House File 2778 - Introduced
HOUSE FILE
BY COMMITTEE ON WAYS AND MEANS
(SUCCESSOR TO HF 2072)
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to financial transactions associated with
2 agricultural production, by providing for a tax credit to
3 facilitate the transfer of assets, and including an effective
4 and applicability date.
5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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PAG LIN
1 1 Section 1. Section 175.2, Code 2005, is amended by adding
1 2 the following new subsection:
1 3 NEW SUBSECTION. 0A. "Agricultural assets" means
1 4 agricultural land, depreciable agricultural property, crops,
1 5 or livestock.
1 6 Sec. 2. NEW SECTION. 175.37 AGRICULTURAL ASSETS TRANSFER
1 7 TAX CREDIT == AGREEMENT.
1 8 1. An agricultural assets transfer tax credit is allowed
1 9 under this section. The tax credit is allowed against the
1 10 taxes imposed in chapter 422, division II, as provided in
1 11 section 422.11M, and in chapter 422, division III, as provided
1 12 in section 422.33, to facilitate the transfer of agricultural
1 13 assets from a taxpayer to a beginning farmer.
1 14 2. In order to qualify for the tax credit, the taxpayer
1 15 must meet qualifications established by rules adopted by the
1 16 authority. At a minimum, the taxpayer must comply with all of
1 17 the following:
1 18 a. Be a person who may acquire or otherwise obtain or
1 19 lease agricultural land in this state pursuant to chapter 9H
1 20 or 9I. However, the taxpayer must not be a person who may
1 21 acquire or otherwise obtain or lease agricultural land
1 22 exclusively because of an exception provided in one of those
1 23 chapters or in a provision of another chapter of this Code
1 24 including but not limited to chapter 10, 10C, 10D, or 501, or
1 25 section 15E.207.
1 26 b. Execute an agricultural assets transfer agreement with
1 27 a beginning farmer as provided in this section.
1 28 3. An individual may claim a tax credit under this section
1 29 of a partnership, limited liability company, S corporation,
1 30 estate, or trust electing to have income taxed directly to the
1 31 individual. The amount claimed by the individual shall be
1 32 based upon the pro rata share of the individual's earnings
1 33 from the partnership, limited liability company, S
1 34 corporation, estate, or trust.
1 35 4. The tax credit is allowed only for agricultural assets
2 1 that are subject to an agricultural assets transfer agreement.
2 2 The agreement shall provide for the lease of agricultural land
2 3 including any improvements and may provide for the rental of
2 4 agricultural equipment as defined in section 322F.1.
2 5 a. The agreement may be made on a cash basis or on a
2 6 commodity share basis which includes a share of the crops or
2 7 livestock produced on the agricultural land. The agreement
2 8 must be in writing.
2 9 b. The agreement shall be for at least two years, but not
2 10 more than five years. The agreement or that part of the
2 11 agreement providing for the lease may be renewed by the
2 12 beginning farmer for a term of at least two years, but not
2 13 more than five years. An agreement does not include a lease
2 14 or the rental of equipment intended as a security.
2 15 5. The tax credit shall be calculated based on the gross
2 16 amount paid to the taxpayer under the agricultural assets
2 17 transfer agreement.
2 18 a. Except as provided in paragraph "b", the tax credit
2 19 shall equal five percent of the amount paid to the taxpayer
2 20 under the agreement.
2 21 b. The tax credit shall equal fifteen percent of the
2 22 amount paid to the taxpayer from crops or animals sold under
2 23 an agreement in which the payment is exclusively made from the
2 24 sale of crops or animals.
2 25 6. In order to qualify as a beginning farmer, a person
2 26 must be eligible to receive financial assistance under section
2 27 175.12.
2 28 7. A tax credit in excess of the taxpayer's liability for
2 29 the tax year may be credited to the tax liability for the
2 30 following five years or until depleted, whichever is earlier.
2 31 A tax credit shall not be carried back to a tax year prior to
2 32 the tax year in which the taxpayer redeems the tax credit. A
2 33 tax credit shall not be transferable to any other person other
2 34 than the taxpayer's estate or trust upon the taxpayer's death.
2 35 8. A taxpayer shall not claim a tax credit under this
3 1 section unless a tax credit certificate issued by the
3 2 authority is attached to the taxpayer's tax return for the tax
3 3 year for which the tax credit is claimed. The authority must
3 4 review and approve an application for a tax credit as provided
3 5 by rules adopted by the authority. The application must
3 6 include a copy of the agricultural assets transfer agreement.
3 7 The authority may approve an application and issue a tax
3 8 credit certificate to a taxpayer who has previously been
3 9 allowed a tax credit under this section. The authority may
3 10 require that the parties to an agricultural assets transfer
3 11 agreement provide additional information as determined
3 12 relevant by the authority. The authority shall review an
3 13 application for a tax credit which includes the renewal of an
3 14 agricultural assets transfer agreement to determine that the
3 15 parties to the renewed agreement meet the same qualifications
3 16 as required for an original application. However, the
3 17 authority shall not approve an application or issue a
3 18 certificate to a taxpayer if any of the following applies:
3 19 a. The taxpayer is at fault for terminating a prior
3 20 agricultural assets transfer agreement as determined by the
3 21 authority.
3 22 b. The taxpayer is any of the following:
3 23 (1) A party to a pending administrative or judicial
3 24 action, including a contested case proceeding under chapter
3 25 17A, relating to an alleged violation involving an animal
3 26 feeding operation as regulated by the department of natural
3 27 resources, regardless of whether the pending action is brought
3 28 by the department or the attorney general.
