Senate File 2285 - Introduced SENATE FILE 2285 BY COMMITTEE ON ECONOMIC GROWTH (SUCCESSOR TO SSB 3001) A BILL FOR An Act relating to the administration of programs by the 1 economic development authority by creating a renewable 2 chemical production tax credit program, modifying the high 3 quality jobs program, and including effective date and other 4 applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5172SV (3) 86 mm/sc

S.F. 2285 DIVISION I 1 HIGH QUALITY JOBS PROGRAM 2 Section 1. Section 15.119, subsection 2, paragraph a, Code 3 2016, is amended to read as follows: 4 a. (1) The high quality job creation jobs program 5 administered pursuant to sections 15.326 through 15.336 . 6 (2) In allocating tax credits pursuant to this subsection 7 for each fiscal year of the fiscal period beginning July 8 1, 2016, and ending June 30, 2021, the authority shall not 9 allocate more than one hundred five million dollars for 10 purposes of this paragraph. This subparagraph (2) is repealed 11 July 1, 2021. 12 (3) (a) In allocating tax credits pursuant to this 13 subsection for the fiscal year beginning July 1, 2021, and 14 ending June 30, 2022, the authority shall not allocate more 15 than one hundred five million dollars for purposes of this 16 paragraph if the aggregate amount of renewable chemical 17 production tax credits under section 15.319 that were awarded 18 on or after July 1, 2018, but before July 1, 2021, equals or 19 exceeds twenty-seven million dollars. 20 (b) As soon as practicable after June 30, 2021, the 21 authority shall notify the general assembly of the aggregate 22 amount of renewable chemical production tax credits awarded 23 under section 15.319 on or after July 1, 2018, but before 24 July 1, 2021, and whether or not the tax credit allocation 25 limitation described in subparagraph division (a) is 26 applicable. 27 (c) This subparagraph (3) is repealed July 1, 2022. 28 DIVISION II 29 RENEWABLE CHEMICAL PRODUCTION TAX CREDIT PROGRAM 30 Sec. 2. Section 2.48, subsection 3, Code 2016, is amended by 31 adding the following new paragraph: 32 NEW PARAGRAPH . g. In 2022, the renewable chemical 33 production tax credit program available under sections 15.315 34 through 15.321. 35 -1- LSB 5172SV (3) 86 mm/sc 1/ 13

S.F. 2285 Sec. 3. Section 15.119, subsection 2, Code 2016, is amended 1 by adding the following new paragraph: 2 NEW PARAGRAPH . h. The renewable chemical production tax 3 credit program administered pursuant to sections 15.315 through 4 15.321. In allocating tax credits pursuant to this subsection, 5 the authority shall not allocate more than ten million dollars 6 for purposes of this paragraph. 7 Sec. 4. NEW SECTION . 15.315 Short title. 8 This part shall be known and may be cited as the “Renewable 9 Chemical Production Tax Credit Program” . 10 Sec. 5. NEW SECTION . 15.316 Definitions. 11 As used in this part, unless the context otherwise requires: 12 1. “Biobased content percentage” means, with respect to any 13 renewable chemical, the amount, expressed as a percentage, of 14 renewable organic material present as determined by testing 15 representative samples using the American society for testing 16 and materials standard D6866. 17 2. “Biomass feedstock” means sugar, polysaccharide, crude 18 glycerin, lignin, fat, grease, or oil derived from a plant or 19 animal, or a protein capable of being converted to a building 20 block chemical by means of a biological or chemical conversion 21 process. 22 3. “Building block chemical” means a molecule converted 23 from biomass feedstock as a first product or a secondarily 24 derived product that can be further refined into a higher-value 25 chemical, material, or consumer product. “Building block 26 chemical” includes but is not limited to high-purity glycerol, 27 oleic acid, lauric acid, methanoic or formic acid, arabonic 28 acid, erythonic acid, glyceric acid, glycolic acid, lactic 29 acid, 3-hydroxypropionate, propionic acid, malonic acid, 30 serine, succinic acid, fumaric acid, malic acid, aspartic 31 acid, 3-hydroxybutyrolactone, acetoin, threonine, itaconic 32 acid, furfural, levulinic acid, glutamic acid, xylonic acid, 33 xylaric acid, xylitol, arabitol, citric acid, aconitic acid, 34 5-hydroxymethylfurfural, lysine, gluconic acid, glucaric acid, 35 -2- LSB 5172SV (3) 86 mm/sc 2/ 13

