House File 599 - Introduced HOUSE FILE 599 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 252) (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 1450HZ (2) 85 da/sc

H.F. 599 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 principally used to produce crops or 15 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 1450HZ (2) 85 da/sc 1/ 16

H.F. 599 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 qualifying to participate in the beginning farmer tax credit 6 program. 7 A beginning farmer qualifies to participate in the beginning 8 farmer tax credit program, by meeting all of the following 9 criteria: 10 1. Is a resident of the state. If the beginning farmer is a 11 partnership, all partners must be residents of the state. If a 12 beginning farmer is a family farm corporation, all shareholders 13 must be residents of the state. If the beginning farmer is 14 a family farm limited liability company, all members must be 15 residents of the state. 16 2. Has sufficient education, training, or experience in 17 farming. If the beginning farmer is a partnership, each 18 partner who is not a minor must have sufficient education, 19 training, or experience in farming. If the beginning farmer 20 is a family farm corporation, each shareholder who is not a 21 minor must have sufficient education, training, or experience 22 farming. If the beginning farmer is a family farm limited 23 liability company, each member who is not a minor must have 24 sufficient education, training, or experience in farming. 25 3. Has access to adequate working capital and production 26 items. 27 4. Will materially and substantially participate in 28 farming. If the beginning farmer is a partnership, family 29 farm corporation, or family farm limited liability company, 30 each partner, shareholder, or member who is not a minor must 31 materially and substantially participate in farming. 32 5. Is not responsible for managing or maintaining 33 agricultural land and other agricultural assets that are 34 greater than necessary to adequately support a beginning farmer 35 -2- LSB 1450HZ (2) 85 da/sc 2/ 16

H.F. 599 as determined by the authority according to rules which shall 1 be adopted by the authority. 2 Sec. 6. NEW SECTION . 175.36B Administration of beginning 3 farmer tax credit program. 4 1. To every extent practicable, the authority shall 5 administer tax credits under the beginning farmer tax credit 6 program in a uniform manner that encourages participation by 7 qualified beginning farmers. The authority shall determine a 8 qualified beginning farmer’s low or moderate net worth by using 9 a single method applicable to all its programs, including the 10 beginning farmer tax credit program. 11 2. The authority shall establish a due date to receive 12 applications to participate in the beginning farmer tax credit 13 program. The authority may establish different due dates for 14 applications to qualify for each beginning farmer tax credit. 15 3. The department of revenue shall cooperate with the 16 authority in administering the beginning farmer tax credit 17 program. 18 Sec. 7. Section 175.37, subsection 1, Code 2013, is amended 19 to read as follows: 20 1. An agricultural assets transfer tax credit is allowed 21 under this section . The tax credit is allowed against the 22 taxes imposed in chapter 422, division II , as provided in 23 section 422.11M , and in chapter 422, division III , as provided 24 in section 422.33 , to facilitate the transfer of agricultural 25 assets from a taxpayer to a qualified beginning farmer. 26 Sec. 8. Section 175.37, subsection 2, paragraph b, Code 27 2013, is amended to read as follows: 28 b. Execute an agricultural assets transfer agreement with a 29 qualified beginning farmer as provided in this section . 30 Sec. 9. Section 175.37, subsection 4, Code 2013, is amended 31 to read as follows: 32 4. The tax credit is allowed only for agricultural assets 33 that are subject to an agricultural assets transfer agreement. 34 The agreement shall provide for the lease of agricultural land 35 -3- LSB 1450HZ (2) 85 da/sc 3/ 16

