House File 252 - Introduced HOUSE FILE 252 BY COMMITTEE ON AGRICULTURE (SUCCESSOR TO HSB 69) A BILL FOR An Act relating to beginning farmers by modifying the 1 agricultural assets transfer tax credit, providing a 2 custom farming contract tax credit, and terminating 3 the agricultural loan assistance program, and including 4 effective date and retroactive applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 1450HV (3) 85 da/sc

H.F. 252 Section 1. Section 2.48, subsection 3, paragraph e, 1 subparagraph (1), Code 2013, is amended to read as follows: 2 (1) The agricultural assets transfer tax credit under 3 section 175.37 and the custom farming contract tax credit as 4 provided in section 175.38 . 5 Sec. 2. Section 175.2, subsection 1, Code 2013, is amended 6 by adding the following new paragraphs: 7 NEW PARAGRAPH . 0h. “Beginning farmer tax credit program” 8 means all of the following: 9 (1) The agricultural assets transfer tax credit as provided 10 in section 175.37. 11 (2) The custom farming contract tax credit as provided in 12 section 175.38. 13 NEW PARAGRAPH . 0t. “Production item” includes tools, 14 machinery, or equipment that is principally used to produce 15 crops or livestock. 16 NEW PARAGRAPH . 00t. “Qualified beginning farmer” means a 17 beginning farmer who meets the requirements to participate in 18 a beginning farmer tax credit program as provided in section 19 175.36A. 20 NEW PARAGRAPH . v. “Veteran” means the same as defined in 21 section 35.1. 22 Sec. 3. Section 175.4, subsection 18, Code 2013, is amended 23 by striking the subsection. 24 Sec. 4. Section 175.8, subsection 2, Code 2013, is amended 25 to read as follows: 26 2. a. The annual report shall identify performance include 27 all of the following: 28 (1) Performance goals of the authority , and . The report 29 shall clearly indicate the extent of progress during the 30 reporting period , in attaining the goals. 31 (2) An evaluation of the success of its programs, with 32 a special emphasis on the beginning farmer loan program as 33 provided in section 175.12, and the beginning farmer tax credit 34 program. 35 -1- LSB 1450HV (3) 85 da/sc 1/ 16

H.F. 252 b. Where possible, the findings and results of its 1 performance goals and evaluation shall be expressed in terms of 2 number of loans , tax credits, participating qualified beginning 3 farmers, and acres of agricultural land , including by county . 4 Sec. 5. NEW SECTION . 175.36A Criteria for beginning farmers 5 participating in the beginning farmer tax credit program. 6 A beginning farmer qualifies to participate in the beginning 7 farmer tax credit program, by meeting all of the following 8 criteria: 9 1. Is a resident of the state. If the beginning farmer is a 10 partnership, all partners must be residents of the state. If a 11 beginning farmer is a family farm corporation, all shareholders 12 must be residents of the state. If the beginning farmer is 13 a family farm limited liability company, all members must be 14 residents of the state. 15 2. Has sufficient education, training, or experience in 16 farming. If the beginning farmer is a partnership, each 17 partner who is not a minor must have sufficient education, 18 training, or experience in farming. If the beginning farmer 19 is a family farm corporation, each shareholder who is not a 20 minor must have sufficient education, training, or experience 21 farming. If the beginning farmer is a family farm limited 22 liability company, each member who is not a minor must have 23 sufficient education, training, or experience in farming. 24 3. Has access to adequate working capital and production 25 items. 26 4. Will materially and substantially participate in 27 farming. If the beginning farmer is a partnership, family 28 farm corporation, or family farm limited liability company, 29 each partner, shareholder, or member who is not a minor must 30 materially and substantially participate in farming. 31 5. Is not responsible for managing or maintaining 32 agricultural land and other agricultural assets that are 33 greater than necessary to adequately support a beginning farmer 34 as determined by the authority according to rules which shall 35 -2- LSB 1450HV (3) 85 da/sc 2/ 16

