HF 362 (LSB 1170HV (1) 89)

HOUSE FILE 362

BY  COMMITTEE ON ECONOMIC GROWTH

(SUCCESSOR TO HF 2)

A BILL FOR

An Act relating to the construction of child care facilities by providing developers with sales and use tax refunds and income, franchise, moneys and credits, and gross premiums tax credits, providing for a fee, and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  15.361  Short title.
   This part shall be known as the “Workforce Child Care Facility Tax Incentives Program”.
    Sec. 2.  NEW SECTION.  15.362  Definitions.
   As used in this part, unless the context otherwise requires:
   1.  “Child care facility” means the same as defined in section 237A.1.
   2.  “Child care facility project” means a project located in this state meeting the requirements of section 15.363.
   3.  “Developer” means either of the following:
   a.  A business that constructs a new child care facility structure, or rehabilitates, repairs, or redevelops an existing structure for use as a child care facility.
   b.  The legal or equitable titleholder of record who furnishes material for or performs labor upon, or who contracts with a subcontractor to furnish material for or perform labor upon a new child care facility structure, or upon an existing structure for use as a child care facility, and who proposes to lease the structure for use as a child care facility, or intends to offer to sell the structure to a child care facility operator without occupying or using the structures as a child care facility.
   4.  “Program” means the workforce child care facility tax credit program administered pursuant to this part.
   5.  “Qualifying new investment” means costs that are directly related to the construction, repair, rehabilitation, or redevelopment of a child care facility project.
   6.  “Small city” means any city or township located in this state, except those located wholly within one or more of the eleven most populous counties in the state, as determined by the most recent population estimates issued by the United States bureau of the census.
    Sec. 3.  NEW SECTION.  15.363  Child care facility project requirements.
   To receive workforce child care facility tax incentives pursuant to the program, a proposed child care facility project must meet all of the following requirements:
   1.  The project includes at least one of the following:
   a.  The construction of a new structure to be used as a child care facility.
   b.  The rehabilitation, repair, or redevelopment of an existing structure to be used as a child care facility.
   2.  The child care facility, when completed, meets all applicable safety standards under chapter 237A.
    Sec. 4.  NEW SECTION.  15.364  Application and agreement.
   1.  Application.
   a.  A developer seeking workforce child care facility tax incentives shall apply to the authority in the manner prescribed by the authority. The authority may accept applications during one or more annual application periods to be determined by the authority by rule.
   b.  The application must include all of the following:
   (1)  The following information establishing local participation for the child care facility project:
   (a)  A resolution in support of the child care facility project by the community where the child care facility project will be located, except in a project where the developer is constructing a new structure, or rehabilitating, repairing, or redeveloping an existing structure on the grounds of a business for exclusive use by the business.
   (b)  Documentation of local matching funds pledged for the child care facility project in an amount equal to at least fifty thousand dollars, or in the case of a small city in an amount equal to at least twenty-five thousand dollars, and including but not limited to a funding agreement between the developer and the community where the child care facility project will be located. For purposes of this paragraph, local matching funds shall be in the form of cash or cash equivalents, or in the form of a local property tax exemption, rebate, refund, or reimbursement.
   (2)  A report that meets the requirements and conditions of section 15.330, subsection 9.
   (3)  Information showing the total costs and funding sources of the child care facility project sufficient to allow the authority to adequately determine the financing that will be utilized for the project, and the amount of the qualifying new investment.
   (4)  Any other information deemed necessary by the authority to evaluate the eligibility and financial need of the child care facility project under the program.