H.F. 599 located in this state, including any improvements and may 1 provide for the rental of agricultural equipment as defined in 2 section 322F.1 . 3 a. The agreement may be shall include a lease made on a cash 4 basis or on a commodity share basis which includes a share of 5 the crops or livestock produced on the agricultural land. The 6 agreement must be in writing. 7 b. The agreement shall be for at least two years, but 8 not more than five years. The agreement or that part of 9 the agreement providing for the lease may be renewed by the 10 qualified beginning farmer for a term of at least two years, 11 but not more than five years. An agreement does not include a 12 lease or the rental of equipment intended as a security. 13 c. The agricultural transfer agreement cannot be assigned 14 and the land subject to the agreement cannot be subleased. 15 Sec. 10. Section 175.37, subsection 5, Code 2013, is amended 16 to read as follows: 17 5. The tax credit shall be calculated based on the gross 18 amount paid to the taxpayer under the agricultural assets 19 transfer agreement. The agreement shall be based on a cash 20 basis or a commodity share basis or both. 21 a. Except as provided in paragraph “b” , For an agreement 22 that includes a lease on a cash basis, the tax credit shall 23 equal five be computed as follows: 24 (1) If the qualified beginning farmer is not a veteran, the 25 taxpayer may claim a tax credit equal to seven percent of the 26 gross amount paid to the taxpayer under the agreement for each 27 tax year that the tax credit is allowed . 28 (2) If the qualified beginning farmer is a veteran, the 29 taxpayer may claim eight percent of the gross amount paid to 30 the taxpayer under the agreement for the first year that the 31 tax credit is allowed and seven percent of the gross amount 32 paid to the taxpayer for each subsequent tax year that the 33 tax credit is allowed. However, the taxpayer may only claim 34 seven percent of the gross amount paid to the taxpayer under 35 -4- LSB 1450HZ (2) 85 da/sc 4/ 16

H.F. 599 a renewed agreement or a new agreement executed by the same 1 parties. 2 b. The For an agreement that includes a lease on a commodity 3 share basis, the tax credit shall equal fifteen be computed as 4 follows: 5 (1) (a) If the qualified beginning farmer is not a veteran, 6 the taxpayer may claim a tax credit equal to seventeen percent 7 of the amount paid to the taxpayer from crops or animals sold 8 under an the agreement in which the payment is exclusively made 9 from the sale of crops or animals. 10 (b) If the qualified beginning farmer is a veteran, the 11 taxpayer may claim a tax credit equal to eighteen percent of 12 the amount paid to the taxpayer from crops or animals sold 13 under the agreement for the first tax year that the taxpayer 14 is allowed the tax credit and seventeen percent of the amount 15 paid to the taxpayer for each subsequent tax year that the 16 taxpayer is allowed the tax credit. However, the taxpayer may 17 only claim seventeen percent of the amount paid to the taxpayer 18 from crops or animals sold for any tax year under a renewed 19 agreement or a new agreement executed by the same parties. 20 (2) Notwithstanding subparagraph (1), the authority may 21 elect an alternative method to compute a tax credit for a lease 22 based on a crop share basis. The alternative method shall 23 utilize a formula which uses data compiled by the United States 24 department of agriculture. The formula shall calculate the 25 amount of the tax credit by multiplying the average per bushel 26 yield for the same type of grain as produced under the lease 27 in the same county where the leased land is located by a per 28 bushel state price established for such type of grain harvested 29 the previous fall. 30 Sec. 11. Section 175.37, subsection 6, Code 2013, is amended 31 by striking the subsection. 32 Sec. 12. Section 175.37, subsection 8, unnumbered paragraph 33 1, Code 2013, is amended to read as follows: 34 A taxpayer shall not claim a tax credit under this section 35 -5- LSB 1450HZ (2) 85 da/sc 5/ 16

H.F. 599 unless a tax credit certificate issued by the authority is 1 attached to the taxpayer’s tax return for the tax year for 2 which the tax credit is claimed. The authority must review 3 and approve an application for a tax credit as provided by 4 rules adopted by the authority. The application must include 5 a copy of the agricultural assets transfer agreement. The 6 authority may approve an application and issue a tax credit 7 certificate to a taxpayer who has previously been allowed a 8 tax credit under this section . The authority may require 9 that the parties to an agricultural assets transfer agreement 10 provide additional information as determined relevant by the 11 authority. The authority shall review an application for 12 a tax credit which includes the renewal of an agricultural 13 assets transfer agreement to determine that the parties to the 14 renewed agreement meet the same qualifications as required for 15 an original application. However, The authority shall not 16 approve an application or issue a tax credit certificate to a 17 taxpayer for an amount in excess of fifty thousand dollars. 18 In addition, the authority shall not approve an application 19 or issue a certificate to a taxpayer if any of the following 20 applies: 21 Sec. 13. Section 175.37, subsection 8, paragraph c, Code 22 2013, is amended by striking the paragraph. 23 Sec. 14. Section 175.37, subsection 9, unnumbered paragraph 24 1, Code 2013, is amended to read as follows: 25 A taxpayer or the qualified beginning farmer may terminate 26 an agricultural assets transfer agreement as provided in the 27 agreement or by law. The taxpayer must immediately notify the 28 authority of the termination. 29 Sec. 15. Section 175.37, subsection 9, paragraph b, Code 30 2013, is amended to read as follows: 31 b. If the authority determines that the taxpayer is at fault 32 for the termination, any prior tax credit allowed under this 33 section is disallowed. The tax credit shall be recaptured 34 and the amount of the tax credit shall be immediately due and 35 -6- LSB 1450HZ (2) 85 da/sc 6/ 16

