Senate File 2327 - Introduced SENATE FILE 2327 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3190) A BILL FOR An Act relating to the administration of the tax and related 1 laws by the department of revenue, including the renewable 2 energy tax credit, the solar energy system tax credit, 3 appeal procedures for certain centrally assessed property, 4 an extension of the utility replacement tax task force, 5 requiring background checks for job applicants and persons 6 performing work for the department of revenue, a sales and 7 use tax exemption for certain items used in performance of 8 a construction contract with designated exempt entities, 9 and including effective date and retroactive and other 10 applicability provisions. 11 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 12 TLSB 6081SV (3) 86 mm/sc

S.F. 2327 Section 1. NEW SECTION . 421.48 Background checks. 1 An applicant for employment with the department of revenue 2 shall be subject to a national criminal history check through 3 the federal bureau of investigation. A contractor, vendor, 4 employee, or any other individual performing work for the 5 department of revenue, shall be subject to a national criminal 6 history check through the federal bureau of investigation 7 at least once every ten years. The department of revenue 8 shall request the national criminal history check and shall 9 provide the individual’s fingerprints to the department 10 of public safety for submission through the state criminal 11 history repository to the federal bureau of investigation. 12 The individual shall authorize release of the results of the 13 national criminal history check to the department of revenue. 14 The department of revenue shall pay the actual cost of the 15 fingerprinting and national criminal history check, if any. 16 The results of a criminal history check conducted pursuant to 17 this section shall not be considered a public record under 18 chapter 22. 19 Sec. 2. Section 422.11L, subsection 3, paragraph d, Code 20 2016, is amended to read as follows: 21 d. (1) A taxpayer must submit an application to the 22 department for each separate and distinct solar installation. 23 The application must be approved by the department in order to 24 claim the tax credit. The application must be filed by May 25 1 following the year of the installation of the solar energy 26 system. 27 (2) The department shall accept and approve applications 28 on a first-come, first-served basis until the maximum amount 29 of tax credits that may be claimed pursuant to subsection 4 30 is reached. If for a tax year the aggregate amount of tax 31 credits applied for exceeds the amount specified in subsection 32 4, the department shall establish a wait list for tax credits. 33 Valid applications filed by the taxpayer by May 1 following the 34 year of the installation but not approved by the department 35 -1- LSB 6081SV (3) 86 mm/sc 1/ 12

S.F. 2327 shall be placed on a wait list in the order the applications 1 were received and those applicants shall be given priority 2 for having their applications approved in succeeding years. 3 Placement on a wait list pursuant to this subparagraph shall 4 not constitute a promise binding the state. The availability 5 of a tax credit and approval of a tax credit application 6 pursuant to this section in a future year is contingent upon 7 the availability of tax credits in that particular year. 8 Sec. 3. Section 422.11L, Code 2016, is amended by adding the 9 following new subsection: 10 NEW SUBSECTION . 6. For purposes of this section, “Internal 11 Revenue Code” means the Internal Revenue Code of 1954, prior 12 to the date of its redesignation as the Internal Revenue Code 13 of 1986 by the Tax Reform Act of 1986, or means the Internal 14 Revenue Code of 1986 as amended to and including January 1, 15 2016. 16 Sec. 4. Section 423.3, subsection 80, Code 2016, is amended 17 to read as follows: 18 80. a. For purposes of this subsection , “designated exempt 19 entity” means an any of the following: 20 (1) An entity which is designated in section 423.4, 21 subsection 1 or 6 . 22 (2) An entity which is an instrumentality of a county or 23 municipal government, including an agent of such entity, if 24 the entity was created for the purpose of owning, including 25 pursuant to a lease-purchase agreement, real property located 26 within a reinvestment district established under chapter 15J. 27 b. If Subject to the limitations in paragraph “c” , if 28 a contractor, subcontractor, or builder is to use building 29 materials, supplies, and equipment in the performance of a 30 construction contract with a designated exempt entity, the 31 person shall purchase such items of tangible personal property 32 without liability for the tax if such property will be used in 33 the performance of the construction contract and a purchasing 34 agent authorization letter and an exemption certificate, issued 35 -2- LSB 6081SV (3) 86 mm/sc 2/ 12

