Senate Study Bill 1258 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON NATURAL RESOURCES AND ENVIRONMENT BILL BY CHAIRPERSON DEARDEN) A BILL FOR An Act providing for an environmental practices tax credit, 1 and including effective date and retroactive and other 2 applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 2575XC (3) 86 da/sc
S.F. _____ Section 1. Section 2.48, subsection 3, Code 2015, is amended 1 by adding the following new paragraph: 2 NEW PARAGRAPH . g. In 2018, the environmental practices tax 3 credit under chapter 467. 4 Sec. 2. NEW SECTION . 422.11K Environmental practices tax 5 credit. 6 The taxes imposed under this division, less the credits 7 allowed under section 422.12, shall be reduced by an 8 environmental practices tax credit allowed under chapter 467. 9 Sec. 3. Section 422.33, Code 2015, is amended by adding the 10 following new subsection: 11 NEW SUBSECTION . 24. The taxes imposed under this division 12 shall be reduced by an environmental practices tax credit 13 allowed under chapter 467. 14 Sec. 4. NEW SECTION . 467.1 Environmental practices tax 15 credit —— creation and purpose. 16 1. An environmental practices tax credit is established. 17 2. The purpose of the tax credit is to assist eligible 18 crop farmers to participate in establishing new qualified 19 environmental practices that do all of the following: 20 a. Reduce soil erosion and sediment loss. 21 b. Manage nutrients and reduce contaminant loads 22 contributing to receiving surface waters. 23 c. Improve surface water quality. 24 Sec. 5. NEW SECTION . 467.2 Definitions. 25 1. “Agreement” means an environmental practices agreement 26 as provided in section 467.7. 27 2. “Crop” means alfalfa, corn, soybeans, straw, oats, wheat, 28 or other similar crop ordinarily utilized for, or ordinarily 29 added as an ingredient in, animal feed or bedding, food 30 intended for human consumption, or fiber. 31 3. “Crop farmer” means a person who holds a title to 32 cropland. 33 4. a. “Cropland” means real estate that meets all of the 34 following criteria: 35 -1- LSB 2575XC (3) 86 da/sc 1/ 13
S.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 a crop. 4 b. “Cropland” may include real estate that is located within 5 the limits of a city. 6 5. “Department” means the department of agriculture and land 7 stewardship. 8 6. a. “Environmental practice” means a permanent 9 conservation measure established on cropland, or as part of 10 cropland’s field drainage tile system, in order to reduce 11 nutrients or contaminant loads contributed by soil or sediment 12 to receiving surface waters. 13 b. “Environmental practice” includes any of the following: 14 (1) Stabilizing the soil or otherwise limiting sediment 15 from being conveyed by surface water runoff. 16 (2) (a) Filtering sediment-laden water. 17 (b) Detaining sediment-laden water for a period in order 18 to allow the sediments to settle out, or to allow bacteria to 19 digest contaminants. 20 (3) Reducing the volume or velocity of 21 precipitation-induced surface water. 22 7. “Holder” means a person who is either an eligible crop 23 farmer who has been issued an environmental practices tax 24 credit certificate, or a person who has been transferred such 25 tax credit certificate. 26 8. “Nutrient” includes nitrogen and phosphorus. 27 9. “Practice” means a qualified environmental practice as 28 provided in section 467.6. 29 10. “Tax credit” means the environmental practices tax 30 credit as established in section 467.1. 31 11. “Tax credit certificate” means the environmental 32 practices tax credit certificate issued pursuant to section 33 467.9. 34 Sec. 6. NEW SECTION . 467.3 Administration. 35 -2- LSB 2575XC (3) 86 da/sc 2/ 13
S.F. _____ 1. The department, in cooperation with the department of 1 revenue, shall administer and enforce the provisions of this 2 chapter. 3 2. The departments shall prescribe forms as required to 4 administer this chapter. 5 3. The departments may provide procedures for the receipt, 6 filing, processing, and return of documents in an electronic 7 format, including but not limited to the transmission of 8 documents by the internet. The departments may provide for 9 authentication of the documents that may include electronic 10 signatures as provided in chapter 554D. 11 4. The departments shall adopt rules necessary to 12 administer this chapter pursuant to chapter 17A. 13 Sec. 7. NEW SECTION . 467.4 Allowance. 