackets for tax years beginning January 1, 2023 through December 31, 2025. A flat income tax rate will be implemented January 1, 2026 and will result in an average tax savings of over $1,300 per family. The state will provide the following tax rate reductions over this period of time:
- For taxable years beginning 2023, the top tax rate is 6.00%
- For taxable years beginning 2024, the top tax rate is 5.70%
- For taxable years beginning 2025, the top tax rate is 4.82%
- For taxable years beginning 2026, the tax brackets will be reduced to a single tax bracket and flat income tax rate of 3.90%
Additionally, the tax reform legislation phases down the corporate income tax, with a target rate of 5.5 percent. Iowa’s tax is based only on the percentage of total sales income within the state. Thus, if a business has no sales in Iowa, it pays no Iowa corporate income tax.
Iowa New Jobs Tax Credit
Businesses entering into an agreement under the state's training program and increasing their workforce by at least 10% qualify for this credit to their Iowa corporate income tax. The credit is equal to 6% of the state unemployment insurance taxable wage base. The credit for 2024 is $2,292 per employee. The tax credit can be carried forward up to 10 years.
Research and Development Tax Credit
A partially refundable credit for increasing research activities is up to 6.5% of the company’s allotted share of qualifying research expenditures in Iowa. A company must meet the qualifications of the federal research activities credit and be engaged in the manufacturing, life sciences, software engineering or aviation and aerospace industry to be eligible for the credit on the Iowa return. Companies approved for expansion under the High-Quality Jobs program may be eligible for the amount of the tax credit to be increased for qualifying research and development activities.
No Sales and Use Tax on Machinery and Equipment
The purchase of industrial machinery, equipment and computers used in manufacturing or the processing of data by insurance companies, financial institutions or certain commercial enterprises is exempt from Iowa sales or use tax.
No sales tax is due on purchases of electricity or natural gas used in the manufacturing process.
No Property Tax on Industrial Machinery and Equipment
There is no property tax on industrial machinery, equipment and computers.
Pollution control equipment is eligible for exemption from property tax. An application must be filed for exemption.
No Personal Property (Inventory) Tax
In Iowa, personal property is not assessed for tax purposes. Personal property includes corporate inventories for salable goods, raw materials and goods-in-process.
Iowa offers an array of financial assistance programs to make starting a business in Iowa easier. Funds may be awarded as a forgivable loan, low- or no-interest loan, or principal or interest buydown on a loan. Here's a general overview of what's available.
High-Quality Job Creation Program
Provides qualifying businesses tax credits to offset the cost incurred to locate, expand or modernize an Iowa facility. To qualify for this flexible assistance package that includes tax credits, exemptions and/or refunds, a business must be a non-retail or non-service business and meet wage requirements.
Iowa New Jobs Training Program
The Iowa Industrial New Jobs Training (260E) program assists businesses creating new positions with new employee training. If a company is expanding operations, or locating a new facility in the state, the program can provide flexible funding to meet the wide variety of training and employee development needs for its new employees. Examples of fund use include screening and assessment, travel for training purposes, in-plant instruction, costs of training facilities, equipment and supplies, etc. The program is paid for by the new employees' withholding taxes at no cost to the employee or the company. These taxes may be diverted for a 10-year period to pay for upfront training costs.
Infrastructure Programs
Funding for rail and road improvements is available through the Iowa Department of Transportation.
Local Incentive Programs
Local incentives are offered by many of the metro communities. These incentives include direct financial assistance programs, infrastructure improvements and forgiveness of property taxes. The Partnership will facilitate discussions with local communities to evaluate incentives for businesses.
Tax Increment Financing (TIF)
City councils or county boards of supervisors may use the property taxes resulting from the increase in taxable valuation because of construction of new industrial or commercial facilities to provide economic development incentives to a business or industry. Tax increment financing may be used to pay the cost of public improvements and utilities that will serve the new private development, to finance direct grants or loans to a company, or to provide a local match for federal or state economic development assistance programs. TIF does not increase a company's property taxes, but it allocates virtually all of the increased taxes that are paid back to the city or county, where they may be spent to benefit the company.
A complete list of state tax advantages and incentives is available here.