H.F. 252 be adopted by the authority. 1 Sec. 6. NEW SECTION . 175.36B Administration of beginning 2 farmer tax credit program. 3 1. To every extent practicable, the authority shall 4 administer tax credits under the beginning farmer tax credit 5 program in a uniform manner that encourages participation by 6 qualified beginning farmers. The authority shall determine a 7 qualified beginning farmer’s low or moderate net worth by using 8 a single method applicable to all its programs, including the 9 beginning farmer tax credit program. 10 2. The authority shall establish a due date to receive 11 applications to participate in the beginning farmer tax credit 12 program. The authority may establish different due dates for 13 applications to qualify for each beginning farmer tax credit. 14 3. The department of revenue shall cooperate with the 15 authority in administering the beginning farmer tax credit 16 program. 17 Sec. 7. Section 175.37, subsection 1, Code 2013, is amended 18 to read as follows: 19 1. An agricultural assets transfer tax credit is allowed 20 under this section . The tax credit is allowed against the 21 taxes imposed in chapter 422, division II , as provided in 22 section 422.11M , and in chapter 422, division III , as provided 23 in section 422.33 , to facilitate the transfer of agricultural 24 assets from a taxpayer to a qualified beginning farmer. 25 Sec. 8. Section 175.37, subsection 2, paragraph b, Code 26 2013, is amended to read as follows: 27 b. Execute an agricultural assets transfer agreement with a 28 qualified beginning farmer as provided in this section . 29 Sec. 9. Section 175.37, subsection 4, Code 2013, is amended 30 to read as follows: 31 4. The tax credit is allowed only for agricultural assets 32 that are subject to an agricultural assets transfer agreement. 33 The agreement shall provide for the lease of agricultural land 34 located in this state, including any improvements and may 35 -3- LSB 1450HV (3) 85 da/sc 3/ 16

H.F. 252 provide for the rental of agricultural equipment as defined in 1 section 322F.1 . 2 a. The agreement may be shall include a lease made on a cash 3 basis or on a commodity share basis which includes a share of 4 the crops or livestock produced on the agricultural land. The 5 agreement must be in writing. 6 b. The agreement shall be for at least two years, but 7 not more than five years. The agreement or that part of 8 the agreement providing for the lease may be renewed by the 9 qualified beginning farmer for a term of at least two years, 10 but not more than five years. An agreement does not include a 11 lease or the rental of equipment intended as a security. 12 c. The agricultural transfer agreement cannot be assigned 13 and the land subject to the agreement cannot be subleased. 14 Sec. 10. Section 175.37, subsection 5, Code 2013, is amended 15 to read as follows: 16 5. The tax credit shall be calculated based on the gross 17 amount paid to the taxpayer under the agricultural assets 18 transfer agreement. The agreement shall be based on a cash 19 basis or a commodity share basis or both. 20 a. Except as provided in paragraph “b” , For an agreement 21 that includes a lease on a cash basis, the tax credit shall 22 equal five be computed as follows: 23 (1) If the qualified beginning farmer is not a veteran, the 24 taxpayer may claim a tax credit equal to seven percent of the 25 gross amount paid to the taxpayer under the agreement for each 26 tax year that the tax credit is allowed . 27 (2) If the qualified beginning farmer is a veteran, the 28 taxpayer may claim eight percent of the gross amount paid to 29 the taxpayer under the agreement for the first year that the 30 tax credit is allowed and seven percent of the gross amount 31 paid to the taxpayer for each subsequent tax year that the 32 tax credit is allowed. However, the taxpayer may only claim 33 seven percent of the gross amount paid to the taxpayer under 34 a renewed agreement or a new agreement executed by the same 35 -4- LSB 1450HV (3) 85 da/sc 4/ 16

