HF 2288 (LSB 5172HV (1) 86)

HOUSE FILE 2288

BY  COMMITTEE ON ECONOMIC GROWTH

(SUCCESSOR TO HSB 518)

A BILL FOR

An Act relating to the administration of programs by the economic development authority by creating a renewable chemical production tax credit program, modifying the high quality jobs program, and including effective date and other applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
HIGH QUALITY JOBS PROGRAM

    Section 1.  Section 15.119, subsection 2, paragraph a, Code 2016, is amended to read as follows:
   a.  (1)  The high quality job creation jobs program administered pursuant to sections 15.326 through 15.336.
   (2)  In allocating tax credits pursuant to this subsection for each fiscal year of the fiscal period beginning July 1, 2016, and ending June 30, 2021, the authority shall not allocate more than one hundred five million dollars for purposes of this paragraph. This subparagraph (2) is repealed July 1, 2021.
DIVISION II
RENEWABLE CHEMICAL PRODUCTION TAX CREDIT PROGRAM

    Sec. 2.  Section 15.119, subsection 2, Code 2016, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  h.  The renewable chemical production tax credit program administered pursuant to sections 15.315 through 15.320. In allocating tax credits pursuant to this subsection, the authority shall not allocate more than ten million dollars for purposes of this paragraph.
    Sec. 3.  NEW SECTION.  15.315  Short title.
   This part shall be known and may be cited as the “Renewable Chemical Production Tax Credit Program”.
    Sec. 4.  NEW SECTION.  15.316  Definitions.
   As used in this part, unless the context otherwise requires:
   1.  “Biobased content percentage” means, with respect to any renewable chemical, the amount, expressed as a percentage, of renewable organic material present as determined by testing representative samples using the American society for testing and materials standard D6866.
   2.  “Biomass feedstock” means sugar, polysaccharide, glycerin, lignin, fat, grease, or oil derived from a plant or animal, or a protein capable of being converted to a building block chemical by means of a biological or chemical conversion process.
   3.  “Building block chemical” means a molecule converted from biomass feedstock as a first product or a secondarily derived product that can be further refined into a higher-value chemical, material, or consumer product. “Building block chemical” includes but is not limited to glycerol, methanoic or formic acid, arabonic acid, erythonic acid, glyceric acid, glycolic acid, lactic acid, 3-hydroxypropionate, propionic acid, malonic acid, serine, succinic acid, fumaric acid, malic acid, aspartic acid, 3-hydroxybutyrolactone, acetoin, threonine, itaconic acid, furfural, levulinic acid, glutamic acid, xylonic acid, xylaric acid, xylitol, arabitol, citric acid, aconitic acid, 5-hydroxymethylfurfural, lysine, gluconic acid, glucaric acid, sorbitol, gallic acid, ferulic acid, nonfuel butanol, nonfuel ethanol, a polymer or gum that can be produced directly from a protein-based biomass feedstock, or such additional molecules as may be included by the authority by rule.
   4.  “Eligible business” means a business meeting the requirements of section 15.317.
   5.  “Food additive” means a building block chemical that is not primarily consumed as food but which, when combined with other components, improves the taste, appearance, odor, texture, or nutritional content of food. The authority, in its discretion, shall determine whether or not a building block chemical is primarily consumed as food.
   6.  “Program” means the renewable chemical production tax credit program administered pursuant to this part.
   7.  “Renewable chemical” means a building block chemical with a biobased content percentage of at least fifty percent. “Renewable chemical” does not include a chemical sold or used for the production of food, feed, or fuel. “Renewable chemical” includes cellulosic ethanol, starch ethanol, or other ethanol derived from biomass feedstock, fatty acid methyl esters, or butanol, but only to the extent that such molecules are produced and sold for uses other than food, feed, or fuel. “Renewable chemical” also includes a building block chemical that can be a food additive as long as the building block chemical is not primarily consumed as food and is also sold for uses other than food. “Renewable chemical” also includes supplements, vitamins, nutraceuticals, and pharmaceuticals, but only to the extent that such molecules do not provide caloric value so as to be considered sustenance as food or feed.
   8.  “Sugar” means the organic compound glucose, fructose, xylose, arabinose, lactose, sucrose, starch, cellulose, or hemicellulose.
    Sec. 5.  NEW SECTION.  15.317  Eligibility requirements.
   To be eligible to receive the renewable chemical production tax credit pursuant to the program, a business shall meet all of the following requirements:
