H.F. _____ Section 1. Section 159.5, Code 2015, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 15. Administer and enforce environmental 3 practices agreements as provided in chapter 467. 4 Sec. 2. NEW SECTION . 161A.11 Environmental practices 5 —— cooperation with the department of agriculture and land 6 stewardship. 7 The commissioners of a district where an environmental 8 practice is to be or has been established under chapter 467, 9 are deemed to be the agents of the department and shall 10 act under the direction and supervision of the department 11 in administering that chapter. In addition to the powers 12 conferred upon the commissioners under that chapter, the 13 commissioners have all the powers conferred upon them under 14 this chapter to enter onto and remain on land as if the 15 environmental practice were a soil and water conservation 16 practice or erosion control practice. 17 Sec. 3. NEW SECTION . 422.11K Environmental practices tax 18 credit. 19 The taxes imposed under this division, less the credits 20 allowed under section 422.12, shall be reduced by an 21 environmental practices tax credit allowed under chapter 467. 22 Sec. 4. Section 422.33, Code 2015, is amended by adding the 23 following new subsection: 24 NEW SUBSECTION . 24. The taxes imposed under this division 25 shall be reduced by an environmental practices tax credit 26 allowed under chapter 467. 27 Sec. 5. Section 427C.1, Code 2015, is amended to read as 28 follows: 29 427C.1 Tax exemption. 30 1. Any person who establishes a forest or fruit-tree 31 reservation as provided in this chapter shall be entitled to 32 the tax exemption provided by law. 33 2. A person shall not be entitled to a tax exemption under 34 this chapter, if the person claims an environmental practice 35 -1- LSB 2628YC (8) 86 da/sc 1/ 15

H.F. _____ income tax credit for establishing an environmental practice 1 under chapter 467 on the same land as the forest or fruit-tree 2 reservation. 3 Sec. 6. NEW SECTION . 467.101 Purpose. 4 The purpose of this chapter is to assist crop farmers in 5 establishing and maintaining new environmental practices. 6 Sec. 7. NEW SECTION . 467.102 Chapter definitions. 7 As used in this chapter, unless the context otherwise 8 requires: 9 1. “Agreement” means an environmental practices agreement 10 entered into pursuant to section 467.204. 11 2. “Crop” means alfalfa, corn, soybeans, straw, oats, wheat, 12 or other similar crop ordinarily utilized for, or ordinarily 13 added as an ingredient in, animal feed or bedding, food 14 intended for human consumption, or fiber. 15 3. “Crop farmer” means a person who holds title to cropland. 16 4. a. “Cropland” means real estate located in this state 17 that meets all of the following criteria: 18 (1) Includes at least thirty contiguous acres not divided 19 into lots for the purpose of sale or lease, and not divided by 20 city streets or alleys. 21 (2) Is used to grow a crop. 22 b. “Cropland” may include real estate that is located within 23 the limits of a city. 24 5. “Environmental practice” means a conservation measure 25 established on cropland or as part of cropland’s field drainage 26 tile system as provided under section 467.202. 27 6. “State fiscal year” means the fiscal year described in 28 section 3.12. 29 Sec. 8. NEW SECTION . 467.103 Administration and 30 enforcement. 31 1. a. The department of agriculture and land stewardship 32 shall administer and enforce provisions relating to 33 environmental practices agreements under subchapter II. 34 b. The commissioners of a soil and water conservation 35 -2- LSB 2628YC (8) 86 da/sc 2/ 15