   2.  Application review —— tax incentive award.
   a.  All completed applications shall be reviewed and scored on a competitive basis by the authority pursuant to rules adopted by the authority.
   b.  Upon review and scoring of all applications received during an application period, the authority may make a tax incentive award to a child care facility project, which tax incentive award shall represent the maximum amount of tax incentives the child care facility project may qualify for under the program. In determining a tax incentive award, the authority shall not use an amount of project costs that exceeds the amount included in the application of the developer. Tax incentive awards shall be approved by the director of the authority.
   c.  After making a tax incentive award, the authority shall notify the developer of its tax incentive award. The notification shall include the amount of tax incentives under section 15.365 for which the developer has received an award and a statement that the developer has no right to receive a tax incentive certificate or claim a tax incentive until all requirements of the program, including all requirements imposed by the agreement entered into pursuant to subsection 3, are satisfied. The amount of tax credits included on a tax credit certificate issued pursuant to this section, or a claim for refund of sales and use taxes, shall be contingent upon completion of all requirements in subsection 3.
   d.  An applicant that does not receive a tax incentive award during an application period may make additional applications during subsequent application periods. Such applicant shall be required to submit a new application and shall be competitively reviewed and scored in the same manner as other applicants in that application period.
   3.  Agreement and fees.
   a.  Upon receipt of a tax incentive award by the child care facility project, the developer shall enter into an agreement with the authority for the successful completion of all requirements of the program. The agreement shall identify the tax incentive award amount, the tax incentive award date, the project completion deadline, and the total costs of the child care facility project.
   b.  The compliance cost fees imposed in section 15.330, subsection 12, shall apply to all agreements entered into under this program and shall be collected by the authority in the same manner and to the same extent as described in that subsection.
   c.  (1)  Except as provided in subparagraph (2), a developer shall complete its child care facility project within three years from the date the project is registered by the authority.
   (2)  The authority may for good cause within the discretion of the authority extend a child care facility project’s completion deadline once by up to twelve months upon application by the developer, which application shall be made prior to the expiration of the three-year completion deadline in subparagraph (1) in the manner and form prescribed by the authority.
   d.  Upon completion of a project, an examination of the project in accordance with the American institute of certified public accountants’ statements on standards for attestation engagements, completed by a certified public accountant authorized to practice in this state, shall be submitted to the authority.
   e.  Upon review of the examination and verification of the amount of the qualifying new investment, the authority may notify the developer of the amount that the developer may claim as a refund of the sales and use tax under section 15.365, subsection 2, and may issue a tax credit certificate to the developer stating the amount of workforce child care facility tax credits under section 15.365, subsection 3, the developer may claim. The sum of the amount that the developer may claim as a refund of the sales and use tax and the amount of the tax credit certificate shall not exceed the amount of the tax incentive award.
   f.  (1)  If the authority determines the developer to be in default under the agreement, the authority shall revoke the tax incentive award, and shall not issue a tax credit certificate. The developer shall not be allowed a refund of sales and use tax under section 15.365, subsection 2.
   (2)  The authority shall adopt rules pursuant to chapter 17A to specify what constitutes a default of the agreement.
   4.  Maximum tax incentives amount.
   a.  For fiscal years beginning on or after July 1, 2022, the authority shall not award in any fiscal year an amount of tax incentives for child care facility projects in excess of three million dollars in the aggregate.
   b.  (1)  Of the maximum tax incentive amounts available each fiscal year in paragraph “a”, sixty percent shall be awarded to small cities.
   (2)  If by May 1 of a calendar year the entire sixty percent of the reserved tax credits is not distributed, the remaining tax credits shall be available to any other eligible applicants.
    Sec. 5.  NEW SECTION.  15.365  Workforce child care facility tax incentives.
   1.  A developer that has entered into an agreement pursuant to section 15.364 is eligible to receive the tax incentives described in subsections 2 and 3, not to exceed two hundred thousand dollars in the aggregate per child care facility project.
   2.  A developer may claim a refund of the sales and use taxes paid under chapter 423 that are directly related to a child care facility project and specified in the agreement. The refund available pursuant to this subsection shall be as provided in section 15.331A, excluding subsection 2, paragraph “c”, of that section. For purposes of the program, the term “project completion”, as used in section 15.331A, shall mean the date on which the authority notifies the department of revenue that all applicable requirements of an agreement entered into pursuant to section 15.364 are satisfied.
