HF 427 (LSB 2225YH (9) 86)

HOUSE FILE 427

BY  PRICHARD, KAUFMANN, and BENNETT

A BILL FOR

An Act relating to small farm operations involved in the production of certain commodities that are unprocessed or processed, and used as food on a local or regional basis, including by establishing programs to support production and marketing, providing a preference for government entities when purchasing food, providing a tax credit and appropriation, providing a property tax exemption, and including applicability date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
SMALL FARM OPERATION PROGRAMS
    Section 1.  NEW SECTION.  15E.371  Purpose.

   The purposes of this division are to encourage and promote the production and purchase of dedicated commodities and dedicated products derived locally or regionally from livestock, milk, or specialty crops produced on small farm operations in order to improve nutrition for the citizens of Iowa, and to strengthen local and regional farm economies.
    Sec. 2.  NEW SECTION.  15E.372  Definitions.

   As used in this division, unless the context otherwise requires:

   1.  “Commodity” means any of the following:
   a.  Livestock as defined in section 717.1.
   b.  Milk or other dairy product regulated under chapter 192.
   c.  A specialty crop which includes horticulture and nursery crops, fruits, tree nuts, and vegetables.
   2.  “Dedicated commodity” means a commodity produced at a small farm operation for use as food for human consumption.
   3.  “Dedicated product” means a commodity produced at a small farm operation that is processed into a product for human consumption. 
   4.  “Small farm operation” means agricultural land as defined in section 9H.1, located in this state, consisting of a total number of acres that does not exceed thirty percent of the median farm size in the state as determined by the authority.
   5.  “Small farm operator” means a person who is the owner or lessee of a small farm operation.
    Sec. 3.  NEW SECTION.  15E.373  General authority.
   1.  The authority shall administer this division and adopt all rules necessary to carry out the purposes of this division as provided in section 15E.371.
   2.  The authority shall cooperate with the Iowa finance authority and the department of agriculture and land stewardship in administering this division.
   3.  The authority may employ or contract with a consultant or specialist to assist in developing and implementing a plan to implement this division.
    Sec. 4.  NEW SECTION.  15E.374  Qualifications.

   In order to qualify to participate in a program under this division, a person shall meet all of the requirements established by the authority which shall include at least all of the following:

   1.  Be a small farm operator. The small farm operator may be an individual, a partnership under chapter 486A, a family farm corporation as defined in section 9H.1, or a family farm limited liability company as defined in section 9H.1.
   2.  Be actively engaged in the small farm operation by making management decisions and performing physical work relating to the production and marketing of a dedicated commodity produced on the small farm operation or a dedicated product derived from a commodity produced on the small farm operation. The person must be actively engaged on a regular, continuous, and substantial basis in a manner that is essential to the success of the small farm operation. If the person is a partnership, family farm corporation, or family farm limited liability company, at least one partner, shareholder, or member must be so actively engaged.
   3.  Be a resident of this state. If the person is a partnership, family farm corporation, or family farm limited liability company, each partner, shareholder, or member must be a resident of this state.
   4.  Have sufficient education, training, or experience in farming. If the person is a partnership, family farm corporation, or family farm limited liability company, each partner, shareholder, or member, who is not a minor, must have sufficient education, training, or experience in farming.
   5.  Have access to adequate working capital and production items.
   6.  Meet the low or moderate net worth requirements applicable to a beginning farmer as defined in section 16.58.
    Sec. 5.  NEW SECTION.  15E.375  Small farm operator financial assistance program.
   1.  A small farm operator financial assistance program is created within the authority. The purpose of the program is to provide financial assistance to small farm operators for the purpose of improving or expanding an existing and viable small farm operation or for engaging in a cooperative processing or marketing venture among several small farm operators.
   2.  The authority may provide financial assistance in the form of an interest loan, low-interest loan, no-interest loan, forgivable loan, loan guarantee, grant, letter of credit, equity financing, principal buy-down, interest buy-down, or a combination of these forms.
   3.  The maximum amount of financial assistance for a small farm operator under the program is as follows:
   a.  For a small farm operator seeking to improve or expand an existing viable small farm operation, twenty-five percent of the amount of credit extended to the small farm operator by an eligible lender, as defined by the authority, up to a maximum of fifty thousand dollars.
   b.  For one or more small farm operators engaging in a cooperative processing or marketing venture, twenty-five percent of the amount of credit extended to the venture by an eligible lender, as defined by the authority, up to a maximum of two hundred fifty thousand dollars.
   4.  The authority shall not approve an application to refinance an existing loan.
    Sec. 6.  NEW SECTION.  15E.376  Small farm operator processing and marketing program.
   1.  A small farm operator processing and marketing program is created within the authority. The purposes of the program are to expand processing and promote new markets for dedicated commodities and dedicated products produced by small farm operators.
   2.  In carrying out the purposes of the program, the authority shall do all of the following:
   a.  Investigate the processing and marketing of dedicated commodities and dedicated products produced by small farm operators and recommend efficient and economical methods of processing and marketing.
   b.  Promote the sale, distribution, and merchandising of dedicated commodities and dedicated products produced by small farm operators.
   c.  Furnish information and assistance to the public concerning the marketing of dedicated commodities and dedicated products produced by small farm operators.
   d.  Gather and diffuse useful information concerning all phases of the marketing of dedicated commodities and dedicated products produced by small farm operators in cooperation with other public or private agencies. The authority shall cooperate with Iowa state university of science and technology to avoid any unnecessary duplication of efforts.
   e.  Ascertain sources of supply of dedicated commodities and dedicated products produced by small farm operators, and prepare and publish from time to time lists of names and addresses of small farm operators, processors, and marketers.
    Sec. 7.  NEW SECTION.  15E.377  Small farm operations fund.
   1.  A small farm operations fund is created in the state treasury as a revolving fund under the control of the authority. The fund shall consist of any moneys appropriated by the general assembly for deposit in the fund and any other moneys available to and obtained or accepted by the authority from the federal government or private sources for placement in the fund.
   2.  Moneys in the fund are appropriated exclusively to support the programs created in this division.
   3.  Notwithstanding section 12C.7, interest or earnings on moneys in the fund shall be credited to the fund. Notwithstanding section 8.33, moneys credited to the fund that remain unexpended or unobligated at the end of a fiscal year shall not revert to any other fund.
    Sec. 8.  NEW SECTION.  15E.378  Certification.
   1.  Upon application, the authority shall issue an annual certificate to a person eligible to participate in a program under this division verifying that the person is a qualified small farm operator, regardless of whether the person actually participates in a program.
   2.  A person may use a certificate issued to the person under this section as proof of eligibility for a benefit under other programs benefiting small farm operators, including all of the following:
   a.  The selling of dedicated commodities or dedicated products to the department of administrative services pursuant to section 8A.315, the commission for the blind pursuant to section 216B.3, the board of directors of a merged area pursuant to section 260C.19C, the board of regents pursuant to section 262.9, the state department of transportation pursuant to section 307.21, and the department of corrections pursuant to section 904.312.
   b.  The from small farm operation to school tax credit as provided in chapter 190B.
   c.  A property tax exemption as provided in section 427.1.
    Sec. 9.  CODE EDITOR DIRECTIVE.  The Code editor shall organize the provisions of this division of this Act as a new division in chapter 15E.

DIVISION II
PURCHASE BY GOVERNMENT ENTITIES
    Sec. 10.  Section 8A.315, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  9.  When providing for the purchase of food, the department, whenever cost competitive, shall purchase dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.
    Sec. 11.  Section 216B.3, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  13A.  When providing for the purchase of food, give a preference to purchasing dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.
    Sec. 12.  Section 260C.19C, Code 2015, is amended to read as follows:
   260C.19C  Purchase of designated biobased certain products.

   The board of directors providing services to a merged area shall give preference to purchasing designated all of the following: 

   1.  Dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.
   2.  Designated biobased products in the same manner as provided in section 8A.317.
    Sec. 13.  Section 262.9, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  6A.  When providing for the purchase of food, give a preference to purchasing dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.
    Sec. 14.  Section 307.21, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  6A.  The administrator shall, when providing for the purchase of food, give a preference to purchasing dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.
    Sec. 15.  Section 904.312, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  3.  When providing for the purchase of food, the director shall give a preference to purchasing dedicated commodities or dedicated products originating from commodities produced by persons certified as qualified small farm operators by the economic development authority pursuant to section 15E.378.

DIVISION III
IOWA STATE UNIVERSITY
    Sec. 16.  NEW SECTION.  266.31  Small farm operations.
   1.  The Iowa cooperative extension service in agriculture and home economics shall develop and publish materials and sponsor events on site or via the internet regarding best methods, practices, and strategies for use by small farm operators qualified to participate in programs created in chapter 15E, division XXVIII, in producing and marketing dedicated commodities or dedicated products originating from commodities.
   2.  The materials and events shall be developed in cooperation with small farm operators as defined in section 15E.372.
   3.  The materials and events shall be made available or sponsored at cost.

