Iowa bill aims to create tax credit for renewable chemicals

By Erin Voegele | April 20, 2015

Legislation pending in Iowa aims to create a renewable chemical production tax credit. The legislation, SF 350, was introduced in March and is currently awaiting review in the Senate Ways and Means Committee.

According to the text of the legislation, eligible renewable chemicals producers would be able to claim a production tax credit of 5 cents per pound. An eligible business that has been operation in Iowa for five years or less would could claim a maximum tax credit of $1 million. For eligible businesses in operation in the state for more than five years, the maximum tax credit would be set at $500,000. The legislation specifies no more than $15 million would be allocated to the incentive program in each fiscal year.

The bill defines renewable chemical as a building block chemical with a biobased content percentage of at least 50 percent. It does not include a chemical sold or used for the production of food, feed or fuel. Cellulosic ethanol, starch-based ethanol, other biomass-derived ethanol, fatty acid methyl esters, and butanol would be eligible for the credit if they are produced and sold for uses other than food, feed or fuel. The term renewable chemical does include building block chemical that can be a food additive so long as the building block chemical is not primarily consumed as food and is sold for uses other than food. In addition, the definition includes supplements, vitamins, nutraceuticals, and pharmaceuticals, but only to the extent that such molecules do not provide caloric value.

To be eligible to claim the production tax credit, a business would be required to by physically located in Iowa and be operated for profit and under single management. Certain other requirements would apply. Eligible businesses would be unable to receive more than five tax credits under the program. In addition, tax credits would not be given for the production of a secondarily derived building block chemical if that chemical is also the subject of a credit at the time of production as a first product.

If signed into law, the credit would be available retroactively to Jan. 1, 2015 and would expire after calendar year 2025.

Iowa is not the only state considering the establishment of a production tax credit for renewable chemicals. Legislation introduced in Minnesota earlier this year aims to establish state production tax incentives for advanced biofuels, renewable chemicals and biomass thermal.

Additional information on the pending Iowa legislation is available on the Iowa legislature website.