S.F. 2285 sorbitol, gallic acid, ferulic acid, nonfuel butanol, nonfuel 1 ethanol, a polymer or gum that can be produced directly from a 2 protein-based biomass feedstock, or such additional molecules 3 as may be included by the authority by rule after consultation 4 with appropriate experts from Iowa state university, including 5 but not limited to the Iowa state university center for 6 biorenewable chemicals. 7 4. “Crude glycerin” means glycerin with a purity level below 8 ninety-five percent. 9 5. “Eligible business” means a business meeting the 10 requirements of section 15.317. 11 6. “Food additive” means a building block chemical that 12 is not primarily consumed as food but which, when combined 13 with other components, improves the taste, appearance, odor, 14 texture, or nutritional content of food. The authority, in its 15 discretion, shall determine whether or not a building block 16 chemical is primarily consumed as food. 17 7. “High-purity glycerol” means glycerol with a purity level 18 of ninety-five percent or higher. 19 8. “Pre-eligibility production threshold” means, with respect 20 to each eligible business, the number of pounds of renewable 21 chemicals produced, if any, by an eligible business during the 22 calendar year prior to the calendar year in which the business 23 first qualified as an eligible business pursuant to section 24 15.317. 25 9. “Program” means the renewable chemical production tax 26 credit program administered pursuant to this part. 27 10. “Renewable chemical” means a building block chemical 28 with a biobased content percentage of at least fifty percent. 29 “Renewable chemical” does not include a chemical sold or used 30 for the production of food, feed, or fuel. “Renewable chemical” 31 includes cellulosic ethanol, starch ethanol, or other ethanol 32 derived from biomass feedstock, fatty acid methyl esters, 33 or butanol, but only to the extent that such molecules are 34 produced and sold for uses other than food, feed, or fuel. 35 -3- LSB 5172SV (3) 86 mm/sc 3/ 13

S.F. 2285 “Renewable chemical” also includes a building block chemical 1 that can be a food additive as long as the building block 2 chemical is not primarily consumed as food and is also sold 3 for uses other than food. “Renewable chemical” also includes 4 supplements, vitamins, nutraceuticals, and pharmaceuticals, but 5 only to the extent that such molecules do not provide caloric 6 value so as to be considered sustenance as food or feed. 7 11. “Sugar” means the organic compound glucose, fructose, 8 xylose, arabinose, lactose, sucrose, starch, cellulose, or 9 hemicellulose. 10 Sec. 6. NEW SECTION . 15.317 Eligibility requirements. 11 To be eligible to receive the renewable chemical production 12 tax credit pursuant to the program, a business shall meet all 13 of the following requirements: 14 1. The business is physically located in this state. 15 2. The business is operated for profit and under single 16 management. 17 3. The business is not an entity providing professional 18 services, health care services, or medical treatments or an 19 entity engaged primarily in retail operations. 20 4. The business organized, expanded, or located in the state 21 on or after the effective date of this division of this Act. 22 5. The business shall not be relocating or reducing 23 operations as described in section 15.329, subsection 1, 24 paragraph “b” , and as determined under the discretion of the 25 authority. 26 6. The business is in compliance with all agreements entered 27 into under this program or other programs administered by the 28 authority. 29 Sec. 7. NEW SECTION . 15.318 Eligible business application 30 and agreement —— maximum tax credits. 31 1. Application. 32 a. An eligible business that produces a renewable chemical 33 in this state from biomass feedstock during a calendar year may 34 apply to the authority for the renewable chemical production 35 -4- LSB 5172SV (3) 86 mm/sc 4/ 13

