H.F. _____ Section 1. Section 159.5, Code 2016, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 15. Cooperate with the department of 3 revenue in administering the environmental practices tax 4 credit as provided in chapter 467. The department may enter 5 onto land in order to inspect an environmental practice and 6 verify that it has been established as required in chapter 7 467. In entering onto the land, the department shall have 8 all the powers conferred upon commissioners of soil and 9 water conservation districts under chapter 161A as if the 10 environmental practice were a soil and water conservation 11 practice or erosion control practice established on a voluntary 12 or mandatory basis using cost-share moneys. However, nothing 13 in this subsection requires the department to enter onto land 14 to inspect and verify an environmental practice. 15 Sec. 2. NEW SECTION . 161A.11 Environmental practices 16 —— cooperation with the department of agriculture and land 17 stewardship. 18 The commissioners of a district where an environmental 19 practice is to be or has been established under chapter 467 are 20 deemed to be the agents of the department and shall act under 21 the direction and supervision of the department in entering 22 onto land located in the district in order to inspect an 23 environmental practice and verify that it has been established 24 as required in chapter 467. In entering onto the land, the 25 commissioners have all the powers conferred upon them under 26 this chapter as if the environmental practice were a soil 27 and water conservation practice or erosion control practice 28 established on a voluntary or mandatory basis using cost-share 29 moneys. 30 Sec. 3. NEW SECTION . 161A.77 Environmental practices —— 31 limitations on financial assistance. 32 A person is not eligible to receive an award of financial 33 assistance that is not required to be repaid by the recipient, 34 including but not limited to cost-share moneys under this 35 -1- LSB 6028YC (5) 86 da/sc 1/ 9

H.F. _____ chapter, for that portion of the cost of establishing an 1 environmental practice that is claimed as an environmental 2 practices tax credit under chapter 467. 3 Sec. 4. NEW SECTION . 422.11K Environmental practices tax 4 credit. 5 The taxes imposed under this division, less the credits 6 allowed under section 422.12, shall be reduced by an 7 environmental practices tax credit allowed under chapter 467. 8 Sec. 5. Section 422.33, Code 2016, is amended by adding the 9 following new subsection: 10 NEW SUBSECTION . 24. The taxes imposed under this division 11 shall be reduced by an environmental practices tax credit 12 allowed under chapter 467. 13 Sec. 6. Section 427C.1, Code 2016, is amended to read as 14 follows: 15 427C.1 Tax exemption. 16 1. Any person who establishes a forest or fruit-tree 17 reservation as provided in this chapter shall be entitled to 18 the tax exemption provided by law. 19 2. A person shall not be entitled to a tax exemption under 20 this chapter if the person claims an environmental practices 21 tax credit for establishing an environmental practice under 22 chapter 467 on the same land as the forest or fruit-tree 23 reservation. 24 Sec. 7. NEW SECTION . 467.101 Purpose. 25 The purpose of this chapter is to assist persons in 26 establishing new environmental practices in order to reduce 27 soil erosion and sediment loss, manage nutrients and reduce 28 contributing contaminant loads to receiving surface waters, and 29 improve surface water quality. 30 Sec. 8. NEW SECTION . 467.102 Definitions. 31 As used in this chapter, unless the context otherwise 32 requires: 33 1. a. “Cropland” means real estate located in this state 34 that meets all of the following criteria: 35 -2- LSB 6028YC (5) 86 da/sc 2/ 9

H.F. _____ (1) Includes at least thirty contiguous acres not divided 1 into lots for the purpose of sale or lease, and not divided by 2 city streets or alleys. 3 (2) Is used to grow alfalfa, corn, soybeans, straw, oats, 4 wheat, or other similar crop ordinarily utilized for, or 5 ordinarily added as an ingredient in, animal feed or bedding, 6 food intended for human consumption, or fiber. 7 b. “Cropland” may include real estate that is located within 8 the limits of a city. 9 2. “Department” means the department of agriculture and land 10 stewardship. 11 3. “State fiscal year” means the fiscal year described in 12 section 3.12. 13 Sec. 9. NEW SECTION . 467.103 Qualifications for 14 environmental practices. 15 1. An environmental practice qualifying for an 16 environmental practices tax credit under this chapter must 17 be an edge-of-field soil and water conservation practice or 18 edge-of-field erosion control practice that would otherwise 19 be eligible to be established using cost-share moneys under 20 chapter 161A. However, the environmental practice is limited 21 to the following: 22 a. A bioreactor that is part of or connected to a field 23 drainage tile line. 24 b. A saturated buffer. 25 c. Prairie grass strips located in a drainage area. 26 d. A grassed waterway, as defined in section 459A.102. 27 e. An area which is devoted to permanent vegetation cover. 28 f. An area for trees, excluding an area for which a property 29 tax exemption as a forest or fruit-tree reservation under 30 chapter 427C is claimed. 31 g. A wetland area. 32 2. The department of agriculture and land stewardship shall 33 further define by rule an environmental practice qualifying 34 under subsection 1. 35 -3- LSB 6028YC (5) 86 da/sc 3/ 9