H.F. 252 parties. 1 b. The For an agreement that includes a lease on a commodity 2 share basis, the tax credit shall equal fifteen be computed as 3 follows: 4 (1) (a) If the qualified beginning farmer is not a veteran, 5 seventeen percent of the amount paid to the taxpayer from crops 6 or animals sold under an the agreement in which the payment is 7 exclusively made from the sale of crops or animals. 8 (b) If the qualified beginning farmer is a veteran, the 9 taxpayer may claim a tax credit equal to eighteen percent of 10 the amount paid to the taxpayer from crops or animals sold 11 under the agreement for the first tax year that the taxpayer 12 is allowed the tax credit and seventeen percent of the amount 13 paid to the taxpayer for each subsequent tax year that the 14 taxpayer is allowed the tax credit. However, the taxpayer may 15 only claim seventeen percent of the amount paid to the taxpayer 16 from crops or animals sold for any tax year under a renewed 17 agreement or a new agreement executed by the same parties. 18 (2) Notwithstanding subparagraph (1), the authority may 19 elect an alternative method to compute a tax credit for a lease 20 based on a crop share basis. The alternative method shall 21 utilize a formula which uses data compiled by the United States 22 department of agriculture. The formula shall calculate the 23 amount of the tax credit by multiplying the average per bushel 24 yield for the same type of grain as produced under the lease 25 in the same county where the leased land is located by a per 26 bushel state price established for such type of grain harvested 27 the previous fall. 28 Sec. 11. Section 175.37, subsection 6, Code 2013, is amended 29 by striking the subsection. 30 Sec. 12. Section 175.37, subsection 8, unnumbered paragraph 31 1, Code 2013, is amended to read as follows: 32 A taxpayer shall not claim a tax credit under this section 33 unless a tax credit certificate issued by the authority is 34 attached to the taxpayer’s tax return for the tax year for 35 -5- LSB 1450HV (3) 85 da/sc 5/ 16

H.F. 252 which the tax credit is claimed. The authority must review 1 and approve an application for a tax credit as provided by 2 rules adopted by the authority. The application must include 3 a copy of the agricultural assets transfer agreement. The 4 authority may approve an application and issue a tax credit 5 certificate to a taxpayer who has previously been allowed a 6 tax credit under this section . The authority may require 7 that the parties to an agricultural assets transfer agreement 8 provide additional information as determined relevant by the 9 authority. The authority shall review an application for 10 a tax credit which includes the renewal of an agricultural 11 assets transfer agreement to determine that the parties to the 12 renewed agreement meet the same qualifications as required for 13 an original application. However, The authority shall not 14 approve an application or issue a tax credit certificate to a 15 taxpayer for an amount in excess of fifty thousand dollars. 16 In addition, the authority shall not approve an application 17 or issue a certificate to a taxpayer if any of the following 18 applies: 19 Sec. 13. Section 175.37, subsection 8, paragraph c, Code 20 2013, is amended by striking the paragraph. 21 Sec. 14. Section 175.37, subsection 9, unnumbered paragraph 22 1, Code 2013, is amended to read as follows: 23 A taxpayer or the qualified beginning farmer may terminate 24 an agricultural assets transfer agreement as provided in the 25 agreement or by law. The taxpayer must immediately notify the 26 authority of the termination. 27 Sec. 15. Section 175.37, subsection 9, paragraph b, Code 28 2013, is amended to read as follows: 29 b. If the authority determines that the taxpayer is at fault 30 for the termination, any prior tax credit allowed under this 31 section is disallowed. The tax credit shall be recaptured 32 and the amount of the tax credit shall be immediately due and 33 payable to the department of revenue. If a taxpayer does 34 not immediately notify the authority of the termination, 35 -6- LSB 1450HV (3) 85 da/sc 6/ 16

