Senate Study Bill 3204 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM) A BILL FOR An Act relating to state taxation by providing specified tax 1 credits for the construction and installation of solar 2 energy systems and geothermal heat pumps, modifying sale 3 and use tax provisions related to property purchased for 4 resale, and creating a sales tax exemption for certain items 5 purchased for use in providing vehicle wash and wax services 6 and including effective date and retroactive and other 7 applicability provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 TLSB 6139XC (6) 84 mm/nh

S.F. _____ DIVISION I 1 GEOTHERMAL HEAT PUMP TAX CREDITS 2 Section 1. NEW SECTION . 422.11I Geothermal heat pump tax 3 credit. 4 The taxes imposed under this division, less the credits 5 allowed under section 422.12, shall be reduced by a geothermal 6 heat pump tax credit equal to twenty percent of the federal 7 residential energy efficient property tax credit allowed for 8 geothermal heat pumps provided in section 25(D)(a)(5) of the 9 Internal Revenue Code for residential property located in Iowa. 10 Any credit in excess of the tax liability is not refundable 11 but the excess for the tax year may be credited to the tax 12 liability for the following ten years or until depleted, 13 whichever is earlier. The director of revenue shall adopt 14 rules to implement this section. 15 Sec. 2. Section 427.1, Code Supplement 2011, is amended by 16 adding the following new subsection: 17 NEW SUBSECTION . 38. Geothermal heating and cooling system. 18 a. The value added by any new or refitted construction or 19 installation of a geothermal heating or cooling system on or 20 after July 1, 2012, on property classified as residential. 21 The exemption shall be allowed for ten consecutive years. 22 The exemption shall apply to any value added by the addition 23 of mechanical, electrical, plumbing, ductwork, or other 24 equipment, labor, and expenses included in or required for the 25 construction or installation of the geothermal system, as well 26 as the proportionate value of any well field associated with 27 the system and attributable to the owner. 28 b. A person claiming an exemption under this subsection 29 shall obtain the appropriate forms from the assessor. The 30 forms shall be prescribed by the director of revenue. The 31 claim shall be filed no later than February 1 of the first 32 assessment year the exemption is requested and shall contain 33 information pertaining to all costs and other information 34 associated with construction and installation of the system. 35 -1- LSB 6139XC (6) 84 mm/nh 1/ 9

S.F. _____ Once the exemption is allowed, the exemption shall continue to 1 be allowed for ten consecutive years without further filing as 2 long as the property continues to be classified as residential 3 property. 4 c. The director shall adopt rules to implement this 5 subsection. 6 Sec. 3. IMPLEMENTATION. Section 25B.7 does not apply to the 7 property tax exemption enacted in this division of this Act. 8 Sec. 4. EFFECTIVE UPON ENACTMENT. This division of this 9 Act, being deemed of immediate importance, takes effect upon 10 enactment. 11 Sec. 5. RETROACTIVE APPLICABILITY. The following provision 12 or provisions of this division of this Act apply retroactively 13 to January 1, 2012, for tax years beginning on or after that 14 date: 15 1. The section of this division of this Act enacting section 16 422.11I. 17 Sec. 6. APPLICABILITY. The following provision or 18 provisions of this division of this Act apply to assessment 19 years beginning on or after January 1, 2013: 20 1. The section of this division of this Act enacting section 21 427.1, subsection 38. 22 DIVISION II 23 SOLAR ENERGY SYSTEM TAX CREDITS 24 Sec. 7. NEW SECTION . 422.11L Solar energy system tax 25 credits. 26 The taxes imposed under this division, less the credits 27 allowed under section 422.12, shall be reduced by a solar 28 energy system tax credit under section 473B.2. 29 Sec. 8. Section 422.33, Code Supplement 2011, is amended by 30 adding the following new subsection: 31 NEW SUBSECTION . 29. The taxes imposed under this division 32 shall be reduced by a solar energy system tax credit under 33 section 473B.2. 34 Sec. 9. NEW SECTION . 473B.1 Definitions. 35 -2- LSB 6139XC (6) 84 mm/nh 2/ 9

