Iowa is a good place for capital intensive manufacturers. Everyone else, not so much.
That's the scoop from an excellent new study "Location Matters" by the Tax Foundation of how the 50 states tax corporations in different industries. Iowa's single-factor apportionment, and it's lack of personal property taxes on equipment and machinery, make Iowa a good place for a capital intensive manufacturers. Its 12% corporation tax rate and high property taxes make it tough for everyone else. From the Iowa section of the report:
Iowa ranks 50th in two categories: the new retail establishment and the mature distribution center. Both operations face the highest property tax of their firm type in the nation. The mature distribution center also faces the highest income tax of its type in the country.
This chart summarizes the findings for Iowa; the "Rank" line shows how Iowa compares to other states for different types of businesses:
Source: The Tax Foundation. Click to enlarge.
That helps explain why Iowa has to bribe outfits like Google and Microsoft to get them to locate their data centers here. With enough bribes, they will, but they aren't likely to relocate headquarters here. Again from the study:
Corporate headquarters in Iowa have high tax costs. The state ranks 48th for mature headquarters and 47th for new headquarters. The mature headquarters has a tax burden that is 52 percent above the national average while the new operation has a tax burden that is 67 percent above average. Again, these results are attributable to high property taxes and Iowa’s high corporate income tax rate of 12 percent.
This is a natural consequence of Iowa's longtime affinity for smokestack chasing -- a habit illustrated by the recent subsidies for a big new Lee County fertilizer plant and by the "anchor manufacturing" tax break now before the legislature. Meanwhile, less favored sectors get clobbered.
There is, of course, a better way: the Quick and Dirty Iowa Tax Reform.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to