S.F. 2327 by the designated exempt entity, are presented to the retailer. 1 c. (1) The With regard to a construction contract with 2 a designated exempt entity described in paragraph “a” , 3 subparagraph (1), the sales price of building materials, 4 supplies, or equipment is exempt from tax by this subsection 5 only to the extent the building materials, supplies, or 6 equipment are completely consumed in the performance of the 7 construction contract with the designated exempt entity. 8 (2) With regard to a construction contract with a designated 9 exempt entity described in paragraph “a” , subparagraph (2), 10 the sales price of building materials, supplies, or equipment 11 is exempt from tax by this subsection only to the extent the 12 building materials, supplies, or equipment are completely 13 consumed in the performance of a construction contract to 14 construct a project, as defined in section 15J.2, subsection 15 10, which project has been approved by the economic development 16 authority board in accordance with chapter 15J. 17 c. d. Where Subject to the limitations in paragraph “c” , 18 where the owner, contractor, subcontractor, or builder is also 19 a retailer holding a retail sales tax permit and transacting 20 retail sales of building materials, supplies, and equipment, 21 the tax shall not be due when materials are withdrawn from 22 inventory for use in construction performed for a designated 23 exempt entity if an exemption certificate is received from such 24 entity. 25 d. e. Tax Subject to the limitations in paragraph “c” , tax 26 shall not apply to tangible personal property purchased and 27 consumed by a manufacturer as building materials, supplies, or 28 equipment in the performance of a construction contract for a 29 designated exempt entity, if a purchasing agent authorization 30 letter and an exemption certificate are received from such 31 entity and presented to a retailer. 32 Sec. 5. Section 429.2, subsection 2, paragraph c, Code 2016, 33 is amended to read as follows: 34 c. The director of revenue shall consider all evidence and 35 -3- LSB 6081SV (3) 86 mm/sc 3/ 12

S.F. 2327 witnesses offered by the taxpayer and the department , including 1 but not limited to evidence relating to the proper valuation of 2 the property involved. 3 Sec. 6. Section 437A.15, subsection 7, paragraph b, Code 4 2016, is amended to read as follows: 5 b. The task force shall study the effects of the replacement 6 taxes under this chapter and chapter 437B on local taxing 7 authorities, local taxing districts, consumers, and taxpayers 8 through January 1, 2016 2019 . If the task force recommends 9 modifications to the replacement tax that will further the 10 purposes of tax neutrality for local taxing authorities, local 11 taxing districts, taxpayers, and consumers, consistent with the 12 stated purposes of this chapter , the department of management 13 shall transmit those recommendations to the general assembly. 14 Sec. 7. Section 437B.11, subsection 7, Code 2016, is amended 15 to read as follows: 16 7. The utility replacement tax task force created in section 17 437A.15 shall study the effects of the replacement tax on 18 local taxing authorities, local taxing districts, consumers, 19 and taxpayers through January 1, 2016 2019 . If the task 20 force recommends modifications to the replacement tax that 21 will further the purposes of tax neutrality for local taxing 22 authorities, local taxing districts, taxpayers, and consumers, 23 consistent with the stated purposes of this chapter , the 24 department of management shall transmit those recommendations 25 to the general assembly. 26 Sec. 8. Section 476C.1, subsection 6, paragraph d, Code 27 2016, is amended to read as follows: 28 d. Was initially placed into service on or after July 1, 29 2005, and before January 1, 2017 2018 . 30 Sec. 9. Section 476C.3, subsection 4, paragraph b, 31 subparagraph (3), Code 2016, is amended to read as follows: 32 (3) (a) Of the maximum amount of energy production capacity 33 equivalent of all other facilities found eligible under this 34 chapter , ten megawatts of nameplate generating capacity or 35 -4- LSB 6081SV (3) 86 mm/sc 4/ 12