   3.  a.  A developer may claim a tax credit in an amount not to exceed the following:
   (1)  For a child care facility project not located in a small city, ten percent of the qualifying new investment of a child care facility project specified in the agreement.
   (2)  For a child care facility project located in a small city, twenty percent of the qualifying new investment of a child care facility project specified in the agreement.
   b.  The tax credit shall be allowed against the taxes imposed in chapter 422, subchapters II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329.
   c.  An individual may claim a tax credit under this subsection of a partnership, limited liability company, S corporation, estate, or trust electing to have income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, estate, or trust.
   d.  Any tax credit in excess of the taxpayer’s liability for the tax year is not refundable but may be credited to the tax liability for the following five years or until depleted, whichever is earlier.
   e.  (1)  To claim a tax credit under this subsection, a taxpayer shall include one or more tax credit certificates with the taxpayer’s tax return.
   (2)  The tax credit certificate shall contain the taxpayer’s name, address, tax identification number, the amount of the credit, the name of the eligible developer, any other information required by the department of revenue, and a place for the name and tax identification number of a transferee and the amount of the tax credit being transferred.
   (3)  The tax credit certificate, unless rescinded by the authority, shall be accepted by the department of revenue as payment for taxes imposed pursuant to chapter 422, subchapters II, III, and V, and in chapter 432, and for the moneys and credits tax imposed in section 533.329, subject to any conditions or restrictions placed by the authority upon the face of the tax credit certificate and subject to the limitations of this program.
   (4)  Tax credit certificates issued under section 15.364, subsection 3, paragraph “e”, may be transferred to any person. Within ninety days of transfer, the transferee shall submit the transferred tax credit certificate to the department of revenue along with a statement containing the transferee’s name, tax identification number, and address, the denomination that each replacement tax credit certificate is to carry, and any other information required by the department of revenue. However, tax credit certificate amounts of less than the minimum amount established by rule of the authority shall not be transferable.
   (5)  Within thirty days of receiving the transferred tax credit certificate and the transferee’s statement, the department of revenue shall issue one or more replacement tax credit certificates to the transferee. Each replacement tax credit certificate must contain the information required for the original tax credit certificate and must have the same expiration date that appeared on the transferred tax credit certificate.
   (6)  A tax credit shall not be claimed by a transferee under this section until a replacement tax credit certificate identifying the transferee as the proper holder has been issued. The transferee may use the amount of the tax credit transferred against the taxes imposed in chapter 422, subchapters II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for any tax year the original transferor could have claimed the tax credit. Any consideration received for the transfer of the tax credit shall not be included as income under chapter 422, subchapters II, III, and V. Any consideration paid for the transfer of the tax credit shall not be deducted from income under chapter 422, subchapters II, III, and V.
   f.  For purposes of the individual and corporate income taxes and the franchise tax, the increase in the basis of the property that would otherwise result from the qualifying new investment shall be reduced by the amount of the tax credit computed under this subsection.
    Sec. 6.  NEW SECTION.  422.12O  Workforce child care facility tax credit.
   The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by a workforce child care facility tax credit received pursuant to section 15.365.
    Sec. 7.  Section 422.33, Code 2021, is amended by adding the following new subsection:
   NEW SUBSECTION.  31.  The taxes imposed under this subchapter shall be reduced by a workforce child care facility tax credit received pursuant to section 15.365.
    Sec. 8.  Section 422.60, Code 2021, is amended by adding the following new subsection:
   NEW SUBSECTION.  14.  The taxes imposed under this subchapter shall be reduced by a workforce child care facility tax credit received pursuant to section 15.365.
    Sec. 9.  NEW SECTION.  432.12N  Workforce child care facility tax credit.
   The taxes imposed under this chapter shall be reduced by a workforce child care facility tax credit received pursuant to section 15.365.
