HSB 251 (LSB 2628YC (8) 86)

HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS)

A BILL FOR

An Act providing for an environmental practices agreement and related tax credit, and including effective date and retroactive and other applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 159.5, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  15.  Administer and enforce environmental practices agreements as provided in chapter 467.
    Sec. 2.  NEW SECTION.  161A.11  Environmental practices —— cooperation with the department of agriculture and land stewardship.

   The commissioners of a district where an environmental practice is to be or has been established under chapter 467, are deemed to be the agents of the department and shall act under the direction and supervision of the department in administering that chapter. In addition to the powers conferred upon the commissioners under that chapter, the commissioners have all the powers conferred upon them under this chapter to enter onto and remain on land as if the environmental practice were a soil and water conservation practice or erosion control practice.
    Sec. 3.  NEW SECTION.  422.11K  Environmental practices tax credit.

   The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by an environmental practices tax credit allowed under chapter 467.
    Sec. 4.  Section 422.33, Code 2015, is amended by adding the following new subsection:
   NEW SUBSECTION.  24.  The taxes imposed under this division shall be reduced by an environmental practices tax credit allowed under chapter 467.
    Sec. 5.  Section 427C.1, Code 2015, is amended to read as follows:
   427C.1  Tax exemption.
   1.  Any person who establishes a forest or fruit-tree reservation as provided in this chapter shall be entitled to the tax exemption provided by law.
   2.  A person shall not be entitled to a tax exemption under this chapter, if the person claims an environmental practice income tax credit for establishing an environmental practice under chapter 467 on the same land as the forest or fruit-tree reservation.
    Sec. 6.  NEW SECTION.  467.101  Purpose.

   The purpose of this chapter is to assist crop farmers in establishing and maintaining new environmental practices.
    Sec. 7.  NEW SECTION.  467.102  Chapter definitions.

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

   1.  “Agreement” means an environmental practices agreement entered into pursuant to section 467.204.
   2.  “Crop” means alfalfa, corn, soybeans, straw, oats, wheat, or other similar crop ordinarily utilized for, or ordinarily added as an ingredient in, animal feed or bedding, food intended for human consumption, or fiber.
   3.  “Crop farmer” means a person who holds title to cropland.
   4.  a.  “Cropland” means real estate located in this state that meets all of the following criteria:
   (1)  Includes at least thirty contiguous acres not divided into lots for the purpose of sale or lease, and not divided by city streets or alleys.
   (2)  Is used to grow a crop.
   b.  “Cropland” may include real estate that is located within the limits of a city.
   5.  “Environmental practice” means a conservation measure established on cropland or as part of cropland’s field drainage tile system as provided under section 467.202.
   6.  “State fiscal year” means the fiscal year described in section 3.12.
    Sec. 8.  NEW SECTION.  467.103  Administration and enforcement.
   1.  a.  The department of agriculture and land stewardship shall administer and enforce provisions relating to environmental practices agreements under subchapter II. 
   b.  The commissioners of a soil and water conservation district where an environmental practice is proposed to be established or has been established are deemed to be the agent of the department and shall act under the direction and supervision of the department as provided in section 161A.11.
   2.  The department of revenue shall administer and enforce provisions relating to environmental practices tax credits under subchapter III.
   3.  The departments shall prescribe forms as required to administer their respective subchapters.
   4.  The departments may prescribe procedures for the receipt, filing, processing, and return of documents in an electronic format, including but not limited to the transmission of documents using the internet. The departments may provide for authentication of the documents that may include electronic signatures as provided in chapter 554D.
   5.  The departments, acting in cooperation, shall adopt rules necessary to administer this chapter pursuant to chapter 17A.
    Sec. 9.  NEW SECTION.  467.201  Subchapter definitions.