S.F. _____ As used in this chapter, unless the context otherwise 1 requires: 2 1. “Allowable costs” means amounts incurred in the 3 construction or installation of a solar energy system which are 4 determined by the department by rule to qualify for the tax 5 credit issued pursuant to section 473B.2. 6 2. “Department” means the department of revenue. 7 3. “Solar energy system” means a solar energy facility which 8 collects and converts incident solar radiation into energy to 9 generate electricity, or a solar thermal system. 10 Sec. 10. NEW SECTION . 473B.2 Tax credit. 11 1. A solar energy system tax credit shall be issued for the 12 allowable costs incurred in the construction or installation 13 of a solar energy system equal to thirty percent of the cost of 14 the construction or installation, subject to a maximum credit 15 of fifteen thousand dollars for commercial or agricultural 16 construction or installation, or three thousand dollars for 17 residential construction or installation. Any credit in excess 18 of the tax liability is refundable. In lieu of claiming a 19 refund, the taxpayer may elect to have the overpayment shown 20 on the taxpayer’s final, completed return credited to the tax 21 liability for the following tax year. 22 2. a. An individual may claim the tax credit allowed a 23 partnership, limited liability company, S corporation, estate, 24 or trust electing to have the income taxed directly to the 25 individual. The amount claimed by the individual shall be 26 based upon the pro rata share of the individual’s earnings of 27 the partnership, limited liability company, S corporation, 28 estate, or trust. 29 b. A taxpayer who is eligible to claim a solar energy system 30 tax credit under this chapter shall not be eligible to claim a 31 renewable energy tax credit under chapter 476C. 32 3. The cumulative value of tax credit certificates issued 33 annually by the department to applicants pursuant to this 34 chapter shall not exceed one million five hundred thousand 35 -3- LSB 6139XC (6) 84 mm/nh 3/ 9

S.F. _____ dollars. 1 Sec. 11. NEW SECTION . 473B.3 Tax credit certificate —— 2 application and issuance. 3 1. a. To receive a tax credit as described in section 4 473B.2, a taxpayer shall file an application with the 5 department, the form and content of which shall be determined 6 by the department by rule. If upon receipt of a completed 7 application, the department finds that the person is qualified 8 for a solar energy system tax credit, the department shall 9 calculate the amount of the tax credit for which the person is 10 eligible and shall issue the applicable tax credit certificate 11 to the person or notify the person in writing of its refusal to 12 do so. The tax credit certificate may be applied against tax 13 owned pursuant to chapter 422, division II and III for the year 14 in which the allowable costs were incurred. 15 b. At a minimum, qualification criteria for issuance of 16 a certificate pursuant to paragraph “a” shall include the 17 following: 18 (1) An applicant shall complete and submit an energy audit 19 conducted either by or on behalf of the applicant’s electric 20 utility or through a private energy audit service. The level 21 of energy audit to be conducted shall be determined under rules 22 adopted by the department in consultation with the utilities 23 board of the utilities division of the department of commerce. 24 (2) The solar energy system must qualify for the energy star 25 efficiency rating developed by the United States environmental 26 protection agency, or a similar certification program or status 27 designated by the department by rule, if available. 28 (3) The installation must be performed by a licensed or 29 certified installer qualified to install solar energy systems 30 and related equipment, and must meet or exceed all requirements 31 of applicable local building codes and ordinances. 32 2. A person whose application for a solar energy system 33 tax credit certificate is denied may file an appeal with the 34 department within sixty days from the date of denial pursuant 35 -4- LSB 6139XC (6) 84 mm/nh 4/ 9