    Sec. 10.  Section 533.329, subsection 2, Code 2021, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  l.  The moneys and credits tax imposed under this section shall be reduced by a workforce child care facility tax credit received pursuant to section 15.365.
    Sec. 11.  APPLICABILITY.  This Act applies to tax years beginning on or after January 1, 2022, for qualifying new investment costs occurring on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill creates a workforce child care facility incentives program (program) that will be administered by the economic development authority (EDA) and that will provide tax incentives to developers that complete child care facility projects in the state. A “developer” is defined in the bill. In order to qualify for the tax incentives under the program, a child care facility project must meet certain requirements.
   First, the project includes at least one of the following: the construction of a new structure to be used as a child care facility; or the rehabilitation, repair, or redevelopment of an existing structure to be used as a child care facility. Second, the child care facility, when completed, meets all applicable safety standards under Code chapter 237A.
   A developer seeking tax incentives for a child care facility project under the bill is required to apply to the EDA. The application must include a resolution in support of the child care facility project by the community where the project will be located, except in situations where the child care facility will be exclusively used by the employees of a business, and include documentation of local matching funds in an amount equal to at least $50,000, or in the case of a small city in an amount equal to at least $25,000, and other information for the EDA to evaluate the eligibility and financial need of the child care facility project under the program. The bill defines “small city” to mean any city or township located in this state, except those located wholly within one or more of the 11 most populous counties in the state, as determined by the most recent population estimates issued by the United States bureau of the census.
   The bill requires the EDA to review and score each application on a competitive basis based upon the rules of the EDA. The EDA is required to notify a developer of a successful application and the amount of tax incentives for which the EDA preliminarily determines it qualifies for under the bill. A developer is then required to enter into an agreement with the EDA for the successful completion of its child care facility project within three years from the date it was registered by the EDA. The bill also assesses a compliance cost fee in the amount of $500.
   If the EDA determines the developer to be in default under the agreement, the bill requires the EDA to revoke the tax incentive award, and to not issue the tax credit certificate or a sales and use tax refund. The bill requires the EDA to adopt rules pursuant to Code chapter 17A to specify what constitutes a default of the agreement.
   Upon completion of a child care facility project, the bill requires the developer to have its project audited by an independent certified public accountant licensed in this state. The EDA will then review the audit, verify the amount of workforce child care facility tax credits the developer may claim, and issue a tax credit certificate for that amount. The bill limits the amount of tax incentives for child care facility projects at $3 million in the aggregate per fiscal year. 
   The bill specifies that of the maximum tax incentive amounts available each fiscal year, 60 percent shall be awarded to small cities. If the amount of tax credits reserved for small cities has not been distributed by May 1 of any calendar year, the remaining reserved tax credits shall be available to any other eligible applicants.
   The maximum amount of tax incentives that may be awarded by the EDA to a developer for a child care facility project shall not exceed $200,000.
   The bill provides two different tax incentives. The first is a refund of the sales and use taxes paid that are directly related to the child care facility project. The second is a workforce child care facility investment tax credit in an amount not to exceed 20 percent of the qualifying new investment of the child care facility project in a small city, and 10 percent of the qualifying new investment of the child care facility project in any other area. “Qualifying new investment” means the costs directly related to the construction, repair, rehabilitation, or redevelopment of the child care facility.
   The workforce child care facility investment tax credit may be claimed against the individual income tax, the corporate income tax, the franchise tax, the insurance companies tax, and the moneys and credits tax. To claim a tax credit, a taxpayer must include a tax credit certificate with the taxpayer’s tax return. The credit is nonrefundable but may be credited to the tax liability for five years. The tax credit may be transferred to any person or entity, and the bill establishes procedures for the proper transfer of the tax credit. For purposes of the individual and corporate income taxes and the franchise tax, when the tax basis of property is increased as a result of qualifying new investment, that tax basis shall be reduced by the amount of the workforce child care facility investment tax credit issued under the program.
   The bill applies to tax years beginning on or after January 1, 2022, for qualifying new investments occurring on or after that date.