House Study Bill 654 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS) A BILL FOR An Act relating to water quality by modifying the wastewater 1 treatment financial assistance program, creating a water 2 service excise tax and a related sales tax exemption, making 3 appropriations, and including effective date provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 6040YC (4) 86 mm/sc

H.F. _____ Section 1. Section 16.134, Code 2016, is amended to read as 1 follows: 2 16.134 Wastewater and drinking water treatment financial 3 assistance program. 4 1. The Iowa finance authority shall establish and 5 administer a wastewater and drinking water treatment financial 6 assistance program. The purpose of the program shall be to 7 provide financial assistance to enhance water quality. The 8 program shall be administered in accordance with rules adopted 9 by the authority pursuant to chapter 17A . For purposes of 10 this section , “program” means the wastewater and drinking water 11 treatment financial assistance program and “committee” means the 12 water quality financing review committee created in subsection 13 9 . 14 2. A wastewater and drinking water treatment financial 15 assistance fund is created and shall consist of appropriations 16 made to the fund and transfers of interest, earnings, and 17 moneys from other funds as provided by law. Moneys transferred 18 to the fund pursuant to section 423G.6 are appropriated to the 19 authority for purposes of the program. Moneys in the fund are 20 not subject to section 8.33 . Notwithstanding section 12C.7, 21 subsection 2 , interest or earnings on moneys in the fund shall 22 be credited to the fund. 23 3. Financial assistance under the program shall be used to 24 install or upgrade wastewater treatment facilities and systems 25 and drinking water treatment facilities and systems , and for 26 engineering or technical assistance for facility planning and 27 design. 28 4. The authority committee shall distribute approve 29 financial assistance in from the fund in accordance with the 30 following: 31 a. The goal of the program shall be to base awards on the 32 impact of the grant combined with other sources of financing to 33 ensure that sewer rates do not exceed one and one-half percent 34 of a community’s median household income. 35 -1- LSB 6040YC (4) 86 mm/sc 1/ 8

H.F. _____ b. a. Communities shall be eligible for financial 1 assistance by qualifying as Priority shall be given for 2 projects in which a disadvantaged community and is seeking 3 financial assistance for the installation or upgrade of 4 wastewater treatment facilities due to regulatory activity 5 by the department of natural resources and drinking water 6 treatment facilities . For purposes of this section , the term 7 “disadvantaged community” means the same as defined by the 8 department. 9 c. b. Priority shall be given to projects in which the 10 financial assistance is used to obtain with financing under the 11 water pollution control works and drinking water facilities 12 financing program pursuant to section 16.131 or other federal 13 or state financing. 14 d. c. Priority shall also be given to projects whose 15 completion will provide significant improvement to water 16 quality in the relevant watershed. 17 e. d. Priority shall also be given to communities that 18 employ an alternative wastewater treatment technology pursuant 19 to section 455B.199C . 20 f. e. Priority shall be also be given to those communities 21 where sewer or water rates are the highest as a percentage of 22 that community’s median household income. 23 g. f. Financial assistance in the form of grants shall be 24 issued on an annual basis. 25 h. g. An applicant shall not receive a grant that exceeds 26 five hundred thousand dollars. 27 5. The authority in cooperation with the department of 28 natural resources shall share provide information and resources 29 to the committee when the committee is determining the 30 qualifications of a community for financial assistance from the 31 fund. 32 6. The authority shall enter into agreements with financial 33 assistance recipients and distribute moneys under the program 34 pursuant to financial assistance determinations made by the 35 -2- LSB 6040YC (4) 86 mm/sc 2/ 8