   1.  The business is physically located in this state.
   2.  The business is operated for profit and under single management.
   3.  The business is not an entity providing professional services, health care services, or medical treatments or an entity engaged primarily in retail operations.
   4.  The business organized, expanded, or located in the state on or after the effective date of this division of this Act.
   5.  The business shall not be relocating or reducing operations as described in section 15.329, subsection 1, paragraph “b”, and as determined under the discretion of the authority.
   6.  The business is in compliance with all agreements entered into under this program or other programs administered by the authority.
    Sec. 6.  NEW SECTION.  15.318  Eligible business application and agreement —— maximum tax credits.
   1.  Application.
   a.  An eligible business that produces a renewable chemical in this state from biomass feedstock during a calendar year may apply to the authority for the renewable chemical production tax credit provided in section 15.319.
   b.  The application shall be made to the authority in the manner prescribed by the authority.
   c.  The application shall be made during the calendar year following the calendar year in which the renewable chemicals are produced.
   d.  The authority may accept applications on a continuous basis or may establish, by rule, an annual application deadline.
   e.  The application shall include all of the following information:
   (1)  The amount of renewable chemicals produced in the state from biomass feedstock by the eligible business during the calendar year, measured in pounds.
   (2)  Any other information reasonably required by the authority in order to establish and verify eligibility under the program.
   2.  Agreement and fees.
   a.  Before being issued a tax credit under section 15.319, an eligible business shall enter into an agreement with the authority for the successful completion of all requirements of the program.
   b.  The compliance cost fees authorized in section 15.330, subsection 12, shall apply to all agreements entered into under this program and shall be collected by the authority in the same manner and to the same extent as described in that subsection.
   c.  An eligible business shall fulfill all the requirements of the program and the agreement before receiving a tax credit or entering into a subsequent agreement under this section. The authority may decline to enter into a subsequent agreement under this section or issue a tax credit if an agreement is not successfully fulfilled.
   d.  Upon establishing that all requirements of the program and the agreement have been fulfilled, the authority shall issue a tax credit and related tax credit certificate to the eligible business stating the amount of renewable chemical production tax credit the eligible business may claim.
   3.  Maximum tax credit amount.
   a.  The maximum amount of tax credit that may be issued under section 15.319 to an eligible business for the production of renewable chemicals in a calendar year shall not exceed the following:
   (1)  In the case of an eligible business that has been in operation in the state for five years or less at the time of application, one million dollars.
   (2)  In the case of an eligible business that has been in operation in the state for more than five years at the time of application, five hundred thousand dollars.
   b.  An eligible business shall not receive a tax credit for renewable chemicals produced before the date the business first qualified as an eligible business pursuant to section 15.317.
   c.  An eligible business shall not receive more than five tax credits under the program.
   d.  The authority shall issue tax credits under the program on a first-come, first-served basis until the maximum amount of tax credits allocated pursuant to section 15.119, subsection 2, paragraph “h”, is reached. The authority shall maintain a list of successful applicants under the program, so that if the maximum aggregate amount of tax credits is reached in a given fiscal year, eligible businesses that successfully applied but for which tax credits were not issued shall be placed on a wait list in the order the eligible businesses applied and shall be given priority for receiving tax credits in succeeding fiscal years. Placement on a wait list pursuant to this paragraph shall not constitute a promise binding the state. The availability of a tax credit and issuance of a tax credit certificate pursuant to this subsection in a future fiscal year is contingent upon the availability of tax credits in that particular fiscal year.
