Top Priorities: Business Owners, Legislators Weigh in on 2018 Session

Business owners and legislators both hope the 2018 Iowa legislative session can tackle several key issues that they believe will make it easier and more attractive to conduct business in the state.

At the top of the list are tax reform and workforce.

“It’s important we don’t choose winners or losers, that we create a productive environment for those that generate wealth, whether it’s ag or manufacturing, and create extra value,” said Charles Sukup, president of Sukup Manufacturing in Sheffield.

Rockwell Collins in Cedar Rapids will closely monitor legislation and action in the areas of taxes, regulations and education, said Cindy Dietz, the company’s director of business communications. United Technologies Corp. (UTC) has announced its intention to acquire Rockwell Collins, so the company is particularly mindful of any initiatives that could endanger the Iowa business landscape and make it less attractive to keep facilities or business within the state, she said.

Rockwell Collins wants to see a comprehensive overhaul of the tax system in the state – the first in more than 30 years – that takes into account the corporate and individual tax rate, tax credits, sales tax and more in order to better estimate revenue for a state budget, said Tom Stanczyk, the vice president of tax for the company.

“The end goal is to create a system that is sustainable, understandable and predictable,” he said.

Iowa legislators also are closely monitoring the tax issue and say they plan to introduce legislation that will reform Iowa’s tax code.

“We have the most complicated system in the nation,” said Sen. Randy Feenstra, a Republican from Hull who is chairman of the Iowa Senate Ways and Means Committee. “We rank 40th for state business climate and 49th in corporate tax. We believe, overall, we have to change the dynamic and make our state more competitive.”

Feenstra said he wants to reduce both the individual and the corporate income tax percentages during the course of the next three to five years. He also wants to reduce the number of tax brackets Iowa has and eliminate the estate tax. He’d also like to see an increase in the standard deduction, so fewer people need to itemize their deductions, which he believes will make it easier for individuals to file their taxes.

Steve Boal, chief financial officer of Accumold in Ankeny, said the cost of taxes is one his company monitors very closely as it tries to increase its global footprint.

“For us to be competitive, we’re looking at every cost and trying to control them, and taxes is one of those areas,” he said.

The Iowa House of Representatives also plans to focus on tax reform, said Rep. Guy Vander Linden, a Republican from Oskaloosa who is chairman of the Iowa House Ways and Means Committee.

The entire Iowa tax system will be overhauled with the goals of making the state more competitive for businesses, simplifying taxes for all, and creating a stable and predictable tax system.

“It’s got to be affordable for the taxpayer and the state,” Vander Linden said. “We can’t just do away with all taxes, but we don’t want to tax businesses and individuals to death.”

He’ll propose lowering the corporate tax rate from 12 percent to 5 percent. His main reason is to encourage businesses that want to locate to Iowa but see the higher tax rate and are turned off.

Lowering the tax rate would bring more people to Iowa and help with the worker shortage the state is experiencing, said Kirk Tyler, chairman and chief executive officer of Atlantic Coca-Cola Bottling Co. in Atlantic.

State leaders need to make moves to be competitive with other states; however, leaders need to be mindful of eliminating tax credits, said Tyler, who added his company does not use tax credits.

“If another state does that’s one of our neighboring states, they’re going to take business away from us,” he said.

Rockwell Collins uses tax credits to spur investment and drive innovation, Stanczyk said. UTC has research facilities in other parts of the United States and the globe. Once it acquires Rockwell Collins, it will look at where it’s best to conduct business, and the tax credits will help keep business at facilities in Iowa, he said. Removing them will put Iowa in a less competitive position.

“We would advocate that everything needs to be looked at for its return on investment,” Dietz said.

Dave Zrostlik, president of Stellar Industries Inc. in Garner, said businesses need to have the tax system in Iowa reexamined in order to be competitive. However, he said, business owners are realistic about the state’s budget situation and realize not everything can be done that they’d like to see happen.

“We’d hate to lose the tax credits and not see the tax rate adjusted or any reform,” he said, adding that his company uses research and development tax credits from the federal government to test new technologies and processes. Stellar Industries uses the credits to purchase experimental machines that might cost tens of thousands of dollars but end up not being used because they don’t produce the right quality of work.

“That’s the kind of work we have to do so we’re always presenting the marketplace with innovative products,” Zrostlik said. “We’re asked to exceed the needs of our customers.”

To help fill the gap of collecting fewer taxes, Feenstra and Vander Linden said legislators will examine the tax credits state officials give to businesses and determine whether they are worth the investment and eliminate those that aren’t. Vander Linden said any changes in taxes would be a combination effort – if tax credits are eliminated, the tax rate would drop to make up the difference.

Feenstra said he also wants to consider what he called “modernization of the sales tax” and include the internet and downloaded services among those items that are charged a sales tax.

“We will be looking at those to create more income,” Feenstra said.

Tax credits such as those given to the ethanol or biofuels industries or for research and development would stay, he said, to protect those industries and the price of commodities and to encourage research jobs to come to Iowa.

“There are some areas you have to have tax credits because they help things,” Feenstra said. “Those items (such as ethanol or biofuel), if you don’t have them, it directly affects the market.”

Another area of tax law that needs clarification is in the area of sales and use tax and who is responsible for paying it and ensuring it’s not taxed twice. Sukup is a producer of bins for grain drying and storage, and says there are questions on whether their dealers need to be charged sales tax, as well as how items such as agriculture equipment and grain bins and dryers should be taxed.

“There’s rules that if it’s portable they don’t, and then other things are applied and sometimes a use tax has been applied,” Sukup says. “It’s been a very confusing and frustrating experience and too much individual discretion of whoever is looking at it.”