H.F. 252 the taxpayer shall be conclusively deemed at fault for the 1 termination. 2 Sec. 16. Section 175.37, subsection 10, Code 2013, is 3 amended by striking the subsection. 4 Sec. 17. NEW SECTION . 175.38 Custom farming contract tax 5 credit. 6 1. A custom farming contract tax credit is allowed under 7 this section. The tax credit is allowed against the taxes 8 imposed in chapter 422, division II, as provided in section 9 422.11M, and in chapter 422, division III, as provided in 10 section 422.33, to encourage taxpayers who are considering 11 custom farming agricultural land located in this state to 12 negotiate with qualified beginning farmers. 13 2. In order to be eligible to claim a custom farming 14 contract tax credit, the taxpayer must meet qualifications 15 established by rules adopted by the authority. At a minimum, 16 the taxpayer must be a person who may acquire or otherwise 17 obtain or lease agricultural land in the same manner as 18 provided for a taxpayer claiming an agricultural assets 19 transfer tax credit under section 175.37. 20 3. An individual may claim a custom farming contract 21 tax credit of a partnership, limited liability company, 22 S corporation, estate, or trust 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, estate, or trust. 27 4. A custom farming contract tax credit is allowed only for 28 the amount paid by the taxpayer to a qualified beginning farmer 29 under a custom farming contract as provided in rules adopted by 30 the department. The contract must provide for the production 31 of crops located on agricultural land or the production of 32 livestock principally located on agricultural land. The 33 agricultural land must be real estate and any improvements used 34 for farming in which the taxpayer holds a legal or equitable 35 -7- LSB 1450HV (3) 85 da/sc 7/ 16

H.F. 252 interest. 1 5. The custom farming contract must provide that the 2 taxpayer pay the qualified beginning farmer on a cash basis. 3 The contract must be in writing for a term of not more than 4 twelve months. The total cash payment must equal at least one 5 thousand dollars. 6 6. The taxpayer must make all management decisions 7 substantially contributing to or affecting the production 8 of crops located on the agricultural land or the production 9 of livestock principally located on the agricultural land. 10 However, nothing in this paragraph prohibits a qualified 11 beginning farmer from regularly or frequently taking part in 12 making day-to-day operational decisions affecting production. 13 The qualified beginning farmer must provide for all of the 14 following: 15 a. Production items principally used to produce crops 16 located on the agricultural land or to produce livestock 17 principally located on the agricultural land. 18 b. Labor principally used to produce crops located on the 19 agricultural land or to produce livestock principally located 20 on the agricultural land. The qualified beginning farmer must 21 personally provide such labor on a regular, continuous, and 22 substantial basis. 23 7. A custom farming contract tax credit is not allowed if 24 the taxpayer and qualified beginning farmer are related as any 25 of the following: 26 a. Persons who hold a legal or equitable interest in the 27 same agricultural land, including as individuals or as general 28 partners, limited partners, shareholders, or members in the 29 same business entity as defined in section 501A.102. 30 b. Family members related as spouse, child, stepchild, 31 brother, or sister. 32 c. Partners in the same partnership which holds agricultural 33 land, or shareholders in the same family farm corporation or 34 members in the same family farm limited liability company and 35 -8- LSB 1450HV (3) 85 da/sc 8/ 16

H.F. 252 defined in section 9H.1. 1 8. A custom farming contract tax credit shall be calculated 2 based on the gross amount paid to the beginning farmer under 3 the custom farming contract. 4 a. If the qualified beginning farmer is not a veteran, the 5 taxpayer may claim a tax credit equal to seven percent of the 6 gross amount paid to the taxpayer under the contract for each 7 tax year that the tax credit is allowed. 8 b. If the qualified beginning farmer is a veteran, the 9 taxpayer may claim a tax credit equal to eight percent of the 10 gross amount paid to the taxpayer under the contract for the 11 first year that the tax credit is allowed and seven percent 12 of the gross amount paid to the taxpayer under the contract 13 for each subsequent tax year that the tax credit is allowed. 14 However, the taxpayer may only claim seven percent of the gross 15 amount paid to the taxpayer under a renewed contract or a new 16 contract executed by the same parties. 17 9. A custom farming contract tax credit in excess of the 18 taxpayer’s liability for the tax year may be credited to the 19 tax liability for the following five years or until depleted, 20 whichever is earlier. A tax credit shall not be carried back 21 to a tax year prior to the tax year in which the taxpayer 22 redeems the tax credit. A tax credit shall not be transferable 23 to any other person other than the taxpayer’s estate or trust 24 upon the taxpayer’s death. 25 10. A taxpayer shall not claim a custom farming contract 26 tax credit unless a tax credit certificate issued by the 27 agricultural development authority under this section is 28 attached to the taxpayer’s tax return for the tax year for 29 which the tax credit is claimed. The authority must review and 30 approve an application for a tax credit certificate as provided 31 by rules adopted by the authority. The application must 32 include a copy of the custom farming contract. The authority 33 may approve an application and issue a tax credit certificate 34 to a taxpayer who has previously been allowed a tax credit 35 -9- LSB 1450HV (3) 85 da/sc 9/ 16