S.F. 2285 tax credit provided in section 15.319. 1 b. The application shall be made to the authority in the 2 manner prescribed by the authority. 3 c. The application shall be made during the calendar year 4 following the calendar year in which the renewable chemicals 5 are produced. 6 d. The authority may accept applications on a continuous 7 basis or may establish, by rule, an annual application 8 deadline. 9 e. The application shall include all of the following 10 information: 11 (1) The amount of renewable chemicals produced in the state 12 from biomass feedstock by the eligible business during the 13 calendar year, measured in pounds. 14 (2) Any other information reasonably required by the 15 authority in order to establish and verify eligibility under 16 the program. 17 2. Agreement and fees. 18 a. Before being issued a tax credit under section 15.319, 19 an eligible business shall enter into an agreement with the 20 authority for the successful completion of all requirements of 21 the program. As part of the agreement, the eligible business 22 shall agree to collect and provide any information reasonably 23 required by the authority in order to allow the board to 24 fulfill its reporting obligation under section 15.320. 25 b. The compliance cost fees authorized in section 15.330, 26 subsection 12, shall apply to all agreements entered into 27 under this program and shall be collected by the authority in 28 the same manner and to the same extent as described in that 29 subsection. 30 c. An eligible business shall fulfill all the requirements 31 of the program and the agreement before receiving a tax credit 32 or entering into a subsequent agreement under this section. 33 The authority may decline to enter into a subsequent agreement 34 under this section or issue a tax credit if an agreement is not 35 -5- LSB 5172SV (3) 86 mm/sc 5/ 13

S.F. 2285 successfully fulfilled. 1 d. Upon establishing that all requirements of the program 2 and the agreement have been fulfilled, the authority shall 3 issue a tax credit and related tax credit certificate to the 4 eligible business stating the amount of renewable chemical 5 production tax credit the eligible business may claim. 6 3. Maximum tax credit amount. 7 a. The maximum amount of tax credit that may be issued under 8 section 15.319 to an eligible business for the production of 9 renewable chemicals in a calendar year shall not exceed the 10 following: 11 (1) In the case of an eligible business that has been in 12 operation in the state for five years or less at the time of 13 application, one million dollars. 14 (2) In the case of an eligible business that has been in 15 operation in the state for more than five years at the time of 16 application, five hundred thousand dollars. 17 b. An eligible business shall not receive a tax credit for 18 renewable chemicals produced before the date the business first 19 qualified as an eligible business pursuant to section 15.317. 20 c. An eligible business shall only receive a tax credit for 21 renewable chemicals produced in a calendar year to the extent 22 such production exceeds the eligible business’s pre-eligibility 23 production threshold. 24 d. An eligible business shall not receive more than five tax 25 credits under the program. 26 e. The authority shall issue tax credits under the program 27 on a first-come, first-served basis until the maximum amount of 28 tax credits allocated pursuant to section 15.119, subsection 29 2, paragraph “h” , is reached. The authority shall maintain 30 a list of successful applicants under the program, so that 31 if the maximum aggregate amount of tax credits is reached in 32 a given fiscal year, eligible businesses that successfully 33 applied but for which tax credits were not issued shall be 34 placed on a wait list in the order the eligible businesses 35 -6- LSB 5172SV (3) 86 mm/sc 6/ 13

