HF 2550 (LSB 5217YH (9) 89)

HOUSE FILE 2550

BY  ISENHART

A BILL FOR

An Act relating to the production, processing, distribution, and marketing of agricultural products, including by providing tax credits and making appropriations.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
BEGINNING FARMER TAX CREDIT PROGRAM

    Section 1.  Section 16.77, Code 2022, is amended by adding the following new subsection:
   NEW SUBSECTION.  6A.  “Specialty crop” means a commodity limited to fruits, vegetables, tree nuts, or horticulture plants that may be consumed by humans in an unprocessed state.
    Sec. 2.  Section 16.82, subsection 3, paragraph a, Code 2022, is amended to read as follows:
   a.  (1)  In the case of an agreement on a fixed basis, in which an eligible taxpayer receives a fixed cash rent payment, the amount of the tax credit equals five percent of the amount of the fixed cash rent payment for each year.
   (2)  Notwithstanding subparagraph (1), for acres used to produce a specialty crop, the amount of the tax credit equals ten percent of the amount of the fixed cash rent payment attributable to those acres for each year. This subparagraph does not restrict an otherwise qualifying acre from including an actively managed pollinator habitat.
DIVISION II
RETIRED FARMER LEASE INCOME EXCLUSION

    Sec. 3.  Section 422.7, Code 2022, is amended by adding the following new subsection:
   NEW SUBSECTION.  21A.  a.  Subtract, to the extent included, net income received by an eligible individual pursuant to a farm tenancy agreement covering real property held by the eligible individual for ten or more years, if the eligible individual materially participated in a farming business for ten or more years.
   b.  An individual who elects to exclude income received pursuant to a farm tenancy agreement under this subsection shall not claim any of the following in the tax year in which the election is made or in any succeeding year:
   (1)  The capital gain exclusion under section 422.7, subsection 21.
   (2)  The beginning farmer tax credit under section 422.11E.
   c.  Married individuals who file separate state income tax returns shall allocate their combined annual exclusion limit to each spouse in the proportion that each spouse’s respective net income from a farm tenancy agreement bears to the total net income from a farm tenancy agreement.
   d.  The department shall establish criteria, by rule, relating to whether and how a surviving spouse may claim the income exclusion for which a deceased eligible individual would have been eligible under this subsection.
   e.  Net income from a farm tenancy agreement earned, received, or reported by an entity taxed as a partnership for federal tax purposes, an S corporation, or a trust or estate is not eligible for the election and deduction in this subsection, even if such net income ultimately passes through to an eligible individual.
   f.  Net income from a farm tenancy agreement earned, received, or reported by an individual is not eligible for the election and deduction in this subsection unless the tenant-lessee is a person that meets the definition of a qualified beginning farmer in section 16.77 and the tenant-lessee is growing specialty crops as defined in section 16.77 on the land comprising the farm tenancy agreement.
   g.  For purposes of this subsection:
   (1)  “Eligible individual” means an individual who is disabled or who is fifty-five years of age or older at the time the election is made, who no longer materially participates in a farming business at the time the election is made, and who, as an owner-lessor, is party to a farm tenancy agreement.
   (2)  “Farm tenancy agreement” means a written agreement outlining the rights and obligations of an owner-lessor and a tenant-lessee where the tenant-lessee has a farm tenancy as defined in section 562.1A. A “farm tenancy agreement” includes cash leases, crop share leases, or livestock share leases.
DIVISION III
RETIRED FARMER CAPITAL GAIN EXCLUSION