The Iowa Association of Business and Industry has named workforce issues its No. 1 legislative priority heading into the 2018 session. Many ABI members agreed they experience challenges finding qualified workers and need the assistance of state government to support programs that train workers and educate youths and adults about areas of Iowa’s workforce that are in demand of workers.

Feenstra said this is a top issue that legislators will tackle in 2018.

“This is the No. 1 problem in our state, No. 1 problem in business,” Feenstra said. “We have a huge job shortage and a mismatch of talent versus the job skills that are out there; the job skills versus what employers are looking for.”

Iowa’s legislators need to work with the state’s community colleges to ensure there are training programs for the skills needed for the jobs that are available in the state, he said. At the high school level, he wants the Legislature to work with school district leaders to ensure students receive the education they need to go straight into the job field or to a community college to receive further training.

“Our top priority is to figure out ways to get people matched up with the skills,” Feenstra said.

Workforce is a big issue, and regulations are the biggest obstacle for Atlantic Bottling, Tyler said. The company has had difficulty retaining workers, specifically in the area of truck drivers because of regulations that lump the company’s drivers with over-the-road truck drivers and require them to have the same tests such as one for sleep apnea.

The majority of Atlantic Bottling Co.’s drivers drive stop-to-stop and make numerous deliveries in one day, he said. Regulations require drivers of a certain body-mass index and neck size to undergo a sleep apnea test, which can cost about $350. This can limit the type and number of qualified applicants for driver positions, Tyler said.

“Our drivers don’t have time to get tired,” he explained. “They go five miles, get out, make a delivery and move. Those kinds of regulations hinder the available workforce.”

He continued: “I tell elected officials they are one of the biggest obstacles in hiring qualified people. It’s the undue regulations. It hurts certain parts of the workforce.”

Zrostlik said Stellar Industries has an aging workforce with employees who are in key positions mostly in their 50s.

“We need to prepare today to find younger people to fill those shoes 10 to 15 years down the road,” he said. “We are trying to prepare ourselves. There aren’t a lot of younger people who want to come into advanced manufacturing.”

This is why efforts such as Elevate Iowa, a program that promotes advanced manufacturing in the state, and the Iowa STEM (Science, Technology, Engineering and Mathematics) Council are important to introducing young students to careers in these fields, he said. It’s important the Legislature continue to authorize money to promote these efforts, as well as general kindergarten through 12th-grade programs that support strong reading skills, and Iowa’s community colleges and their training programs that support skills needed for today’s jobs.

“We would like to see the governor and the Legislature address adequate funding for community colleges, so they can continue their role to prepare future workforce locally,” Zrostlik said. “Those people who attend community college tend to stay local, and that’s the kind of people we need to fill the workforce.”

Rockwell Collins has had great success recruiting students from Iowa State University and other Iowa colleges as interns and then hiring about 70 percent of those individuals for full-time employment, Dietz said. It’s important that the Iowa Legislature continue to allocate money to Iowa’s colleges and universities to ensure they produce the most educated and skilled students for Iowa companies to hire, she said.

There is a need, Dietz said, to have more training programs and to invest in programs such as Future Ready Iowa to teach the skill sets needed for midcareer specialists such as systems engineers or software engineers who work in specific areas, and to have more companies in Iowa that employ these types of workers. In the past, the state had a strategy for growing industry sectors, and aerospace was one of those areas, she said.

Part of the difficultly in recruiting these individuals is the fact that Rockwell Collins is one of the few employers for this type of work in the state, Dietz said, so qualified workers are often recruited from outside the state and don’t want to relocate because of limited options. These jobs are often filled because employees can work remotely.

The Legislature can assist with the workforce shortage by supporting educational programs that give manufacturers the ability to show even the youngest of students the different types of jobs that manufacturing can offer, from welding to painting to computer controls — none of which are boring, dirty jobs that many associate with manufacturing, Sukup said.

“You have to wake up the youth to let them know there are opportunities there and make some strides,” he said.

Boal with Accumold said there is a struggle to recruit workers in the areas of tool and die, and automation that involves robotics and electronics. He said he’d like to see the Legislature reevaluate which education programs make the biggest difference and increase the state’s investment in those areas. His company is supportive of job training and retraining programs, STEM initiatives and efforts to introduce younger students, parents and others to the high-tech manufacturing field.

Iowa companies have other individual priorities they’d like to see legislators address in 2018:

• Sukup Manufacturing wants the state’s drug testing law to be made consistent with national law. Currently, state law doesn’t allow a driver with a blood alcohol level under 0.04 to be disciplined; however, federal law does not allow employees to drive and penalizes them if they test 0.02 or higher.
• In addition to addressing tax reform and workforce assistance, 3E (Electrical, Engineering and Equipment) would like to see a reduction in regulations that involve paper and fees for various filings in order to make it easier to conduct business, as well as help simplifying the lien notification process, said Dave Moench, the company’s chief financial officer. He said a lot of time is spent sending letters for lien notices, and a system is needed that is more user-friendly and utilizes technology. 3E also wants the Legislature to use a local tax incentives program to encourage companies to purchase materials and services from local businesses. He also wants to see efforts to financially support public-private partnerships between businesses and community colleges/high schools to put worker programs in place to train people in the areas of information technology and cybersecurity.
• Atlantic Coca-Cola Bottling Co. wants the state’s bottle deposit law revamped in order to increase curbside recycling, Tyler said, adding that the company’s executives believe if the bottle deposit was removed, people would put their cans and bottles into their recycling bins, which would lead to their recycling more of other products and packaging too. “If they’re going to put cans and bottles in there, they will think about the other things that can be recycled,” he said. “There are other things that can be recycled. A lot of other recyclables are going to the garbage.”