S.F. 2285 applied and shall be given priority for receiving tax credits 1 in succeeding fiscal years. Placement on a wait list pursuant 2 to this paragraph shall not constitute a promise binding the 3 state. The availability of a tax credit and issuance of a tax 4 credit certificate pursuant to this subsection in a future 5 fiscal year is contingent upon the availability of tax credits 6 in that particular fiscal year. 7 4. Termination and repayment. The failure by an eligible 8 business in fulfilling any requirement of the program or any of 9 the terms and obligations of an agreement entered into pursuant 10 to this section may result in the reduction, termination, 11 or recision of the tax credits under section 15.319 and may 12 subject the eligible business to the repayment or recapture of 13 tax credits claimed. The repayment or recapture of tax credits 14 pursuant to this subsection shall be accomplished in the same 15 manner as provided in section 15.330, subsection 2. 16 5. Confidentiality. 17 a. Except as provided in paragraph “b” , any information 18 or record in the possession of the authority with respect to 19 the program shall be presumed by the authority to be a trade 20 secret protected under chapter 550 or common law and shall be 21 kept confidential by the authority unless otherwise ordered by 22 a court. 23 b. The identity of a tax credit recipient and the amount 24 of the tax credit shall be considered public information under 25 chapter 22. 26 Sec. 8. NEW SECTION . 15.319 Renewable chemical production 27 tax credit. 28 1. An eligible business that has entered into an agreement 29 pursuant to section 15.318 may claim a tax credit in an amount 30 equal to the product of five cents multiplied by the number 31 of pounds of renewable chemicals produced in this state from 32 biomass feedstock by the eligible business during the calendar 33 year in excess of the eligible business’s pre-eligibility 34 production threshold. However, an eligible business shall 35 -7- LSB 5172SV (3) 86 mm/sc 7/ 13

S.F. 2285 not receive a tax credit for the production of a secondarily 1 derived building block chemical if that chemical is also the 2 subject of a credit at the time of production as a first 3 product. The renewable chemical production tax credit shall 4 not be available for any renewable chemical produced before the 5 2017 calendar year or after the 2026 calendar year. 6 2. The tax credit shall be allowed against taxes imposed 7 under chapter 422, division II or III. 8 3. The tax credit shall be claimed for the tax year during 9 which the eligible business was issued the tax credit. 10 4. An individual may claim a tax credit under this section 11 of a partnership, limited liability company, S corporation, 12 cooperative organized under chapter 501 and filing as a 13 partnership for federal tax purposes, estate, or trust electing 14 to have income taxed directly to the individual. The amount 15 claimed by the individual shall be based upon the pro rata 16 share of the individual’s earnings from the partnership, 17 limited liability company, S corporation, cooperative, estate, 18 or trust. 19 5. Any tax credit in excess of the tax liability is 20 refundable. In lieu of claiming a refund, the taxpayer 21 may elect to have the overpayment shown on the taxpayer’s 22 final, completed return credited to the tax liability for the 23 following tax year. 24 6. a. To claim a tax credit under this section, a taxpayer 25 shall include one or more tax credit certificates with the 26 taxpayer’s tax return. 27 b. The tax credit certificate shall contain the taxpayer’s 28 name, address, tax identification number, the amount of the 29 credit, the name of the eligible business, and any other 30 information required by the department of revenue. 31 c. The tax credit certificate, unless rescinded by the 32 authority, shall be accepted by the department of revenue as 33 payment for taxes imposed pursuant to chapter 422, divisions II 34 and III, subject to any conditions or restrictions placed by 35 -8- LSB 5172SV (3) 86 mm/sc 8/ 13

