House File 242 - Introduced HOUSE FILE 242 BY SALMON A BILL FOR An Act relating to agricultural lease agreements entered 1 into by eligible taxpayers and qualified beginning farmers 2 participating in the beginning farmer tax credit program, 3 by allowing an eligible taxpayer’s unused tax credit to be 4 transferred to the qualified beginning farmer, and including 5 effective date provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 1166YH (4) 89 da/jh

H.F. 242 Section 1. Section 16.77, Code 2021, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 3A. “Eligible qualified beginning farmer ” 3 means a qualified beginning farmer participating in the 4 beginning farmer tax credit program who is transferred a tax 5 credit by an eligible taxpayer as provided in an agricultural 6 lease agreement entered into by the eligible taxpayer and 7 qualified beginning farmer. 8 Sec. 2. Section 16.79A, Code 2021, is amended by adding the 9 following new subsection: 10 NEW SUBSECTION . 3A. The agricultural lease agreement may 11 provide that each tax credit claimed by the eligible taxpayer 12 in excess of the taxpayer’s tax liability for the tax year in 13 which it is claimed be transferred to the eligible qualified 14 beginning farmer who is also party to the agricultural lease 15 agreement as provided in section 16.82A. 16 Sec. 3. Section 16.82, subsections 7, 8, and 9, Code 2021, 17 are amended to read as follows: 18 7. a. A tax credit in excess of the eligible taxpayer’s 19 tax liability for the tax year in which it is claimed is not 20 refundable but may be credited to the tax liability of the 21 eligible taxpayer for the following ten tax years or until 22 depleted, whichever is earlier. A tax credit shall not be 23 carried back to a tax year prior to the first tax year in which 24 the eligible taxpayer redeems may claim the tax credit. 25 b. In lieu of crediting a tax credit to the tax liability 26 of an eligible taxpayer in a following year as provided in 27 paragraph “a” , the eligible taxpayer may transfer the tax 28 credit to the eligible qualified beginning farmer who is the 29 other party to the agricultural lease agreement. The tax 30 credit transferred to an eligible qualified beginning farmer 31 is refundable. The tax credit shall not be carried back to 32 a tax year prior to the first tax year in which the eligible 33 qualified beginning farmer first may claim the tax credit. 34 8. a. (1) To claim a tax credit under this section , 35 -1- LSB 1166YH (4) 89 da/jh 1/ 5

H.F. 242 an eligible taxpayer shall include one or more tax credit 1 certificates issued by the authority with the eligible 2 taxpayer’s tax return pursuant to rules adopted by the 3 department . 4 (2) To claim a tax credit transferred to an eligible 5 qualified beginning farmer under this section, the eligible 6 qualified beginning taxpayer must include a tax credit 7 certificate issued by the authority with the eligible qualified 8 beginning farmer’s tax return. 9 b. (1) A tax credit that may be claimed by an eligible 10 taxpayer shall not be transferable transferred to any other 11 person other than anyone except the following: 12 (a) An eligible qualified beginning farmer if the transfer 13 of a refundable tax credit is provided in the agricultural 14 lease agreement entered into by an eligible taxpayer and 15 eligible qualified beginning farmer as provided in section 16 16.79A. 17 (b) An eligible taxpayer’s estate or trust upon the eligible 18 taxpayer’s death pursuant to rules adopted by the department . 19 (2) A tax credit that may be claimed by an eligible 20 qualified beginning farmer shall not be transferred to anyone 21 except the eligible qualified beginning farmer’s estate or 22 trust upon the eligible qualified beginning farmer’s death. 23 c. The department shall adopt rules required to administer 24 and enforce this subsection. 25 9. If an agreement is terminated by the eligible taxpayer, 26 all of the following shall apply: 27 a. Any tax credit properly claimed by the eligible taxpayer 28 prior to the date of termination or for the year during which 29 the termination occurred shall be allowed except as provided in 30 paragraph “b” , but no additional tax credits may be issued or 31 claimed under the program for that agreement. If a tax credit 32 may be claimed by an eligible taxpayer, any unused tax credit 33 shall be transferred to an eligible qualified beginning farmer 34 in accordance with the terms of an agricultural lease agreement 35 -2- LSB 1166YH (4) 89 da/jh 2/ 5