H.F. 599 payable to the department of revenue. If a taxpayer does 1 not immediately notify the authority of the termination, 2 the taxpayer shall be conclusively deemed at fault for the 3 termination. 4 Sec. 16. Section 175.37, subsection 10, Code 2013, is 5 amended by striking the subsection. 6 Sec. 17. NEW SECTION . 175.38 Custom farming contract tax 7 credit. 8 1. A custom farming contract tax credit is allowed under 9 this section. The tax credit is allowed against the taxes 10 imposed in chapter 422, division II, as provided in section 11 422.11M, and in chapter 422, division III, as provided in 12 section 422.33, to encourage taxpayers who are considering 13 custom farming agricultural land located in this state to 14 negotiate with qualified beginning farmers. 15 2. In order to be eligible to claim a custom farming 16 contract tax credit, the taxpayer must meet qualifications 17 established by rules adopted by the authority. At a minimum, 18 the taxpayer must be a person who may acquire or otherwise 19 obtain or lease agricultural land in the same manner as 20 provided for a taxpayer claiming an agricultural assets 21 transfer tax credit under section 175.37. 22 3. An individual may claim a custom farming contract 23 tax credit of a partnership, limited liability company, 24 S corporation, estate, or trust electing to have income 25 taxed directly to the individual. The amount claimed by the 26 individual shall be based upon the pro rata share of the 27 individual’s earnings from the partnership, limited liability 28 company, S corporation, estate, or trust. 29 4. A custom farming contract tax credit is allowed only for 30 the amount paid by the taxpayer to a qualified beginning farmer 31 under a custom farming contract as provided in rules adopted by 32 the department. The contract must provide for the production 33 of crops located on agricultural land or the production of 34 livestock principally located on agricultural land. The 35 -7- LSB 1450HZ (2) 85 da/sc 7/ 16

H.F. 599 agricultural land must be real estate and any improvements used 1 for farming in which the taxpayer holds a legal or equitable 2 interest. 3 5. The custom farming contract must provide that the 4 taxpayer pay the qualified beginning farmer on a cash basis. 5 The contract must be in writing for a term of not more than 6 twelve months. The total cash payment must equal at least one 7 thousand dollars. 8 6. The taxpayer must make all management decisions 9 substantially contributing to or affecting the production 10 of crops located on the agricultural land or the production 11 of livestock principally located on the agricultural land. 12 However, nothing in this paragraph prohibits a qualified 13 beginning farmer from regularly or frequently taking part in 14 making day-to-day operational decisions affecting production. 15 The qualified beginning farmer must provide for all of the 16 following: 17 a. Production items principally used to produce crops 18 located on the agricultural land or to produce livestock 19 principally located on the agricultural land. 20 b. Labor principally used to produce crops located on the 21 agricultural land or to produce livestock principally located 22 on the agricultural land. The qualified beginning farmer must 23 personally provide such labor on a regular, continuous, and 24 substantial basis. 25 7. A custom farming contract tax credit is not allowed if 26 the taxpayer and qualified beginning farmer are related as any 27 of the following: 28 a. Persons who hold a legal or equitable interest in the 29 same agricultural land, including as individuals or as general 30 partners, limited partners, shareholders, or members in the 31 same business entity as defined in section 501A.102. 32 b. Family members related as spouse, child, stepchild, 33 brother, or sister. 34 c. Partners in the same partnership which holds agricultural 35 -8- LSB 1450HZ (2) 85 da/sc 8/ 16