S.F. _____ to the provisions of chapter 17A. 1 3. If a solar energy system tax credit certificate 2 is allowed with respect to residential, commercial, or 3 agricultural property and such property is sold, the credit for 4 the period after the sale which would have been allowable under 5 this chapter to the prior owner had the property not been sold 6 shall be allowable to the new owner. A tax credit for the year 7 of sale shall be allocated between the parties on the basis of 8 the number of days during such year that the property was owned 9 by each. 10 Sec. 12. NEW SECTION . 473B.4 Reporting. 11 On or before January 1, annually, the department shall 12 submit a written report to the governor and the general 13 assembly regarding the number and value of tax credit 14 certificates issued under this chapter, and any other 15 information the department may deem meaningful and appropriate. 16 Sec. 13. Section 476C.2, Code Supplement 2011, is amended by 17 adding the following new subsection: 18 NEW SUBSECTION . 3. A taxpayer who is eligible to claim 19 a renewable energy tax credit under this chapter shall not 20 be eligible to claim a solar energy system tax credit under 21 chapter 473B. 22 Sec. 14. EFFECTIVE UPON ENACTMENT. This division of this 23 Act, being deemed of immediate importance, takes effect upon 24 enactment. 25 Sec. 15. RETROACTIVE APPLICABILITY. This division of this 26 Act applies retroactively to tax years beginning on or after 27 January 1, 2012. 28 DIVISION III 29 SALES TAX EXEMPTIONS 30 Sec. 16. Section 423.1, subsection 39, paragraphs b and c, 31 Code Supplement 2011, are amended to read as follows: 32 b. The property is transferred to the user of the service 33 in connection with the performance of the service in a form 34 or quantity capable of a fixed or definite price value , or 35 -5- LSB 6139XC (6) 84 mm/nh 5/ 9

S.F. _____ the property is entirely consumed in connection with the 1 performance of an auto body repair service purchased by the 2 ultimate user . 3 c. The sale is evidenced by a separate charge for the 4 identifiable piece of property unless the property is entirely 5 consumed in connection with the performance of an auto body 6 repair service purchased by the ultimate user . 7 Sec. 17. Section 423.3, Code Supplement 2011, is amended by 8 adding the following new subsection: 9 NEW SUBSECTION . 96. The sales price from the sale of water, 10 electricity, chemicals, solvents, sorbents, or reagents to a 11 retailer to be used in providing a service that includes a 12 vehicle wash and wax, which vehicle wash and wax service is 13 subject to section 423.2, subsection 6. 14 Sec. 18. EFFECTIVE UPON ENACTMENT. This division of this 15 Act, being deemed of immediate importance, takes effect upon 16 enactment. 17 EXPLANATION 18 This bill relates to state taxation by providing specified 19 tax credits and sales and use tax exemptions. 20 Division I provides an income tax credit and property tax 21 exemption for the construction or installation of a geothermal 22 heating or cooling system in connection with residential 23 property located in Iowa. 24 The division provides for an income tax credit for 25 such installations equal to twenty percent of the federal 26 residential energy efficiency property income tax credit 27 allowed for geothermal heat pumps. The division states that 28 any credit in excess of tax liability is not refundable but may 29 be credited to the tax liability for the following 10 years or 30 until depleted, whichever is earlier. 31 The division additionally provides for a property tax 32 exemption equal to the value added by any new or refitted 33 construction or installation of a geothermal heating or cooling 34 system on or after July 1, 2012. The division states that 35 -6- LSB 6139XC (6) 84 mm/nh 6/ 9

S.F. _____ the exemption shall be allowed for 10 consecutive years, and 1 shall apply to any value added by the addition of mechanical, 2 electrical, plumbing, ductwork, or other equipment, labor, 3 and expenses included in or required for the construction or 4 installation of the system, as well as the proportionate value 5 of any well field associated with the system and attributable 6 to the owner. The division specifies procedures regarding 7 claiming the exemption. 8 The division provides for the adoption of rules by the 9 director of the department of revenue, and states that Code 10 section 25B.7, regarding full state funding of property 11 tax credits or exemptions, shall not be applicable to the 12 geothermal heating and cooling system property tax exemption. 13 The division takes effect upon enactment. Provisions in the 14 bill enacting the income tax credit for geothermal heat pumps 15 apply retroactively to January 1, 2012, for tax years beginning 16 on or after that date. Provisions enacting the property tax 17 exemption for geothermal heating and cooling systems apply to 18 assessment years beginning on or after January 1, 2013. 19 Division II provides tax credits for the construction and 20 installation of solar energy systems as defined in the bill. 21 The division provides that a solar energy system tax credit 22 shall be issued for the allowable costs, as determined by 23 the department of revenue, incurred in the construction or 24 installation of a solar energy system. The credits shall 25 be equal to 30 percent of the cost of the construction or 26 installation, subject to a maximum credit of $15,000 for 27 commercial or agricultural construction or installation or 28 $3,000 for residential construction or installation. The 29 division specifies that the credits shall be refundable, or 30 alternatively applied against tax liability for the following 31 tax year. 32 The division provides that an individual may claim the 33 tax credit allowed a partnership, limited liability company, 34 S corporation, estate, or trust electing to have the income 35 -7- LSB 6139XC (6) 84 mm/nh 7/ 9