    Sec. 4.  Section 422.7, subsection 21, Code 2022, is amended by striking the subsection and inserting in lieu thereof the following:
   21.  a.  For purposes of this subsection:
   (1)  “Farming business” means the production, care, growing, harvesting, preservation, handling, or storage of crops or forest or fruit trees; the production, care, feeding, management, and housing of livestock; or horticulture, all for intended profit.
   (2)  “Held” shall be determined with reference to the holding period provisions of section 1223 of the Internal Revenue Code and the federal regulations pursuant thereto.
   (3)  “Materially participated” means the same as “material participation” in section 469(h) of the Internal Revenue Code.
   (4)  “Qualified beginning farmer” means the same as defined in section 16.77 who grows specialty crops as defined in section 16.77.
   (5)  (a)  “Real property used in a farming business” means tracts of land not to exceed one hundred sixty acres in the aggregate and the improvements and structures located on such tracts which are in good faith used primarily for a farming business. Buildings which are primarily used or intended for human habitation are deemed to be used in a farming business when the building is located on or adjacent to the parcel used in the farming business. Land and the nonresidential improvements and structures located on such land that shall be considered to be used primarily in a farming business include but are not limited to land, improvements or structures used for the storage or maintenance of farm machinery or equipment, for the drying, storage, handling, or preservation of agricultural crops, or for the storage of farm inputs, feed, or manure. Real property used in a farming business shall also include woodland, wasteland, pastureland, and idled land used for the conservation of natural resources including soil and water.
   (b)  Real property classified as agricultural property for Iowa property tax purposes, except real property described in section 441.21, subsection 12, shall be presumed to be real property used in a farming business. This presumption is rebuttable by the department by a preponderance of evidence that the real property did not meet the requirements of subparagraph division (a).
   (6)  “Retired farmer” means an individual who is disabled or who is fifty-five years of age or older and who no longer materially participates in a farming business when an exclusion and deduction is claimed under this subsection.
   b.  Subtract the net capital gain from the sale of real property used in a farming business if all of the following conditions are satisfied:
   (1)  The taxpayer has materially participated in a farming business for a minimum of ten years and has held the real property used in a farming business for a minimum of ten years. If the taxpayer is a retired farmer, the taxpayer is considered to meet the material participation requirement if the taxpayer materially participated in a farming business for ten years or more in the aggregate, prior to making an election under this subsection.
   (2)  The real property used in a farming business by the taxpayer is sold to a qualified beginning farmer.
   c.  A taxpayer who is a retired farmer may make, subject to the limitations described in paragraphs “f” and “g”, a single, lifetime election to exclude all qualifying capital gains under paragraph “b”.
   d.  A taxpayer who is a retired farmer who elects to exclude capital gains under paragraph “b” shall not claim the beginning farmer tax credit under section 422.11E or the exclusion for net income received pursuant to a farm tenancy agreement in section 422.7, subsection 21A, in the tax year in which this election is made or in any subsequent year.
   e.  A taxpayer who is a retired farmer who claims the beginning farmer tax credit under section 422.11E shall not, in the same year, make an election under this subsection. A taxpayer who is a retired farmer and who elects to exclude the net income received from a farm tenancy agreement under section 422.7, subsection 21A, shall not, in the same tax year or in any subsequent tax year, make the election under this subsection.
   f.  Married individuals who file separate state income tax returns shall allocate their combined annual net capital gain exclusion under paragraph “b” to each spouse in the proportion that each spouse’s respective net capital gain bears to the total net capital gain.
   g.  The department shall establish criteria, by rule, relating to whether and how a surviving spouse may claim the income exclusion for which a deceased retired farmer would have been eligible under this subsection.
    Sec. 5.  REPEAL.  2018 Iowa Acts, chapter 1161, section 113, is repealed.
    Sec. 6.  REPEAL.  2019 Iowa Acts, chapter 162, section 1, is repealed.
    Sec. 7.  EFFECTIVE DATE.  This division of this Act takes effect January 1, 2023.
    Sec. 8.  APPLICABILITY.
   1.  This division of this Act applies to tax years beginning on or after January 1, 2023.
   2.  This division of this Act applies to sales consummated on or after the effective date of this division of this Act, and sales consummated prior to the effective date of this division of this Act shall be governed by the law as it existed prior to the effective date of this division of this Act.
DIVISION IV
IOWA-GROWN FOOD TAX CREDIT