S.F. 2327 energy production equivalent shall be reserved for solar energy 1 conversion facilities with that meet all of the following 2 requirements: 3 (i) The facility has a generating capacity of one and 4 one-half megawatts or less . 5 (ii) The facility is owned , in whole or in part, directly 6 or indirectly, or is contracted for , by utilities described in 7 section 476C.1, subsection 6 , paragraph “b” , subparagraphs (4) 8 and (5). 9 (iii) The facility is located in this state. 10 (iv) The facility meets the requirements of section 476C.1, 11 subsection 6, paragraphs “d” through “f” . 12 (b) A solar energy conversion facility that meets the 13 requirements of and is found eligible under subparagraph 14 division (a) shall be considered an “eligible renewable energy 15 facility” for purposes of this chapter, notwithstanding any 16 contrary provisions of section 476C.1, subsection 6. 17 Sec. 10. Section 476C.3, subsection 7, Code 2016, is amended 18 to read as follows: 19 7. a. An owner meeting the requirements of section 476C.1, 20 subsection 6 , paragraph “b” , shall not be an owner of more than 21 two eligible renewable energy facilities. A person that has 22 an equity interest equal to or greater than fifty-one percent 23 in an eligible renewable energy facility shall not have an 24 equity interest greater than ten percent in any other eligible 25 renewable energy facility. This paragraph “a” shall not apply 26 to facilities described in section 476C.3, subsection 4, 27 paragraph “b” , subparagraph (3). 28 b. An entity described in section 476C.1, subsection 6, 29 paragraph “b” , subparagraphs (4) or (5), shall not have an 30 ownership interest in more than four facilities described in 31 section 476C.3, subsection 4, paragraph “b” , subparagraph (3). 32 Sec. 11. Section 476C.5, Code 2016, is amended to read as 33 follows: 34 476C.5 Certificate issuance period. 35 -5- LSB 6081SV (3) 86 mm/sc 5/ 12

S.F. 2327 A producer or purchaser of renewable energy shall receive 1 renewable energy tax credit certificates for a ten-year period 2 for each eligible renewable energy facility under this chapter . 3 The ten-year period for issuance of the tax credit certificates 4 begins with the date the purchaser of renewable energy first 5 purchases electricity, hydrogen fuel, methane gas or other 6 biogas used to generate electricity, or heat for commercial 7 purposes from the eligible renewable energy facility for 8 which a tax credit is issued under this chapter , or the date 9 the producer of the renewable energy first uses the energy 10 produced by the eligible renewable energy facility for on-site 11 consumption. Renewable energy tax credit certificates shall 12 not be issued for renewable energy purchased or produced for 13 on-site consumption after December 31, 2026 2027 . 14 Sec. 12. SOLAR ENERGY SYSTEM TAX CREDIT 15 APPLICATIONS. Notwithstanding the provision in section 16 422.11L, subsection 3, paragraph “d”, which requires 17 applications for the solar energy system tax credit to be 18 filed by May 1 following the year of the installation, all the 19 following shall apply: 20 1. Applications for the solar energy system tax credit 21 filed after May 1, 2015, for solar energy systems installed 22 during the 2014 calendar year, shall be eligible for approval 23 under section 422.11L. Such applications shall be accepted and 24 approved on a first-come, first-served basis and shall first 25 be eligible for approval for the tax year during which the 26 application is received, but not before the tax year beginning 27 January 1, 2016. 28 2. Applications for the solar energy system tax credit 29 filed after May 1, 2016, for solar energy systems installed 30 during the 2015 calendar year, shall be eligible for approval 31 under section 422.11L. Such applications shall be accepted and 32 approved on a first-come, first-served basis and shall first 33 be eligible for approval for the tax year during which the 34 application is received, but not before the tax year beginning 35 -6- LSB 6081SV (3) 86 mm/sc 6/ 12

S.F. 2327 January 1, 2017. 1 Sec. 13. EFFECTIVE UPON ENACTMENT. The section of this 2 Act providing for the approval of solar energy tax credit 3 applications filed after May 1 following the year of the 4 installation for solar energy systems installed during the 2014 5 and 2015 calendar years, being deemed of immediate importance, 6 takes effect upon enactment. 7 Sec. 14. EFFECTIVE UPON ENACTMENT. The following 8 provision or provisions of this Act, being deemed of immediate 9 importance, take effect upon enactment: 10 1. The section of this Act enacting section 421.48. 11 2. The section of this Act amending section 423.3, 12 subsection 80. 13 3. The section of this Act amending section 429.2. 14 4. The section of this Act amending section 437A.15. 15 5. The section of this Act amending section 437B.11. 16 6. The section of this Act amending section 476C.1. 17 7. The sections of this Act amending section 476C.3. 18 8. The section of this Act amending section 476C.5. 19 Sec. 15. RETROACTIVE APPLICABILITY. The following 20 provision or provisions of this Act apply retroactively to 21 January 1, 2015, for construction contracts entered into on or 22 after that date. 23 1. The section of this Act amending section 423.3, 24 subsection 80. 25 Sec. 16. RETROACTIVE APPLICABILITY. The following 26 provision or provisions of this Act apply retroactively to 27 January 1, 2016: 28 1. The section of this Act amending section 437A.15. 29 2. The section of this Act amending section 437B.11. 30 Sec. 17. RETROACTIVE APPLICABILITY. The following 31 provision or provisions of this Act apply retroactively to 32 January 1, 2015, for tax years beginning on or after that date: 33 1. The section of this Act enacting section 422.11L, 34 subsection 6. 35 -7- LSB 6081SV (3) 86 mm/sc 7/ 12