H.F. 252 under this section. The authority may require that the parties 1 to the contract provide additional information as determined 2 relevant by the authority. The authority shall review an 3 application for a tax credit certificate which includes the 4 renewal of a contract to determine that the parties to the 5 renewed contract meet the same qualifications as required for 6 an original application. The authority shall not approve an 7 application or issue a tax credit certificate to a taxpayer for 8 an amount in excess of fifty thousand dollars. In addition, 9 the authority shall not approve an application or issue a 10 tax credit certificate to a taxpayer if any of the following 11 applies: 12 a. The taxpayer is at fault for terminating another custom 13 farming contract, as determined by the authority. 14 b. The taxpayer is party to a pending administrative or 15 judicial action, or classified as a habitual violator in the 16 same manner as provided in section 175.37. 17 c. The contract amount is substantially higher or lower 18 than the market rate for a similar custom farming contract, as 19 determined by the authority. 20 11. A taxpayer or the qualified beginning farmer may 21 terminate a custom farming contract as provided in the contract 22 or by law. The taxpayer must immediately notify the authority 23 of the termination. 24 a. If the authority determines that the taxpayer is not 25 at fault for the termination, the authority shall not issue a 26 tax credit certificate to the taxpayer for a subsequent tax 27 year based on the approved application. Any prior tax credit 28 is allowed as provided in this section until its expiration. 29 The taxpayer may apply for and be issued another tax credit 30 certificate for the same agricultural land under a custom 31 farming contract with another qualified beginning farmer. 32 b. If the authority determines that the taxpayer is at fault 33 for the termination, any prior tax credit allowed under this 34 section is disallowed, and the amount of the tax credit shall 35 -10- LSB 1450HV (3) 85 da/sc 10/ 16

H.F. 252 be immediately due and payable to the department of revenue. 1 If a taxpayer does not immediately notify the authority of the 2 termination, the taxpayer shall be conclusively deemed at fault 3 for the termination. 4 Sec. 18. NEW SECTION . 175.39 Tax credit certificates —— 5 availability. 6 1. The amount of tax credits that may be issued to support 7 the beginning farmer tax credit program shall not in the 8 aggregate exceed twelve million dollars in any year. Of the 9 aggregate amount, eight million dollars is allocated to support 10 the agricultural assets transfer tax credit as provided in 11 section 175.37 and four million dollars is allocated to support 12 the custom farming contract tax credit as provided in section 13 175.38. However, the authority’s board of directors may at 14 any time during the year adjust the allocation by adopting a 15 resolution. 16 2. The authority shall issue tax certificates to support 17 a beginning farmer tax credit on a first-come, first-served 18 basis. 19 Sec. 19. Section 422.11M, Code 2013, is amended to read as 20 follows: 21 422.11M Agricultural assets transferred to beginning 22 Beginning farmers —— agricultural assets transfer tax credit and 23 custom farming contract tax credit . 24 The taxes imposed under this division , less the credits 25 allowed under section 422.12 , shall be reduced by an the 26 following: 27 1. An agricultural assets transfer tax credit as allowed 28 under section 175.37 . 29 2. A custom farming contract tax credit as allowed under 30 section 175.38. 31 Sec. 20. Section 422.33, subsection 21, Code 2013, is 32 amended to read as follows: 33 21. The taxes imposed under this division shall be reduced 34 by an the following: 35 -11- LSB 1450HV (3) 85 da/sc 11/ 16