   As used in this subchapter, unless the context otherwise requires, “department” means the department of agriculture and land stewardship.
    Sec. 10.  NEW SECTION.  467.202  Environmental practices —— qualifying and departmental requirements.
   1.  An environmental practice must do all of the following:
   a.  Reduce soil erosion and sediment loss, including by doing any of the following:
   (1)  Stabilizing the soil or otherwise limiting sediment from being conveyed by surface water runoff.
   (2)  Filtering sediment-laden water.
   b.  Manage nutrients and reduce contributing contaminant loads to receiving surface waters, including by doing any of the following:
   (1)  Detaining sediment-laden water for a period in order to allow the sediments to settle out, or to allow bacteria to digest contaminants.
   (2)  Reducing the volume or velocity of precipitation-induced surface water.
   c.  Improve surface water quality.
   2.  Any of the following qualifies as an environmental practice:
   a.  A bioreactor installed as part of or connected to a field drainage tile line.
   b.  A saturated buffer that includes all of the following:
   (1)  A subsurface drain outlet with permanent vegetation.
   (2)  A water control structure and subsurface distribution piping capable of diverting drainage system discharge to create an elevated zone of soil saturation.
   c.  Cropland integrated with prairie grass strips installed in a drainage area as follows:
   (1)  A minimum of ten percent of the drainage area must be comprised of strips of prairie grass established as permanent vegetation that is used to filter runoff.
   (2)  The remaining percent of the drainage area must be comprised of crops, with the crops alternating with the strips of prairie grass.
   d.  A grassed waterway, as defined in section 459A.102, if established and maintained in compliance with standards of the United States department of agriculture, natural resources conservation service.
   e.  An area maintained in permanent vegetation cover, including perennial vegetation cover consisting of grasses, legumes, or both, and includes but is not limited to grasslands or forages.
   f.  An area devoted to trees, excluding an area for which a property tax exemption as a forest or fruit-tree reservation under chapter 427C is claimed.
   g.  A wetland area of at least one-half acre if the area is mostly under water or waterlogged during the growing season and is characterized by vegetation of hydric soils.
   3.  The department shall further define by rule an environmental practice qualifying under subsection 2.
   4.  The department may adopt rules creating similar environmental practices. The environmental practice must comply with the requirements of subsection 1 in a manner comparable to an environmental practice qualifying under subsection 2.
    Sec. 11.  NEW SECTION.  467.203  Environmental practices agreements —— applications.
   1.  A crop farmer may submit an application to the department to enter into an environmental practices agreement with the department that may be the basis for issuance of an environmental tax credit certificate under section 467.303. The application shall include all of the following:
   a.  The identification of the crop farmer and cropland.
   b.  A description of the environmental practice to be established. The department may require that a technician approved by the department plan, design, or lay out a proposed environmental practice.
   c.  Information required by the department of revenue pursuant to section 467.303.
   d.  Any additional information deemed relevant by the department or department of revenue.
   2.  The department shall approve applications on a first-come, first-served basis unless the department prioritizes applications based on criteria adopted by the department. The criteria may include but are not limited to any of the following:
   a.  The cost, performance, or permanence of the environmental practice according to a cost-benefit analysis.
   b.  Whether the department and the crop farmer have previously entered into an agreement and the department’s experience with the crop farmer.
   c.  The past performance of the environmental practice to be established.
   3.  The submission and approval of an application is a promise by the crop farmer and department to negotiate the terms and conditions of an agreement which may be contingent upon the availability of unobligated or unencumbered moneys used to finance the environmental practices tax credit as provided in section 467.306.
   4.  The department may approve an application submitted by a crop farmer under this section for the issuance of an environmental practices tax credit certificate in a future state fiscal year according to the terms and conditions of the agreement as provided in section 467.204.
    Sec. 12.  NEW SECTION.  467.204  Environmental practices agreements —— terms and conditions.
   1.  If the department approves an application submitted by a crop farmer as provided in section 467.203, the department and crop farmer shall negotiate the terms and conditions of a written environmental practices agreement to be entered into by both parties.