14 1. The environmental practices tax credit is allowed 15 under this chapter against the taxes imposed in chapter 422, 16 divisions II and III. 17 2. An individual may claim a tax credit of a partnership, 18 limited liability company, S corporation, estate, or trust 19 electing to have income taxed directly to the individual. The 20 amount claimed by the individual shall be based upon the pro 21 rata share of the individual’s earnings from the partnership, 22 limited liability company, S corporation, estate, or trust. 23 3. A tax credit in excess of the taxpayer’s liability for 24 the tax year is not refundable but may be credited to the tax 25 liability for the following five years or until depleted, 26 whichever is earlier. A tax credit shall not be carried back 27 to a tax year prior to the tax year in which the taxpayer claims 28 the tax credit. 29 4. A tax credit shall not be allowed for the portion of the 30 cost of a qualified environmental practice that was financed 31 by federal or state moneys, including but not limited to 32 moneys credited to the state treasury or a state fund or state 33 account. 34 Sec. 8. NEW SECTION . 467.5 Eligibility —— crop farmers. 35 -3- LSB 2575XC (3) 86 da/sc 3/ 13
S.F. _____ 1. An environmental practices tax credit is only allowed 1 under section 467.4 if the tax credit is claimed by a crop 2 farmer meeting the eligibility requirements of this section 3 or a taxpayer transferred the tax credit pursuant to section 4 467.10. 5 2. A crop farmer is not eligible, unless the crop farmer 6 is an Iowa taxpayer who has an annual gross income of less 7 than four million dollars computed as an average of the crop 8 farmer’s three preceding tax years according to the crop 9 farmer’s filed federal tax returns. 10 3. a. In the case of a crop farmer holding title to 11 cropland in joint tenancy or tenancy in common, the annual 12 gross incomes of all such joint tenants or tenants in common 13 are considered together when determining eligibility. 14 b. In the case of married taxpayers, the annual gross 15 incomes of both spouses are considered together when 16 determining eligibility. 17 Sec. 9. NEW SECTION . 467.6 Qualified environmental 18 practices. 19 1. The environmental practices tax credit is only allowed 20 under section 467.4, if it is an environmental practice that 21 qualifies under this section. 22 2. a. A qualified environmental practice must be any of the 23 following: 24 (1) A bioreactor installed as part of or connected to a 25 field drainage tile line. 26 (2) A saturated buffer that includes all of the following: 27 (a) A subsurface drain outlet with permanent vegetation. 28 (b) A water control structure and subsurface distribution 29 piping capable of diverting drainage system discharge to create 30 an elevated zone of soil saturation. 31 (3) Cropland integrated with prairie grass strips 32 established in a drainage area as follows: 33 (a) A minimum of ten percent of the drainage area must be 34 comprised of strips of prairie grass established as permanent 35 -4- LSB 2575XC (3) 86 da/sc 4/ 13
S.F. _____ vegetation that is used to filter runoff. 1 (b) The remaining percent of the drainage area must be 2 comprised of crops, with the crops alternating with the strips 3 of prairie grass. 4 (4) A grassed waterway, as defined in section 459A.102, 5 if constructed and maintained in compliance with standards of 6 the United States department of agriculture, natural resources 7 conservation service. 8 (5) An area maintained in permanent vegetation cover, 9 including perennial vegetation cover consisting of grasses, 10 legumes, or both, and includes but is not limited to grasslands 11 or forages. 12 (6) A wetland area of at least one-half acre so long as the 13 area is mostly under water or waterlogged during the growing 14 season and is characterized by vegetation of hydric soils. 15 b. The department shall adopt rules pursuant to chapter 16 17A further defining a qualified environmental practice as 17 described in paragraph “a” . 18 3. The department may establish similar qualified 19 environmental practices by rule. The practice must accomplish 20 the purposes of this chapter as provided in section 467.1 in 21 a manner comparable to a qualified environmental practice 22 described in subsection 2. 23 4. The department may rank qualified environmental 24 practices according to a cost-benefit analysis to be used 25 in prioritizing the approval of applications under section 26 467.8 for the issuance of environmental practices tax credit 27 certificates. 28 Sec. 10. NEW SECTION . 467.7 Environmental practices 29 agreement. 30 1. As a condition for allowing an environmental practices 31 tax credit, the eligible crop farmer and the department must 32 execute an environmental practices agreement as provided in 33 this section. 34 2. The agreement shall be signed by the eligible crop farmer 35 -5- LSB 2575XC (3) 86 da/sc 5/ 13
