Senate Study Bill 3001 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED ECONOMIC DEVELOPMENT AUTHORITY BILL) 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 5172XD (2) 86 mm/sc

S.F. _____ H.F. _____ 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 This subparagraph (2) is repealed 11 July 1, 2021. 12 DIVISION II 13 RENEWABLE CHEMICAL PRODUCTION TAX CREDIT PROGRAM 14 Sec. 2. Section 15.119, subsection 2, Code 2016, is amended 15 by adding the following new paragraph: 16 NEW PARAGRAPH . h. The renewable chemical production tax 17 credit program administered pursuant to sections 15.315 through 18 15.320. In allocating tax credits pursuant to this subsection, 19 the authority shall not allocate more than ten million dollars 20 for purposes of this paragraph. 21 Sec. 3. NEW SECTION . 15.315 Short title. 22 This part shall be known and may be cited as the “Renewable 23 Chemical Production Tax Credit Program” . 24 Sec. 4. NEW SECTION . 15.316 Definitions. 25 As used in this part, unless the context otherwise requires: 26 1. “Biobased content percentage” means, with respect to any 27 renewable chemical, the amount, expressed as a percentage, of 28 renewable organic material present as determined by testing 29 representative samples using the American society for testing 30 and materials standard D6866. 31 2. “Biomass feedstock” means sugar, polysaccharide, 32 glycerin, lignin, fat, grease, or oil derived from a plant or 33 animal, or a protein capable of being converted to a building 34 block chemical by means of a biological or chemical conversion 35 -1- LSB 5172XD (2) 86 mm/sc 1/ 11

S.F. _____ H.F. _____ process. 1 3. “Building block chemical” means a molecule converted 2 from biomass feedstock as a first product or a secondarily 3 derived product that can be further refined into a higher-value 4 chemical, material, or consumer product. “Building block 5 chemical” includes but is not limited to glycerol, methanoic 6 or formic acid, arabonic acid, erythonic acid, glyceric acid, 7 glycolic acid, lactic acid, 3-hydroxypropionate, propionic 8 acid, malonic acid, serine, succinic acid, fumaric acid, 9 malic acid, aspartic acid, 3-hydroxybutyrolactone, acetoin, 10 threonine, itaconic acid, furfural, levulinic acid, glutamic 11 acid, xylonic acid, xylaric acid, xylitol, arabitol, citric 12 acid, aconitic acid, 5-hydroxymethylfurfural, lysine, gluconic 13 acid, glucaric acid, sorbitol, gallic acid, ferulic acid, 14 nonfuel butanol, nonfuel ethanol, a polymer or gum that can be 15 produced directly from a protein-based biomass feedstock, or 16 such additional molecules as may be included by the authority 17 by rule. 18 4. “Eligible business” means a business meeting the 19 requirements of section 15.317. 20 5. “Food additive” means a building block chemical that 21 is not primarily consumed as food but which, when combined 22 with other components, improves the taste, appearance, odor, 23 texture, or nutritional content of food. The authority, in its 24 discretion, shall determine whether or not a building block 25 chemical is primarily consumed as food. 26 6. “Program” means the renewable chemical production tax 27 credit program administered pursuant to this part. 28 7. “Renewable chemical” means a building block chemical 29 with a biobased content percentage of at least fifty percent. 30 “Renewable chemical” does not include a chemical sold or used 31 for the production of food, feed, or fuel. “Renewable chemical” 32 includes cellulosic ethanol, starch ethanol, or other ethanol 33 derived from biomass feedstock, fatty acid methyl esters, 34 or butanol, but only to the extent that such molecules are 35 -2- LSB 5172XD (2) 86 mm/sc 2/ 11

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

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

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

S.F. _____ H.F. _____ in that particular fiscal year. 1 4. Termination and repayment. The failure by an eligible 2 business in fulfilling any requirement of the program or any of 3 the terms and obligations of an agreement entered into pursuant 4 to this section may result in the reduction, termination, 5 or recision of the tax credits under section 15.319 and may 6 subject the eligible business to the repayment or recapture of 7 tax credits claimed. The repayment or recapture of tax credits 8 pursuant to this subsection shall be accomplished in the same 9 manner as provided in section 15.330, subsection 2. 10 5. Confidentiality. 11 a. Except as provided in paragraph “b” , any information 12 or record in the possession of the authority with respect to 13 the program shall be presumed by the authority to be a trade 14 secret protected under chapter 550 or common law and shall be 15 kept confidential by the authority unless otherwise ordered by 16 a court. 17 b. The identity of a tax credit recipient and the amount 18 of the tax credit shall be considered public information under 19 chapter 22. 20 Sec. 7. NEW SECTION . 15.319 Renewable chemical production 21 tax credit. 22 1. An eligible business that has entered into an agreement 23 pursuant to section 15.318 may claim a tax credit in an amount 24 equal to the product of five cents multiplied by the number 25 of pounds of renewable chemicals produced in this state from 26 biomass feedstock by the eligible business during the calendar 27 year. However, an eligible business shall not receive a tax 28 credit for the production of a secondarily derived building 29 block chemical if that chemical is also the subject of a credit 30 at the time of production as a first product. The renewable 31 chemical production tax credit shall not be available for any 32 renewable chemical produced before the 2017 calendar year or 33 after the 2027 calendar year. 34 2. The tax credit shall be allowed against taxes imposed 35 -6- LSB 5172XD (2) 86 mm/sc 6/ 11

