House File 2426 - Introduced HOUSE FILE 2426 BY PRICHARD A BILL FOR An Act relating to small farm operations producing 1 vegetables or fruit, including by establishing programs 2 to support production and marketing, a preference for 3 government entities when purchasing food, a tax credit and 4 appropriation, and a property tax exemption, and including 5 applicability date provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 5049YH (5) 85 da/nh

H.F. 2426 DIVISION I 1 PROGRAMS 2 Section 1. NEW SECTION . 15E.371 Purpose. 3 The purposes of this division are to encourage and promote 4 the production and purchase of locally and regionally produced 5 vegetables or fruits, to improve nutrition for the citizens of 6 Iowa, and to strengthen local and regional farm economies. 7 Sec. 2. NEW SECTION . 15E.372 Definitions. 8 As used in this division, unless the context otherwise 9 requires: 10 1. “Small farm operation” means agricultural land as defined 11 in 9H.1 which includes not more than ten acres exclusively used 12 to produce vegetables or fruit for human consumption. 13 2. “Small farm operator” means a person who is the owner or 14 lessee of a small farm operation. 15 Sec. 3. NEW SECTION . 15E.373 General authority. 16 1. The authority shall administer this division and adopt 17 all rules necessary to carry out the purposes of this division 18 as provided in section 15E.371. 19 2. The authority shall cooperate with the Iowa finance 20 authority and the department of agriculture and land 21 stewardship in administering this division. 22 3. The authority may employ or contract with a consultant or 23 specialist to assist in developing and implementing a plan to 24 implement this division. 25 Sec. 4. NEW SECTION . 15E.374 Qualifications. 26 In order to qualify to participate in a program under 27 this division, a person shall meet all of the requirements 28 established by the authority which shall include at least all 29 of the following: 30 1. Be a small farm operator. The small farm operator may be 31 an individual, a partner in a partnership under chapter 486A, a 32 shareholder of a family farm corporation as defined in section 33 9H.1, or a member of a family farm limited liability company as 34 defined in section 9H.1. 35 -1- LSB 5049YH (5) 85 da/nh 1/ 12

H.F. 2426 2. Be actively engaged in the small farm operation by making 1 management decisions and performing physical work relating to 2 the production and marketing of vegetables or fruit produced on 3 the small farm operation. The person must be actively engaged 4 on a regular, continuous, and substantial basis in a manner 5 that is essential to the success of the small farm operation. 6 If the person is a partnership, family farm corporation, or 7 family farm limited liability company, at least one partner, 8 shareholder, or member must be so actively engaged. 9 3. Be a resident of this state. If the person is a 10 partnership, family farm corporation, or family farm limited 11 liability company, each partner, shareholder, or member must be 12 a resident of this state. 13 4. Have sufficient education, training, or experience 14 in farming. If the person is a partnership, family farm 15 corporation, or family farm limited liability company, each 16 partner, shareholder, or member, who is not a minor, must have 17 sufficient education, training, or experience in farming. 18 5. Will materially and substantially participate in the 19 small farming operation. If the person is a partnership, 20 family farm corporation, or family farm limited liability 21 company, each partner, shareholder, or member, who is not 22 a minor, must materially and substantially participate in 23 farming. 24 6. Have access to adequate working capital and production 25 items. 26 7. Meet the low or moderate net worth requirements 27 applicable to a beginning farmer under chapter 175. 28 Sec. 5. NEW SECTION . 15E.375 Small farm operator financial 29 assistance program. 30 1. A small farm operator financial assistance program is 31 created within the authority. The purpose of the program is to 32 provide financial assistance to small farm operators for the 33 improvement or expansion of an existing and viable small farm 34 operation. 35 -2- LSB 5049YH (5) 85 da/nh 2/ 12