S.F. 2285 the authority upon the face of the tax credit certificate and 1 subject to the limitations of the program. 2 d. Tax credit certificates issued pursuant to this section 3 shall not be transferred to any other person. 4 Sec. 9. NEW SECTION . 15.320 Reports to general assembly. 5 By January 31, 2019, and by the same date each year 6 thereafter, the board, in cooperation with the department of 7 revenue, shall submit to the general assembly and the governor 8 a report describing the activities of the program for the most 9 recent calendar year for which the tax credit application 10 period has ended pursuant to section 15.318, subsection 1, 11 paragraph “c” . 12 Sec. 10. NEW SECTION . 15.321 Rules. 13 The authority and the department of revenue shall each adopt 14 rules as necessary for the implementation and administration 15 of this part. 16 Sec. 11. NEW SECTION . 422.10A Renewable chemical production 17 tax credit. 18 The taxes imposed under this division, less the credits 19 allowed under section 422.12, shall be reduced by a renewable 20 chemical production tax credit allowed under section 15.319. 21 Sec. 12. Section 422.33, Code 2016, is amended by adding the 22 following new subsection: 23 NEW SUBSECTION . 22. The taxes imposed under this division 24 shall be reduced by a renewable chemical production tax credit 25 allowed under section 15.319. 26 Sec. 13. TAX CREDIT CLAIMS. Renewable chemical production 27 tax credits issued pursuant to the renewable chemical 28 production tax credit program enacted in this division of this 29 Act shall not be issued by the economic development authority 30 prior to July 1, 2018, and shall not be claimed by a taxpayer 31 prior to September 1, 2018. 32 Sec. 14. EFFECTIVE UPON ENACTMENT. This division of this 33 Act, being deemed of immediate importance, takes effect upon 34 enactment. 35 -9- LSB 5172SV (3) 86 mm/sc 9/ 13

S.F. 2285 Sec. 15. APPLICABILITY. This division of this Act applies 1 to renewable chemicals produced in the state from biomass 2 feedstock on or after January 1, 2017. 3 EXPLANATION 4 The inclusion of this explanation does not constitute agreement with 5 the explanation’s substance by the members of the general assembly. 6 This bill relates to the administration of programs by 7 the economic development authority (EDA) by modifying the 8 high quality jobs program and creating a renewable chemical 9 production tax credit program. 10 DIVISION I —— HIGH QUALITY JOBS PROGRAM. Division I limits 11 for a period of five or six fiscal years the amount of tax 12 credits that may be allocated to the high quality jobs program, 13 which under current law is subject to EDA’s maximum aggregate 14 tax credit cap of $170 million per fiscal year in Code section 15 15.119. The bill provides that for each of the five fiscal 16 years beginning on July 1, 2016, and ending on June 30, 2021, 17 the authority shall not allocate more than $105 million of 18 that $170 million cap to the high quality jobs program. This 19 provision is repealed July 1, 2021. 20 If the aggregate amount of renewable chemical production 21 tax credits awarded by EDA for the fiscal period beginning on 22 July 1, 2018, and ending June 30, 2021, equals or exceeds $27 23 million, then an additional year of high quality jobs program 24 tax credit allocation limitation occurs and for the fiscal 25 year beginning July 1, 2021, and ending June 30, 2022, the 26 authority shall not allocate more than $105 million of its $170 27 million cap to the high quality jobs program. This provision 28 is repealed July 1, 2022. 29 DIVISION II —— RENEWABLE CHEMICAL PRODUCTION TAX CREDIT. 30 Division II creates a renewable chemical production tax credit 31 program (program) that will be administered by the EDA and that 32 will provide tax credits to eligible businesses that produce 33 renewable chemicals in Iowa from biomass feedstock. “Renewable 34 chemical”, “biomass feedstock”, and other related terms are 35 -10- LSB 5172SV (3) 86 mm/sc 10/ 13

S.F. 2285 defined in the division. 1 In order to qualify for the tax credit, a business must 2 meet several requirements. First, the business must be 3 physically located in Iowa and operated for profit under 4 single management. Second, the business must not be an 5 entity providing professional services, health care services, 6 or medical treatments, or be engaged primarily in retail 7 operations. Third, the business must have organized, expanded, 8 or located in Iowa on or after the effective date of the 9 division. Fourth, the business must not be, in the discretion 10 of the EDA, ineligible under certain provisions relating to the 11 relocation or reduction of business operations within Iowa. 12 Fifth, the business must be in compliance with all agreements 13 entered into under the program or other programs administered 14 by the EDA. 15 An eligible business seeking a tax credit is required to 16 submit an application to the EDA containing various information 17 during the calendar year following the calendar year in which 18 the renewable chemicals are produced. The EDA may accept 19 applications on a continuous basis or may establish an annual 20 application deadline. 21 Before being issued a tax credit, an eligible business 22 is required to enter into an agreement with the EDA for the 23 successful completion of all requirements of the program. The 24 EDA is authorized to impose two compliance cost fees under the 25 program. The first fee equals $500 per agreement. The second 26 fee equals 0.5 percent of the value of the tax credit claimed 27 pursuant to the agreement if the agreement has an aggregate tax 28 credit value of $100,000 or greater. 29 An eligible business that fails to comply with the 30 requirements of the program or the terms of an agreement with 31 the EDA may have its tax credits reduced, terminated, or 32 rescinded, and may be subject to the repayment or recapture of 33 claimed tax credits. 34 The tax credit equals the product of $.05 multiplied by the 35 -11- LSB 5172SV (3) 86 mm/sc 11/ 13