S.F. _____ and a copy of the agreement shall be attached to an application 1 for an environmental practices tax credit certificate as 2 required in section 467.8. The department’s execution of the 3 agreement is contingent upon the department’s approval of the 4 application. 5 3. a. The agreement shall also require that the eligible 6 crop farmer maintain the qualified environmental practice 7 so that when placed in service it effectively performs the 8 function for which it was originally established for the period 9 specified in the agreement. 10 b. In order to be maintained, a qualified environmental 11 practice must be kept in good repair, or be reconstructed 12 if necessary. A qualified environmental practice is not 13 maintained if it is removed, altered, or modified so that it 14 no longer effectively performs the function for which it was 15 originally established. 16 4. The agreement is a charge against the eligible crop 17 farmer who shall be personally liable for the maintenance of 18 the qualified environmental practice for the remaining period 19 of the agreement. A successor in interest to the cropland 20 shall not be responsible for the maintenance of the qualified 21 environmental practice. The agreement does not create a legal 22 or equitable interest in the cropland. 23 5. The term of the agreement commences on the date that 24 the department approves the application for the environmental 25 practices tax credit. The term of the agreement shall not 26 exceed twenty years. 27 6. a. The eligible crop farmer must consent to the 28 department inspecting the location where the qualified 29 environmental practice is established. Nothing in this section 30 prevents the department from inspecting the location of a 31 proposed environmental practice. 32 b. Upon approving an application and executing the 33 agreement, the department may inspect the location where the 34 qualified environmental practice is established upon consent 35 -6- LSB 2575XC (3) 86 da/sc 6/ 13
S.F. _____ of the eligible crop farmer or under an administrative search 1 warrant obtained under section 808.14. 2 c. The department may arrange that any inspection 3 be conducted by the commissioners of the soil and water 4 conservation district where the cropland is located as provided 5 in chapter 161A. 6 7. The department may enforce the terms and conditions of 7 the agreement by administrative order. The courts of this 8 state may prevent and restrain a breach of an agreement through 9 the issuance of an injunction. The attorney general may bring 10 an action on behalf of the department to enforce the terms and 11 conditions of the agreement. 12 8. a. If an agreement is terminated after the tax credit 13 is claimed, the department shall rescind the tax credit 14 certificate and demand a refund of the amount of the tax credit 15 claimed multiplied by an effective interest rate as provided 16 in this subsection. The payment due must be remitted to the 17 department for deposit in the state treasury within thirty days 18 from the date the department delivers notice of payment due to 19 the crop farmer or the farmer’s estate. 20 b. The effective interest rate is based on the current rate 21 published in the Iowa administrative bulletin by the department 22 of revenue pursuant to section 421.7 on the date that the 23 department notifies the eligible crop farmer or the farmer’s 24 estate of the payment amount due. 25 c. (1) The termination is nonhostile under any of the 26 following circumstances: 27 (a) The cropland is transferred for fair value to another 28 person, so long as each person who executed the agreement has 29 relinquished any apparent, real, or contingent interest in the 30 cropland, and the department is notified of the transfer not 31 more than ninety days after the transfer is effective. 32 (b) The cropland is to be converted to a use incompatible 33 with crop production, and the department is notified of the 34 change in use not more than ninety days after the effective 35 -7- LSB 2575XC (3) 86 da/sc 7/ 13