H.F. 2426 2. The authority may provide financial assistance in the 1 form of an interest loan, low-interest loan, no-interest loan, 2 forgivable loan, loan guarantee, grant, letter of credit, 3 equity financing, principal buy-down, interest buy-down, or a 4 combination of these forms. 5 3. The maximum amount of financial assistance for a small 6 farm operator under the program is twenty-five percent of the 7 amount of credit extended to the small farm operator by an 8 eligible lender, as defined by the authority, up to a maximum 9 of fifty thousand dollars. 10 4. The authority shall not approve an application to 11 refinance an existing loan. 12 Sec. 6. NEW SECTION . 15E.376 Small farm operator marketing 13 program. 14 1. A small farm operator marketing program is created 15 within the authority. The purpose of the program is to promote 16 new markets for vegetables or fruits produced by small farm 17 operators. 18 2. In carrying out the purpose of the program, the authority 19 shall do all of the following: 20 a. Investigate the marketing of vegetables or fruits 21 produced by small farm operators and recommend efficient and 22 economical methods of marketing. 23 b. Promote the sale, distribution, and merchandising of 24 vegetables or fruits produced by small farm operators. 25 c. Furnish information and assistance to the public 26 concerning the marketing of vegetables or fruits produced by 27 small farm operators. 28 d. Gather and diffuse useful information concerning all 29 phases of the marketing of vegetables or fruits produced 30 by small farm operators in cooperation with other public 31 or private agencies. The authority shall cooperate with 32 Iowa state university of science and technology to avoid any 33 unnecessary duplication of efforts. 34 e. Ascertain sources of supply of vegetables or fruits 35 -3- LSB 5049YH (5) 85 da/nh 3/ 12

H.F. 2426 produced by small farm operators, and prepare and publish 1 from time to time lists of names and addresses of small farm 2 operators and marketers. 3 Sec. 7. NEW SECTION . 15E.377 Small farm operations fund. 4 1. A small farm operations fund is created in the state 5 treasury as a revolving fund under the control of the 6 authority. The fund shall consist of any moneys appropriated 7 by the general assembly for deposit in the fund and any other 8 moneys available to and obtained or accepted by the authority 9 from the federal government or private sources for placement 10 in the fund. 11 2. Moneys in the fund are appropriated exclusively to 12 support the programs created in this division including as 13 provided in sections 15E.374 and 15E.375. 14 3. Notwithstanding section 12C.7, interest or earnings 15 on moneys in the fund shall be credited to the fund. 16 Notwithstanding section 8.33, moneys credited to the fund that 17 remain unexpended or unobligated at the end of a fiscal year 18 shall not revert to any other fund. 19 Sec. 8. NEW SECTION . 15E.378 Certification. 20 1. Upon application, the authority shall issue an annual 21 certificate to a person eligible to participate in a program 22 under this division verifying that the person is a qualified 23 small farm operator, regardless of whether the person actually 24 participates in a program. 25 2. A person may use a certificate issued to the person under 26 this section as proof of eligibility for a benefit under other 27 programs benefiting small farm operators, including all of the 28 following: 29 a. The selling of vegetables or fruits to the department 30 of administrative services pursuant to section 8A.315, the 31 commission for the blind pursuant to section 216B.3, the board 32 of directors of a merged area pursuant to section 260C.19C, 33 the board of regents pursuant to section 262.9, the state 34 department of transportation pursuant to section 307.21, and 35 -4- LSB 5049YH (5) 85 da/nh 4/ 12

H.F. 2426 the department of corrections pursuant to section 904.312. 1 b. The from small farm operation to school tax credit as 2 provided in chapter 190A. 3 c. A property tax exemption as provided in section 427.1. 4 Sec. 9. CODIFICATION. The Code editor shall organize the 5 provisions of this division of this Act as a new division in 6 chapter 15E. 7 DIVISION II 8 PURCHASE BY GOVERNMENT ENTITIES 9 Sec. 10. Section 8A.315, Code 2014, is amended by adding the 10 following new subsection: 11 NEW SUBSECTION . 9. When providing for the purchase of 12 food, the department, whenever cost competitive, shall purchase 13 vegetables or fruits produced by persons certified as qualified 14 small farm operators by the economic development authority 15 pursuant to section 15E.378. 16 Sec. 11. Section 216B.3, Code 2014, is amended by adding the 17 following new subsection: 18 NEW SUBSECTION . 13A. When providing for the purchase of 19 food, give a preference to purchasing vegetables or fruits 20 produced by persons certified as qualified small farm operators 21 by the economic development authority pursuant to section 22 15E.378. 23 Sec. 12. Section 260C.19C, Code 2014, is amended to read as 24 follows: 25 260C.19C Purchase of designated biobased certain products. 26 The board of directors providing services to a merged area 27 shall give preference to purchasing designated all of the 28 following: 29 1. Vegetables or fruits produced by persons certified as 30 qualified small farm operators by the economic development 31 authority pursuant to section 15E.378. 32 2. Designated biobased products in the same manner as 33 provided in section 8A.317 . 34 Sec. 13. Section 262.9, Code 2014, is amended by adding the 35 -5- LSB 5049YH (5) 85 da/nh 5/ 12