   4.  Termination and repayment.  The failure by an eligible business in fulfilling any requirement of the program or any of the terms and obligations of an agreement entered into pursuant to this section may result in the reduction, termination, or recision of the tax credits under section 15.319 and may subject the eligible business to the repayment or recapture of tax credits claimed. The repayment or recapture of tax credits pursuant to this subsection shall be accomplished in the same manner as provided in section 15.330, subsection 2.
   5.  Confidentiality.
   a.  Except as provided in paragraph “b”, any information or record in the possession of the authority with respect to the program shall be presumed by the authority to be a trade secret protected under chapter 550 or common law and shall be kept confidential by the authority unless otherwise ordered by a court.
   b.  The identity of a tax credit recipient and the amount of the tax credit shall be considered public information under chapter 22.
    Sec. 7.  NEW SECTION.  15.319  Renewable chemical production tax credit.
   1.  An eligible business that has entered into an agreement pursuant to section 15.318 may claim a tax credit in an amount equal to the product of five cents multiplied by the number of pounds of renewable chemicals produced in this state from biomass feedstock by the eligible business during the calendar year. However, an eligible business shall not receive a tax credit for the production of a secondarily derived building block chemical if that chemical is also the subject of a credit at the time of production as a first product. The renewable chemical production tax credit shall not be available for any renewable chemical produced before the 2017 calendar year or after the 2027 calendar year.
   2.  The tax credit shall be allowed against taxes imposed under chapter 422, division II or III.
   3.  The tax credit shall be claimed for the tax year during which the eligible business was issued the tax credit.
   4.  An individual may claim a tax credit under this section of a partnership, limited liability company, S corporation, cooperative organized under chapter 501 and filing as a partnership for federal tax purposes, estate, or trust electing to have income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, cooperative, estate, or trust.
   5.  Any tax credit in excess of the tax liability is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following tax year.
   6.  a.  To claim a tax credit under this section, a taxpayer shall include one or more tax credit certificates with the taxpayer’s tax return.
   b.  The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the amount of the credit, the name of the eligible business, and any other information required by the department of revenue.
   c.  The tax credit certificate, unless rescinded by the authority, shall be accepted by the department of revenue as payment for taxes imposed pursuant to chapter 422, divisions II and III, subject to any conditions or restrictions placed by the authority upon the face of the tax credit certificate and subject to the limitations of the program.
   d.  Tax credit certificates issued pursuant to this section shall not be transferred to any other person.
    Sec. 8.  NEW SECTION.  15.320  Rules.
   The authority and the department of revenue shall each adopt rules as necessary for the implementation and administration of this part.
    Sec. 9.  NEW SECTION.  422.10A  Renewable chemical production tax credit.
   The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by a renewable chemical production tax credit allowed under section 15.319.
    Sec. 10.  Section 422.33, Code 2016, is amended by adding the following new subsection:
   NEW SUBSECTION.  22.  The taxes imposed under this division shall be reduced by a renewable chemical production tax credit allowed under section 15.319.
    Sec. 11.  TAX CREDIT CLAIMS.  Renewable chemical production tax credits issued pursuant to the renewable chemical production tax credit program enacted in this division of this Act shall not be issued by the economic development authority prior to July 1, 2018, and shall not be claimed by a taxpayer prior to September 1, 2018.
    Sec. 12.  EFFECTIVE UPON ENACTMENT.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 13.  APPLICABILITY.  This division of this Act applies to renewable chemicals produced in the state from biomass feedstock on or after January 1, 2017.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to the administration of programs by the economic development authority (EDA) by modifying the high quality jobs program and creating a renewable chemical production tax credit program. 
   DIVISION I —— HIGH QUALITY JOBS PROGRAM. Division I limits for a period of five fiscal years the amount of tax credits that may be allocated to the high quality jobs program, which under current law is subject to EDA’s maximum aggregate tax credit cap of $170 million per fiscal year in Code section 15.119. The bill provides that for each of the five fiscal years beginning on July 1, 2016, and ending on June 30, 2021, the authority shall not allocate more than $105 million of that $170 million cap to the high quality jobs program. This provision is repealed July 1, 2021. 