DIVISION IV
TAX CREDIT
    Sec. 17.  Section 2.48, subsection 3, paragraph f, Code 2015, is amended to read as follows:
   f.  In 2017, the: 
   (1)  The from small farm operation to school tax credit under chapter 190B, subchapter II.
   (2)  The innovation fund investment tax credit available under section 15E.52.
    Sec. 18.  NEW SECTION.  190B.201  Definitions.

   As used in this subchapter, unless the context otherwise requires:

   1.  “Dedicated commodity” means the same as defined in section 15E.372.
   2.  “Dedicated product” means the same as defined in section 15E.372.
   3.  “Department” means the department of revenue.
   4.  “Small farm operation” means the same as defined in section 15E.372.
   5.  “Tax credit” means the from small farm operation to school tax credit as established in this subchapter.
    Sec. 19.  NEW SECTION.  190B.202  Administration —— rules.
   1.  This subchapter shall be administered by the department of revenue.
   2.  The department of revenue shall adopt all rules necessary to administer this subchapter.
   3.  The department of agriculture and land stewardship, the Iowa department of public health, and the department of education shall cooperate with the department of revenue in developing and administering this subchapter.
    Sec. 20.  NEW SECTION.  190B.203  From small farm operation to school tax credit.

   A from small farm operation to school tax credit is allowed against the taxes imposed in chapter 422, divisions II and III, as provided in this subchapter.
    Sec. 21.  NEW SECTION.  190B.204  From small farm operation to school tax credit —— eligibility.

   In order to qualify for a from small farm operation to school tax credit, all of the following must apply:

   1.  The taxpayer must be a small farm operator qualified to participate in programs created in chapter 15E, division XXVIII.
   2.  The taxpayer must produce dedicated commodities or dedicated products originating from commodities on the taxpayer’s small farm operation.
   3.  The taxpayer must transfer title to the dedicated commodities or dedicated products originating from commodities to a school district or accredited nonpublic school in this state.
   4.  The dedicated commodities or dedicated products originating from commodities shall not be damaged or out-of-condition or declared to be unfit for human consumption by a federal, state, or local health official. The condition of the dedicated commodities or dedicated products originating from commodities must be at least the same as allowed for charitable contributions of food under section 170(e)(3)(C) of the Internal Revenue Code. However, the department may require that the dedicated commodities or dedicated products originating from commodities comply with higher quality standards.
   5.  The dedicated commodities or dedicated products originating from commodities must be used by the school district or school to supplement the diet of its students.
    Sec. 22.  NEW SECTION.  190B.205  From small farm operation to school tax credit —— claims.
   1.  A certificate issued by the economic development authority under section 15E.378 must be attached to the taxpayer’s tax return for the tax year for which the tax credit under this subchapter is claimed. The department of revenue must review and approve an application for a tax credit certificate as provided by rules adopted by the department of revenue.
   2.  The department of revenue may require that the taxpayer attach proof of the sale of dedicated commodities or dedicated products originating from commodities to the department supporting the tax credit claim in a form and manner prescribed by the department.
   3.  An individual may claim a from small farm operation to school tax credit of a general partnership, limited liability company, S corporation, or estate 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, or estate.
    Sec. 23.  NEW SECTION.  190B.206  From small farm operation to school tax credit —— limits on claims.

   A from small farm operation to school tax credit is subject to all of the following limitations:

   1.  The tax credit shall not exceed a qualifying amount for the tax year that the tax credit is claimed. The qualifying amount is the lesser of the following:
   a.  Fifty percent of the total purchase price paid by all school districts or schools to which the dedicated commodities or dedicated products originating from commodities were sold.
   b.  Ten thousand dollars.
   2.  A tax credit in excess of the taxpayer’s liability for the tax year is not refundable but may be credited to the tax liability for the following five years or until depleted, whichever is earlier.
   3.  If a tax credit is allowed, the amount of the sale for which the tax credit is claimed shall not be deductible in determining taxable income for state tax purposes.
   4.  A tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer claims the tax credit.
    Sec. 24.  NEW SECTION.  190B.207  Tax credit certificates —— availability.
   1.  The amount of tax credits that may be issued to support the from small farm operation to school tax credit shall not exceed five million dollars in the aggregate in any year.
   2.  The department of revenue shall issue tax credit certificates to support the from small farm operation to school tax credit on a first-come, first-served basis.
    Sec. 25.  NEW SECTION.  422.11K  From small farm operation to school tax credit.

