What can a State do to Alleviate your R&D Risk?

Iowa State Capital at night

Several states offer some form of research and development tax credit, but very few have fully refundable research credits. However, Iowa’s Research Activities Credit program has spurred economic activity, helped to attract high-salaried and advanced degree careers, while offering a strategic incentive to local businesses to continuously innovate.

Fortune 500 avionics company Rockwell Collins, based in Cedar Rapids, Iowa, is one company that has made use of Iowa’s Research Activities Credit. For the last several years, Rockwell Collins has focused on emerging technologies like infrared sensors that provide a clearer picture to the pilot during nighttime flights or bad weather conditions. President and CEO Kelly Ortberg said the program is valuable for helping the company compete globally.

“We operate in a fiercely competitive industry where research and development is critical,” said Ortberg. “We’ve found the R&D tax credit program that Iowa offers provides the right financial incentive to help us alleviate some of the risks.”

Rockwell Collins’ systems are installed in the cockpit of nearly every commercial airliner worldwide, including the next generation of Boeing and Airbus jets. Seventy percent of U.S. and allied military communications are transmitted over their devices.

“We’ve found the R&D tax credit program that Iowa offers provides the right financial incentive to help us alleviate some [INDUSTRY] risks.”

“We sell into and service airlines throughout the world with nearly 40 percent of our revenues coming from outside the United States,” said Ortberg. “However, we’re founded and headquartered in Iowa, and our Midwest location has never hindered our international business or recruitment efforts. It’s a great place to live and raise your family—once we recruit people to Iowa, they rarely take transfer opportunities to the coasts.”

About one half of Rockwell Collins’ 20,000 employees, including 4,000 engineers, work at the company’s headquarters and four regional manufacturing facilities across Eastern Iowa. Much of the company’s high-tech research occurs in the state.

The proximity of leading aeronautics, electrical and industrial engineering programs at Iowa State University and the University of Iowa has been instrumental to the company’s success. Some of that research includes collaboration with faculty and students at the University of Iowa, where Rockwell Collins avionics equipment is tested on two cold-war era, Czech-built fighter planes.

“Iowa State University and the University of Iowa have incredibly strong engineering programs, and they’re both at record enrollment,” said Ortberg. “This provides our company with a steady stream of talent who tend to stay with us for most of their careers.”
Like Rockwell Collins, Iowa companies earn refundable tax credits for research and development investments that may be paid directly in cash to the company once its tax liabilities have been met. This is a critical difference and a huge benefit for Iowa companies, because each research or development decision depends on a delicate balance between the inherent financial risk and the return of profitability. The weight of that risk is mitigated with the refundable aspect of the state’s Research Activities Credit.

Innovative programs like these are one reason Iowa offered the nation’s second lowest cost of doing business in 2016, according to CNBC. For more information on Iowa’s Research Activities Credit, visit iowaeconomicdevelopment.com.

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Debi Durham
Debi Durham is the Director of the Iowa Economic Development Authority. She works to strengthen economic and community vitality by leveraging resources to make Iowa the choice for people and business.

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