H.F. 599 land, or shareholders in the same family farm corporation or 1 members in the same family farm limited liability company and 2 defined in section 9H.1. 3 8. A custom farming contract tax credit shall be calculated 4 based on the gross amount paid to the qualified beginning 5 farmer under the custom farming contract. 6 a. If the qualified beginning farmer is not a veteran, the 7 taxpayer may claim a tax credit equal to seven percent of the 8 gross amount paid to the qualified beginning farmer under the 9 contract for each tax year that the tax credit is allowed. 10 b. If the qualified beginning farmer is a veteran, the 11 taxpayer may claim a tax credit equal to eight percent of the 12 gross amount paid to the qualified beginning farmer under the 13 contract for the first year that the tax credit is allowed 14 and seven percent of the gross amount paid to the qualified 15 beginning farmer under the contract for each subsequent tax 16 year that the tax credit is allowed. However, the taxpayer 17 may only claim seven percent of the gross amount paid to the 18 qualified beginning farmer under a renewed contract or a new 19 contract executed by the same parties. 20 9. A custom farming contract tax credit in excess of the 21 taxpayer’s liability for the tax year may be credited to the 22 tax liability for the following five years or until depleted, 23 whichever is earlier. A tax credit shall not be carried back 24 to a tax year prior to the tax year in which the taxpayer 25 redeems the tax credit. A tax credit shall not be transferable 26 to any other person other than the taxpayer’s estate or trust 27 upon the taxpayer’s death. 28 10. A taxpayer shall not claim a custom farming contract 29 tax credit unless a tax credit certificate issued by the 30 agricultural development authority under this section is 31 attached to the taxpayer’s tax return for the tax year for 32 which the tax credit is claimed. The authority must review and 33 approve an application for a tax credit certificate as provided 34 by rules adopted by the authority. The application must 35 -9- LSB 1450HZ (2) 85 da/sc 9/ 16

H.F. 599 include a copy of the custom farming contract. The authority 1 may approve an application and issue a tax credit certificate 2 to a taxpayer who has previously been allowed a tax credit 3 under this section. The authority may require that the parties 4 to the contract provide additional information as determined 5 relevant by the authority. The authority shall review an 6 application for a tax credit certificate which includes the 7 renewal of a contract to determine that the parties to the 8 renewed contract meet the same qualifications as required for 9 an original application. The authority shall not approve an 10 application or issue a tax credit certificate to a taxpayer for 11 an amount in excess of fifty thousand dollars. In addition, 12 the authority shall not approve an application or issue a 13 tax credit certificate to a taxpayer if any of the following 14 applies: 15 a. The taxpayer is at fault for terminating another custom 16 farming contract, as determined by the authority. 17 b. The taxpayer is party to a pending administrative or 18 judicial action, or classified as a habitual violator in the 19 same manner as provided in section 175.37. 20 c. The contract amount is substantially higher or lower 21 than the market rate for a similar custom farming contract, as 22 determined by the authority. 23 11. A taxpayer or the qualified beginning farmer may 24 terminate a custom farming contract as provided in the contract 25 or by law. The taxpayer must immediately notify the authority 26 of the termination. 27 a. If the authority determines that the taxpayer is not 28 at fault for the termination, the authority shall not issue a 29 tax credit certificate to the taxpayer for a subsequent tax 30 year based on the approved application. Any prior tax credit 31 is allowed as provided in this section until its expiration. 32 The taxpayer may apply for and be issued another tax credit 33 certificate for the same agricultural land under a custom 34 farming contract with another qualified beginning farmer. 35 -10- LSB 1450HZ (2) 85 da/sc 10/ 16

H.F. 599 b. If the authority determines that the taxpayer is at fault 1 for the termination, any prior tax credit allowed under this 2 section is disallowed, and the amount of the tax credit shall 3 be immediately due and payable to the department of revenue. 4 If a taxpayer does not immediately notify the authority of the 5 termination, the taxpayer shall be conclusively deemed at fault 6 for the termination. 7 Sec. 18. NEW SECTION . 175.39 Tax credit certificates —— 8 availability. 9 1. The amount of tax credits that may be issued to support 10 the beginning farmer tax credit program shall not in the 11 aggregate exceed twelve million dollars in any year. Of the 12 aggregate amount, eight million dollars is allocated to support 13 the agricultural assets transfer tax credit as provided in 14 section 175.37 and four million dollars is allocated to support 15 the custom farming contract tax credit as provided in section 16 175.38. However, the authority’s board of directors may at 17 any time during the year adjust the allocation by adopting a 18 resolution. 19 2. The authority shall issue tax certificates to support 20 a beginning farmer tax credit on a first-come, first-served 21 basis. 22 Sec. 19. Section 422.11M, Code 2013, is amended to read as 23 follows: 24 422.11M Agricultural assets transferred to beginning 25 Beginning farmers —— agricultural assets transfer tax credit and 26 custom farming contract tax credit . 27 The taxes imposed under this division , less the credits 28 allowed under section 422.12 , shall be reduced by an the 29 following: 30 1. An agricultural assets transfer tax credit as allowed 31 under section 175.37 . 32 2. A custom farming contract tax credit as allowed under 33 section 175.38. 34 Sec. 20. Section 422.33, subsection 21, Code 2013, is 35 -11- LSB 1450HZ (2) 85 da/sc 11/ 16

