H.F. 2550 DIVISION I 1 BEGINNING FARMER TAX CREDIT PROGRAM 2 Section 1. Section 16.77, Code 2022, is amended by adding 3 the following new subsection: 4 NEW SUBSECTION . 6A. “Specialty crop” means a commodity 5 limited to fruits, vegetables, tree nuts, or horticulture 6 plants that may be consumed by humans in an unprocessed state. 7 Sec. 2. Section 16.82, subsection 3, paragraph a, Code 2022, 8 is amended to read as follows: 9 a. (1) In the case of an agreement on a fixed basis, in 10 which an eligible taxpayer receives a fixed cash rent payment, 11 the amount of the tax credit equals five percent of the amount 12 of the fixed cash rent payment for each year. 13 (2) Notwithstanding subparagraph (1), for acres used to 14 produce a specialty crop, the amount of the tax credit equals 15 ten percent of the amount of the fixed cash rent payment 16 attributable to those acres for each year. This subparagraph 17 does not restrict an otherwise qualifying acre from including 18 an actively managed pollinator habitat. 19 DIVISION II 20 RETIRED FARMER LEASE INCOME EXCLUSION 21 Sec. 3. Section 422.7, Code 2022, is amended by adding the 22 following new subsection: 23 NEW SUBSECTION . 21A. a. Subtract, to the extent included, 24 net income received by an eligible individual pursuant to a 25 farm tenancy agreement covering real property held by the 26 eligible individual for ten or more years, if the eligible 27 individual materially participated in a farming business for 28 ten or more years. 29 b. An individual who elects to exclude income received 30 pursuant to a farm tenancy agreement under this subsection 31 shall not claim any of the following in the tax year in which 32 the election is made or in any succeeding year: 33 (1) The capital gain exclusion under section 422.7, 34 subsection 21. 35 -1- LSB 5217YH (9) 89 da/ns 1/ 11

H.F. 2550 (2) The beginning farmer tax credit under section 422.11E. 1 c. Married individuals who file separate state income tax 2 returns shall allocate their combined annual exclusion limit 3 to each spouse in the proportion that each spouse’s respective 4 net income from a farm tenancy agreement bears to the total net 5 income from a farm tenancy agreement. 6 d. The department shall establish criteria, by rule, 7 relating to whether and how a surviving spouse may claim the 8 income exclusion for which a deceased eligible individual would 9 have been eligible under this subsection. 10 e. Net income from a farm tenancy agreement earned, 11 received, or reported by an entity taxed as a partnership 12 for federal tax purposes, an S corporation, or a trust or 13 estate is not eligible for the election and deduction in this 14 subsection, even if such net income ultimately passes through 15 to an eligible individual. 16 f. Net income from a farm tenancy agreement earned, 17 received, or reported by an individual is not eligible 18 for the election and deduction in this subsection unless 19 the tenant-lessee is a person that meets the definition 20 of a qualified beginning farmer in section 16.77 and the 21 tenant-lessee is growing specialty crops as defined in section 22 16.77 on the land comprising the farm tenancy agreement. 23 g. For purposes of this subsection: 24 (1) “Eligible individual” means an individual who is 25 disabled or who is fifty-five years of age or older at the time 26 the election is made, who no longer materially participates in 27 a farming business at the time the election is made, and who, 28 as an owner-lessor, is party to a farm tenancy agreement. 29 (2) “Farm tenancy agreement” means a written agreement 30 outlining the rights and obligations of an owner-lessor and a 31 tenant-lessee where the tenant-lessee has a farm tenancy as 32 defined in section 562.1A. A “farm tenancy agreement” includes 33 cash leases, crop share leases, or livestock share leases. 34 DIVISION III 35 -2- LSB 5217YH (9) 89 da/ns 2/ 11