H.F. 252 a. An agricultural assets transfer tax credit as allowed 1 under section 175.37 . 2 b. A custom farming contract tax credit as allowed under 3 section 175.38. 4 Sec. 21. REPEAL. Section 175.35, Code 2013, is repealed. 5 Sec. 22. EFFECTIVE UPON ENACTMENT. This Act, being deemed 6 of immediate importance, takes effect upon enactment. 7 Sec. 23. RETROACTIVE APPLICABILITY. This Act applies 8 retroactively to January 1, 2013, for tax years beginning on 9 or after that date. 10 EXPLANATION 11 BACKGROUND —— AGRICULTURAL ASSETS TRANSFER TAX CREDIT. 12 In 2006, the general assembly enacted SF 2268 (2006 Iowa 13 Acts, chapter 1161) that provides a tax credit for owners 14 of agricultural assets (agricultural land, depreciable 15 agricultural property, crops, or livestock) who help beginning 16 farmers acquire those agricultural assets by lease or rental 17 arrangements. The program is administered by the agricultural 18 development authority (authority) established within the 19 department of agriculture and land stewardship. A beginning 20 farmer is an individual, partnership, family farm corporation, 21 or family farm limited liability company as provided under 22 Code chapter 9H (Iowa’s corporate farming law), with a low or 23 moderate net worth, and who engages in farming or wishes to 24 engage in farming. The owner who executes an agricultural 25 assets transfer agreement approved by the authority may 26 claim a tax credit against individual or corporate income 27 tax liability after receiving a certificate issued by the 28 authority. Generally, the lessor must be a person who may 29 acquire or otherwise obtain or lease agricultural land under 30 Code chapter 9H or 9I (restricting corporate and foreign 31 ownership of agricultural land). The bill provides a number 32 of restrictions upon the authority in approving applications 33 and issuing certificates. The owner cannot be at fault for 34 terminating a prior agreement, be involved in legal proceedings 35 -12- LSB 1450HV (3) 85 da/sc 12/ 16

H.F. 252 regarding environmental violations, or agree to provide more 1 agricultural assets than the beginning farmer can be expected 2 to adequately manage. The agricultural assets cannot be leased 3 or rented at a rate substantially different from similar market 4 arrangements. The agreement may be terminated, but if the 5 termination is the fault of the owner, any tax credits must be 6 repaid and no further tax credit certificates can be issued to 7 the taxpayer. 8 The tax credit equals 5 percent of the amount paid to the 9 taxpayer under the agreement, except in the case of a landlord 10 who shares in the costs associated with production. In that 11 case, the tax credit equals 15 percent of the amount paid to 12 the taxpayer from crops or animals sold. 13 In 2009, the general assembly enacted SF 483 (2009 Iowa Acts, 14 chapter 135), which capped the amount of tax credits to be an 15 amount not to exceed $6 million per year with the requirement 16 that the certificates must be issued on a first-come, 17 first-served basis. 18 BILL —— BEGINNING FARMER TAX CREDIT PROGRAM. This bill 19 amends the agricultural assets transfer tax credit and creates 20 a new custom farming contract tax credit to encourage taxpayers 21 who hold agricultural land, in the same manner as required 22 under the agricultural assets transfer tax credit, to enter 23 into custom farming contracts with beginning farmers. The bill 24 provides common criteria for beginning farmers who qualify as 25 beginning farmers to participate in the program. A qualified 26 beginning farmer must be a resident of this state; have 27 sufficient education, training, or experience in farming; have 28 access to adequate working capital and production equipment, 29 will materially and substantially participate in farming, and 30 is not responsible for managing or maintaining agricultural 31 land and other agricultural assets that are greater than 32 necessary to adequately support a beginning farmer. The 33 bill requires the authority to administer the tax credits 34 in a uniform manner, and establish a due date to receive 35 -13- LSB 1450HV (3) 85 da/sc 13/ 16