H.F. 2426 following new subsection: 1 NEW SUBSECTION . 6A. When providing for the purchase of 2 food, give a preference to purchasing vegetables or fruits 3 produced by persons certified as qualified small farm operators 4 by the economic development authority pursuant to section 5 15E.378. 6 Sec. 14. Section 307.21, Code 2014, is amended by adding the 7 following new subsection: 8 NEW SUBSECTION . 6A. The administrator shall, when 9 providing for the purchase of food, give a preference to 10 purchasing vegetables or fruits produced by persons certified 11 as qualified small farm operators by the economic development 12 authority pursuant to section 15E.378. 13 Sec. 15. Section 904.312, Code 2014, is amended by adding 14 the following new subsection: 15 NEW SUBSECTION . 3. When providing for the purchase of food, 16 the director shall give a preference to purchasing vegetables 17 or fruits produced by persons certified as qualified small farm 18 operators by the economic development authority pursuant to 19 section 15E.378. 20 DIVISION III 21 IOWA STATE UNIVERSITY 22 Sec. 16. NEW SECTION . 266.31 Small farm operations. 23 1. The Iowa cooperative extension service in agriculture 24 and home economics shall develop and publish materials and 25 sponsor events on site or via the internet regarding best 26 methods, practices, and strategies for use by small farm 27 operators qualified to participate in programs created in 28 chapter 15E, division XXVIII, in producing and marketing 29 vegetables or fruits. 30 2. The materials and events shall be made available or 31 sponsored at cost. 32 DIVISION IV 33 TAX CREDIT 34 Sec. 17. Section 2.48, subsection 3, paragraph f, Code 2014, 35 -6- LSB 5049YH (5) 85 da/nh 6/ 12

H.F. 2426 is amended to read as follows: 1 f. In 2017 , the : 2 (1) The from small farm operation to school tax credit under 3 chapter 190A, subchapter II. 4 (2) The innovation fund investment tax credit available 5 under section 15E.52 . 6 Sec. 18. NEW SECTION . 190A.11 Administration —— rules. 7 1. This subchapter shall be administered by the department 8 of revenue. 9 2. The department of revenue shall adopt all rules necessary 10 to administer this subchapter. 11 3. The department of agriculture and land stewardship, the 12 department of public health, and the department of education 13 shall cooperate with the department of revenue in developing 14 and administering this subchapter. 15 Sec. 19. NEW SECTION . 190A.12 From small farm operation to 16 school tax credit. 17 A from small farm operation to school tax credit is allowed 18 against the taxes imposed in chapter 422, divisions II and III, 19 as provided in this subchapter. 20 Sec. 20. NEW SECTION . 190A.13 From small farm operation to 21 school tax credit —— eligibility. 22 In order to qualify for a from small farm operation to school 23 tax credit, all of the following must apply: 24 1. The taxpayer must be a small farm operator qualified 25 to participate in programs created in chapter 15E, division 26 XXVIII. 27 2. The taxpayer must produce the vegetables or fruits on the 28 taxpayer’s small farm operation. 29 3. The taxpayer must transfer title to the vegetables or 30 fruits to a school district or accredited nonpublic school in 31 this state. 32 4. The vegetables or fruits shall not be damaged or 33 out-of-condition or declared to be unfit for human consumption 34 by a federal, state, or local health official. The condition 35 -7- LSB 5049YH (5) 85 da/nh 7/ 12