H.F. _____ Sec. 10. NEW SECTION . 467.104 Tax credit to establish 1 an environmental practice —— administration by department of 2 revenue. 3 1. An environmental practices tax credit is allowed 4 under this chapter against the taxes imposed in chapter 422, 5 divisions II and III. 6 2. A taxpayer may claim a tax credit for establishing an 7 environmental practice on cropland if all of the following 8 apply: 9 a. The taxpayer holds title to cropland where the 10 environmental practice is established. 11 b. The environmental practice qualifies under section 12 467.103. 13 c. The environmental practice was established in the tax 14 year for which the environmental practices tax credit is 15 claimed. 16 d. The taxpayer includes with the tax return in which the 17 environmental practices tax credit is claimed a tax credit 18 certificate issued by the department pursuant to section 19 467.105. 20 3. a. The environmental practices tax credit certificate 21 shall be redeemed for the value of the tax credit stated on the 22 certificate. 23 b. The environmental practices tax credit shall be allowed 24 for seventy-five percent of the actual and necessary costs of 25 establishing the environmental practice, not to exceed ten 26 thousand dollars. 27 c. The environmental practices tax credit shall not 28 be allowed for that portion of the cost of establishing 29 an environmental practice that is financed by an award of 30 financial assistance that is granted by a federal or state 31 agency or local government and that is not required to be 32 repaid by the recipient. 33 4. An individual may claim a tax credit of a partnership, 34 limited liability company, S corporation, estate, or trust 35 -4- LSB 6028YC (5) 86 da/sc 4/ 9

H.F. _____ electing to have income taxed directly to the individual. The 1 amount claimed by the individual shall be based upon the pro 2 rata share of the individual’s earnings from the partnership, 3 limited liability company, S corporation, estate, or trust. 4 5. An environmental practices tax credit in excess of the 5 taxpayer’s liability for the tax year is not refundable but may 6 be credited to the tax liability for the following five years 7 or until depleted, whichever is earlier. An environmental 8 practices tax credit shall not be carried back to a tax 9 year prior to the tax year in which the taxpayer claims the 10 environmental practices tax credit. An environmental practices 11 tax credit is transferable as provided in section 467.106. 12 6. The department of revenue shall, in cooperation with the 13 department of agriculture and land stewardship, adopt rules as 14 necessary to administer this section. 15 Sec. 11. NEW SECTION . 467.105 Tax credit certificates —— 16 issuance by department of agriculture and land stewardship. 17 1. The department shall, in cooperation with the department 18 of revenue, establish criteria and procedures for the review 19 and approval or disapproval of applications submitted by 20 taxpayers seeking to be issued tax credit certificates 21 under section 467.104, and for the issuance of tax credit 22 certificates under section 467.104 or 467.106. 23 2. An application submitted to the department for a tax 24 credit certificate must include a statement containing the 25 taxpayer’s name, tax identification number, and address, 26 the actual and necessary costs incurred by the taxpayer 27 in establishing the environmental practice, and any other 28 information required by the department or the department 29 of revenue. The application shall include a copy of any 30 supporting documentation verifying that the taxpayer is 31 eligible to be issued the tax credit certificate. The 32 department may enter onto cropland where the environmental 33 practice is located in order to conduct an inspection of the 34 environmental practice and verify that it was established as 35 -5- LSB 6028YC (5) 86 da/sc 5/ 9

H.F. _____ required in this chapter. The department may authorize the 1 commissioners of a soil and water conservation district where 2 the environmental practice is located to conduct the inspection 3 and verification on behalf of the department. However, the 4 department may approve an application without conducting an 5 inspection or verification. 6 3. A taxpayer may apply for more than one tax credit 7 certificate for establishing more than one environmental 8 practice for one or more tax years, so long as each tax credit 9 is for the establishment of separate and distinct environmental 10 practices. The department shall establish criteria, by rule, 11 for determining what constitutes a separate and distinct 12 environmental practice. The department shall not approve an 13 application or issue tax credit certificates to a taxpayer for 14 an amount in excess of ten thousand dollars in the aggregate 15 for any tax year. 16 4. The department shall issue tax credit certificates under 17 this section on a first-come, first-served basis. However, 18 the department shall not issue tax credit certificates in an 19 aggregate amount that exceeds three million dollars in any 20 state fiscal year. If the department determines that it cannot 21 issue additional tax credit certificates for the state fiscal 22 year because of the dollar limitation in this subsection, 23 the department shall compile a wait list for taxpayers who 24 have applied for tax credit certificates. Applications that 25 were approved by the department but for which tax credit 26 certificates were not issued shall be placed on the wait list 27 in the order the applications were received by the department 28 and shall be given priority for being issued tax credit 29 certificates in succeeding state fiscal years. 30 5. A tax credit certificate and related tax credit issued 31 pursuant to this section shall be deemed a vested right of the 32 taxpayer claiming the tax credit under section 467.105 as the 33 original holder or of any transferee of the original holder 34 under section 467.106 as the subsequent holder. The state 35 -6- LSB 6028YC (5) 86 da/sc 6/ 9