S.F. _____ H.F. _____ under chapter 422, division II or III. 1 3. The tax credit shall be claimed for the tax year during 2 which the eligible business was issued the tax credit. 3 4. An individual may claim a tax credit under this section 4 of a partnership, limited liability company, S corporation, 5 cooperative organized under chapter 501 and filing as a 6 partnership for federal tax purposes, estate, or trust electing 7 to have income taxed directly to the individual. The amount 8 claimed by the individual shall be based upon the pro rata 9 share of the individual’s earnings from the partnership, 10 limited liability company, S corporation, cooperative, estate, 11 or trust. 12 5. Any tax credit in excess of the tax liability is 13 refundable. In lieu of claiming a refund, the taxpayer 14 may elect to have the overpayment shown on the taxpayer’s 15 final, completed return credited to the tax liability for the 16 following tax year. 17 6. a. To claim a tax credit under this section, a taxpayer 18 shall include one or more tax credit certificates with the 19 taxpayer’s tax return. 20 b. The tax credit certificate shall contain the taxpayer’s 21 name, address, tax identification number, the amount of the 22 credit, the name of the eligible business, and any other 23 information required by the department of revenue. 24 c. The tax credit certificate, unless rescinded by the 25 authority, shall be accepted by the department of revenue as 26 payment for taxes imposed pursuant to chapter 422, divisions II 27 and III, subject to any conditions or restrictions placed by 28 the authority upon the face of the tax credit certificate and 29 subject to the limitations of the program. 30 d. Tax credit certificates issued pursuant to this section 31 shall not be transferred to any other person. 32 Sec. 8. NEW SECTION . 15.320 Rules. 33 The authority and the department of revenue shall each adopt 34 rules as necessary for the implementation and administration 35 -7- LSB 5172XD (2) 86 mm/sc 7/ 11

S.F. _____ H.F. _____ of this part. 1 Sec. 9. NEW SECTION . 422.10A Renewable chemical production 2 tax credit. 3 The taxes imposed under this division, less the credits 4 allowed under section 422.12, shall be reduced by a renewable 5 chemical production tax credit allowed under section 15.319. 6 Sec. 10. Section 422.33, Code 2016, is amended by adding the 7 following new subsection: 8 NEW SUBSECTION . 22. The taxes imposed under this division 9 shall be reduced by a renewable chemical production tax credit 10 allowed under section 15.319. 11 Sec. 11. TAX CREDIT CLAIMS. Renewable chemical production 12 tax credits issued pursuant to the renewable chemical 13 production tax credit program enacted in this division of this 14 Act shall not be issued by the economic development authority 15 prior to July 1, 2018, and shall not be claimed by a taxpayer 16 prior to September 1, 2018. 17 Sec. 12. EFFECTIVE UPON ENACTMENT. This division of this 18 Act, being deemed of immediate importance, takes effect upon 19 enactment. 20 Sec. 13. APPLICABILITY. This division of this Act applies 21 to renewable chemicals produced in the state from biomass 22 feedstock on or after January 1, 2017. 23 EXPLANATION 24 The inclusion of this explanation does not constitute agreement with 25 the explanation’s substance by the members of the general assembly. 26 This bill relates to the administration of programs by 27 the economic development authority (EDA) by modifying the 28 high quality jobs program and creating a renewable chemical 29 production tax credit program. 30 DIVISION I —— HIGH QUALITY JOBS PROGRAM. Division I limits 31 for a period of five fiscal years the amount of tax credits 32 that may be allocated to the high quality jobs program, which 33 under current law is subject to EDA’s maximum aggregate tax 34 credit cap of $170 million per fiscal year in Code section 35 -8- LSB 5172XD (2) 86 mm/sc 8/ 11