H.F. 2426 of the vegetables or fruits must be at least the same as 1 allowed for charitable contributions of food under section 2 170(e)(3)(C) of the Internal Revenue Code. However, the 3 department may require that the vegetables or fruits comply 4 with higher quality standards. 5 5. The vegetables or fruits must be used by the school 6 district or school to supplement the diet of its students. 7 Sec. 21. NEW SECTION . 190A.14 From small farm operation 8 to school tax credit —— claims. 9 1. A certificate issued by the economic development 10 authority under section 15E.378 must be attached to the 11 taxpayer’s tax return for the tax year for which the tax 12 credit under this subchapter is claimed. The department of 13 revenue must review and approve an application for a tax credit 14 certificate as provided by rules adopted by the department of 15 revenue. 16 2. The department of revenue may require that the taxpayer 17 attach proof of the sale of vegetables or fruits to the 18 department supporting the tax credit claim in a form and manner 19 prescribed by the department. 20 3. An individual may claim a from small farm operation to 21 school tax credit of a general partnership, limited liability 22 company, S corporation, or estate electing to have income 23 taxed directly to the individual. The amount claimed by the 24 individual shall be based upon the pro rata share of the 25 individual’s earnings from the partnership, limited liability 26 company, S corporation, or estate. 27 Sec. 22. NEW SECTION . 190A.15 From small farm operation to 28 school tax credit —— limits on claims. 29 A from small farm operation to school tax credit is subject 30 to all of the following limitations: 31 1. The tax credit shall not exceed a qualifying amount for 32 the tax year that the tax credit is claimed. The qualifying 33 amount is the lesser of the following: 34 a. Fifty percent of the total purchase price paid by all 35 -8- LSB 5049YH (5) 85 da/nh 8/ 12

H.F. 2426 school districts or schools to which the vegetables or fruits 1 were sold. 2 b. Ten thousand dollars. 3 2. A tax credit in excess of the taxpayer’s liability for 4 the tax year is not refundable but may be credited to the tax 5 liability for the following five years or until depleted, 6 whichever is earlier. 7 3. If a tax credit is allowed, the amount of the sale for 8 which the tax credit is claimed shall not be deductible in 9 determining taxable income for state tax purposes. 10 4. A tax credit shall not be carried back to a tax year 11 prior to the tax year in which the taxpayer claims the tax 12 credit. 13 Sec. 23. NEW SECTION . 190A.16 Tax credit certificates —— 14 availability. 15 1. The amount of tax credits that may be issued to support 16 the from small farm operation to school tax credit shall not 17 exceed five million dollars in the aggregate in any year. 18 2. The department of revenue shall issue tax credit 19 certificates to support the from small farm operation to school 20 tax credit on a first-come, first-served basis. 21 Sec. 24. NEW SECTION . 422.11K From small farm operation to 22 school tax credit. 23 The taxes imposed under this division, less the credits 24 allowed under section 422.12, shall be reduced by a from 25 small farm operation to school tax credit under chapter 190A, 26 subchapter 2. 27 Sec. 25. Section 422.33, Code 2014, is amended by adding the 28 following new subsection: 29 NEW SUBSECTION . 22. The taxes imposed under this division 30 shall be reduced by a from small farm operation to school tax 31 credit under chapter 190A, subchapter 2. 32 Sec. 26. CODIFICATION. The Code editor shall organize 33 the provisions of this division of this Act enacting sections 34 190A.11 through 190A.16 as a new subchapter in chapter 190A. 35 -9- LSB 5049YH (5) 85 da/nh 9/ 12