H.F. _____ shall not cause a tax credit certificate to be redeemed in such 1 a way that amends or rescinds the tax credit certificate or 2 that curtails, limits, or withdraws the related tax credit, 3 except upon consent of the proper holder. 4 Sec. 12. NEW SECTION . 467.106 Tax credit certificates —— 5 transfers —— department of revenue. 6 1. A tax credit certificate issued pursuant to section 7 467.105 may be transferred, in whole or in part, by the 8 taxpayer to any person. However, a tax credit certificate 9 shall only be transferred once. 10 2. Within ninety days of the transfer of the tax credit 11 certificate, the transferee shall submit the transferred tax 12 credit certificate to the department of revenue along with a 13 statement containing the transferee’s name, tax identification 14 number, and address, the denomination that the replacement 15 tax credit certificate is to carry, and any other information 16 required by the department of revenue. 17 3. Within thirty days of receiving the transferred tax 18 credit certificate and the transferee’s statement, the 19 department of revenue shall issue a replacement tax credit 20 certificate to the transferee. The replacement tax credit 21 certificate must contain the information required for 22 the original tax credit certificate. The replacement tax 23 credit certificate may designate a different tax than the 24 tax designated on the original tax credit certificate. A 25 tax credit shall not be claimed by a transferee until the 26 replacement tax credit certificate identifying the transferee 27 as the proper holder has been issued. 28 4. A transferee may use the amount of the tax credit 29 transferred against the taxes imposed in chapter 422, divisions 30 II, III, and V, and in chapter 432, and against the moneys and 31 credits tax imposed in section 533.329, for any tax year the 32 original transferor could have claimed the tax credit. Any 33 consideration received for the transfer of the tax credit shall 34 not be included as income under chapter 422, divisions II, III, 35 -7- LSB 6028YC (5) 86 da/sc 7/ 9

H.F. _____ and V. Any consideration paid for the transfer of the tax 1 credit shall not be deducted from income under chapter 422, 2 divisions II, III, and V. 3 Sec. 13. APPLICABILITY. This Act applies to tax years 4 beginning on or after January 1, 2017. 5 EXPLANATION 6 The inclusion of this explanation does not constitute agreement with 7 the explanation’s substance by the members of the general assembly. 8 GENERAL. This bill provides for an environmental practices 9 tax credit (tax credit). The purpose of the tax credit is to 10 assist crop farmers in reducing soil erosion and sediment loss, 11 managing nutrients, reducing contaminant loads contributing 12 to surface waters, and improving surface water quality. The 13 bill provides that such tax credits are to be administered by 14 the department of agriculture and land stewardship (DALS), in 15 cooperation with commissioners of soil and water conservation 16 districts (commissioners) and the department of revenue (DOR). 17 TAX CREDIT CERTIFICATES. The bill allows a taxpayer who is 18 a landowner establishing an environmental practice on cropland, 19 as defined in the bill, to claim a tax credit by applying to 20 DALS for the issuance of a tax credit certificate. A taxpayer 21 may apply for more than one tax credit certificate for each 22 separate and distinct environmental practice established. The 23 bill allows DALS or commissioners to inspect the land where the 24 practice has been established. Not more than $3 million in tax 25 credit certificates may be issued in any state fiscal year. If 26 an applicant is approved but moneys are not available to issue 27 a tax credit certificate, the approved applicant is placed on a 28 wait list. A tax credit certificate is transferable but cannot 29 be transferred more than once. 30 TAX CREDIT. A tax credit in excess of a taxpayer’s liability 31 is not refundable and cannot be carried back but may be carried 32 forward for the following five tax years. The tax credit is 33 limited to 75 percent of the actual and necessary cost of 34 establishing the environmental practice. The amount cannot 35 -8- LSB 6028YC (5) 86 da/sc 8/ 9

H.F. _____ include that part of the cost financed by an award of financial 1 assistance granted by a public entity (e.g., cost-share 2 moneys) that is not required to be repaid by the recipient. 3 The tax credit is allowed against individual and corporate 4 income taxes. A transferred tax credit is allowed against the 5 individual and corporate income taxes, the franchise tax, the 6 insurance premiums tax, and the moneys and credits tax. 7 APPLICABILITY DATE. The bill applies to tax years beginning 8 on or after January 1, 2017. 9 -9- LSB 6028YC (5) 86 da/sc 9/ 9