Tax and Spending Incentives and Enterprise Zones

I n early 1994, IPSCO steel corporation, which had been negotiating with several states regarding the location of a new steel mill, was offered a $75.6 million package of incentives by the State of Iowa if the company located its plant along the Mississippi River in Musca-tine County, Iowa. The package included several new incentives available only in the " Quality Jobs Enterprise Zone " created especially for IPSCO: a complete exemption from local property taxes on all manufacturing machinery and equipment in IPSCO's plant, exemption from paying sales tax on construction materials and services, and a 10 percent investment tax credit. The package also included incentives from programs already in existence: a $1.5 million grant from a state program to build access roads, a $1 million forgivable loan from the Community Economic Betterment program, $0.5 million from the state's Economic Development Set-Aside Program, a $1.2 million job training agreement (under the " 260E " program) with the local community college, and creation of an economic development TIF (Tax Increment Financing) district that would divert almost all of the property taxes on the building over the next 10 to 12 years to retire bonds issued to pay for plant construction costs. This is not the end of the story. The county government agreed to cover about $1.5 million in additional infrastructure costs, and IPSCO also benefited from the New Jobs Tax Credit program, providing corporate income tax credits based on the 300 new jobs promised. Furthermore , the company's bottom line was undoubtedly enhanced by Iowa's corporate income tax system which, despite a high 12 percent marginal tax rate, imposes very low taxes on corporations such as IPSCO that export most of their output. This occurs through the use of single-factor apportionment, whereby a firm's total U.S. profits are apportioned to Iowa solely according to the percentage of total sales that are destined for Iowa.