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:
  6 TLSB 5064HV 81
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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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