Recently, an article came out ranking Iowa poorly on a list of states that are business-friendly. The article focused on one, and only one, specific metric—corporate taxation. Many businesses in Iowa do not care about this metric because they are not a corporation or are small enough that their tax exposure is too low to offset the cost and hassle of forming in another state. I am a small business owner in a family of small business owners and have a good understanding of the Iowa business environment. I feel confident in saying this:
Iowa is a very business-friendly state. This is based on the cost of creating a new business, the cost of operating a business, the legal environment for businesses, the availability of skilled workers, the quality of living in the state, and the cooperation of leaders and law-makers in Iowa. Each of these will be discussed below, but in short: It costs only $50 to form a new business, which is well below the national average and one of the cheapest in the country. Iowa also has a well below-average cost of electricity and utilities and is relatively low-risk for natural disasters, helping contribute to its very low cost of insurance for businesses. Iowa Governor Reynolds, in 2018, worked with lawmakers to introduce pro-business legislation helping fund a training and apprenticeship program for technology-focused companies. Lastly, the Iowa metropolitan population is growing, largely due to the great balance of low-cost and high quality of living available. Businesses such as Google, Facebook, Microsoft, Amazon, and Apple are expanding heavily into Iowa to take advantage of the favorable business environment.
Are Corporate Taxes a problem?
Corporations suffer from double taxation, meaning the business income is taxed, then the owner’s income from the business is taxed again. Many corporations work hard to reduce this problem and pay attention to the tax regulations in their state. The 2021 State Business Tax Climate report by the non-profit Tax Foundation ranked Iowa 40th in the country overall and 46th in the country for their corporate tax policies. This score was calculated by using the tax rate, the graduation structure, the ability to deduct business operation expenses, and other factors that determine how a business can reduce its tax basis. Iowa’s poor score in this area was heavily influenced by having a top tax rate of 12%, the highest in the country. Iowa lawmakers made improvements in 2020 by making corporate tax reforms. This helped get Iowa out of the bottom ten in the rankings.
However, the corporate tax rate, while important, should not be the primary judging criteria for the overall business environment of a state. Many corporations choose Iowa because of a favorable climate, low utility and energy costs, high quality of living, and availability of skilled workers. Also, companies can offset their tax liability by investing in jobs, worker training, and other such expenses. The corporate tax rate doesn’t accurately reflect the costs or advantages of a state’s business climate.
Because of this, many large corporations have been moving major operations to Iowa. Google has a huge presence in Council Bluffs, Facebook has a massive campus and has announced more expansion, Microsoft announced two new data centers, bringing their total to five in the state, Apple is building a location in Central Iowa, and Amazon has just completed a major fulfillment center—though these are popping up all across the country now. Additionally, John Deere’s self-driving vehicle and intelligent solutions unit, Rockwell Collins, the massive aviation technology manufacturer, Principal Financial Group, a Fortune 100 financial company, and Casey’s General Stores, a Fortune 500 chain of convenience stores are also based in Iowa.
Most Businesses Aren’t Corporations though
While the corporate taxation stat has some downside to it, since the 1970s, many businesses are choosing to form as a limited liability company (LLC). LLCs are extremely flexible, allowing them to behave like a sole-proprietor, like a partnership, like a family trust, and even a lot like a corporation. This flexibility combined with their ability to protect the owners from many kinds of legal and financial risks makes them a great choice for many businesses. LLCs also can make it easier for a small business to reduce their tax exposure—some LLCs are completely ignored by the IRS.
Iowa has Excellent LLC Laws
In 2016 Iowa revised its LLC laws and they now comply closely with a set of nation-wide laws called the Revised Uniform LLC Act. This means that LLCs in Iowa behave in a way that is easy for lawmakers, judges, lawyers, and especially business owners to predict. Not many states have moved to the Uniform LLC Act yet, making Iowa somewhat of a pioneer in this area, but even those that haven’t adopted the full set of laws have begun incorporating many of the provisions.
Predictable and uniform laws make it easier for courts, tax officials, and other government agencies to enforce policies. When a new dispute arises, those involved can look to see if other states have addressed the issue. Since legal risks are a potential cost, simplifying legal issues lower the risk, and therefore the cost, to business owners.
Also, Iowa is one of the few states that support series or serial LLCs. This is a very new form of LLC that allows a business to create many LLCs for about the cost and effort to create one. This is useful for those who want to maximize liability protection. For example, a property owner can put each asset into a separate LLC in the series.
Iowa Makes it Easy and Cheap to Form a Business
Currently, the cost to form an LLC in Iowa is well below the national average. Some states charge as much as $500 just to file the paperwork with the government. The national average is about $130. In Iowa, it costs $50, and most LLCs can be formed using a fast online form that gives next-day responses.
A business-owner should contact a lawyer to help create the necessary documentation and to ensure the right type of business is chosen. You can contact me to help decide if you need a corporation, a single-member LLC, a multi-member LLC, or another type of entity. This is fast, easy, and I charge a flat rate, so you’ll know your costs up front.
Having formed numerous businesses and helped business owners on their journey, I can say definitively, Iowa is a great place to form a business. If you’re considering starting a business here, don’t be discouraged. If you need help, let me know.
- Cost of small business insurance: https://thecostguys.com/finance/average-cost-of-small-business-insurance
- Gov. Reynold’s worker training initiative: https://governor.iowa.gov/goals/training-iowans
- LLC Filing fees by state: https://www.llcuniversity.com/llc-filing-fees-by-state/
- Electricity rates by state: https://paylesspower.com/blog/electric-rates-by-state/