H.F. _____ district where an environmental practice is proposed to be 1 established or has been established are deemed to be the 2 agent of the department and shall act under the direction and 3 supervision of the department as provided in section 161A.11. 4 2. The department of revenue shall administer and enforce 5 provisions relating to environmental practices tax credits 6 under subchapter III. 7 3. The departments shall prescribe forms as required to 8 administer their respective subchapters. 9 4. The departments may prescribe procedures for the 10 receipt, filing, processing, and return of documents in 11 an electronic format, including but not limited to the 12 transmission of documents using the internet. The departments 13 may provide for authentication of the documents that may 14 include electronic signatures as provided in chapter 554D. 15 5. The departments, acting in cooperation, shall adopt 16 rules necessary to administer this chapter pursuant to chapter 17 17A. 18 Sec. 9. NEW SECTION . 467.201 Subchapter definitions. 19 As used in this subchapter, unless the context otherwise 20 requires, “department” means the department of agriculture and 21 land stewardship. 22 Sec. 10. NEW SECTION . 467.202 Environmental practices —— 23 qualifying and departmental requirements. 24 1. An environmental practice must do all of the following: 25 a. Reduce soil erosion and sediment loss, including by doing 26 any of the following: 27 (1) Stabilizing the soil or otherwise limiting sediment 28 from being conveyed by surface water runoff. 29 (2) Filtering sediment-laden water. 30 b. Manage nutrients and reduce contributing contaminant 31 loads to receiving surface waters, including by doing any of 32 the following: 33 (1) Detaining sediment-laden water for a period in order 34 to allow the sediments to settle out, or to allow bacteria to 35 -3- LSB 2628YC (8) 86 da/sc 3/ 15

H.F. _____ digest contaminants. 1 (2) Reducing the volume or velocity of 2 precipitation-induced surface water. 3 c. Improve surface water quality. 4 2. Any of the following qualifies as an environmental 5 practice: 6 a. A bioreactor installed as part of or connected to a field 7 drainage tile line. 8 b. A saturated buffer that includes all of the following: 9 (1) A subsurface drain outlet with permanent vegetation. 10 (2) A water control structure and subsurface distribution 11 piping capable of diverting drainage system discharge to create 12 an elevated zone of soil saturation. 13 c. Cropland integrated with prairie grass strips installed 14 in a drainage area as follows: 15 (1) A minimum of ten percent of the drainage area must be 16 comprised of strips of prairie grass established as permanent 17 vegetation that is used to filter runoff. 18 (2) The remaining percent of the drainage area must be 19 comprised of crops, with the crops alternating with the strips 20 of prairie grass. 21 d. A grassed waterway, as defined in section 459A.102, if 22 established and maintained in compliance with standards of the 23 United States department of agriculture, natural resources 24 conservation service. 25 e. An area maintained in permanent vegetation cover, 26 including perennial vegetation cover consisting of grasses, 27 legumes, or both, and includes but is not limited to grasslands 28 or forages. 29 f. An area devoted to trees, excluding an area for which a 30 property tax exemption as a forest or fruit-tree reservation 31 under chapter 427C is claimed. 32 g. A wetland area of at least one-half acre if the area is 33 mostly under water or waterlogged during the growing season and 34 is characterized by vegetation of hydric soils. 35 -4- LSB 2628YC (8) 86 da/sc 4/ 15

H.F. _____ 3. The department shall further define by rule an 1 environmental practice qualifying under subsection 2. 2 4. The department may adopt rules creating similar 3 environmental practices. The environmental practice must 4 comply with the requirements of subsection 1 in a manner 5 comparable to an environmental practice qualifying under 6 subsection 2. 7 Sec. 11. NEW SECTION . 467.203 Environmental practices 8 agreements —— applications. 9 1. A crop farmer may submit an application to the department 10 to enter into an environmental practices agreement with 11 the department that may be the basis for issuance of an 12 environmental tax credit certificate under section 467.303. 13 The application shall include all of the following: 14 a. The identification of the crop farmer and cropland. 15 b. A description of the environmental practice to be 16 established. The department may require that a technician 17 approved by the department plan, design, or lay out a proposed 18 environmental practice. 19 c. Information required by the department of revenue 20 pursuant to section 467.303. 21 d. Any additional information deemed relevant by the 22 department or department of revenue. 23 2. The department shall approve applications on a 24 first-come, first-served basis unless the department 25 prioritizes applications based on criteria adopted by the 26 department. The criteria may include but are not limited to 27 any of the following: 28 a. The cost, performance, or permanence of the environmental 29 practice according to a cost-benefit analysis. 30 b. Whether the department and the crop farmer have 31 previously entered into an agreement and the department’s 32 experience with the crop farmer. 33 c. The past performance of the environmental practice to be 34 established. 35 -5- LSB 2628YC (8) 86 da/sc 5/ 15