   The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by a from small farm operation to school tax credit under chapter 190B, subchapter II.
    Sec. 26.  Section 422.33, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  22.  The taxes imposed under this division shall be reduced by a from small farm operation to school tax credit under chapter 190B, subchapter II.
    Sec. 27.  CODIFICATION.  The Code editor shall organize the provisions of this division of this Act enacting sections 190B.201 through 190B.207 as a new subchapter in chapter 190B.
    Sec. 28.  APPLICABILITY.  This division of this Act applies to tax years beginning on or after January 1, 2016.

DIVISION V
PROPERTY TAX EXEMPTION
    Sec. 29.  Section 427.1, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  25.  Small farm operation.  Land which is a small farm operation owned or leased by a small farm operator certified by the economic development authority pursuant to section 15E.378 as qualified to participate in programs under chapter 15E, division XXVIII. The economic development authority shall send a copy of the certificate to the appropriate assessor not later than February 1 of the assessment year for which the exemption is requested. The economic development authority may subsequently withdraw the certificate if the small farm operator no longer qualifies to participate in programs under chapter 15E, division XXVIII. In that case, the economic development authority shall provide the assessor with written notice of the decertification.
    Sec. 30.  APPLICABILITY.  This division of this Act applies to assessment years beginning on or after January 1, 2016.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   GENERAL. This bill provides assistance to a person classified as a small farm operator who owns or leases not more than a total number of acres that does not exceed 30 percent of the median farm size in the state to produce a dedicated commodity which is a commodity produced at a small farm operation or a dedicated product that is a commodity produced at a small farm operation that is processed into a product fit for human consumption. In order to receive assistance, the small farm operator must comply with certain requirements. The person must be in business as an individual or an equity holder in an entity, including a general partnership, a family farm corporation, or a family farm limited liability company (Code chapter 9H). The individual or all equity holders in an entity must be actively engaged in the small farm operation, must be Iowa residents, must demonstrate sufficient education, training, or experience in farming, and will materially and substantially participate in the small farm operation. The small farm operation must have access to adequate working capital and production items, and meet low or moderate net worth requirements applicable to a beginning farmer under the beginning farmer loan program (Code chapter 16).
   ASSISTANCE PROGRAMS. The bill creates two small farm operation assistance programs administered by the economic development authority (authority). The first is a small farm operator financial assistance program to provide financial assistance to small farm operators for the improvement or expansion of an existing farm operation or for engaging in a cooperative processing or marketing venture among several small farm operators. The assistance may be in the form of an interest loan, low-interest loan, no-interest loan, forgivable loan, loan guarantee, grant, letter of credit, equity financing, principal buy-down, or interest buy-down. The second is a small farm operator processing and marketing program to expand processing and promote new markets for dedicated commodities and dedicated products originating from commodities produced by small farm operators. The bill also creates a small farm operations fund to support the programs. Finally, the bill requires the authority to certify that a small farm operator is eligible to participate in other programs created in the bill.
   PREFERENCE REQUIRED BY STATE ENTITIES PURCHASING FOOD.  The bill requires that certain governmental entities provide a preference to a certified small farm operator when the government entity purchases food. The entities include the department of administrative services, commission for the blind, merged area schools, board of regents institutions, the state department of transportation, and the department of corrections.
   IOWA STATE UNIVERSITY. The bill requires that the Iowa cooperative extension service in agriculture and home economics at Iowa state university develop and publish materials and sponsor events to assist small farm operators in increasing profitability.
   INCOME TAX CREDIT. The bill requires the department of revenue to establish a tax credit for certified small farm operators selling dedicated commodities or dedicated products originating from commodities to schools. The amount of the tax credit cannot exceed 50 percent of the purchase price paid by the school or $10,000, whichever is less. The bill provides for a five-year carryover period. There is no carryback provision and the tax credit is nontransferable. The bill imposes a maximum limit of $5 million that can be used to support the tax credit during any year. The tax credit applies to tax years beginning on and after January 1, 2016.
   PROPERTY TAX EXEMPTION. The bill provides that land which is a small farm operation owned or leased by a certified small farm operator is exempt from property taxes. The authority must send a copy of the certificate to the appropriate county assessor. The authority may decertify the small farm operator and send that notice to the county assessor as well. The tax exemption applies to assessment years beginning on or after January 1, 2016.