   2.  The agreement shall require that the crop farmer establish an environmental practice by doing all of the following:
   a.  To the extent required by the department, obtain assistance to plan, design, or lay out the environmental practice by a technician approved by the department.
   b.  Install the environmental practice which shall be placed in service.
   3.  a.  The agreement shall require that the crop farmer maintain the environmental practice so that when placed in service it effectively performs the function for which it was designed for the duration of its life as provided in the agreement.
   b.  In order to be maintained, the environmental practice must be kept in good repair or be reconstructed if necessary. An environmental practice is not maintained if it is removed, altered, or modified so that it no longer effectively performs the function for which it was originally placed in service.
   4.  The agreement shall provide for the inspection of cropland under section 467.206.
   5.  The agreement shall provide for all of the following:
   a.  The crop farmer’s possible transfer of title to the cropland where the environmental practice is to be established or has been established.
   b.  The possible suspension or termination of the agreement under section 467.205.
   6.  a.  The agreement shall establish the amount of the environmental practices tax credit allowed under section 467.302.
   b.  The agreement shall include any conditions imposed by the department on the issuance of an environmental practices tax credit certificate by the department of revenue under section 467.303, and any provisions affecting the transfer of the tax credit certificate under section 467.304.
   c.  The department and crop farmer may enter into more than one agreement and the crop farmer may be allowed to claim more than one tax credit for each environmental practice established under section 467.302.
   7.  The agreement shall provide for its execution, effective date, and duration. The agreement shall not take effect later than the date that the environmental practices tax credit certificate is issued by the department of revenue. The agreement’s duration shall not exceed twenty years from its effective date.
    Sec. 13.  NEW SECTION.  467.205  Environmental practices agreements —— suspension or termination.
   1.  The department shall provide for the suspension or termination of an environmental practices agreement if the crop farmer who is a party to the agreement is in breach of the agreement.
   2.  a.  An environmental practices agreement is automatically terminated on a nonhostile basis under any of the following circumstances:
   (1)  The crop farmer transfers the cropland for fair value to another person, if the crop farmer has relinquished any apparent, real, or contingent interest in the cropland, and the department is notified of the transfer not more than ninety days after the transfer is effective.
   (2)  The cropland is to be converted to a use incompatible with crop production, and the department is notified of the change in use not more than ninety days after the effective date of the change.
   b.  The department may refuse to enter into an agreement with a crop farmer whose prior agreement has been terminated on a nonhostile basis.
   3.  a.  An environmental practices agreement is terminated by a crop farmer on a hostile basis under any circumstance other than that described in subsection 2.
   b.  The department shall not enter into an agreement with a crop farmer whose prior agreement has been terminated on a hostile basis.
   4.  a.  The department shall notify the department of revenue if an agreement has been suspended or terminated.
   b.  An agreement is not terminated if in the agreement the department requires that a person transferred title to the cropland become a successor party to the agreement.
    Sec. 14.  NEW SECTION.  467.206  Inspections and enforcement.
   1.  The department may inspect the location where an environmental practice is proposed to be established or is established, under any of the following circumstances:
   a.  As provided in an environmental practices agreement under section 467.204.
   b.  Upon consent of the crop farmer who is an applicant under section 467.203 or a party to the agreement. As a condition of entering into the agreement, the crop farmer must consent to the department’s inspection of cropland where an environmental practice is proposed to be established or has been established.
   c.  Under an administrative search warrant obtained under section 808.14.
   2.  The department may enforce the terms and conditions of an agreement by administrative order. The courts of this state may prevent and restrain a breach of an agreement through the issuance of an injunction. The attorney general may bring an action on behalf of the department to enforce the terms and conditions of the agreement.
    Sec. 15.  NEW SECTION.  467.301  Subchapter definitions.