S.F. _____ date of the change. 1 (2) Under the circumstance described in subparagraph (1), 2 the effective interest rate for a nonhostile termination equals 3 the current rate. 4 (3) A refund of tax credit amounts claimed and carried 5 forward is not owing or required to be paid under this 6 paragraph “c” , if the successor titleholder of the cropland 7 agrees in writing to assume the liability of the eligible crop 8 farmer under the agreement. 9 d. The termination is hostile under any circumstances not 10 described in paragraph “a” . The effective interest rate for a 11 hostile termination equals ten times the current rate. 12 Sec. 11. NEW SECTION . 467.8 Tax credit certificates —— 13 applications. 14 1. The department shall accept applications submitted 15 by eligible crop farmers for the issuance of environmental 16 practices tax credit certificates. The department shall not 17 approve an application until all of the following occurs: 18 a. The department and the crop farmer execute an 19 environmental practices agreement as provided in section 467.7. 20 b. The crop farmer has established a qualified environmental 21 practice placed in service as provided in section 467.7. 22 c. The crop farmer submits federal tax returns, including 23 all supporting schedules, for at least the prior three tax 24 years. 25 2. The department may require that the eligible crop 26 farmer submit additional information as determined relevant 27 by the department. The department may require the additional 28 information be submitted with the application or after the 29 application has been accepted. 30 3. The department may approve an application submitted by an 31 eligible crop farmer, regardless of any of the following: 32 a. The farmer was issued a tax credit certificate under 33 this chapter for a prior tax year, or may be issued a tax 34 credit certificate for a future tax year, regardless of whether 35 -8- LSB 2575XC (3) 86 da/sc 8/ 13
S.F. _____ the tax credit certificate was or may be used, not used, or 1 transferred. 2 b. The farmer has submitted two or more applications under 3 this chapter for separate tax credit certificates to be used 4 in the same tax year. However, the department is not required 5 to approve such applications. 6 4. The department shall approve applications on a 7 first-come, first-served basis, unless the department 8 prioritizes applications according to cost-benefit analysis of 9 environmental practices as provided in section 467.6. 10 5. The department shall not approve an application, if any 11 of the following applies: 12 a. The amount of the tax credit would exceed seventy-five 13 percent of the actual and reasonable cost of establishing a 14 practice. 15 b. The eligible crop farmer would otherwise be allowed to 16 claim a tax credit in excess of ten thousand dollars for that 17 tax year. 18 c. The taxpayer is at fault for breaching any environmental 19 practice agreement as provided in section 467.7. 20 Sec. 12. NEW SECTION . 467.9 Tax credit certificates —— 21 issuance. 22 1. A taxpayer is not allowed an environmental practices 23 tax credit, unless an environmental practices tax credit 24 certificate issued by the department of agriculture and land 25 stewardship is included with the taxpayer’s tax return received 26 by the department of revenue for the tax year for which the tax 27 credit is claimed. 28 2. A tax credit certificate, unless rescinded by the 29 department of agriculture and land stewardship, shall 30 be accepted by the department of revenue, subject to any 31 conditions or restrictions placed by the department of 32 agriculture and land stewardship upon the face of the tax 33 credit certificate. 34 Sec. 13. NEW SECTION . 467.10 Tax credit certificates —— 35 -9- LSB 2575XC (3) 86 da/sc 9/ 13
S.F. _____ transfer. 1 1. An eligible crop farmer issued a tax credit certificate, 2 or other holder of an environmental practice tax certificate, 3 may transfer the tax credit certificate to a transferee. A tax 4 credit certificate shall be transferable by the holder and any 5 subsequent holders. A transferee may use the amount of the 6 tax credit transferred against the taxes imposed in chapter 7 422, divisions II and III, for any future tax year the farmer 8 could have claimed the tax credit. A transferred tax credit 9 equals the amount of the tax credit that would otherwise remain 10 eligible to be credited to the future tax liability of the 11 prior holder. 12 2. Any consideration received for the transfer of the tax 13 credit shall not be included as income under chapter 422, 14 divisions II and III. Any consideration paid for the transfer 15 of the tax credit shall not be deducted from income under 16 chapter 422, divisions II and III. 17 3. Nothing in this section prevents a tax credit certificate 18 from validly passing to the estate or trust of an eligible crop 19 farmer or transferee under chapter 633. 20 4. a. A taxpayer who has already claimed the tax credit 21 and surrendered the tax credit certificate to the department 22 of revenue, but who is intending to transfer the remaining tax 23 credit amount to a transferee, shall apply to the department of 24 revenue for a replacement tax credit certificate in the manner 25 and form prescribed by the department of revenue. 26 b. Paragraph “a” does not apply if the department of revenue 27 provides for the transfer of the tax credit by another method 28 including by recording the transfer on the face of the original 29 tax credit certificate. 30 5. If the tax credit has not been claimed, within ninety 31 days of the transfer, the transferee shall submit the 32 transferred tax credit certificate to the department of revenue 33 along with a statement containing the transferee’s name, tax 34 identification number, and address, the denomination that the 35 -10- LSB 2575XC (3) 86 da/sc 10/ 13