H.F. 599 amended to read as follows: 1 21. The taxes imposed under this division shall be reduced 2 by an the following: 3 a. An agricultural assets transfer tax credit as allowed 4 under section 175.37 . 5 b. A custom farming contract tax credit as allowed under 6 section 175.38. 7 Sec. 21. REPEAL. Section 175.35, Code 2013, is repealed. 8 Sec. 22. EFFECTIVE UPON ENACTMENT. This Act, being deemed 9 of immediate importance, takes effect upon enactment. 10 Sec. 23. RETROACTIVE APPLICABILITY. This Act applies 11 retroactively to January 1, 2013, for tax years beginning on 12 or after that date. 13 EXPLANATION 14 BACKGROUND —— AGRICULTURAL ASSETS TRANSFER TAX CREDIT. 15 In 2006, the general assembly enacted SF 2268 (2006 Iowa 16 Acts, chapter 1161) that provides a tax credit for owners 17 of agricultural assets (agricultural land, depreciable 18 agricultural property, crops, or livestock) who help beginning 19 farmers acquire those agricultural assets by lease or rental 20 arrangements. The program is administered by the agricultural 21 development authority (authority) established within the 22 department of agriculture and land stewardship. A beginning 23 farmer is an individual, partnership, family farm corporation, 24 or family farm limited liability company as provided under 25 Code chapter 9H (Iowa’s corporate farming law), with a low or 26 moderate net worth, and who engages in farming or wishes to 27 engage in farming. The owner who executes an agricultural 28 assets transfer agreement approved by the authority may 29 claim a tax credit against individual or corporate income 30 tax liability after receiving a certificate issued by the 31 authority. Generally, the lessor must be a person who may 32 acquire or otherwise obtain or lease agricultural land under 33 Code chapter 9H or 9I (restricting corporate and foreign 34 ownership of agricultural land). The bill provides a number 35 -12- LSB 1450HZ (2) 85 da/sc 12/ 16

H.F. 599 of restrictions upon the authority in approving applications 1 and issuing certificates. The owner cannot be at fault for 2 terminating a prior agreement, be involved in legal proceedings 3 regarding environmental violations, or agree to provide more 4 agricultural assets than the beginning farmer can be expected 5 to adequately manage. The agricultural assets cannot be leased 6 or rented at a rate substantially different from similar market 7 arrangements. The agreement may be terminated, but if the 8 termination is the fault of the owner, any tax credits must be 9 repaid and no further tax credit certificates can be issued to 10 the taxpayer. 11 The tax credit equals 5 percent of the amount paid to the 12 taxpayer under the agreement, except in the case of a landlord 13 who shares in the costs associated with production. In that 14 case, the tax credit equals 15 percent of the amount paid to 15 the taxpayer from crops or animals sold. 16 In 2009, the general assembly enacted SF 483 (2009 Iowa Acts, 17 chapter 135), which capped the amount of tax credits to be an 18 amount not to exceed $6 million per year with the requirement 19 that the certificates must be issued on a first-come, 20 first-served basis. 21 BILL —— BEGINNING FARMER TAX CREDIT PROGRAM. This bill 22 amends the agricultural assets transfer tax credit and creates 23 a new custom farming contract tax credit to encourage taxpayers 24 who hold agricultural land, in the same manner as required 25 under the agricultural assets transfer tax credit, to enter 26 into custom farming contracts with beginning farmers. The bill 27 provides common criteria for beginning farmers who qualify as 28 beginning farmers to participate in the program. A qualified 29 beginning farmer must be a resident of this state; have 30 sufficient education, training, or experience in farming; have 31 access to adequate working capital and production equipment, 32 will materially and substantially participate in farming, and 33 is not responsible for managing or maintaining agricultural 34 land and other agricultural assets that are greater than 35 -13- LSB 1450HZ (2) 85 da/sc 13/ 16