    Sec. 9.  NEW SECTION.  137F.20  Iowa-grown food tax credit.
   1.  As used in this section:
   a.  “Food” means raw, cooked, or a processed edible substance intended in whole or in part for human consumption, that is grown or processed in this state. “Food” may include non-nutritional ingredients incapable of being grown or processed in this state.
   b.  “Food establishment” means a grocery store, restaurant, or other entity that sells food to the public and is licensed in this state.
   c.  “Nonprofit organization” means public or nonpublic schools, hospitals, religious institutions, dependent care facilities, child care facilities, and any other nonprofit organization in this state.
   d.  “Wholesaler” means a wholesale food business licensed in this state.
   2.  a.  An Iowa-grown food tax credit may be claimed by a food establishment to reduce the taxes imposed under chapter 422, subchapters II and III, that is equal to one percent of the sales price of food sold by the food establishment in this state.
   b.  An Iowa-grown food tax credit may be claimed by a wholesaler to reduce the taxes imposed under chapter 422, subchapters II and III, that is equal to one percent of the sales price of food sold by the wholesaler to a nonprofit organization in this state.
    Sec. 10.  NEW SECTION.  422.12O  Iowa-grown food tax credit.
   The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by an Iowa-grown food tax credit authorized pursuant to section 137F.20.
    Sec. 11.  Section 422.33, Code 2022, is amended by adding the following new subsection:
   NEW SUBSECTION.  32.  The taxes imposed under this subchapter shall be reduced by an Iowa-grown food tax credit under section 137F.20.
DIVISION V
SPECIALTY CROPS —— APPROPRIATIONS

    Sec. 12.  SPECIALTY CROPS —— FISCAL YEAR 2022-2023.
   1.  Notwithstanding section 8.57G, subsection 2, there is appropriated from the Iowa coronavirus fiscal recovery fund to the economic development authority for the fiscal year beginning July 1, 2022, and ending June 30, 2023, the following amount, or so much thereof as is necessary, to be used for the purposes designated:
   For awarding grants to support persons engaged in community-based initiatives to expand the capacity of operations engaged in processing, distributing, and marketing specialty crops:
   ...................................................................... $ 10,000,000