H.F. 2550 RETIRED FARMER CAPITAL GAIN EXCLUSION 1 Sec. 4. Section 422.7, subsection 21, Code 2022, is amended 2 by striking the subsection and inserting in lieu thereof the 3 following: 4 21. a. For purposes of this subsection: 5 (1) “Farming business” means the production, care, growing, 6 harvesting, preservation, handling, or storage of crops 7 or forest or fruit trees; the production, care, feeding, 8 management, and housing of livestock; or horticulture, all for 9 intended profit. 10 (2) “Held” shall be determined with reference to the holding 11 period provisions of section 1223 of the Internal Revenue Code 12 and the federal regulations pursuant thereto. 13 (3) “Materially participated” means the same as “material 14 participation” in section 469(h) of the Internal Revenue Code. 15 (4) “Qualified beginning farmer” means the same as defined 16 in section 16.77 who grows specialty crops as defined in 17 section 16.77. 18 (5) (a) “Real property used in a farming business” means 19 tracts of land not to exceed one hundred sixty acres in the 20 aggregate and the improvements and structures located on such 21 tracts which are in good faith used primarily for a farming 22 business. Buildings which are primarily used or intended for 23 human habitation are deemed to be used in a farming business 24 when the building is located on or adjacent to the parcel 25 used in the farming business. Land and the nonresidential 26 improvements and structures located on such land that shall 27 be considered to be used primarily in a farming business 28 include but are not limited to land, improvements or structures 29 used for the storage or maintenance of farm machinery or 30 equipment, for the drying, storage, handling, or preservation 31 of agricultural crops, or for the storage of farm inputs, feed, 32 or manure. Real property used in a farming business shall also 33 include woodland, wasteland, pastureland, and idled land used 34 for the conservation of natural resources including soil and 35 -3- LSB 5217YH (9) 89 da/ns 3/ 11

H.F. 2550 water. 1 (b) Real property classified as agricultural property for 2 Iowa property tax purposes, except real property described in 3 section 441.21, subsection 12, shall be presumed to be real 4 property used in a farming business. This presumption is 5 rebuttable by the department by a preponderance of evidence 6 that the real property did not meet the requirements of 7 subparagraph division (a). 8 (6) “Retired farmer” means an individual who is disabled 9 or who is fifty-five years of age or older and who no longer 10 materially participates in a farming business when an exclusion 11 and deduction is claimed under this subsection. 12 b. Subtract the net capital gain from the sale of real 13 property used in a farming business if all of the following 14 conditions are satisfied: 15 (1) The taxpayer has materially participated in a farming 16 business for a minimum of ten years and has held the real 17 property used in a farming business for a minimum of ten years. 18 If the taxpayer is a retired farmer, the taxpayer is considered 19 to meet the material participation requirement if the taxpayer 20 materially participated in a farming business for ten years or 21 more in the aggregate, prior to making an election under this 22 subsection. 23 (2) The real property used in a farming business by the 24 taxpayer is sold to a qualified beginning farmer. 25 c. A taxpayer who is a retired farmer may make, subject to 26 the limitations described in paragraphs “f” and “g” , a single, 27 lifetime election to exclude all qualifying capital gains under 28 paragraph “b” . 29 d. A taxpayer who is a retired farmer who elects to exclude 30 capital gains under paragraph “b” shall not claim the beginning 31 farmer tax credit under section 422.11E or the exclusion for 32 net income received pursuant to a farm tenancy agreement in 33 section 422.7, subsection 21A, in the tax year in which this 34 election is made or in any subsequent year. 35 -4- LSB 5217YH (9) 89 da/ns 4/ 11