H.F. 252 applications to participate in the program. The bill makes 1 net worth requirements for beginning farmers uniform among 2 all programs administered by the authority ($691,172). The 3 authority must submit an annual report to the governor and 4 general assembly regarding the program. 5 BILL —— AGRICULTURAL ASSETS TRANSFER TAX CREDIT. The bill 6 amends the agricultural assets transfer tax credit. The 7 bill provides that an agricultural transfer agreement cannot 8 be assigned and the land subject to the agreement cannot be 9 subleased. The bill increases the amount of the tax credit. 10 For an agreement which includes a lease on a cash basis, the 11 credit is increased from 5 to 7 percent of the gross amount 12 paid to the taxpayer under the agreement. For an agreement 13 which includes a lease on a commodity share basis, the rate 14 is increased from 15 to 17 percent. However, the percentages 15 are increased by one percentage point if the beginning farmer 16 is a veteran. The bill also allows the authority to elect an 17 alternative method to compute a tax credit for a lease based on 18 a crop share basis according to a formula which multiplies the 19 average per bushel yield in the same county where the leased 20 land is located by a per bushel state price. The bill provides 21 that an agricultural assets transfer tax credit cannot exceed 22 $50,000. 23 BILL —— CUSTOM FARMING CONTRACT TAX CREDIT. The bill 24 establishes a custom farming contract tax credit to encourage 25 taxpayers who hold agricultural land to execute custom farming 26 contracts with beginning farmers who qualify under the terms of 27 the bill. The bill provides that the custom farming contract 28 tax credit is also to be administered by the authority. 29 The bill provides that the contract amount of a custom 30 farming contract cannot be substantially higher or lower than 31 the market rate for similar contracts. The contract must be 32 in writing and cannot be for more than 12 months’ duration. 33 The taxpayer must make all management decisions substantially 34 contributing to or affecting the production of crops or 35 -14- LSB 1450HV (3) 85 da/sc 14/ 16

H.F. 252 livestock located on the taxpayer’s agricultural land, although 1 the qualified beginning farmer may make day-to-day operational 2 decisions affecting production. The qualified beginning farmer 3 must provide any necessary tools, machinery, or equipment 4 and labor must be furnished on a regular, continuous, and 5 substantial basis. In addition, the taxpayer and the beginning 6 farmer cannot have a common legal or equitable interest in 7 the agricultural land or be related to each other as family 8 members. 9 A custom farming contract tax credit is allowed only for the 10 amount paid by the taxpayer to a qualified beginning farmer 11 under a custom farming contract on a cash basis equaling at 12 least $1,000. The tax credit equals 7 percent of the gross 13 amount paid to the beginning farmer under the custom farming 14 contract. The tax credit is increased to 8 percent for one 15 year if the beginning farmer is a veteran. It allows the 16 tax credit to be carried forward but not back, and is not 17 transferrable. The department of revenue may recapture the 18 amount of the tax credit if the contract is terminated due 19 to the taxpayer’s fault, as specified in the bill. The bill 20 requires the authority to issue a tax certificate to the 21 taxpayer which must be attached to the tax return. A tax 22 credit certificate cannot exceed $50,000. 23 TAX CREDIT CERTIFICATES. The bill allows the authority to 24 issue each year up to $12 million in tax credit certificates 25 for both the current agricultural assets transfer tax credit 26 and the bill’s new custom farming contract tax credit. Each 27 year, $8 million is allocated to support the agricultural 28 assets transfer tax credit and $4 million is allocated to 29 support the custom framing contract tax credit. However, the 30 authority may adjust the allocation during the year as it deems 31 necessary. The authority must issue tax credit certificates 32 allocated under the new program on a first-come, first-served 33 basis, as is the case for the agricultural assets transfer tax 34 credit. 35 -15- LSB 1450HV (3) 85 da/sc 15/ 16