H.F. _____ 3. The submission and approval of an application is a 1 promise by the crop farmer and department to negotiate the 2 terms and conditions of an agreement which may be contingent 3 upon the availability of unobligated or unencumbered moneys 4 used to finance the environmental practices tax credit as 5 provided in section 467.306. 6 4. The department may approve an application submitted 7 by a crop farmer under this section for the issuance of an 8 environmental practices tax credit certificate in a future 9 state fiscal year according to the terms and conditions of the 10 agreement as provided in section 467.204. 11 Sec. 12. NEW SECTION . 467.204 Environmental practices 12 agreements —— terms and conditions. 13 1. If the department approves an application submitted by 14 a crop farmer as provided in section 467.203, the department 15 and crop farmer shall negotiate the terms and conditions of a 16 written environmental practices agreement to be entered into by 17 both parties. 18 2. The agreement shall require that the crop farmer 19 establish an environmental practice by doing all of the 20 following: 21 a. To the extent required by the department, obtain 22 assistance to plan, design, or lay out the environmental 23 practice by a technician approved by the department. 24 b. Install the environmental practice which shall be placed 25 in service. 26 3. a. The agreement shall require that the crop farmer 27 maintain the environmental practice so that when placed in 28 service it effectively performs the function for which it 29 was designed for the duration of its life as provided in the 30 agreement. 31 b. In order to be maintained, the environmental practice 32 must be kept in good repair or be reconstructed if necessary. 33 An environmental practice is not maintained if it is removed, 34 altered, or modified so that it no longer effectively performs 35 -6- LSB 2628YC (8) 86 da/sc 6/ 15

H.F. _____ the function for which it was originally placed in service. 1 4. The agreement shall provide for the inspection of 2 cropland under section 467.206. 3 5. The agreement shall provide for all of the following: 4 a. The crop farmer’s possible transfer of title to the 5 cropland where the environmental practice is to be established 6 or has been established. 7 b. The possible suspension or termination of the agreement 8 under section 467.205. 9 6. a. The agreement shall establish the amount of the 10 environmental practices tax credit allowed under section 11 467.302. 12 b. The agreement shall include any conditions imposed by the 13 department on the issuance of an environmental practices tax 14 credit certificate by the department of revenue under section 15 467.303, and any provisions affecting the transfer of the tax 16 credit certificate under section 467.304. 17 c. The department and crop farmer may enter into more than 18 one agreement and the crop farmer may be allowed to claim more 19 than one tax credit for each environmental practice established 20 under section 467.302. 21 7. The agreement shall provide for its execution, effective 22 date, and duration. The agreement shall not take effect later 23 than the date that the environmental practices tax credit 24 certificate is issued by the department of revenue. The 25 agreement’s duration shall not exceed twenty years from its 26 effective date. 27 Sec. 13. NEW SECTION . 467.205 Environmental practices 28 agreements —— suspension or termination. 29 1. The department shall provide for the suspension or 30 termination of an environmental practices agreement if the crop 31 farmer who is a party to the agreement is in breach of the 32 agreement. 33 2. a. An environmental practices agreement is automatically 34 terminated on a nonhostile basis under any of the following 35 -7- LSB 2628YC (8) 86 da/sc 7/ 15

H.F. _____ circumstances: 1 (1) The crop farmer transfers the cropland for fair value 2 to another person, if the crop farmer has relinquished any 3 apparent, real, or contingent interest in the cropland, and the 4 department is notified of the transfer not more than ninety 5 days after the transfer is effective. 6 (2) The cropland is to be converted to a use incompatible 7 with crop production, and the department is notified of the 8 change in use not more than ninety days after the effective 9 date of the change. 10 b. The department may refuse to enter into an agreement with 11 a crop farmer whose prior agreement has been terminated on a 12 nonhostile basis. 13 3. a. An environmental practices agreement is terminated by 14 a crop farmer on a hostile basis under any circumstance other 15 than that described in subsection 2. 16 b. The department shall not enter into an agreement with 17 a crop farmer whose prior agreement has been terminated on a 18 hostile basis. 19 4. a. The department shall notify the department of revenue 20 if an agreement has been suspended or terminated. 21 b. An agreement is not terminated if in the agreement the 22 department requires that a person transferred title to the 23 cropland become a successor party to the agreement. 24 Sec. 14. NEW SECTION . 467.206 Inspections and enforcement. 25 1. The department may inspect the location where an 26 environmental practice is proposed to be established or is 27 established, under any of the following circumstances: 28 a. As provided in an environmental practices agreement under 29 section 467.204. 30 b. Upon consent of the crop farmer who is an applicant under 31 section 467.203 or a party to the agreement. As a condition of 32 entering into the agreement, the crop farmer must consent to 33 the department’s inspection of cropland where an environmental 34 practice is proposed to be established or has been established. 35 -8- LSB 2628YC (8) 86 da/sc 8/ 15

