Iowa Tax Reform Bill Puts Solar Tax Credit on the Chopping Block

The state’s solar tax credit is set to begin phasing out next year, but a massive tax bill passed by the state Senate last week would end the program on July 1.

A tax credit that’s helped motivate many fiscally conscious Iowa farmers to install solar panels would see an early demise under a sweeping tax reform bill that cleared a major legislative hurdle last week.

Iowa is the only state in the Midwest and one of just a dozen nationally that still offers a state solar tax credit. The Iowa Legislature created the 15 percent tax credit in 2012. Since then it’s provided a total of $21.6 million in incentives for nearly 4,000 projects.

“The majority of customers we work with do know about it,” said Jason Egli, a farmer and solar installer in southeast Iowa. He estimates that about half of his customers wouldn’t have committed without the state tax credit.

The tax credit is scheduled to start sunsetting next year, with smaller incentives in 2020 and 2021 and only commercial tax credits remaining after 2022. But the program would end July 1 under a bill (SF2383) that passed the Senate on Wednesday by a 29-21 vote.

The $1.2 billion tax cut bill slashes tax rates and eliminates most state tax credits, including those for solar. The bill is scheduled for a hearing Monday in the House Ways and Means Committee.

Combined with the 30 percent federal solar tax credit, the state incentive eliminated nearly half the cost of solar installations and reduced payback time to as little as five years in some cases.

The tax credit is capped at $5 million per year and has had a waiting list of applicants every year. As of the end of 2017, the program had provided $21.6 million to 3,395 solar projects valued at $166 million in total.

“This tax incentive has opened access to renewable energy for businesses, farmers, and homeowners, led to significant solar growth and helps support over 700 Iowa jobs in the solar industry,” said Nathaniel Baer, who directs the energy program for the Iowa Environmental Council.

The program has been particularly popular with farmers, who are constantly assessing where they should invest their funds, Egli said, noting that projects have to compete with investments in land and animal-confinement buildings.

“Those are the things we’re competing against,” Egli said.

At their peak almost a decade ago, about half of states offered solar tax credits, according to Chelsea Barnes, director of policy services for EQ Research in North Carolina. Today they are becoming less common.

“Either the politics of the state has changed and there isn’t the same interest in renewing the credit, or the solar industry has really grown in the state and installation prices have decreased, so state policymakers feel a tax credit is no longer necessary,” Barnes said.

Iowa state Sen. Randy Feenstra, chairman of the Senate Ways and Means Committee and the bill’s author, could not be reached for comment. The solar credit termination is one line in a 130-page package of proposed changes to laws regarding taxes and tax credits.

Sen. Joe Bolkcom, also a member of that committee, said the solar credit repeal “is in the bill as part of the Senate Republicans tax plan to kill jobs in Iowa. It makes no sense. The credit has been a job creation machine and has helped Iowa farmers save money.”

Meanwhile, a House panel endorsed a competing tax reform bill Thursday by Republican Gov. Kim Reynolds that does not propose eliminating the solar tax credit. The governor’s office said in a statement Friday that “the governor has not proposed eliminating the solar tax credit and remains supportive of Iowa’s leadership in renewable energy.”

Iowa Environmental Council lobbyist Kerri Johannsen, who has been following the bill’s trajectory for weeks, doesn’t expect the solar measure to go away anytime time soon and said, “We’ll likely be fighting cuts to this credit for the rest of the session.”


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