3 29 (2) Classified as a habitual violator for a violation of
3 30 state law involving an animal feeding operation as regulated
3 31 by the department of natural resources.
3 32 c. The beginning farmer is responsible for managing or
3 33 maintaining agricultural land and other agricultural assets
3 34 that are greater than necessary to adequately support a
3 35 beginning farmer as determined by the authority according to
4 1 rules which shall be adopted by the authority.
4 2 d. The agricultural assets are being leased or rented at a
4 3 rate which is substantially higher or lower than the market
4 4 rate for similar agricultural assets leased or rented within
4 5 the same community, as determined by the authority.
4 6 9. A taxpayer or the beginning farmer may terminate an
4 7 agricultural assets transfer agreement as provided in the
4 8 agreement or by law. The taxpayer must immediately notify the
4 9 authority of the termination.
4 10 a. If the authority determines that the taxpayer is not at
4 11 fault for the termination, the authority shall not issue a tax
4 12 certificate to the taxpayer for a subsequent tax year based on
4 13 the approved application. Any prior tax credit is allowed as
4 14 provided in this section. The taxpayer may apply for and be
4 15 issued another tax credit certificate for the same
4 16 agricultural assets as provided in this section for any
4 17 remaining tax years for which a certificate was not issued.
4 18 b. If the authority determines that the taxpayer is at
4 19 fault for the termination, any prior tax credit allowed under
4 20 this section is disallowed. The tax credit shall be
4 21 recaptured and the amount of the tax credit shall be
4 22 immediately due and payable to the department of revenue. If
4 23 a taxpayer does not immediately notify the authority of the
4 24 termination, the taxpayer shall be conclusively deemed at
4 25 fault for the termination.
4 26 Sec. 3. NEW SECTION. 422.11M AGRICULTURAL ASSETS
4 27 TRANSFERRED TO BEGINNING FARMERS.
4 28 The taxes imposed under this division, less the credits
4 29 allowed under sections 422.12 and 422.12B, shall be reduced by
4 30 an agricultural assets transfer tax credit as allowed under
4 31 section 175.37.
4 32 Sec. 4. Section 422.33, Code Supplement 2005, is amended
4 33 by adding the following new subsection:
4 34 NEW SUBSECTION. 20. The taxes imposed under this division
4 35 shall be reduced by an agricultural assets transfer tax credit
5 1 as allowed under section 175.37.
5 2 Sec. 5. EFFECTIVE DATE AND RETROACTIVE APPLICABILITY
5 3 PROVISIONS. This Act takes effect January 1, 2007, and is
5 4 applicable to tax years beginning on or after that date.
5 5 EXPLANATION
5 6 This bill amends provisions regarding the agricultural
5 7 development authority established in Code chapter 175, the
5 8 "Iowa Agricultural Development Act". The authority is an
5 9 instrumentality housed in the office of treasurer of state
5 10 that is responsible for administering a number of programs to
5 11 assist agricultural producers, including the beginning farmer
5 12 program. A beginning farmer is an individual, partnership,
5 13 family farm corporation, or family farm limited liability
5 14 company as provided under Code chapter 9H (Iowa's corporate
5 15 farming law), with a low or moderate net worth who engages in
5 16 farming or wishes to engage in farming.
5 17 The bill provides a tax credit for owners of agricultural
5 18 assets (agricultural land, depreciable agricultural property,
5 19 crops, or livestock) who help beginning farmers to acquire
5 20 agricultural assets by lease or rental arrangements. The bill
5 21 provides that the owner who executes an agricultural assets
5 22 transfer agreement (referred to as the agreement) may claim a
5 23 tax credit against individual or corporate income. The owner
5 24 (referred to as the taxpayer) may claim the tax credit after
5 25 receiving a certificate issued by the authority which is
5 26 attached to the taxpayer's tax return. The bill provides for
5 27 limited carryforward but does not provide for carryback.
5 28 Generally, the taxpayer cannot transfer the tax credit. There
5 29 is one exception: the tax credit can pass to the taxpayer's
5 30 estate or trust after death.
5 31 The taxpayer must be a person who may acquire or otherwise
5 32 obtain or lease agricultural land in the state under Code
5 33 chapter 9H or 9I (restricting foreign ownership of
5 34 agricultural land). In addition, the taxpayer cannot acquire
5 35 or otherwise obtain or lease agricultural land exclusively
6 1 because of an exception provided in one of those Code chapters
6 2 (e.g., an encumbrance taken for purposes of security). The
6 3 person also cannot hold land based on an exception in other
6 4 Code provisions, including Code chapter 10 (corporate
6 5 networking entities), 10C (life science enterprises), 10D
6 6 (qualified enterprises) and 501 (closed cooperatives) as well
6 7 as Code section 15E.207 (an Iowa agricultural industry finance
6 8 corporation). The bill provides a number of restrictions upon
6 9 the authority in approving applications and issuing
6 10 certificates.
6 11 The taxpayer cannot be at fault for terminating a prior
6 12 agreement; the taxpayer cannot be involved in legal
6 13 proceedings regarding environmental violations; the beginning
6 14 farmer cannot be provided more agricultural assets than what
6 15 the beginning farmer can be expected to adequately manage; and
6 16 the agricultural assets cannot be leased or rented at a rate
6 17 substantially different from similar market arrangements. The
6 18 bill provides that an agreement may be terminated but also
6 19 provides that if the termination is the fault of the owner,
6 20 any tax credits must be repaid and no further tax credit
6 21 certificates can be issued to the taxpayer.
6 22 The bill takes effect on January 1, 2007, and applies to
6 23 tax years beginning on or after that date.
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