S.F. _____ tax credit certificate is to carry, and any other information 1 required by the department of revenue. 2 6. Within thirty days of receiving an application under 3 subsection 4 or the transferred tax credit certificate and 4 the transferee’s statement as provided in subsection 5, the 5 department of revenue shall issue a replacement tax credit 6 certificate to the transferor under subsection 4 or the 7 transferee under subsection 5. Each replacement tax credit 8 certificate shall contain the same type of information required 9 for the original tax credit certificate and shall have the same 10 expiration date that appeared on the transferred tax credit 11 certificate. 12 7. A tax credit shall not be claimed by a transferee until 13 a replacement tax credit certificate identifying the transferee 14 as the proper holder has been issued by the department of 15 revenue. 16 Sec. 14. NEW SECTION . 467.11 Tax credits —— availability. 17 The amount of environmental practices tax credit 18 certificates that may be issued under this chapter shall not in 19 the aggregate exceed three million dollars in any tax year. 20 Sec. 15. EFFECTIVE UPON ENACTMENT. This Act, being of 21 immediate importance, takes effect upon enactment. 22 Sec. 16. APPLICABILITY. This Act applies to environmental 23 practices first established on or after the effective date of 24 this Act. 25 Sec. 17. RETROACTIVE APPLICABILITY. This Act applies 26 retroactively to January 1, 2015, for tax years beginning on 27 or after that date. 28 EXPLANATION 29 The inclusion of this explanation does not constitute agreement with 30 the explanation’s substance by the members of the general assembly. 31 This bill establishes an environmental practices tax credit. 32 The purpose of the tax credit is to assist eligible crop 33 farmers in reducing soil erosion and sediment loss, managing 34 nutrients and reducing contaminant loads contributing to 35 -11- LSB 2575XC (3) 86 da/sc 11/ 13
S.F. _____ receiving surface waters, and improving surface water quality. 1 The bill provides that the tax credit is to be administered 2 by the department of agriculture and land stewardship and the 3 department of revenue. The tax credit is allowed against 4 individual and corporate income taxes. The tax credit cannot 5 be used for any part of the cost of a practice that was financed 6 in whole or in part by federal or state moneys. The tax credit 7 must be claimed by an eligible crop farmer who has an annual 8 gross income of less than $4 million. In addition, the tax 9 credit is only available for certain qualified environmental 10 practices as set forth in the bill or as established by 11 departmental rule that meets the purposes of the tax credit. 12 The bill requires an eligible crop farmer to submit 13 an application to the department of agriculture and land 14 stewardship for approval which must include a qualified 15 environmental practices agreement to be executed by the 16 department and the eligible crop farmer if the department 17 approves the application. The application must require that 18 the practice be maintained for a specific number of years. 19 The agreement does not create a lien on the land or bind a 20 successor in interest. It provides for the inspection of 21 the qualified environmental practice and the agreement’s 22 enforcement. It also provides for the termination of the 23 agreement and recision of the tax credit and refund to the 24 state of a prorated portion of the tax credit claimed together 25 with interest. 26 The bill provides for the issuance of a tax credit 27 certificate which must be included with the taxpayer’s state 28 tax return in order to claim the tax credit. It also provides 29 for the transferability of the tax credit certificate to any 30 number of subsequent transferees. Not more than $3 million in 31 tax credit certificates may be issued in any tax year. 32 The bill takes effect upon enactment for environmental 33 practices first conducted or installed on or after that date 34 and applies retroactively to tax years beginning on and after 35 -12- LSB 2575XC (3) 86 da/sc 12/ 13
S.F. _____ January 1, 2015. 1 -13- LSB 2575XC (3) 86 da/sc 13/ 13