Capitol Letters: House passes Iowa Rural Development Tax Credit Program

House File 2674 passed the floor unanimously last week and would create the Iowa Rural Development Tax Credit Program. Tax credits would be awarded by the Iowa Economic Development Authority for specific capital contributions made to certified rural business growth funds for investment in qualified businesses. Under the bill, IEDA begins accepting Iowa rural development tax credit program applications Jan. 7, 2025. The tax credits the program issues are not refundable and cannot be sold, transferred or allocated by the investor to any person other than an affiliate of the investor.

The program provides that a qualified business is any business within this state that has fewer than 250 employees and is not located in whole or in part in one or more of the 12 most populous counties in the state. The program provides that a person seeking certification as a rural business growth fund must apply to IEDA and that the application must include:

• The eligible investment authority sought by the applicant
• A copy of the applicant’s license as a rural business investment company under 7 U.S.C. §2009cc(14) or as a small business investment company under 15 U.S.C. §681
• Documentation that establishes that at least one principal of the applicant has been an officer or an employee of the rural business investment company, the small business investment company or an affiliate, for a minimum of four years prior to the date of application
• A revenue impact assessment for the applicant’s proposed growth investments as determined by an econometric analysis conducted by a third-party independent econometric firm
• The number of jobs created and the number of jobs retained assumed in the revenue impact assessment
• A signed affidavit from each investor that states the amount of the credit-eligible capital contribution that the investor has committed to the applicant’s proposed growth fund
• A nonrefundable $5,000 application fee.

IEDA would approve up to $45 million in eligible investment authority and not more than $27 million in credit-eligible capital contributions. After an agreement is executed, IEDA must issue a tax credit certificate to each investor whose affidavit was included in the growth fund’s application and whose credit-eligible capital contribution was collected by the growth fund. An investor may use one-third percent of the tax credit in each taxable year beginning in the calendar year following the third, fourth and fifth anniversaries of the growth fund’s closing date. Any tax credit in excess of the taxpayer’s tax liability for a tax year may be carried forward to the taxpayer’s tax liability for subsequent tax years until the tax credit is depleted.

House File 2674 provides that IEDA shall revoke or recapture a tax credit if, before a growth fund exits the program, the growth fund cannot provide documentation to IEDA to substantiate that the growth fund, within 30 months after the growth fund’s closing date:

• has invested 100% of the growth fund’s investment authority in growth investments
• that the growth fund, after investing 100% of the growth fund’s investment authority in growth investments within 30 months after the growth fund’s closing date, has maintained growth investments equal to 100% of its investment authority at all times up to the fifth anniversary after the growth fund’s closing date.

On or after the fifth anniversary of a growth fund’s closing date, the growth fund may apply to IEDA to exit the program. A growth fund is eligible to exit the program if a tax credit associated with the growth fund has not been revoked or recaptured. House File 2674 moves to the Senate for further consideration.