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

   1.  “Department” means the department of revenue.
   2.  “Holder” means a person who is either a crop farmer who has been issued an environmental practices tax credit certificate or a person to whom such a tax credit certificate has been transferred under section 467.304.
   3.  “Tax credit” means an environmental practices tax credit allowed under section 467.302.
   4.  “Tax credit certificate” means an environmental practices tax credit certificate issued pursuant to section 467.303.
    Sec. 16.  NEW SECTION.  467.302  Environmental practices tax credits —— allowance.
   1.  A tax credit is allowed under this chapter against the taxes imposed in chapter 422, divisions II and III.
   2.  An individual may claim a tax credit of a partnership, limited liability company, S corporation, 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, estate, or trust.
   3.  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. 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.
   4.  A tax credit shall be allowed for seventy-five percent of the actual and necessary costs of establishing the environmental practice, not to exceed ten thousand dollars, as provided in the environmental practices agreement entered into by the crop farmer and department of agriculture and land stewardship pursuant to section 467.204.
   5.  A taxpayer may claim more than one tax credit for one or more tax years, but may claim only one tax credit for establishing each separate and distinct environmental practice as set out in the agreement described in subsection 4. The department of agriculture and land stewardship shall establish criteria, by rule, for determining what constitutes a separate and distinct environmental practice.
   6.  A tax credit shall not be allowed for that portion of the cost of establishing an environmental practice that is financed by a nonrepayable award granted by a public or private entity, including but not limited to a federal or state agency or local government. 
    Sec. 17.  NEW SECTION.  467.303  Environmental practices tax credit certificates —— issuance.
   1.  A tax credit may be claimed by a taxpayer who is a holder of a tax credit certificate. The holder must be any of the following:
   a.  A crop farmer who has been issued a tax credit certificate by the department according to the terms and conditions of an environmental practices agreement entered into by the crop farmer and department of agriculture and land stewardship pursuant to section 467.204. 
   b.  A person to whom a tax credit certificate has been transferred pursuant to section 467.304.
   2.  The department of agriculture and land stewardship shall do all of the following:
   a.  Notify the department that it has entered into an environmental practices agreement with the taxpayer who is a crop farmer pursuant to section 467.204.
   b.  Notify the department that an environmental practice covered in the agreement described in paragraph “a” has been placed in service.
   c.  Provide the department information regarding the taxpayer’s name, address, and tax identification number; the amount of the allowed tax credit; and other information required by the department of revenue.
   d.  Transmit the agreement to the department as required by the department.
   3.  A taxpayer is not allowed to claim a tax credit unless a tax credit certificate is included with the taxpayer’s tax return received by the department for the tax year for which the tax credit is claimed.
    Sec. 18.  NEW SECTION.  467.304  Environmental practices tax credit certificate —— transfer.
   1.  A crop farmer who is the holder of a tax credit certificate under section 467.303 may transfer the tax credit certificate. A tax credit certificate is transferable by that transferee and any subsequent holder.
   2.  A transferee of a tax credit certificate may use the amount of the tax credit transferred against the taxes imposed in chapter 422, divisions II and III, for any future tax year the crop farmer could have claimed the tax credit.
   3.  Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, divisions II and III. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, divisions II and III.
   4.  A transferee shall apply to the department for a replacement tax credit certificate. However, the department may provide for the transfer of the tax credit by another method including by recording the transfer on the face of the original tax credit certificate.
   5.  If the tax credit has not been claimed by a holder, within ninety days of the transfer, the transferee shall submit the transferred tax credit certificate to the department along with a statement containing the transferee’s name, tax identification number, and address, the denomination that the tax credit certificate is to carry, and any other information required by the department.
   6.  Within thirty days of receiving an application under subsection 4 or the transferred tax credit certificate and the transferee’s statement as provided in subsection 5, the department shall issue a replacement tax credit certificate to the transferee. Each replacement tax credit certificate shall contain the same information required for the original tax credit certificate and shall have the same expiration date that appeared on the transferred tax credit certificate. 
   7.  A tax credit shall not be claimed by a transferee until a replacement tax credit certificate identifying the transferee as the proper holder has been issued by the department.
    Sec. 19.  NEW SECTION.  467.305  Tax credit certificates —— departmental action —— liability.
   1.  The department may suspend or rescind a tax credit certificate if the department determines that a taxpayer claiming the tax credit is not otherwise complying with the department’s requirements for claiming the tax credit. The department shall rescind a tax credit certificate upon notification or discovery that an environmental practices agreement was terminated with respect to the crop farmer who is a party to the agreement. The department shall notify the department of agriculture and land stewardship that the tax credit certificate has been suspended or rescinded. An action taken under this subsection shall suspend or rescind the remaining value of the tax credit.
   2.  A crop farmer whose environmental practices agreement has been terminated under section 467.205 shall be liable to the state for repaying the remaining value of the tax credit rescinded plus interest as provided in this section.
   3.  The remaining value of the tax credit shall be calculated on a prorated basis by dividing the total dollar amount of the tax credit that could be received under the environmental practices agreement by the total number of months that the environmental practice could be in service under that agreement and then multiplying the quotient by the total number of months that the environmental practice should have stayed in service but was removed from service due to the agreement’s termination.
   4.  a.  If the termination is nonhostile, the interest rate equals the current interest rate computed by the department pursuant to section 421.7.
   b.  If the termination is hostile, the interest rate equals the current interest rate described in paragraph “a” multiplied by ten.
   5.  A person who claims a tax credit as a transferee shall be jointly and severally liable to the state for the remaining value of the tax credit as provided in subsection 3 plus interest at the current rate as provided in subsection 4. However, the transferee shall not be liable if the tax credit was obtained for value, in good faith, and without actual or constructive notice of the agreement’s termination when the tax credit certificate was obtained.
    Sec. 20.  NEW SECTION.  467.306  Environmental practices tax credit certificate —— availability.