H.F. _____ c. Under an administrative search warrant obtained under 1 section 808.14. 2 2. The department may enforce the terms and conditions of an 3 agreement by administrative order. The courts of this state 4 may prevent and restrain a breach of an agreement through the 5 issuance of an injunction. The attorney general may bring an 6 action on behalf of the department to enforce the terms and 7 conditions of the agreement. 8 Sec. 15. NEW SECTION . 467.301 Subchapter definitions. 9 As used in this subchapter, unless the context otherwise 10 requires: 11 1. “Department” means the department of revenue. 12 2. “Holder” means a person who is either a crop farmer 13 who has been issued an environmental practices tax credit 14 certificate or a person to whom such a tax credit certificate 15 has been transferred under section 467.304. 16 3. “Tax credit” means an environmental practices tax credit 17 allowed under section 467.302. 18 4. “Tax credit certificate” means an environmental practices 19 tax credit certificate issued pursuant to section 467.303. 20 Sec. 16. NEW SECTION . 467.302 Environmental practices tax 21 credits —— allowance. 22 1. A tax credit is allowed under this chapter against the 23 taxes imposed in chapter 422, divisions II and III. 24 2. An individual may claim a tax credit of a partnership, 25 limited liability company, S corporation, estate, or trust 26 electing to have income taxed directly to the individual. The 27 amount claimed by the individual shall be based upon the pro 28 rata share of the individual’s earnings from the partnership, 29 limited liability company, S corporation, estate, or trust. 30 3. A tax credit in excess of the taxpayer’s liability for 31 the tax year is not refundable but may be credited to the tax 32 liability for the following five years or until depleted, 33 whichever is earlier. A tax credit shall not be carried back 34 to a tax year prior to the tax year in which the taxpayer claims 35 -9- LSB 2628YC (8) 86 da/sc 9/ 15

H.F. _____ the tax credit. 1 4. A tax credit shall be allowed for seventy-five percent 2 of the actual and necessary costs of establishing the 3 environmental practice, not to exceed ten thousand dollars, 4 as provided in the environmental practices agreement entered 5 into by the crop farmer and department of agriculture and land 6 stewardship pursuant to section 467.204. 7 5. A taxpayer may claim more than one tax credit for one 8 or more tax years, but may claim only one tax credit for 9 establishing each separate and distinct environmental practice 10 as set out in the agreement described in subsection 4. The 11 department of agriculture and land stewardship shall establish 12 criteria, by rule, for determining what constitutes a separate 13 and distinct environmental practice. 14 6. A tax credit shall not be allowed for that portion of the 15 cost of establishing an environmental practice that is financed 16 by a nonrepayable award granted by a public or private entity, 17 including but not limited to a federal or state agency or local 18 government. 19 Sec. 17. NEW SECTION . 467.303 Environmental practices tax 20 credit certificates —— issuance. 21 1. A tax credit may be claimed by a taxpayer who is a holder 22 of a tax credit certificate. The holder must be any of the 23 following: 24 a. A crop farmer who has been issued a tax credit 25 certificate by the department according to the terms and 26 conditions of an environmental practices agreement entered 27 into by the crop farmer and department of agriculture and land 28 stewardship pursuant to section 467.204. 29 b. A person to whom a tax credit certificate has been 30 transferred pursuant to section 467.304. 31 2. The department of agriculture and land stewardship shall 32 do all of the following: 33 a. Notify the department that it has entered into an 34 environmental practices agreement with the taxpayer who is a 35 -10- LSB 2628YC (8) 86 da/sc 10/ 15

