On my drive to work this morning, I tuned into Jan Mickelson's interview with Iowa Senator Randy Feenstra (R) from Hull. The Senator made the point repeatedly that Iowa's high corporate income tax rate is an impediment to economic development.
This myth pops up every once in a while, and it's a hard one to kill. I attempted to explain by calling in, but there was very little time left.
Iowa's corporate income tax statutory rate of 12% is indeed high. Iowa corporate income tax paid by corporations (Iowa and non-Iowa) is not high. But that is not the point of this discussion. There are two much more quantifiable facts every lawmaker should understand:
1) Companies that choose to locate or domicile in Iowa will not be greeted with an increase in corporate income tax liability. For companies doing business within Iowa and without, there is zero income tax cost to setting up shop in Iowa.
2) Companies choosing to leave the State of Iowa will not save a nickel in Iowa corporate income tax. If the company sells its goods and services in Iowa, the company will not save Iowa corporate income tax by relocating to another state.
These statements are true because of the process the State of Iowa uses to determine the amount of profit on which the company is required to pay tax. States with corporate income taxes generally use one of two approaches. Most states use a “Three Factor Formula.” Iowa uses a “Single Factor Formula.” It's not that complicated once you get your arms around it.
Continue Reading...