   The amount of tax credit certificates that may be issued under this chapter shall not in the aggregate exceed three million dollars in any state fiscal year.
    Sec. 21.  EFFECTIVE UPON ENACTMENT.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 22.  APPLICABILITY.  This Act applies to environmental practices first established on or after the effective date of this Act.
    Sec. 23.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2015, for tax years beginning on or after that date.
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 for an environmental practices agreement and related tax credit (credit). The purpose of the credit is to assist crop farmers in reducing soil erosion and sediment loss, managing nutrients, and reducing contaminant loads contributing to surface waters, and improving surface water quality. The bill provides that such agreements are to be administered by the department of agriculture and land stewardship (DALS) in cooperation with the soil and water conservation commissioners (commissioners). The tax credit is to be administered by the department of revenue (DOR).
   ENVIRONMENTAL PRACTICES AGREEMENTS. The bill allows a crop farmer to enter into an environmental practices agreement (agreement) with DALS. The agreement requires the crop farmer to establish and maintain an environmental practice (practice) on the crop farmer’s cropland for the period specified in the agreement but not more than 20 years. The bill provides for the inspection of the cropland where the practice is to be installed or has been installed. The commissioners of a soil and water conservation district where a practice is proposed to be or has been installed is deemed to be the agent of the department. The agreement does not create a lien on the land or bind a successor in interest unless the successor agrees. The bill provides that DALS must notify DOR that the crop farmer has executed an agreement and installed a practice.
   TAX CREDIT —— ALLOWANCE. A credit in excess of a taxpayer’s liability is not refundable and cannot be carried back but may be carried forward for the following five tax years. The credit is limited to 75 percent of the actual and necessary cost of establishing the practice which includes both planning and installation costs, not to exceed $10,000. The amount cannot include that part of the cost financed by a nonrepayable award granted by a public or private entity (e.g., cost-share moneys). The credit is allowed against individual and corporate income taxes.
   TAX CREDIT CERTIFICATES. Upon receipt of DALS’ notice, DOR is required to issue a tax credit certificate (certificate) to the crop farmer. However, not more than $3 million in tax credit certificates may be issued in any state fiscal year. A certificate is transferable to another person who may claim or transfer the credit. DOR must rescind a certificate if an agreement is terminated and it may suspend or rescind a certificate if its holder is not in compliance with the bill’s requirements. If a credit is rescinded due to the termination of an agreement, the crop farmer is liable for repaying the unclaimed value of credit on a prorated basis plus interest. The interest rate to be applied depends on whether the termination is considered nonhostile or hostile. The termination is nonhostile if the cropland is to be transferred to another person who converts it to a use incompatible with crop production. Under these circumstances, the interest rate is that published by DOR in the Iowa Administrative Bulletin. The termination is hostile under any other circumstances and under those circumstances the interest rate is the published rate multiplied by 10. A transferee is also liable for repayment, unless the credit was obtained by the transferee for value, in good faith, and without actual or constructive notice of the agreement’s breach.
   EFFECTIVE AND APPLICABILITY DATES. The bill takes effect upon enactment for environmental practices first established on or after that date and applies retroactively to tax years beginning on and after January 1, 2015.