H.F. _____ crop farmer pursuant to section 467.204. 1 b. Notify the department that an environmental practice 2 covered in the agreement described in paragraph “a” has been 3 placed in service. 4 c. Provide the department information regarding the 5 taxpayer’s name, address, and tax identification number; 6 the amount of the allowed tax credit; and other information 7 required by the department of revenue. 8 d. Transmit the agreement to the department as required by 9 the department. 10 3. A taxpayer is not allowed to claim a tax credit unless 11 a tax credit certificate is included with the taxpayer’s tax 12 return received by the department for the tax year for which 13 the tax credit is claimed. 14 Sec. 18. NEW SECTION . 467.304 Environmental practices tax 15 credit certificate —— transfer. 16 1. A crop farmer who is the holder of a tax credit 17 certificate under section 467.303 may transfer the tax credit 18 certificate. A tax credit certificate is transferable by that 19 transferee and any subsequent holder. 20 2. A transferee of a tax credit certificate may use the 21 amount of the tax credit transferred against the taxes imposed 22 in chapter 422, divisions II and III, for any future tax year 23 the crop farmer could have claimed the tax credit. 24 3. Any consideration received for the transfer of the tax 25 credit shall not be included as income under chapter 422, 26 divisions II and III. Any consideration paid for the transfer 27 of the tax credit shall not be deducted from income under 28 chapter 422, divisions II and III. 29 4. A transferee shall apply to the department for a 30 replacement tax credit certificate. However, the department 31 may provide for the transfer of the tax credit by another 32 method including by recording the transfer on the face of the 33 original tax credit certificate. 34 5. If the tax credit has not been claimed by a holder, 35 -11- LSB 2628YC (8) 86 da/sc 11/ 15

H.F. _____ within ninety days of the transfer, the transferee shall submit 1 the transferred tax credit certificate to the department 2 along with a statement containing the transferee’s name, tax 3 identification number, and address, the denomination that the 4 tax credit certificate is to carry, and any other information 5 required by the department. 6 6. Within thirty days of receiving an application under 7 subsection 4 or the transferred tax credit certificate and 8 the transferee’s statement as provided in subsection 5, the 9 department shall issue a replacement tax credit certificate to 10 the transferee. Each replacement tax credit certificate shall 11 contain the same information required for the original tax 12 credit certificate and shall have the same expiration date that 13 appeared on the transferred tax credit certificate. 14 7. A tax credit shall not be claimed by a transferee until 15 a replacement tax credit certificate identifying the transferee 16 as the proper holder has been issued by the department. 17 Sec. 19. NEW SECTION . 467.305 Tax credit certificates —— 18 departmental action —— liability. 19 1. The department may suspend or rescind a tax credit 20 certificate if the department determines that a taxpayer 21 claiming the tax credit is not otherwise complying with 22 the department’s requirements for claiming the tax credit. 23 The department shall rescind a tax credit certificate upon 24 notification or discovery that an environmental practices 25 agreement was terminated with respect to the crop farmer who 26 is a party to the agreement. The department shall notify 27 the department of agriculture and land stewardship that the 28 tax credit certificate has been suspended or rescinded. An 29 action taken under this subsection shall suspend or rescind the 30 remaining value of the tax credit. 31 2. A crop farmer whose environmental practices agreement 32 has been terminated under section 467.205 shall be liable to 33 the state for repaying the remaining value of the tax credit 34 rescinded plus interest as provided in this section. 35 -12- LSB 2628YC (8) 86 da/sc 12/ 15

H.F. _____ 3. The remaining value of the tax credit shall be calculated 1 on a prorated basis by dividing the total dollar amount of 2 the tax credit that could be received under the environmental 3 practices agreement by the total number of months that the 4 environmental practice could be in service under that agreement 5 and then multiplying the quotient by the total number of 6 months that the environmental practice should have stayed in 7 service but was removed from service due to the agreement’s 8 termination. 9 4. a. If the termination is nonhostile, the interest rate 10 equals the current interest rate computed by the department 11 pursuant to section 421.7. 12 b. If the termination is hostile, the interest rate equals 13 the current interest rate described in paragraph “a” multiplied 14 by ten. 15 5. A person who claims a tax credit as a transferee shall 16 be jointly and severally liable to the state for the remaining 17 value of the tax credit as provided in subsection 3 plus 18 interest at the current rate as provided in subsection 4. 19 However, the transferee shall not be liable if the tax credit 20 was obtained for value, in good faith, and without actual or 21 constructive notice of the agreement’s termination when the tax 22 credit certificate was obtained. 23 Sec. 20. NEW SECTION . 467.306 Environmental practices tax 24 credit certificate —— availability. 25 The amount of tax credit certificates that may be issued 26 under this chapter shall not in the aggregate exceed three 27 million dollars in any state fiscal year. 28 Sec. 21. EFFECTIVE UPON ENACTMENT. This Act, being deemed 29 of immediate importance, takes effect upon enactment. 30 Sec. 22. APPLICABILITY. This Act applies to environmental 31 practices first established on or after the effective date of 32 this Act. 33 Sec. 23. RETROACTIVE APPLICABILITY. This Act applies 34 retroactively to January 1, 2015, for tax years beginning on 35 -13- LSB 2628YC (8) 86 da/sc 13/ 15