S.F. 2285 number of pounds of renewable chemicals produced in Iowa from 1 biomass feedstock by the eligible business during the calendar 2 year in excess of the eligible business’s pre-eligibility 3 production threshold. “Pre-eligibility production threshold” 4 is defined in the bill. Renewable chemicals produced by 5 an eligible business either prior to calendar year 2017 or 6 prior to the date the business first qualifies as an eligible 7 business, or after calendar year 2026, shall not qualify for 8 the tax credit. 9 The tax credit shall be claimed for the tax year during which 10 the eligible business was issued the tax credit. However, tax 11 credits shall not be issued by EDA prior to July 1, 2018, or 12 claimed by the taxpayer prior to September 1, 2018. The tax 13 credit may be claimed against the individual income tax and the 14 corporate income tax. The credit is refundable or may, at the 15 election of the taxpayer, be carried forward for up to one tax 16 year. The tax credit shall not be transferred to any person. 17 The division provides that the program is subject to EDA’s 18 maximum aggregate tax credit cap of $170 million per fiscal 19 year in Code section 15.119, and not more than $10 million 20 per fiscal year may be issued by the EDA under the program. 21 In addition, the maximum amount of tax credit that may be 22 issued to an eligible business for the production of renewable 23 chemicals in any one calendar year shall not exceed $1 million 24 or $500,000, depending on whether the eligible business has 25 been operating in Iowa at the time of application for five 26 or fewer years, or more than five years, respectively. An 27 eligible business shall not receive more than five tax credits 28 under the program. The EDA is required to issue tax credits 29 on a first-come, first-served basis until the maximum amount 30 of $10 million per fiscal year is reached. If the amount of 31 tax credits exceeds this amount in a fiscal year, the EDA 32 is required to establish a wait list and give priority in 33 subsequent years to the eligible businesses on the wait list. 34 The division provides for the confidentiality of certain 35 -12- LSB 5172SV (3) 86 mm/sc 12/ 13

S.F. 2285 information under the program. The identity of a tax credit 1 recipient and the amount of the tax credit shall be considered 2 public information under Code chapter 22 (examination of public 3 records), but any other information or record in the possession 4 of the EDA with respect to the program shall be presumed by 5 the EDA to be a trade secret protected under Code chapter 550 6 or common law and shall be kept confidential by the EDA unless 7 otherwise ordered by a court. 8 The division requires EDA to submit to the general assembly 9 and the governor an annual report describing the activities 10 of the program for each calendar year. The report for the 11 first calendar year the tax credit is available under the 12 program (2017) is due by January 31, 2019, and reports covering 13 subsequent calendar years are due by the same date each year 14 thereafter. Eligible businesses are required, as part of their 15 agreement with EDA, to collect and provide any information 16 reasonably required by EDA in order to fulfill this reporting 17 requirement. 18 The division adds the program to the list of tax expenditures 19 to be reviewed by the legislative tax expenditure committee in 20 calendar year 2022. 21 The division takes effect upon enactment and applies to 22 renewable chemicals produced in Iowa from biomass feedstock on 23 or after January 1, 2017. 24 -13- LSB 5172SV (3) 86 mm/sc 13/ 13