Senate File 2268 - Introduced SENATE FILE BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SSB 3125) Passed Senate, Date Passed House, 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 tax credits and tax 3 exemptions, and including effective and retroactive and other 4 applicability dates. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5135SV 81 7 da/cf/24 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. 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 be a person who 1 17 may acquire or otherwise obtain or lease agricultural land in 1 18 this state pursuant to chapter 9H or 9I. However, the 1 19 taxpayer must not be a person who may acquire or otherwise 1 20 obtain or lease agricultural land exclusively because of an 1 21 exception provided in one of those chapters or in a provision 1 22 of another chapter of this Code including but not limited to 1 23 chapter 10, 10C, 10D, or 501, or section 15E.207. 1 24 3. An individual may claim a tax credit under this section 1 25 of a partnership, limited liability company, S corporation, 1 26 estate, or trust electing to have income taxed directly to the 1 27 individual. The amount claimed by the individual shall be 1 28 based upon the pro rata share of the individual's earnings 1 29 from the partnership, limited liability company, S 1 30 corporation, estate, or trust. 1 31 4. The tax credit is allowed only for agricultural assets 1 32 that are subject to a lease or rental agreement. The 1 33 agreement may be made on a cash basis or on a commodity share 1 34 basis which includes a share of the crops or livestock 1 35 produced on the agricultural land. The agreement must be in 2 1 writing. The lease must be for a term of at least two years. 2 2 The lease may be renewed for a term of at least two years. 2 3 The taxpayer may claim the tax credit under the renewal lease 2 4 in the same manner as the original lease. A lease does not 2 5 include a lease intended as a security. 2 6 5. The tax credit shall be calculated based on the gross 2 7 amount paid to the taxpayer under the lease or rental 2 8 agreement. 2 9 a. Except as provided in paragraph "b", the tax credit 2 10 shall equal five percent of the amount paid to the taxpayer 2 11 under the agreement. 2 12 b. The tax credit shall equal fifteen percent of the 2 13 amount paid to the taxpayer from crops or animals sold under 2 14 an agreement in which the payment is exclusively made from the 2 15 sale of crops or animals. 2 16 6. a. In order to qualify as a beginning farmer, a person 2 17 must be eligible to receive financial assistance under section 2 18 175.12. The taxpayer may claim the tax credit on the gross 2 19 amount paid to the taxpayer as provided in this section until 2 20 the beginning farmer is no longer eligible to receive 2 21 financial assistance under section 175.12. 2 22 b. A tax credit in excess of the taxpayer's liability for 2 23 the tax year may be credited to the tax liability for the 2 24 following five years or until depleted, whichever is earlier. 2 25 A tax credit shall not be carried back to a tax year prior to 2 26 the tax year in which the taxpayer redeems the tax credit. A 2 27 tax credit shall not be transferable to any other person other 2 28 than the taxpayer's estate or trust upon the taxpayer's death. 2 29 7. A taxpayer shall not claim a tax credit under this 2 30 section unless a tax credit certificate issued by the 2 31 authority is attached to the taxpayer's tax return for the tax 2 32 year for which the tax credit is claimed. The authority must 2 33 review and approve an application for a tax credit as provided 2 34 by rules adopted by the authority. The application must 2 35 include a copy of the lease or rental agreement. The 3 1 authority may approve an application and issue a tax credit 3 2 certificate to a taxpayer who has previously been allowed a 3 3 tax credit under this section. However, the authority shall 3 4 not approve an application or issue a certificate to a 3 5 taxpayer if any of the following applies: 3 6 a. The taxpayer is at fault for terminating a prior lease 3 7 or rental agreement subject to this section as determined by 3 8 the authority. 3 9 b. The taxpayer is any of the following: 3 10 (1) A party to a pending administrative or judicial 3 11 action, including a contested case proceeding under chapter 3 12 17A, relating to an alleged violation involving an animal 3 13 feeding operation as regulated by the department of natural 3 14 resources, regardless of whether the pending action is brought 3 15 by the department or the attorney general. 