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

   2.  The economic development authority shall provide a preference to applicants who are beginning farmers or ranchers or socially disadvantaged farmers or ranchers as defined in 7 U.S.C. §2279.
   3.  The economic development authority shall provide a preference to applicants who have been awarded matching moneys from entities other than state agencies receiving funding under the American Rescue Plan Act of 2021, Pub. L. No. 117-2.
   4.  In establishing criteria to award grants and in selecting applicants to receive grants under this section, the economic development authority shall cooperate with the department of agriculture and land stewardship. 
   5.  a.  As used in this section, “specialty crop” means a plant or part of a plant having commercial value and intended to be marketed or used for human consumption or as livestock feed in a raw or unprocessed state.
   b.  “Specialty crop” does not include corn, grain sorghum, oats, soybeans, or wheat.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   DIVISION I —— BEGINNING FARMER TAX CREDIT PROGRAM. This bill amends the beginning farmer tax credit program which awards a tax credit to a taxpayer who transfers agricultural assets to a beginning farmer by an agricultural lease agreement. The transferred agricultural assets include agricultural land and improvements, as well as depreciable agricultural property. If the taxpayer and beginning farmer enter into an agreement on a fixed cash rent basis, the amount of the tax credit equals 5 percent of the amount of the fixed cash rent payment for each year of 15 years that the taxpayer is eligible to participate in the program. The bill provides that in the case of specialty crop acres, the amount equals 10 percent of the amount of the fixed cash rent. The specialty crop acre is limited to the production of fruit, vegetables, tree nuts, dried fruits, or horticulture or nursery crops that may be consumed in an unprocessed state.
   DIVISION II —— RETIRED FARMER LEASE INCOME EXCLUSION.  Commencing with tax years beginning on or after January 1, 2023, the bill excludes from the individual income tax a retired farmer’s total net income received pursuant to a farm tenancy agreement covering real property held by the retired farmer for 10 or more years, if the farmer materially participated in a farming business for 10 or more years.
   A retired farmer is not eligible for the lease income exclusion unless the farmer is at least 55 years of age and no longer materially participating in farming.
   A retired farmer who elects to claim the lease income exclusion is not eligible, in the tax year the election is made or in succeeding tax years, to claim the capital gain exclusion under Code section 422.7(21), as amended by another division of the bill, or the beginning farmer tax credit.
   The net income from a farm tenancy agreement earned by an individual is not eligible for the exclusion unless the tenant-lessee is a person that meets the definition of a qualified beginning farmer and the tenant-lessee is growing specialty crops on the land comprising the farm tenancy agreement.
   DIVISION III —— RETIRED FARMER CAPITAL GAIN EXCLUSION. The bill modifies the individual income tax capital gain exclusion for the sale of real property used in a farming business which otherwise would have gone into effect in tax year 2023, which was enacted in 2018 Iowa Acts, chapter 1161, section 113, and later modified in 2019 Iowa Acts, chapter 162. The bill repeals both 2018 Iowa Acts, chapter 1161, section 113, and 2019 Iowa Acts, chapter 162, and creates a new capital gain exclusion provision based upon the 2019 Iowa Acts, chapter 162, provisions, effective for tax years beginning on or after January 1, 2023.
   Under the provisions in 2019 Iowa Acts, chapter 162, section 1, which otherwise would have gone into effect during the 2023 tax year, a taxpayer who materially participates in a farming business for at least 10 years and held real property used in such a business for at least 10 years, may make a single lifetime exclusion election from the individual income tax of the capital gain of the sale of such property.
   In order to be eligible for the capital gain tax exclusion on the sale of real property used in a farming business, the bill requires the sale of the real property to be 160 acres or less and to be made to a beginning farmer as defined in Code section 16.77 who grows specialty crops.
   The bill modifies the term “materially participated” in a farming business to include a retired farmer if the retired farmer materially participated in a farming business for 10 years or more, in the aggregate, prior to making the election to exclude the capital gain of the sale of real property used in a farming business.
   Under the bill, a retired farmer is not eligible for the capital gain exclusion if the retired farmer claims the beginning farmer tax credit in the same tax year. A retired farmer electing the capital gain exclusion is not eligible to elect to exclude retired farmer lease income in the same tax year or any succeeding tax year.
   The division takes effect January 1, 2023, and applies to sales consummated on or after that date.
   For sales consummated prior to January 1, 2023, the existing law in Code section 422.7(21) shall govern.
   DIVISION IV —— IOWA-GROWN FOOD TAX CREDIT. The bill creates an Iowa-grown food tax credit that may be claimed by a food establishment (e.g., a grocery store) equal to 1 percent of the sales price of food sold. The tax credit may also be claimed by a wholesaler equal to 1 percent of the sales price sold to a nonprofit corporation.
   DIVISION V —— SPECIALTY CROPS —— APPROPRIATIONS. The bill appropriates moneys from the Iowa coronavirus fiscal recovery fund to the economic development authority (authority) for fiscal years 2022-2023 and 2023-2024 for purposes of supporting persons engaged in community-based initiatives to expand the capacity of operations engaged in processing, distributing, and marketing a specialty crop. A specialty crop includes a plant or part of a plant having commercial value which is intended for human or livestock use but does not include corn, grain sorghum, oats, soybeans, or wheat. In awarding moneys to an applicant, the authority must provide a preference to a beginning farmer or rancher or socially disadvantaged farmer or rancher. The authority must also provide a preference to an applicant who has been awarded matching moneys from an entity other than a state agency receiving funding under the federal American Rescue Plan Act. In establishing criteria to award grants and in selecting applicants to receive grants, the authority must cooperate with the department of agriculture and land stewardship.