S.F. _____ H.F. _____ 15.119. The bill provides that for each of the five fiscal 1 years beginning on July 1, 2016, and ending on June 30, 2021, 2 the authority shall not allocate more than $105 million of 3 that $170 million cap to the high quality jobs program. This 4 provision is repealed July 1, 2021. 5 DIVISION II —— RENEWABLE CHEMICAL PRODUCTION TAX CREDIT. 6 Division II creates a renewable chemical production tax credit 7 program (program) that will be administered by the EDA and that 8 will provide tax credits to eligible businesses that produce 9 renewable chemicals in Iowa from biomass feedstock. “Renewable 10 chemical”, “biomass feedstock”, and other related terms are 11 defined in the division. 12 In order to qualify for the tax credit, a business must 13 meet several requirements. First, the business must be 14 physically located in Iowa and operated for profit under 15 single management. Second, the business must not be an 16 entity providing professional services, health care services, 17 or medical treatments, or be engaged primarily in retail 18 operations. Third, the business must have organized, expanded, 19 or located in Iowa on or after the effective date of the 20 division. Fourth, the business must not be, in the discretion 21 of the EDA, ineligible under certain provisions relating to the 22 relocation or reduction of business operations within Iowa. 23 Fifth, the business must be in compliance with all agreements 24 entered into under the program or other programs administered 25 by the EDA. 26 An eligible business seeking a tax credit is required to 27 submit an application to the EDA containing various information 28 during the calendar year following the calendar year in which 29 the renewable chemicals are produced. The EDA may accept 30 applications on a continuous basis or may establish an annual 31 application deadline. 32 Before being issued a tax credit, an eligible business 33 is required to enter into an agreement with the EDA for the 34 successful completion of all requirements of the program. The 35 -9- LSB 5172XD (2) 86 mm/sc 9/ 11

S.F. _____ H.F. _____ EDA is authorized to impose two compliance cost fees under the 1 program. The first fee equals $500 per agreement. The second 2 fee equals 0.5 percent of the value of the tax credit claimed 3 pursuant to the agreement if the agreement has an aggregate tax 4 credit value of $100,000 or greater. 5 An eligible business that fails to comply with the 6 requirements of the program or the terms of an agreement with 7 the EDA may have its tax credits reduced, terminated, or 8 rescinded, and may be subject to the repayment or recapture of 9 claimed tax credits. 10 The tax credit equals the product of $.05 multiplied by the 11 number of pounds of renewable chemicals produced in Iowa from 12 biomass feedstock by the eligible business during the calendar 13 year. Renewable chemicals produced by an eligible business 14 either prior to calendar year 2017 or prior to the date the 15 business first qualifies as an eligible business, or after 16 calendar year 2027, shall not qualify for the tax credit. 17 The tax credit shall be claimed for the tax year during which 18 the eligible business was issued the tax credit. However, tax 19 credits shall not be issued by EDA prior to July 1, 2018, or 20 claimed by the taxpayer prior to September 1, 2018. The tax 21 credit may be claimed against the individual income tax and the 22 corporate income tax. The credit is refundable or may, at the 23 election of the taxpayer, be carried forward for up to one tax 24 year. The tax credit shall not be transferred to any person. 25 The division provides that the program is subject to EDA’s 26 maximum aggregate tax credit cap of $170 million per fiscal 27 year in Code section 15.119, and not more than $10 million 28 per fiscal year may be issued by the EDA under the program. 29 In addition, the maximum amount of tax credit that may be 30 issued to an eligible business for the production of renewable 31 chemicals in any one calendar year shall not exceed $1 million 32 or $500,000, depending on whether the eligible business has 33 been operating in Iowa at the time of application for five 34 or fewer years, or more than five years, respectively. An 35 -10- LSB 5172XD (2) 86 mm/sc 10/ 11

S.F. _____ H.F. _____ eligible business shall not receive more than five tax credits 1 under the program. The EDA is required to issue tax credits 2 on a first-come, first-served basis until the maximum amount 3 of $10 million per fiscal year is reached. If the amount of 4 tax credits exceeds this amount in a fiscal year, the EDA 5 is required to establish a wait list and give priority in 6 subsequent years to the eligible businesses on the wait list. 7 The division provides for the confidentiality of certain 8 information under the program. The identity of a tax credit 9 recipient and the amount of the tax credit shall be considered 10 public information under Code chapter 22 (examination of public 11 records), but any other information or record in the possession 12 of the EDA with respect to the program shall be presumed by 13 the EDA to be a trade secret protected under Code chapter 550 14 or common law and shall be kept confidential by the EDA unless 15 otherwise ordered by a court. 16 The division takes effect upon enactment and applies to 17 renewable chemicals produced in Iowa from biomass feedstock on 18 or after January 1, 2017. 19 -11- LSB 5172XD (2) 86 mm/sc 11/ 11