3 16 (2) Classified as a habitual violator for a violation of 3 17 state law involving an animal feeding operation as regulated 3 18 by the department of natural resources. 3 19 c. The beginning farmer is responsible for managing or 3 20 maintaining agricultural land and other agricultural assets 3 21 that are greater than necessary to adequately support a 3 22 beginning farmer as determined by the authority according to 3 23 rules which shall be adopted by the authority. 3 24 d. The agricultural assets are being leased or rented at a 3 25 rate which is substantially higher or lower than the market 3 26 rate for similar agricultural assets leased or rented within 3 27 the same community, as determined by the authority. 3 28 8. The authority shall review each existing lease or 3 29 rental agreement which is part of an application approved by 3 30 the authority on a quarterly basis. The authority may require 3 31 that the taxpayer and the beginning farmer provide additional 3 32 information as determined relevant by the authority. 3 33 9. A taxpayer or the beginning farmer may terminate a 3 34 lease or rental agreement as provided in the agreement or by 3 35 law. The taxpayer must immediately notify the authority of 4 1 the termination. 4 2 a. If the authority determines that the taxpayer is not at 4 3 fault for the termination, the authority shall not issue a tax 4 4 certificate to the taxpayer for a subsequent tax year based on 4 5 the approved application. Any prior tax credit is allowed as 4 6 provided in this section. The taxpayer may apply for and be 4 7 issued another tax credit certificate for the same 4 8 agricultural assets as provided in this section for any 4 9 remaining tax years for which a certificate was not issued. 4 10 b. If the authority determines that the taxpayer is at 4 11 fault for the termination, any prior tax credit allowed under 4 12 this section is disallowed. The tax credit shall be 4 13 recaptured and the amount of the tax credit shall be 4 14 immediately due and payable to the department of revenue. If 4 15 a taxpayer does not immediately notify the authority of the 4 16 termination, the taxpayer shall be conclusively deemed at 4 17 fault for the termination. 4 18 Sec. 3. NEW SECTION. 422.11M AGRICULTURAL ASSETS 4 19 TRANSFERRED TO BEGINNING FARMERS. 4 20 The taxes imposed under this division, less the credits 4 21 allowed under sections 422.12 and 422.12B, shall be reduced by 4 22 an agricultural assets transfer tax credit as allowed under 4 23 section 175.37. 4 24 Sec. 4. Section 422.33, Code Supplement 2005, is amended 4 25 by adding the following new subsection: 4 26 NEW SUBSECTION. 20. The taxes imposed under this division 4 27 shall be reduced by an agricultural assets transfer tax credit 4 28 as allowed under section 175.37. 4 29 Sec. 5. Section 423.3, subsection 11, unnumbered paragraph 4 30 1, Code Supplement 2005, is amended to read as follows: 4 31 The sales price exclusive of services of farm machinery and 4 32 equipment, including auxiliary attachments which improve the 4 33 performance, safety, operation, or efficiency of the machinery 4 34 and equipment, and including auger systems, curtains and 4 35 curtain systems, drip systems, fan and fan systems, shutters, 5 1 inlets and shutter or inlet systems, and refrigerators, and 5 2 replacement parts, if all of the following conditions are met: 5 3 Sec. 6. REFUNDS. Refunds of taxes, interest, or penalties 5 4 which arise from claims resulting from the amendment of 5 5 section 423.3, subsection 11, in this Act, for the exemption 5 6 of sales of auger systems, curtains and curtain systems, drip 5 7 systems, fan and fan systems, shutters, inlets and shutter or 5 8 inlet systems, and refrigerators occurring between January 1, 5 9 1992, and the effective date of this section of this Act, 5 10 shall be limited to twenty=five thousand dollars in the 5 11 aggregate and shall not be allowed unless refund claims are 5 12 filed prior to October 1, 2006, notwithstanding any other 5 13 provision of law. If the amount of claims totals more than 5 14 twenty=five thousand dollars in the aggregate, the department 5 15 of revenue shall prorate the twenty=five thousand dollars 5 16 among all claimants in relation to the amounts of the 5 17 claimants' valid claims. Claimants shall not be entitled to 5 18 interest on any refunds. 