   DIVISION II —— RENEWABLE CHEMICAL PRODUCTION TAX CREDIT.  Division II creates a renewable chemical production tax credit program (program) that will be administered by the EDA and that will provide tax credits to eligible businesses that produce renewable chemicals in Iowa from biomass feedstock. “Renewable chemical”, “biomass feedstock”, and other related terms are defined in the division.
   In order to qualify for the tax credit, a business must meet several requirements. First, the business must be physically located in Iowa and operated for profit under single management. Second, the business must not be an entity providing professional services, health care services, or medical treatments, or be engaged primarily in retail operations. Third, the business must have organized, expanded, or located in Iowa on or after the effective date of the division. Fourth, the business must not be, in the discretion of the EDA, ineligible under certain provisions relating to the relocation or reduction of business operations within Iowa. Fifth, the business must be in compliance with all agreements entered into under the program or other programs administered by the EDA.
   An eligible business seeking a tax credit is required to submit an application to the EDA containing various information during the calendar year following the calendar year in which the renewable chemicals are produced. The EDA may accept applications on a continuous basis or may establish an annual application deadline.
   Before being issued a tax credit, an eligible business is required to enter into an agreement with the EDA for the successful completion of all requirements of the program. The EDA is authorized to impose two compliance cost fees under the program. The first fee equals $500 per agreement. The second fee equals 0.5 percent of the value of the tax credit claimed pursuant to the agreement if the agreement has an aggregate tax credit value of $100,000 or greater.
   An eligible business that fails to comply with the requirements of the program or the terms of an agreement with the EDA may have its tax credits reduced, terminated, or rescinded, and may be subject to the repayment or recapture of claimed tax credits. 
   The tax credit equals the product of $.05 multiplied by the number of pounds of renewable chemicals produced in Iowa from biomass feedstock by the eligible business during the calendar year. Renewable chemicals produced by an eligible business either prior to calendar year 2017 or prior to the date the business first qualifies as an eligible business, or after calendar year 2027, shall not qualify for the tax credit.
   The tax credit shall be claimed for the tax year during which the eligible business was issued the tax credit. However, tax credits shall not be issued by EDA prior to July 1, 2018, or claimed by the taxpayer prior to September 1, 2018. The tax credit may be claimed against the individual income tax and the corporate income tax. The credit is refundable or may, at the election of the taxpayer, be carried forward for up to one tax year. The tax credit shall not be transferred to any person. 
   The division provides that the program is subject to EDA’s maximum aggregate tax credit cap of $170 million per fiscal year in Code section 15.119, and not more than $10 million per fiscal year may be issued by the EDA under the program. In addition, the maximum amount of tax credit that may be issued to an eligible business for the production of renewable chemicals in any one calendar year shall not exceed $1 million or $500,000, depending on whether the eligible business has been operating in Iowa at the time of application for five or fewer years, or more than five years, respectively. An eligible business shall not receive more than five tax credits under the program. The EDA is required to issue tax credits on a first-come, first-served basis until the maximum amount of $10 million per fiscal year is reached. If the amount of tax credits exceeds this amount in a fiscal year, the EDA is required to establish a wait list and give priority in subsequent years to the eligible businesses on the wait list.
   The division provides for the confidentiality of certain information under the program. The identity of a tax credit recipient and the amount of the tax credit shall be considered public information under Code chapter 22 (examination of public records), but any other information or record in the possession of the EDA with respect to the program shall be presumed by the EDA to be a trade secret protected under Code chapter 550 or common law and shall be kept confidential by the EDA unless otherwise ordered by a court.
   The division takes effect upon enactment and applies to renewable chemicals produced in Iowa from biomass feedstock on or after January 1, 2017.