H.F. 2550 e. A taxpayer who is a retired farmer who claims the 1 beginning farmer tax credit under section 422.11E shall not, 2 in the same year, make an election under this subsection. A 3 taxpayer who is a retired farmer and who elects to exclude 4 the net income received from a farm tenancy agreement under 5 section 422.7, subsection 21A, shall not, in the same tax year 6 or in any subsequent tax year, make the election under this 7 subsection. 8 f. Married individuals who file separate state income tax 9 returns shall allocate their combined annual net capital gain 10 exclusion under paragraph “b” to each spouse in the proportion 11 that each spouse’s respective net capital gain bears to the 12 total net capital gain. 13 g. The department shall establish criteria, by rule, 14 relating to whether and how a surviving spouse may claim the 15 income exclusion for which a deceased retired farmer would have 16 been eligible under this subsection. 17 Sec. 5. REPEAL. 2018 Iowa Acts, chapter 1161, section 113, 18 is repealed. 19 Sec. 6. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is 20 repealed. 21 Sec. 7. EFFECTIVE DATE. This division of this Act takes 22 effect January 1, 2023. 23 Sec. 8. APPLICABILITY. 24 1. This division of this Act applies to tax years beginning 25 on or after January 1, 2023. 26 2. This division of this Act applies to sales consummated on 27 or after the effective date of this division of this Act, and 28 sales consummated prior to the effective date of this division 29 of this Act shall be governed by the law as it existed prior to 30 the effective date of this division of this Act. 31 DIVISION IV 32 IOWA-GROWN FOOD TAX CREDIT 33 Sec. 9. NEW SECTION . 137F.20 Iowa-grown food tax credit. 34 1. As used in this section: 35 -5- LSB 5217YH (9) 89 da/ns 5/ 11

H.F. 2550 a. “Food” means raw, cooked, or a processed edible substance 1 intended in whole or in part for human consumption, that 2 is grown or processed in this state. “Food” may include 3 non-nutritional ingredients incapable of being grown or 4 processed in this state. 5 b. “Food establishment” means a grocery store, restaurant, 6 or other entity that sells food to the public and is licensed 7 in this state. 8 c. “Nonprofit organization” means public or nonpublic 9 schools, hospitals, religious institutions, dependent care 10 facilities, child care facilities, and any other nonprofit 11 organization in this state. 12 d. “Wholesaler” means a wholesale food business licensed in 13 this state. 14 2. a. An Iowa-grown food tax credit may be claimed by a 15 food establishment to reduce the taxes imposed under chapter 16 422, subchapters II and III, that is equal to one percent of 17 the sales price of food sold by the food establishment in this 18 state. 19 b. An Iowa-grown food tax credit may be claimed by a 20 wholesaler to reduce the taxes imposed under chapter 422, 21 subchapters II and III, that is equal to one percent of the 22 sales price of food sold by the wholesaler to a nonprofit 23 organization in this state. 24 Sec. 10. NEW SECTION . 422.12O Iowa-grown food tax credit. 25 The taxes imposed under this subchapter, less the credits 26 allowed under section 422.12, shall be reduced by an Iowa-grown 27 food tax credit authorized pursuant to section 137F.20. 28 Sec. 11. Section 422.33, Code 2022, is amended by adding the 29 following new subsection: 30 NEW SUBSECTION . 32. The taxes imposed under this subchapter 31 shall be reduced by an Iowa-grown food tax credit under section 32 137F.20. 33 DIVISION V 34 SPECIALTY CROPS —— APPROPRIATIONS 35 -6- LSB 5217YH (9) 89 da/ns 6/ 11

H.F. 2550 Sec. 12. SPECIALTY CROPS —— FISCAL YEAR 2022-2023. 1 1. Notwithstanding section 8.57G, subsection 2, there is 2 appropriated from the Iowa coronavirus fiscal recovery fund 3 to the economic development authority for the fiscal year 4 beginning July 1, 2022, and ending June 30, 2023, the following 5 amount, or so much thereof as is necessary, to be used for the 6 purposes designated: 7 For awarding grants to support persons engaged in 8 community-based initiatives to expand the capacity of 9 operations engaged in processing, distributing, and marketing 10 specialty crops: 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000,000 12 2. The economic development authority shall provide a 13 preference to applicants who are beginning farmers or ranchers 14 or socially disadvantaged farmers or ranchers as defined in 7 15 U.S.C. §2279. 16 3. The economic development authority shall provide a 17 preference to applicants who have been awarded matching moneys 18 from entities other than state agencies receiving funding under 19 the American Rescue Plan Act of 2021, Pub. L. No. 117-2. 20 4. In establishing criteria to award grants and in selecting 21 applicants to receive grants under this section, the economic 22 development authority shall cooperate with the department of 23 agriculture and land stewardship. 24 5. a. As used in this section, “specialty crop” means a 25 plant or part of a plant having commercial value and intended 26 to be marketed or used for human consumption or as livestock 27 feed in a raw or unprocessed state. 28 b. “Specialty crop” does not include corn, grain sorghum, 29 oats, soybeans, or wheat. 30 Sec. 13. SPECIALTY CROPS —— FISCAL YEAR 2023-2024. 31 1. Notwithstanding section 8.57G, subsection 2, there is 32 appropriated from the Iowa coronavirus fiscal recovery fund 33 to the economic development authority for the fiscal year 34 beginning July 1, 2023, and ending June 30, 2024, the following 35 -7- LSB 5217YH (9) 89 da/ns 7/ 11