H.F. _____ committee. The authority may use an amount of not more than 1 four one percent of any moneys appropriated for deposit in the 2 fund for administration purposes. 3 7. By October 1 of each year, the authority shall submit 4 a report to the governor and the general assembly itemizing 5 expenditures under the program during the previous fiscal year. 6 8. a. Beginning September 1, 2026, and every ten years 7 thereafter, a program review committee is established for 8 purposes of reviewing the wastewater and drinking water 9 treatment financial assistance program. By December 1 of 10 the same year, the review committee shall file a report 11 with the governor and the general assembly that reviews the 12 effectiveness of the program during the prior ten fiscal years. 13 b. The program review committee shall consist of the 14 following members: 15 (1) The governor or the governor’s designee. 16 (2) The secretary of agriculture or the secretary’s 17 designee. 18 (3) The executive director of the authority or the executive 19 director’s designee. 20 (4) The director of the department of natural resources or 21 the director’s designee. 22 (5) Four members of the general assembly, with two from the 23 senate and two from the house of representatives and not more 24 than one member from each chamber being from the same political 25 party. The two senators shall be designated one member each 26 by the president of the senate, after consultation with the 27 majority leader of the senate, and by the minority leader of 28 the senate. The two representatives shall be designated one 29 member each by the speaker of the house of representatives, 30 after consultation with the majority leader of the house of 31 representatives, and by the minority leader of the house of 32 representatives. 33 c. Staffing services shall be provided by the authority. 34 9. a. A water quality financing review committee is 35 -3- LSB 6040YC (4) 86 mm/sc 3/ 8

H.F. _____ created consisting of the secretary of agriculture or the 1 secretary’s designee, the executive director of the authority 2 or the executive director’s designee, and the director of the 3 department of natural resources or the director’s designee. 4 b. The committee shall review and approve or deny 5 applications for financial assistance under the wastewater 6 and drinking water treatment financial assistance program 7 established in this section. 8 Sec. 2. Section 423.3, Code 2016, is amended by adding the 9 following new subsection: 10 NEW SUBSECTION . 103. a. The sales price from the sale or 11 furnishing by a water utility of a water service in the state 12 to consumers or users. 13 b. For purposes of this subsection: 14 (1) “Water service” means the delivery of water by piped 15 distribution system. 16 (2) “Water utility” means a public utility as defined in 17 section 476.1 that furnishes water by piped distribution system 18 to the public for compensation. 19 Sec. 3. NEW SECTION . 423G.1 Short title. 20 This chapter may be cited as the “Water Service Tax Act” . 21 Sec. 4. NEW SECTION . 423G.2 Definitions. 22 1. All words and phrases used in this chapter and defined in 23 section 423.1 have the same meaning given them by section 423.1 24 for purposes of this chapter. 25 2. As used in this chapter, “water service” and “water 26 utility” mean the same as defined in section 423.3, subsection 27 103. 28 Sec. 5. NEW SECTION . 423G.3 Water service tax. 29 An excise tax at the rate of six percent is imposed on the 30 sales price from the sale or furnishing by a water utility of a 31 water service in the state to consumers or users. 32 Sec. 6. NEW SECTION . 423G.4 Exemptions. 33 The sales price from transactions exempt from state sales 34 tax under section 423.3, except section 423.3, subsection 103, 35 -4- LSB 6040YC (4) 86 mm/sc 4/ 8

H.F. _____ is also exempt from the tax imposed by this chapter. 1 Sec. 7. NEW SECTION . 423G.5 Administration by director. 2 1. The director of revenue shall administer the water 3 service tax as nearly as possible in conjunction with the 4 administration of the state sales and use tax law, except that 5 portion of the law that implements the streamlined sales and 6 use tax agreement. The director shall provide appropriate 7 forms, or provide on the regular state tax forms, for reporting 8 water service tax liability. 9 2. The director may require all persons who are engaged 10 in the business of deriving any sales price or purchase 11 price subject to tax under this chapter to register with 12 the department. The director may also require a tax permit 13 applicable only to this chapter for any retailer not 14 collecting, or any user not paying, taxes under chapter 423. 15 3. Section 422.25, subsection 4, sections 422.30, 422.67, 16 and 422.68, section 422.69, subsection 1, sections 422.70, 17 422.71, 422.72, 422.74, and 422.75, section 423.14, subsection 18 1, and sections 423.23, 423.24, 423.25, 423.31 through 19 423.35, 423.37 through 423.42, and 423.47, consistent with the 20 provisions of this chapter, shall apply with respect to the tax 21 authorized under this chapter, in the same manner and with the 22 same effect as if the excise taxes on the sale or furnishing of 23 a water service were retail sales taxes within the meaning of 24 those statutes. Notwithstanding this subsection, the director 25 shall provide for quarterly filing of returns and for other 26 than quarterly filing of returns both as prescribed in section 27 423.31. All taxes collected under this chapter by a retailer 28 or any user are deemed to be held in trust for the state of 29 Iowa. 30 Sec. 8. NEW SECTION . 423G.6 Deposit of revenues. 31 1. All moneys received and all refunds shall be deposited in 32 or withdrawn from the general fund of the state. 33 2. Subsequent to the deposit in the general fund of the 34 state, the department shall transfer the following amounts 35 -5- LSB 6040YC (4) 86 mm/sc 5/ 8