S.F. 2327 Sec. 18. RETROACTIVE APPLICABILITY. The following 1 provision or provisions of this Act apply retroactively to 2 January 1, 2016, for tax years beginning on or after that date: 3 1. The section of this Act amending section 476C.1. 4 2. The section of this Act amending section 476C.5. 5 Sec. 19. RETROACTIVE APPLICABILITY. The following 6 provision or provisions of this Act apply retroactively to 7 January 1, 2015, for tax years beginning on or after that date: 8 1. The sections of this Act amending section 476C.3. 9 Sec. 20. RETROACTIVE APPLICABILITY. The following 10 provision or provisions of this Act apply retroactively to 11 applications for the renewable energy tax credit made on or 12 after June 26, 2015: 13 1. The sections of this Act amending section 476C.3. 14 Sec. 21. RETROACTIVE APPLICABILITY. The following 15 provision or provisions of this Act apply retroactively to May 16 22, 2015: 17 1. The section of this Act amending section 429.2. 18 Sec. 22. APPLICABILITY. The section of this Act amending 19 section 423.3, subsection 80, applies to purchases made on or 20 after the effective date of the section of this Act amending 21 section 423.3, subsection 80. 22 EXPLANATION 23 The inclusion of this explanation does not constitute agreement with 24 the explanation’s substance by the members of the general assembly. 25 This bill relates to the administration of the tax and 26 related laws by the department of revenue. 27 BACKGROUND CHECKS. The bill requires an applicant for 28 employment with the department of revenue (department) at 29 the time of application, or a contractor, vendor, employee, 30 or any other individual performing work for the department 31 to be subject to a national criminal history check through 32 the federal bureau of investigation (FBI) at least once 33 every 10 years. The bill directs the department to provide 34 fingerprints to the department of public safety for submission 35 -8- LSB 6081SV (3) 86 mm/sc 8/ 12

S.F. 2327 through the state criminal history repository to the FBI, and 1 requires individuals to authorize release of the results to 2 the department. The department is required to pay the actual 3 costs of the fingerprinting and the criminal history check. 4 The bill provides that the results of a criminal history check 5 are not considered a public record under Code chapter 22 (open 6 records). This provision takes effect upon enactment. 7 SOLAR ENERGY SYSTEM TAX CREDIT. The bill amends the Iowa 8 solar energy system tax credit in Code section 422.11L, which 9 is provided for the installation of a solar energy system in 10 an amount equal to certain percentages of related federal 11 solar energy tax credits. The bill requires that tax credit 12 applications be accepted and approved by the department on a 13 first-come, first-served basis until the maximum tax credit 14 amount that may be claimed each tax year is reached. If 15 tax credit applications exceed that maximum amount for a tax 16 year, the bill requires the department to establish a tax 17 credit wait list, and applications that were filed by the 18 May 1 deadline but not approved will be placed on the wait 19 list and given priority for having their application approved 20 in succeeding years. The bill states that placement on the 21 wait list does not constitute a promise binding the state, 22 and the availability of a tax credit and approval of a tax 23 credit application in a future year is contingent upon the 24 availability of tax credits in that particular year. 25 Notwithstanding the requirement under current law that 26 solar energy system tax credit applications be filed by May 27 1 following the year of the installation, the bill provides 28 that applications filed after that deadline for solar energy 29 systems installed during the 2014 or 2015 calendar years shall 30 be eligible for approval. Such applications are eligible for 31 approval for the tax year during which the application is 32 received, but not before tax year 2016 for installations made 33 in 2014, and not before tax year 2017 for installations made in 34 2015. This provision takes effect upon enactment. 35 -9- LSB 6081SV (3) 86 mm/sc 9/ 12