H.F. 2550 amount, or so much thereof as is necessary, to be used for the 1 purposes designated: 2 For awarding grants to support persons engaged in 3 community-based initiatives to expand the capacity of 4 operations engaged in processing, distributing, and marketing 5 specialty crops: 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000,000 7 2. The economic development authority shall provide a 8 preference to applicants who are beginning farmers or ranchers 9 or socially disadvantaged farmers or ranchers as defined in 7 10 U.S.C. §2279. 11 3. The economic development authority shall provide a 12 preference to applicants who have been awarded matching moneys 13 from entities other than state agencies receiving funding under 14 the American Rescue Plan Act of 2021, Pub. L. No. 117-2. 15 4. In establishing criteria to award grants and in selecting 16 applicants to receive grants under this section, the economic 17 development authority shall cooperate with the department of 18 agriculture and land stewardship. 19 5. a. As used in this section, “specialty crop” means a 20 plant or part of a plant having commercial value and intended 21 to be marketed or used for human consumption or as livestock 22 feed in a raw or unprocessed state. 23 b. “Specialty crop” does not include corn, grain sorghum, 24 oats, soybeans, or wheat. 25 EXPLANATION 26 The inclusion of this explanation does not constitute agreement with 27 the explanation’s substance by the members of the general assembly. 28 DIVISION I —— BEGINNING FARMER TAX CREDIT PROGRAM. This bill 29 amends the beginning farmer tax credit program which awards 30 a tax credit to a taxpayer who transfers agricultural assets 31 to a beginning farmer by an agricultural lease agreement. The 32 transferred agricultural assets include agricultural land and 33 improvements, as well as depreciable agricultural property. 34 If the taxpayer and beginning farmer enter into an agreement 35 -8- LSB 5217YH (9) 89 da/ns 8/ 11

H.F. 2550 on a fixed cash rent basis, the amount of the tax credit 1 equals 5 percent of the amount of the fixed cash rent payment 2 for each year of 15 years that the taxpayer is eligible to 3 participate in the program. The bill provides that in the 4 case of specialty crop acres, the amount equals 10 percent of 5 the amount of the fixed cash rent. The specialty crop acre 6 is limited to the production of fruit, vegetables, tree nuts, 7 dried fruits, or horticulture or nursery crops that may be 8 consumed in an unprocessed state. 9 DIVISION II —— RETIRED FARMER LEASE INCOME EXCLUSION. 10 Commencing with tax years beginning on or after January 1, 11 2023, the bill excludes from the individual income tax a 12 retired farmer’s total net income received pursuant to a 13 farm tenancy agreement covering real property held by the 14 retired farmer for 10 or more years, if the farmer materially 15 participated in a farming business for 10 or more years. 16 A retired farmer is not eligible for the lease income 17 exclusion unless the farmer is at least 55 years of age and no 18 longer materially participating in farming. 19 A retired farmer who elects to claim the lease income 20 exclusion is not eligible, in the tax year the election is made 21 or in succeeding tax years, to claim the capital gain exclusion 22 under Code section 422.7(21), as amended by another division of 23 the bill, or the beginning farmer tax credit. 24 The net income from a farm tenancy agreement earned by 25 an individual is not eligible for the exclusion unless the 26 tenant-lessee is a person that meets the definition of a 27 qualified beginning farmer and the tenant-lessee is growing 28 specialty crops on the land comprising the farm tenancy 29 agreement. 30 DIVISION III —— RETIRED FARMER CAPITAL GAIN EXCLUSION. The 31 bill modifies the individual income tax capital gain exclusion 32 for the sale of real property used in a farming business which 33 otherwise would have gone into effect in tax year 2023, which 34 was enacted in 2018 Iowa Acts, chapter 1161, section 113, 35 -9- LSB 5217YH (9) 89 da/ns 9/ 11