H.F. 242 entered into by the parties and approved by the authority. 1 The eligible taxpayer may apply for and be awarded another 2 beginning farmer tax credit under a new agreement for the same 3 agricultural assets as provided in this section . 4 b. If the authority determines that the eligible taxpayer 5 is at fault for the termination, any beginning farmer tax 6 credit that is claimed by the eligible taxpayer for the year 7 during which the termination occurred shall be disallowed and 8 the amount shall be considered a tax payment due. If the tax 9 credit is disallowed, any tax credit that would otherwise be 10 transferred to an eligible qualified beginning farmer shall be 11 terminated. 12 c. If an eligible taxpayer does not notify the authority of 13 the termination that an agricultural lease agreement has been 14 terminated within thirty days of the date of the termination 15 in the manner and form prescribed by the authority, the 16 eligible taxpayer shall be conclusively deemed at fault for the 17 termination. 18 Sec. 4. Section 16.82A, subsection 1, paragraph c, Code 19 2021, is amended by striking the paragraph. 20 Sec. 5. Section 16.82A, Code 2021, is amended by adding the 21 following new subsections: 22 NEW SUBSECTION . 1A. If an agricultural lease agreement 23 entered into by an eligible taxpayer and eligible qualified 24 beginning farmer so provides and is approved, the authority 25 shall make a tax credit award to the eligible qualified 26 beginning farmer each year. The tax credit award shall equal 27 the unused amount of the tax credit claimed by the eligible 28 taxpayer in the prior year. 29 NEW SUBSECTION . 1B. If, after a tax credit award is made, 30 the eligible taxpayer or eligible qualified beginning farmer no 31 longer meets the requirements of the agreement or the program, 32 the authority may revoke the tax credit awarded to the eligible 33 taxpayer or an eligible qualified beginning farmer and may 34 rescind any tax credit certificate that has been issued to 35 -3- LSB 1166YH (4) 89 da/jh 3/ 5

H.F. 242 either party. 1 NEW SUBSECTION . 4. a. The authority shall issue a tax 2 credit certificate on an annual basis to an eligible qualified 3 beginning farmer for the amount transferred by an eligible 4 taxpayer if so required by an agricultural lease agreement 5 approved by the authority pursuant to section 16.82. The 6 authority may require that the eligible taxpayer submit a 7 copy of the eligible taxpayer’s tax return for that year in 8 order to calculate the amount of the tax credit transferred 9 to the eligible qualified beginning farmer. The tax credit 10 certificate shall contain all information required by the 11 department. 12 b. The tax credit certificate, unless rescinded by the 13 authority, shall be accepted by the department as payment 14 of a refund or as payment for taxes pursuant to chapter 15 422, subchapters II and III. A tax credit certificate shall 16 be subject to any conditions or restrictions placed by the 17 authority upon the face of the tax credit certificate and 18 subject to the limitations of the program. 19 Sec. 6. EFFECTIVE DATE. This Act takes effect January 1, 20 2022. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 GENERAL. This bill amends provisions in Code chapter 25 16, subchapter VIII, part 5, which establishes the beginning 26 farmer tax credit program (program). The program applies to 27 an eligible taxpayer (taxpayer) and qualified beginning farmer 28 (beginning farmer) who have entered into an agricultural lease 29 agreement (agreement). Under the bill, an agreement may allow 30 the taxpayer to transfer unused taxpayer’s tax credits to 31 the beginning farmer for the number of years in which their 32 agreement is effective. The authority is required to issue 33 a tax credit certificate to the beginning farmer in order to 34 claim the tax credit which may be applied against the beginning 35 -4- LSB 1166YH (4) 89 da/jh 4/ 5

H.F. 242 farmer’s tax liability or may be paid to the beginning farmer 1 in the form of a refund. 2 CURRENT PROGRAM REQUIREMENTS. Under the program, an 3 agreement must be for at least two but not more than five 4 years, and may be renewed for at least two but not more than 5 five years. It must involve agricultural land, including 6 buildings, or equipment used as part of a farming operation. 7 Generally, in order to qualify as a beginning farmer, a person 8 must have a low or moderate net worth, be able to successfully 9 engage in farming, and promise to materially participate in 10 the farming operation (Code sections 16.58(6), 16.58(10), 11 and 16.79(2)). The authority must approve an application to 12 participate in the program (Code section 16.81(6)). 13 CURRENT TAX CREDIT. Once the authority approves an 14 application, it must calculate the total tax credit award due 15 to the taxpayer for all years under the approved agreement 16 (Code section 16.82A) and issue a tax credit certificate to 17 the taxpayer each year that a tax credit may be claimed (Code 18 section 16.81(4)). The total amount of the tax credit divided 19 over the duration of the agreement depends upon the type of 20 rent arrangement entered into by the parties which may be based 21 on a fixed amount or a share of the commodity produced on the 22 leasehold. For each applicable year, the taxpayer may claim 23 the tax credit up to the taxpayer’s tax liability for that 24 year. The unused amount remaining may be applied to reduce 25 the taxpayer’s liability for the following or subsequent years 26 up to a total of 10 years or until the remaining amount has 27 been used up, whichever occurs first. The tax credit cannot be 28 carried back to a prior year or refunded. In addition, the tax 29 credit cannot be transferred to another person other than to 30 the taxpayer’s estate or trust upon the taxpayer’s death (Code 31 section 16.82(8)(b)). 32 EFFECTIVE DATE. The bill takes effect January 1, 2022. 33 -5- LSB 1166YH (4) 89 da/jh 5/ 5