H.F. _____ or after that date. 1 EXPLANATION 2 The inclusion of this explanation does not constitute agreement with 3 the explanation’s substance by the members of the general assembly. 4 GENERAL. This bill provides for an environmental practices 5 agreement and related tax credit (credit). The purpose of the 6 credit is to assist crop farmers in reducing soil erosion and 7 sediment loss, managing nutrients, and reducing contaminant 8 loads contributing to surface waters, and improving surface 9 water quality. The bill provides that such agreements are 10 to be administered by the department of agriculture and land 11 stewardship (DALS) in cooperation with the soil and water 12 conservation commissioners (commissioners). The tax credit is 13 to be administered by the department of revenue (DOR). 14 ENVIRONMENTAL PRACTICES AGREEMENTS. The bill allows a crop 15 farmer to enter into an environmental practices agreement 16 (agreement) with DALS. The agreement requires the crop farmer 17 to establish and maintain an environmental practice (practice) 18 on the crop farmer’s cropland for the period specified in the 19 agreement but not more than 20 years. The bill provides for 20 the inspection of the cropland where the practice is to be 21 installed or has been installed. The commissioners of a soil 22 and water conservation district where a practice is proposed 23 to be or has been installed is deemed to be the agent of the 24 department. The agreement does not create a lien on the land 25 or bind a successor in interest unless the successor agrees. 26 The bill provides that DALS must notify DOR that the crop 27 farmer has executed an agreement and installed a practice. 28 TAX CREDIT —— ALLOWANCE. A credit in excess of a taxpayer’s 29 liability is not refundable and cannot be carried back but 30 may be carried forward for the following five tax years. The 31 credit is limited to 75 percent of the actual and necessary 32 cost of establishing the practice which includes both planning 33 and installation costs, not to exceed $10,000. The amount 34 cannot include that part of the cost financed by a nonrepayable 35 -14- LSB 2628YC (8) 86 da/sc 14/ 15

H.F. _____ award granted by a public or private entity (e.g., cost-share 1 moneys). The credit is allowed against individual and 2 corporate income taxes. 3 TAX CREDIT CERTIFICATES. Upon receipt of DALS’ notice, DOR 4 is required to issue a tax credit certificate (certificate) 5 to the crop farmer. However, not more than $3 million in 6 tax credit certificates may be issued in any state fiscal 7 year. A certificate is transferable to another person who may 8 claim or transfer the credit. DOR must rescind a certificate 9 if an agreement is terminated and it may suspend or rescind 10 a certificate if its holder is not in compliance with the 11 bill’s requirements. If a credit is rescinded due to the 12 termination of an agreement, the crop farmer is liable for 13 repaying the unclaimed value of credit on a prorated basis plus 14 interest. The interest rate to be applied depends on whether 15 the termination is considered nonhostile or hostile. The 16 termination is nonhostile if the cropland is to be transferred 17 to another person who converts it to a use incompatible with 18 crop production. Under these circumstances, the interest rate 19 is that published by DOR in the Iowa Administrative Bulletin. 20 The termination is hostile under any other circumstances and 21 under those circumstances the interest rate is the published 22 rate multiplied by 10. A transferee is also liable for 23 repayment, unless the credit was obtained by the transferee for 24 value, in good faith, and without actual or constructive notice 25 of the agreement’s breach. 26 EFFECTIVE AND APPLICABILITY DATES. The bill takes effect 27 upon enactment for environmental practices first established 28 on or after that date and applies retroactively to tax years 29 beginning on and after January 1, 2015. 30 -15- LSB 2628YC (8) 86 da/sc 15/ 15