Relating to the economic development authority, including certain tax credit programs, the Iowa wine, beer, and spirits promotion board, and the beer and liquor control fund, and including applicability provisions

Description

Senate File 575 relates to various programs within the Iowa Economic Development Authority (IEDA).

Division I — Tax Credits

Description

Division I of the Bill changes the Renewable Chemical Production Tax Credit (RCPTC) program, the Workforce Housing Tax Credit, and the Innovation Fund Tax Credit (IFTC). The Division removes serine, threonine, and lysine from the definition of “building block chemical” in regard to the RCPTC 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 RCPTC through FY 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 Bill also eliminates the wait list for the RCPTC.

Portions of the Workforce Housing Tax Credit criteria are also amended. Under current law, a housing project that is located in a small city, meets program requirements under Iowa Code section 15.353, and is developed at a greenfield site may qualify for the Workforce Housing Tax Credit. Division I provides that instead, a project may consist of the construction of new dwelling units at a greenfield site, among other potential qualifying criteria for the project. The Bill also eliminates the wait list for the IFTC and extends the time the IEDA may certify an Innovation Fund from FY 2023 to FY 2028.

Background

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. In each fiscal year beginning on or after July 1, 2023, and ending on or before June 30, 2036, the IEDA may award an amount of tax credits under the RCPTC not to exceed $5.0 million. By January 31 of each year, the IEDA Board, in cooperation with the Iowa Department of Revenue (IDR), must submit a report describing the activities of the program for the most recent calendar year to the General Assembly and the Governor. Iowa Code section 15.320 details the content requirements of the report.

The Workforce Housing Tax Credit is a program administered by the IEDA that assists in the construction or rehabilitation of housing in communities with workforce housing needs. The program provides tax benefits to developers to provide housing in Iowa communities, especially focusing on projects that use abandoned, empty, or dilapidated properties. The program benefit is limited to $1.0 million per project and provides tax incentives that include a refund of sales, service, or use taxes paid during construction. Developers may receive a State investment tax credit of up to 10.0% of the investment directly related to the construction or rehabilitation of the housing, or if qualifying under the Small Cities portion of the program, may receive a tax credit of up to 20.0% of the investment. The tax credit is based on the new investment used for the first $150,000 of value for each home or unit, is earned when the home or unit is certified for occupancy, and can be carried forward for up to five additional years or until depleted, whichever occurs first.

The IFTC allows equity investments to be made into an 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.

Assumptions

• 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, the 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. The other two plants will follow the same fiscal pattern as the first renewable chemical facility.
• The production in each of the new plants will be sufficient each year 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.
• The elimination of the wait list for the RCPTC and the IFTC will not reduce revenue as neither program has reached the tax credit cap.
• The IEDA assumes that there would 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.

Fiscal Impact

The initial impact of the RCTPC 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 RCTPC program. TheYear 1 35.4% Year 2 37.6% Year 3 26.1% Year 4 0.9% Total 100.0%

Timing of Refundable

Tax Credits

Table 1 RCTPC program is estimated to reduce General Fund revenue by a total of $9.3 million by FY 2031, as shown in Table 2.

The fiscal impact of the change in criteria to qualify for the Workforce Housing Tax Credit cannot be estimated with current data.

The extension of the sunset from FY 2023 to FY 2028 for the IFTC will decrease General Fund revenue as shown in Table 3.

Division II — Iowa Wine, Beer, and Spirits Promotion Board

Description

Division II of SF 575 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 Authority from the Wine Gallonage Tax, Barrel Tax Revenue, and Beer and Liquor Control Fund as well as moneys transferred to the Authority may be used by the Authority 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 575 is estimated to decrease revenue to the General Fund by approximately $130,000 to $160,000 per year beginning in FY 2024 and transfers the money to the IEDA to be used to support the Wine and Beer Promotion Board.

Summary of Fiscal Impact

Table 3 summarizes the estimated fiscal impact to the General Fund.FY 2027 -0.4$ FY 2028 -1.1 FY 2029 -2.1 FY 2030 -2.7 FY 2031 -3.0

General Fund

Revenue Reduction

($ Millions) Table 2Division 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 II Wine and Beer Promotion Board -0.1 -0.1 -0.1 -0.1 -0.1 Total Revenue Reduction -0.2$ -1.4$ -3.3$ -3.4$ -5.6$ Table 3 — Estimated Total Fiscal Impact ($ in Millions)

Sources

• Iowa Department of Revenue
• Iowa Economic Development Authority
• Alcoholic Beverages Division, Department of Commerce
• Tax Credit Award, Claim, and Transfer Administration System (CACTAS)