H.F. _____ to the wastewater and drinking water treatment financial 1 assistance fund created in section 16.134: 2 a. For revenues collected on or after July 1, 2017, but 3 before August 1, 2018, one-sixth of the revenues. 4 b. For revenues collected on or after August 1, 2018, but 5 before August 1, 2019, one-third of the revenues. 6 c. For revenues collected on or after August 1, 2019, but 7 before August 1, 2020, one-half of the revenues. 8 d. For revenues collected on or after August 1, 2020, but 9 before August 1, 2021, two-thirds of the revenues. 10 e. For revenues collected on or after August 1, 2021, but 11 before August 1, 2022, five-sixths of the revenues. 12 f. For revenues collected on or after August 1, 2022, one 13 hundred percent of the revenues. 14 Sec. 9. NEW SECTION . 423G.7 Future repeal. 15 This chapter is repealed July 1, 2037. 16 Sec. 10. EFFECTIVE DATE. This Act takes effect July 1, 17 2017. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill relates to water quality by modifying the 22 wastewater treatment financial assistance program and creating 23 a water service excise tax. 24 WATER QUALITY. The bill amends the wastewater treatment 25 financial assistance program (program) administered by the 26 Iowa finance authority. Currently, the program provides 27 financial assistance to install or upgrade wastewater treatment 28 facilities and systems, and for engineering or technical 29 assistance for facility planning and design. Awards of 30 financial assistance are made by the authority. The bill 31 adds drinking water treatment facilities and systems to the 32 program. The bill also adds reporting and review requirements 33 to the program, modifies the permitted use of fund moneys for 34 administrative purposes, and creates a water quality financing 35 -6- LSB 6040YC (4) 86 mm/sc 6/ 8

H.F. _____ review committee to review and approve applications for 1 financial assistance under the program. 2 WATER SERVICE EXCISE TAX. The bill exempts from the state 3 sales tax the sales price from the sale or furnishing by a 4 water utility of a water service in the state to consumers or 5 users. “Water service” and “water utility” are defined in the 6 bill. 7 By operation of Code section 423.6, an item exempt from the 8 imposition of the sales tax is also exempt from the use tax 9 imposed in Code section 423.5. 10 The bill creates an excise tax at the rate of 6 percent 11 on the sales price from the sale or furnishing by a water 12 utility of a water service in the state to consumers or users. 13 Water service tax revenues are deposited in the general fund 14 of the state, and the bill requires an increasing portion 15 of the water service tax revenues collected each year to be 16 transferred to the wastewater and drinking water treatment 17 financial assistance fund, beginning with one-sixth of the 18 revenues collected on or after July 1, 2017, but before August 19 1, 2018, and increasing to one-third, one-half, two-thirds, 20 and five-sixths over the next four years. All water service 21 tax revenues collected on or after August 1, 2022, will be 22 transferred to the wastewater and drinking water treatment 23 financial assistance fund. Water service tax revenues 24 transferred to the wastewater and drinking water treatment 25 financial assistance fund are appropriated to the Iowa finance 26 authority for purposes of the wastewater and drinking water 27 treatment financial assistance program. 28 The director of revenue is required to administer the water 29 service tax as nearly as possible in conjunction with the 30 administration of the state sales and use tax laws, and, to 31 that end, the bill incorporates by reference numerous Code 32 sections that relate to general tax administration and the 33 sales and use tax laws. The water service tax is repealed July 34 1, 2037. 35 -7- LSB 6040YC (4) 86 mm/sc 7/ 8