5 19 Sec. 7. EFFECTIVE DATES AND RETROACTIVE APPLICABILITY 5 20 PROVISIONS. 5 21 1. Except as provided in subsection 2, this Act takes 5 22 effect January 1, 2007, and is applicable to tax years 5 23 beginning on or after that date. 5 24 2. The section of this Act amending section 423.3 and the 5 25 section of this Act providing refunds resulting from the 5 26 amendment of section 423.3, being deemed of immediate 5 27 importance, take effect upon enactment and apply retroactively 5 28 to January 1, 1992. 5 29 EXPLANATION 5 30 This bill provides tax incentives associated with 5 31 agricultural production. The bill establishes a tax credit to 5 32 assist beginning farmers and provides a sales tax exemption on 5 33 certain farm machinery and equipment. 5 34 BEGINNING FARMERS == AGRICULTURAL ASSETS TRANSFER TAX 5 35 CREDIT. The bill amends provisions in Code chapter 175, which 6 1 establishes the agricultural development authority 6 2 (authority), by providing a tax credit for an owner of 6 3 agricultural assets including agricultural land, depreciable 6 4 agricultural property, crops, or livestock, who transfers 6 5 those agricultural assets to a beginning farmer by lease or 6 6 rental agreement. 6 7 The authority is an instrumentality housed in the office of 6 8 treasurer of state that is responsible for administering a 6 9 number of programs to assist agricultural producers, including 6 10 the beginning farmer program. A beginning farmer is an 6 11 individual, partnership, family farm corporation, or family 6 12 farm limited liability company as provided under Code chapter 6 13 9H (Iowa's corporate farming law), with a low or moderate net 6 14 worth who engages in farming or wishes to engage in farming. 6 15 The bill provides that the amount of the tax credit equals 6 16 5 percent of the amount paid to the owner under the agreement. 6 17 However, if the agreement is based on a commodity share 6 18 arrangement for either crops or livestock, the tax credit may 6 19 equal 15 percent of the amount paid to the owner from the sale 6 20 of the crops or animals. 6 21 The bill places a number of restrictions upon the authority 6 22 in approving applications and issuing certificates. The owner 6 23 must be a person who may acquire or otherwise obtain or lease 6 24 agricultural land in the state under Code chapter 9H or 9I 6 25 (restricting foreign ownership of agricultural land). In 6 26 addition, the owner cannot acquire or otherwise obtain or 6 27 lease agricultural land exclusively because of an exception 6 28 provided in one of those Code chapters, e.g., an encumbrance 6 29 taken for purposes of security. A person also cannot hold 6 30 land based on an exception in other Code provisions, including 6 31 Code chapter 10 (corporate networking entities), Code chapter 6 32 10C (life science enterprises), Code chapter 10D (qualified 6 33 enterprises), and Code chapter 501 (closed cooperatives), as 6 34 well as Code section 15E.207 (an Iowa agricultural industry 6 35 finance corporation). The owner cannot be at fault for 7 1 terminating a prior lease, the owner cannot have been involved 7 2 in legal proceedings regarding an environmental violation, the 7 3 beginning farmer could not have been provided more 7 4 agricultural assets than what the beginning farmer could have 7 5 been expected to adequately manage, and the agricultural 7 6 assets cannot be leased or rented at a rate substantially 7 7 different from similar market arrangements. 7 8 This part of the bill takes effect January 1, 2007, and is 7 9 applicable to tax years beginning on or after that date. 7 10 SALES TAX EXEMPTION == FARM MACHINERY AND EQUIPMENT. The 7 11 bill also amends Code section 423.3, which provides exemptions 7 12 from the state's sales tax, including farm machinery and 7 13 equipment associated with crop production, animal agriculture, 7 14 or horticulture. The bill extends the type of farm machinery 7 15 and equipment eligible for the exemption by including auger 7 16 systems, fan systems, and refrigerators. 7 17 This part of the bill takes effect upon enactment and 7 18 applies retroactively to January 1, 1992. It limits the 7 19 amount that may be refunded to a person who paid the sales tax 7 20 on and after that date to $25,000. 7 21 LSB 5135SV 81 7 22 da:rj/cf/24