H.F. 2550 and later modified in 2019 Iowa Acts, chapter 162. The bill 1 repeals both 2018 Iowa Acts, chapter 1161, section 113, and 2 2019 Iowa Acts, chapter 162, and creates a new capital gain 3 exclusion provision based upon the 2019 Iowa Acts, chapter 4 162, provisions, effective for tax years beginning on or after 5 January 1, 2023. 6 Under the provisions in 2019 Iowa Acts, chapter 162, section 7 1, which otherwise would have gone into effect during the 2023 8 tax year, a taxpayer who materially participates in a farming 9 business for at least 10 years and held real property used 10 in such a business for at least 10 years, may make a single 11 lifetime exclusion election from the individual income tax of 12 the capital gain of the sale of such property. 13 In order to be eligible for the capital gain tax exclusion on 14 the sale of real property used in a farming business, the bill 15 requires the sale of the real property to be 160 acres or less 16 and to be made to a beginning farmer as defined in Code section 17 16.77 who grows specialty crops. 18 The bill modifies the term “materially participated” in a 19 farming business to include a retired farmer if the retired 20 farmer materially participated in a farming business for 10 21 years or more, in the aggregate, prior to making the election 22 to exclude the capital gain of the sale of real property used 23 in a farming business. 24 Under the bill, a retired farmer is not eligible for the 25 capital gain exclusion if the retired farmer claims the 26 beginning farmer tax credit in the same tax year. A retired 27 farmer electing the capital gain exclusion is not eligible to 28 elect to exclude retired farmer lease income in the same tax 29 year or any succeeding tax year. 30 The division takes effect January 1, 2023, and applies to 31 sales consummated on or after that date. 32 For sales consummated prior to January 1, 2023, the existing 33 law in Code section 422.7(21) shall govern. 34 DIVISION IV —— IOWA-GROWN FOOD TAX CREDIT. The bill creates 35 -10- LSB 5217YH (9) 89 da/ns 10/ 11

H.F. 2550 an Iowa-grown food tax credit that may be claimed by a food 1 establishment (e.g., a grocery store) equal to 1 percent of the 2 sales price of food sold. The tax credit may also be claimed 3 by a wholesaler equal to 1 percent of the sales price sold to a 4 nonprofit corporation. 5 DIVISION V —— SPECIALTY CROPS —— APPROPRIATIONS. The bill 6 appropriates moneys from the Iowa coronavirus fiscal recovery 7 fund to the economic development authority (authority) for 8 fiscal years 2022-2023 and 2023-2024 for purposes of supporting 9 persons engaged in community-based initiatives to expand the 10 capacity of operations engaged in processing, distributing, 11 and marketing a specialty crop. A specialty crop includes 12 a plant or part of a plant having commercial value which is 13 intended for human or livestock use but does not include corn, 14 grain sorghum, oats, soybeans, or wheat. In awarding moneys 15 to an applicant, the authority must provide a preference to a 16 beginning farmer or rancher or socially disadvantaged farmer 17 or rancher. The authority must also provide a preference to 18 an applicant who has been awarded matching moneys from an 19 entity other than a state agency receiving funding under the 20 federal American Rescue Plan Act. In establishing criteria to 21 award grants and in selecting applicants to receive grants, the 22 authority must cooperate with the department of agriculture and 23 land stewardship. 24 -11- LSB 5217YH (9) 89 da/ns 11/ 11