S.F. 2327 The bill also defines “Internal Revenue Code” (IRC) for 1 purposes of the Iowa solar energy system tax credit to mean 2 the IRC in effect on January 1, 2016. Under current law for 3 purposes of the Iowa tax credit, IRC means that in effect on 4 January 1, 2015. This change has the effect of incorporating 5 into the Iowa tax credit changes made by Congress in 2015 6 to the related federal energy system credits for tax years 7 beginning in 2017 or later. In 2015, Congress extended the 8 expiration date for several of the federal energy system 9 tax credits upon which the Iowa tax credit is calculated 10 (IRC §25D(a)(1), §25D(a)(2), and §48(a)(2)(A)(i)(II)) to 11 January 1, 2022, from January 1, 2017. This provision applies 12 retroactively to January 1, 2015, for tax years beginning on 13 or after that date. 14 SALES AND USE TAXES. A sales tax exemption is provided under 15 current law to contractors, subcontractors, and builders for 16 the purchase of building materials, supplies, and equipment 17 completely consumed in the performance of a construction 18 contract with a designated exempt entity. The bill amends 19 the definition of “designated exempt entity” to include an 20 instrumentality of a county or municipal government, including 21 an agent of such entity, if the entity was created for the 22 purpose of owning, including pursuant to a lease-purchase 23 agreement, real property located within a reinvestment district 24 established under the Iowa Reinvestment Act in Code chapter 25 15J. The bill also provides that the purchase of building 26 materials, supplies, and equipment by such designated exempt 27 entities will only be exempt from the sales tax to the extent 28 such property is completely consumed in the performance of a 29 construction contract to construct a project that has been 30 approved by the economic development board under the Iowa 31 Reinvestment Act. The Iowa Reinvestment Act, in general, 32 authorizes municipalities to establish reinvestment districts 33 and receive remittances of specified amounts of state sales 34 tax and state hotel and motel tax revenues collected in those 35 -10- LSB 6081SV (3) 86 mm/sc 10/ 12

S.F. 2327 districts for use in undertaking projects within the district. 1 By operation of Code section 423.6, an item exempt from the 2 imposition of the sales tax is also exempt from the use tax 3 imposed in Code section 423.5. 4 The sales and use tax provisions take effect upon enactment 5 and apply to purchases made on or after that date, and apply 6 retroactively to January 1, 2015, for construction contracts 7 entered into on or after that date. 8 CENTRALLY ASSESSED PROPERTY. The bill adds the department 9 of revenue to the list of parties for which the director of 10 revenue shall consider all offered evidence and witnesses 11 during an appeal of an assessment of certain property centrally 12 assessed by the department of revenue for purposes of property 13 taxation. This provision takes effect upon enactment and 14 applies retroactively to May 22, 2015. 15 UTILITY REPLACEMENT TAX TASK FORCE. The bill extends the 16 utility replacement tax task force to January 1, 2019, from 17 January 1, 2016. This task force was created to study the 18 effects of the replacement taxes on electricity and natural gas 19 providers and rate-regulated water utilities. This provision 20 takes effect upon enactment and applies retroactively to 21 January 1, 2016. 22 RENEWABLE ENERGY TAX CREDIT. The bill extends to January 23 1, 2018, from January 1, 2017, the date upon which a renewable 24 energy facility must be placed in service in order to qualify 25 for the renewable energy tax credit under Code chapter 476C, 26 and extends to December 31, 2027, from December 31, 2026, the 27 date on which renewable energy tax credit certificates shall no 28 longer be issued. These renewable energy tax credit provisions 29 take effect upon enactment and apply retroactively to January 30 1, 2016, for tax years beginning on or after that date. 31 For solar facilities with a generating capacity of 1.5 32 megawatts or less (small solar facilities) that are owned 33 or contracted for by electric cooperative associations, 34 municipally owned utilities, public utilities subject to rate 35 -11- LSB 6081SV (3) 86 mm/sc 11/ 12

S.F. 2327 regulation, or electric cooperative associations (specified 1 utilities), the bill removes the requirement that the specified 2 utility must own at least 51 percent of the facility and 3 instead provides that the specified utility must own the 4 facility in whole or in part, directly or indirectly. Also 5 under current law for purposes of qualifying for the tax 6 credit, an owner of an eligible renewable energy facility shall 7 not own more than two eligible renewable energy facilities, 8 and a person that has an equity interest of at least 51 9 percent in an eligible renewable energy facility shall not 10 have an equity interest greater than 10 percent in any other 11 eligible renewable energy facility. The bill provides that 12 these restrictions shall not apply to small solar facilities, 13 but does provide that a specified utility shall not have an 14 ownership interest in more than four small solar facilities. 15 These renewable energy tax credit provisions take effect upon 16 enactment and apply retroactively to January 1, 2015, for tax 17 years beginning on or after that date, and apply retroactively 18 to applications for the renewable energy tax credit made on or 19 after June 26, 2015. 20 -12- LSB 6081SV (3) 86 mm/sc 12/ 12