S.F. _____ taxed directly to the individual, with the amount claimed 1 based upon the pro rata share of the individual’s earnings of 2 the partnership, limited liability company, S corporation, 3 estate, or trust. The division also provides that a taxpayer 4 who is eligible to claim a solar energy system tax credit is 5 not eligible to claim the renewable energy tax credit provided 6 in Code chapter 476C. Further, the division restricts the 7 cumulative total of solar energy system tax credits issued 8 for all applicants to an amount not exceeding $1.5 million 9 annually. 10 The division sets forth application and issuance procedures 11 in relation to obtaining a tax credit certificate, to be 12 developed by the department by rule. The division provides 13 that, at a minimum, qualification criteria shall include 14 submission of an energy audit at a level determined by 15 rule conducted either by or on behalf of the applicant’s 16 electric utility or through a private energy audit service, 17 qualification of the system for the energy star efficiency 18 rating developed by the United States environmental protection 19 agency or a similar certification program or status designated 20 by the department by rule, if available, installation by a 21 licensed or certified installer qualified to install solar 22 energy systems and equipment, and meeting or exceeding all 23 applicable local building code and ordinance requirements. 24 The division states that if the department finds that a 25 person is qualified for a solar energy system tax credit, the 26 department shall calculate the amount of the tax credit for 27 which the person is eligible and either issue the applicable 28 tax credit certificate to the person or notify the person in 29 writing of its refusal to do so. The tax credit certificate 30 may be applied against individual or corporate tax owed 31 pursuant to Code chapter 422, divisions II and III, for the 32 year in which the allowable costs were incurred. 33 The division authorizes a person whose application is denied 34 to file an appeal with the department within 60 days from the 35 -8- LSB 6139XC (6) 84 mm/nh 8/ 9

S.F. _____ date of denial, and provides for the proration or allocation 1 of a credit in the event property subject to a tax credit is 2 sold. The division contains reporting requirements regarding 3 the number and value of tax credit certificates issued, and 4 any other information the department deems meaningful and 5 appropriate. 6 The division takes effect upon enactment, and applies 7 retroactively to tax years beginning on or after January 1, 8 2012. 9 Division III amends the definition of “property purchased 10 for resale in connection with the performance of a service” 11 in Code section 423.1. Under current law, property qualifies 12 as “property purchased for resale in connection with the 13 performance of a service” if, among other things, it is 14 transferred during the service in a form or quantity capable 15 of a fixed or definite price value and listed as a separate 16 charge. The division provides that property which is entirely 17 consumed in connection with the performance of an auto body 18 repair service will also qualify as “property purchased for 19 resale in connection with the performance of a service”, and 20 provides that the property entirely consumed in performance of 21 the service need not be listed as a separate charge. 22 The division also creates a sales tax exemption for sales of 23 water, electricity, chemicals, solvents, sorbents, or reagents 24 made to a retailer for use in providing taxable vehicle wash 25 and wax services. By operation of Code section 423.6, an item 26 exempt from the imposition of the sales tax is also exempt from 27 the use tax imposed in Code section 423.5. 28 The division takes effect immediately upon enactment. 29 -9- LSB 6139XC (6) 84 mm/nh 9/ 9