Will Koch avoid paying millions in fertilizer plant taxes?

Scott Syroka is a former Johnston city council member.

It’s unclear whether Koch Industries would avoid paying utility replacement taxes worth millions of dollars every year if it acquires OCI Global’s Iowa Fertilizer Company plant in Wever (Lee County).

According to Chuck Vandenberg’s February reporting for the Pen City Current, the Iowa Fertilizer Company plant’s current owner, OCI Global, paid between $2 to 3 million in utility replacement taxes in 2023 alone.

To understand why it’s unknown whether Koch Industries would be required to pay these taxes if it acquires the plant, we must look back in the history books.

After deregulation spread across the country in the 1980s, including in the electric and natural gas industries, the Iowa legislature responded in 1998 by passing Senate File 2146, the Property Tax Replacement and Statewide Property Tax Act.

Prior to the law’s passage, utility companies paid Iowa property taxes based on their in-state property. Simple enough. But that meant Iowa-based utility companies would be penalized, since they’d be responsible for paying more in property taxes than out-of-state energy suppliers.

The legislature sought to level the playing field, but couldn’t do it by simply eliminating property taxes on all electric and gas utilities without replacing the revenue. Local governments relied on those taxes to help fund their annual budgets.

Instead, the legislature created the Utility Replacement Tax. Rather than require utilities to pay property taxes in the manner they had in the past, state lawmakers replaced them with new taxes associated with the distribution of electricity and natural gas—more like a consumption tax for utilities.

At this point, it may seem odd that a fertilizer plant, which isn’t a utility, would be responsible for paying utility replacement taxes. In this case, however, OCI’s Iowa Fertilizer Company is an industrial user that connects directly to an interstate natural gas pipeline. Natural gas is a primary component used in making nitrogen fertilizer.

Since Iowa Fertilizer Company is a direct consumer of the natural gas, it is the one responsible for paying the utility replacement taxes on the gas consumed. This is different from a traditional residential user of natural gas like you or me, who are not directly connected to an interstate natural gas pipeline and receive gas after it’s been distributed by a utility who pays those taxes.

When the legislature created the Utility Replacement Tax, it exempted five non-utility companies with facilities that already connected directly to interstate pipelines from paying the tax. Those five companies were AGP, Bunge, CF Industries, Grain Processing Corporation, and Koch Industries.

According to the 2014 Utility Replacement Tax Task Force Report to the Iowa Legislature, “In creating the bill authorizing and implementing the Replacement Tax, the Iowa Legislature deliberately excluded these five companies because these companies were not centrally assessed as utility property by the Department and they were few in number.”

Since the fertilizer plant’s current owner, OCI Global, is not one of the five grandfathered companies, it is required to pay millions of dollars annually in utility replacement taxes. If Koch Industries, one of the five grandfathered companies, acquires the plant, it is not clear whether these utility replacement taxes would continue to be paid.

Exempting an Iowa Fertilizer Company plant under Koch Industries control from paying these taxes would be a major problem, for at least two reasons. First, local governments–including school districts–rely on these taxes to provide services to their citizens. Second, the competitive advantage granted by not having to pay millions of dollars in taxes assessed to potential competitors would pose yet another barrier to true competition and further entrench Koch Industries’ monopoly power in the fertilizer market.

When asked whether Koch Industries would be required to pay utility replacement taxes if it acquired the Iowa Fertilizer Company, Lee County officials stated they did not know and referred questions to the Iowa Department of Revenue.

I sent the following questions to the Iowa Department of Revenue in early February, but at this writing have received no response.

I saw in the 2014 Utility Replacement Tax Task Force Report to the Iowa Legislature that Koch Industries appears to be one of five grandfathered companies that are exempt from paying the Utility Replacement Tax — an excise tax on the distribution of electricity and natural gas that was created to replace property taxes paid by electric and natural gas utilities on their property.

As a result, I had related questions I was hoping you might be able to help answer:

  1. Have there been any legislative changes since 2014, or is Koch Industries still considered a grandfathered company who is exempt from paying the Utility Replacement Tax?
  2. How much does the Iowa Fertilizer Company currently pay in Utility Replacement Tax on an annual basis? Any data on recent years up to 2023 would be greatly appreciated.
  3. What entities (e.g. state, school districts, counties, cities, etc) currently receive revenue from the Utility Replacement Tax paid by the Iowa Fertilizer Company’s Wever operations?
  4. What is the percentage breakdown of how much those entities receive out of total Utility Replacement Tax revenue paid by the Iowa Fertilizer Company’s Wever operations? E.g. School District A receives XX%, City Z receives X%, etc…
  5. If ownership of the Iowa Fertilizer Company were to transfer from OCI Global to Koch Industries, would there be any change in its exemption status regarding the Utility Replacement Tax? In other words, would the Iowa Fertilizer Company under Koch Industries ownership continue to pay the Utility Replacement Tax? Or would Koch Industries’ grandfathered status apply, meaning the Iowa Fertilizer Company under Koch Industries ownership would not have to pay utility replacement taxes? 

Whatever the answers may be, Iowans deserve to know.

Koch Industries’ proposed Iowa Fertilizer Company plant acquisition has come under increasing scrutiny in recent weeks. In January, eighteen agricultural and antimonopoly advocacy groups sent a letter urging the U.S. Department of Justice and Federal Trade Commission to open an investigation. State Auditor Rob Sand called on regulators to block the deal, as did the Iowa Farmers Union in a blistering statement.

Also at the state level, Democratic State Representative J.D. Scholten led all 36 members of the Iowa House Democratic Caucus in calling on the DOJ, FTC, and Iowa Attorney General Brenna Bird to take action. Lee County residents have been writing letters to the editor highlighting their opposition to the deal, as well as speaking on the topic at Lee County Board of Supervisors meetings.

Known supporters of the deal include the area’s Republican State Senator Jeff Reichman, Greater Burlington Partnership, Lee County Economic Development, and Southeast Iowa Regional Planning.

Top image is by T. Schneider, available via Shutterstock.

About the Author(s)

Scott Syroka

  • thanks for letting us know

    passed this along to the prospect.org to see if we can get some national attention

  • As far as I can tell, the Iowa Farm Bureau is maintaining silence about this deal...

    If that’s wrong, I would appreciate knowing.