H.F. 2426 Sec. 27. APPLICABILITY. This division of this Act applies 1 to tax years beginning on or after January 1, 2015. 2 DIVISION V 3 PROPERTY TAX EXEMPTION 4 Sec. 28. Section 427.1, Code 2014, is amended by adding the 5 following new subsection: 6 NEW SUBSECTION . 25. Small farm operation. Land which 7 is a small farm operation owned or leased by a small farm 8 operator certified by the economic development authority 9 pursuant to section 15E.378 as qualified to participate in 10 programs under chapter 15E, division XXVIII. The economic 11 development authority shall send a copy of the certificate 12 to the appropriate assessor not later than February 1 of the 13 assessment year for which the exemption is requested. The 14 economic development authority may subsequently withdraw the 15 certificate if the small farm operator no longer qualifies to 16 participate in programs under chapter 15E, division XXVIII. In 17 that case, the economic development authority shall provide the 18 assessor with written notice of the decertification. 19 EXPLANATION 20 The inclusion of this explanation does not constitute agreement with 21 the explanation’s substance by the members of the general assembly. 22 GENERAL. This bill provides assistance to a person 23 classified as a small farm operator who owns or leases not more 24 than 10 acres of agricultural land used to produce vegetables 25 or fruits. In order to receive assistance, the small farm 26 operator must comply with certain requirements. The person 27 must be in business as an individual or an equity holder in 28 an entity, including as a partner of a general partnership, 29 a shareholder of a family farm corporation, or a member 30 of a family farm limited liability company (Code chapter 31 9H). The individual or all equity holders in an entity must 32 be Iowa residents, must demonstrate sufficient education, 33 training, or experience in farming, and will materially and 34 substantially participate in the small farm operation. The 35 -10- LSB 5049YH (5) 85 da/nh 10/ 12

H.F. 2426 small farm operation must have access to adequate working 1 capital and production items, and meet low or moderate net 2 worth requirements applicable to a beginning farmer under the 3 beginning farmer loan program (Code sections 175.2(1)(p) and 4 175.12). 5 ASSISTANCE PROGRAMS. The bill creates two small farm 6 operation assistance programs administered by the economic 7 development authority (authority). The first is a small farm 8 operator financial assistance program to provide financial 9 assistance to small farm operators for the improvement or 10 expansion of an existing farm operation. The assistance may be 11 in the form of an interest loan, low-interest loan, no-interest 12 loan, forgivable loan, loan guarantee, grant, letter of credit, 13 equity financing, principal buy-down, or interest buy-down. 14 The second is a small farm operator marketing program to 15 promote new markets for vegetables or fruits produced by small 16 farm operators. The bill also creates a small farm operations 17 fund to support the programs. Finally, the bill requires the 18 authority to certify that a small farm operator is eligible to 19 participate in other programs created in the bill. 20 PREFERENCE REQUIRED BY STATE ENTITIES PURCHASING FOOD. 21 The bill requires that certain governmental entities provide 22 a preference to a certified small farm operator when the 23 government entity purchases food. The entities include the 24 department of administrative services, commission for the 25 blind, merged area schools, board of regents institutions, 26 the state department of transportation, and the department of 27 corrections. 28 IOWA STATE UNIVERSITY. The bill requires that the Iowa 29 cooperative extension service in agriculture and home economics 30 at Iowa state university develop and publish materials and 31 sponsor events to assist small farm operators in increasing 32 profitability. 33 INCOME TAX CREDIT. The bill requires the department of 34 revenue to establish a tax credit for certified small farm 35 -11- LSB 5049YH (5) 85 da/nh 11/ 12

H.F. 2426 operators selling vegetables or fruits to schools. The amount 1 of the tax credit cannot exceed 50 percent of the purchase 2 price paid by the school or $10,000, whichever is less. The 3 bill provides for a five-year carryover period. There is no 4 carryback provision and the tax credit is nontransferable. The 5 bill imposes a maximum limit of $5 million that can be used to 6 support the tax credit during any year. 7 PROPERTY TAX EXEMPTION. The bill provides that land which 8 is a small farm operation owned or leased by a certified small 9 farm operator is exempt from property taxes. The authority 10 must send a copy of the certificate to the appropriate county 11 assessor. The authority may decertify the small farm operator 12 and send that notice to the county assessor as well. 13 -12- LSB 5049YH (5) 85 da/nh 12/ 12