H.F. 599 necessary to adequately support a beginning farmer. The 1 bill requires the authority to administer the tax credits 2 in a uniform manner, and establish a due date to receive 3 applications to participate in the program. The bill makes 4 net worth requirements for beginning farmers uniform among 5 all programs administered by the authority ($691,172). The 6 authority must submit an annual report to the governor and 7 general assembly regarding the program. 8 BILL —— AGRICULTURAL ASSETS TRANSFER TAX CREDIT. The bill 9 amends the agricultural assets transfer tax credit. The 10 bill provides that an agricultural transfer agreement cannot 11 be assigned and the land subject to the agreement cannot be 12 subleased. The bill increases the amount of the tax credit. 13 For an agreement which includes a lease on a cash basis, the 14 credit is increased from 5 to 7 percent of the gross amount 15 paid to the taxpayer under the agreement. For an agreement 16 which includes a lease on a commodity share basis, the rate 17 is increased from 15 to 17 percent. However, the percentages 18 are increased by one percentage point if the beginning farmer 19 is a veteran. The bill also allows the authority to elect an 20 alternative method to compute a tax credit for a lease based on 21 a crop share basis according to a formula which multiplies the 22 average per bushel yield in the same county where the leased 23 land is located by a per bushel state price. The bill provides 24 that an agricultural assets transfer tax credit cannot exceed 25 $50,000. 26 BILL —— CUSTOM FARMING CONTRACT TAX CREDIT. The bill 27 establishes a custom farming contract tax credit to encourage 28 taxpayers who hold agricultural land to execute custom farming 29 contracts with beginning farmers who qualify under the terms of 30 the bill. The bill provides that the custom farming contract 31 tax credit is also to be administered by the authority. 32 The bill provides that the contract amount of a custom 33 farming contract cannot be substantially higher or lower than 34 the market rate for similar contracts. The contract must be 35 -14- LSB 1450HZ (2) 85 da/sc 14/ 16

H.F. 599 in writing and cannot be for more than 12 months’ duration. 1 The taxpayer must make all management decisions substantially 2 contributing to or affecting the production of crops or 3 livestock located on the taxpayer’s agricultural land, although 4 the qualified beginning farmer may make day-to-day operational 5 decisions affecting production. The qualified beginning farmer 6 must provide any necessary tools, machinery, or equipment 7 and labor must be furnished on a regular, continuous, and 8 substantial basis. In addition, the taxpayer and the beginning 9 farmer cannot have a common legal or equitable interest in 10 the agricultural land or be related to each other as family 11 members. 12 A custom farming contract tax credit is allowed only for the 13 amount paid by the taxpayer to a qualified beginning farmer 14 under a custom farming contract on a cash basis equaling at 15 least $1,000. The tax credit equals 7 percent of the gross 16 amount paid to the beginning farmer under the custom farming 17 contract. The tax credit is increased to 8 percent for one 18 year if the beginning farmer is a veteran. It allows the 19 tax credit to be carried forward but not back, and is not 20 transferrable. The department of revenue may recapture the 21 amount of the tax credit if the contract is terminated due 22 to the taxpayer’s fault, as specified in the bill. The bill 23 requires the authority to issue a tax certificate to the 24 taxpayer which must be attached to the tax return. A tax 25 credit certificate cannot exceed $50,000. 26 TAX CREDIT CERTIFICATES. The bill allows the authority to 27 issue each year up to $12 million in tax credit certificates 28 for both the current agricultural assets transfer tax credit 29 and the bill’s new custom farming contract tax credit. Each 30 year, $8 million is allocated to support the agricultural 31 assets transfer tax credit and $4 million is allocated to 32 support the custom framing contract tax credit. However, the 33 authority may adjust the allocation during the year as it deems 34 necessary. The authority must issue tax credit certificates 35 -15- LSB 1450HZ (2) 85 da/sc 15/ 16