HF 2676 (LSB 5979HV (2) 90)

HOUSE FILE 2676

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO HSB 739)

A BILL FOR

An Act providing a credit refund for taxpayers who own or lease cow-calf operations that maintain a herd of qualified cattle, and providing an appropriation.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  422.11N  Cow-calf operations credit.
   The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by a cow-calf operations credit allowed and a cow-calf operations credit refund paid under subchapter X.
    Sec. 2.  Section 422.33, Code 2024, is amended by adding the following new subsection:
   NEW SUBSECTION.  11.  The taxes imposed under this subchapter shall be reduced by a cow-calf operations credit allowed and a cow-calf operations credit refund paid under subchapter X.
    Sec. 3.  NEW SECTION.  422.120  Definitions.
   As used in this subchapter, unless the context otherwise requires:
   1.  “Appropriation amount” means the amount of the appropriation for a fiscal year as provided in section 422.124 available to support a cow-calf operations credit refund paid under section 422.126 plus any additional appropriation made to the department for that same fiscal year and for that same purpose.
   2.  “Cow-calf operation” or “operation” means land and facilities located in this state where a cow-calf operation herd is maintained.
   3.  “Cow-calf operation cattle” or “cattle” means any of the following three types of cattle:
   a.  A mature beef cow bred or for breeding.
   b.  A bred yearling heifer.
   c.  A breeding bull.
   4.  “Cow-calf operation herd” or “herd” means at least one head of each of the three types of cow-calf operation cattle that are maintained together.
    Sec. 4.  NEW SECTION.  422.121  Administration.
   1.  The department shall adopt all rules pursuant to chapter 17A that it determines are necessary or desirable to administer this subchapter.
   2.  The department shall publish all forms required for an eligible taxpayer to comply with this subchapter. The department shall provide for procedures for the receipt, filing, processing, and return of documents in an electronic format, including but not limited to the transmission of documents by the internet. The department shall provide for authentication of the documents that may include electronic signatures as provided in chapter 554D.
    Sec. 5.  NEW SECTION.  422.122  Allowance.
   1.  There is allowed a cow-calf operations credit that may be claimed by eligible taxpayers for tax years beginning on and after January 1, 2025.
   2.  Only qualifying cow-calf operation cattle are counted in calculating an allowable credit. Cattle qualify, if on December 31 of the taxpayer’s tax year and on the previous July 1, the cattle are part of a cow-calf operation herd maintained at a cow-calf operation.
   3.  a.  The amount of an allowable credit equals fifteen dollars and fifty cents multiplied by the number of qualifying cow-calf operation cattle counted by the eligible taxpayer as provided in subsection 2 subject to allocation as provided in section 422.127.
   b.  The maximum allowable credit amount that may be claimed by an eligible taxpayer shall not exceed four thousand dollars.
    Sec. 6.  NEW SECTION.  422.123  Taxpayer eligibility.
   A taxpayer is eligible to claim the allowable credit under section 422.122, if all of the following apply:
   1.  The taxpayer is all of the following:
   a.  The owner of an interest in one or more qualifying cow-calf operation cattle that are part of a cow-calf operation herd as described in section 422.122.
   b.  The owner or lessee of an interest in the cow-calf operation where the qualifying cow-calf operation cattle are maintained.
   c.  Able to directly or indirectly acquire or otherwise obtain, own, lease, or hold agricultural land for purposes of farming under chapter 9H, 9I, 10, or 501.
   d.  Not classified as a habitual violator for a violation of state law involving an animal feeding operation as regulated by the department of natural resources under chapter 459.
   e.  Subject to taxation under subchapter II or III.
   2.  The taxpayer’s income does exceed an adjustable income limit. The taxpayer’s adjustable income limit equals the taxpayer’s federal taxable income. In the case of married taxpayers, their combined federal taxable income shall be used to determine if they may claim the allowable credit. The taxpayer’s adjustable income limit shall be calculated as follows:
   a.  The base rate for the calendar year beginning January 1, 2024, shall equal one hundred ninety-one thousand dollars.
   b.  (1)  For the tax year beginning January 1, 2025, and for each subsequent tax year, the eligible taxpayer’s base rate as specified in paragraph “a” is multiplied by the cumulative index factor for that tax year.
   (2)  (a)  “Cumulative index factor” means the product of the annual index factor for the 2025 calendar year and all annual index factors for subsequent calendar years.
   (b)  The annual index factor equals the annual inflation factor for that calendar year as computed in section 422.4 for purposes of the individual income tax.
    Sec. 7.  NEW SECTION.  422.124  Appropriation —— limitation.
   For the fiscal year beginning July 1, 2025, and ending June 30, 2026, and for each fiscal year thereafter, there is appropriated from the general fund of the state to the department three million dollars to pay cow-calf operations credit refunds as provided in section 422.126.
    Sec. 8.  NEW SECTION.  422.125  Credit claim form —— filing requirements.
   1.  An eligible taxpayer shall only claim a cow-calf operations credit allowed under section 422.122 for the taxpayer’s tax year by completing a cow-calf operations credit claim form including all information required by the department. The claim form must include all of the following:
   a.  The count of the cow-calf operation cattle in which the eligible taxpayer owns an interest as provided in section 422.122.
   b.  The eligible taxpayer’s ownership percentage interest in the counted cow-calf operation cattle as provided in section 422.123.
   c.  A calculation of the cow-calf operations credit claimed by the eligible taxpayer.
   2.  The eligible taxpayer must file the cow-calf operations credit claim form with the department as required by the department. The claim form shall be attached to the taxpayer’s income tax return for the tax year in which the credit is claimed. The claim form must be filed within ten months after the last day of the tax year of the return. The department shall not grant the taxpayer an extension for filing the claim form. The taxpayer has the burden to maintain tax records that support the claim form. Upon request by the department, a taxpayer shall allow the department to examine the tax records used to support the claim form.
   3.  The department shall review and approve or disapprove all cow-calf operations credit claim forms, if properly submitted to the department according to procedures established by the department.
   4.  A taxpayer who files a fraudulent cow-calf operations credit claim form shall forfeit any right or interest in a cow-calf operations credit refund payment, as provided in section 422.126, in subsequent tax years.
    Sec. 9.  NEW SECTION.  422.126  Credit refund computation and payment.
   1.  On or before February 28, the department shall compute all payable claimed cow-calf operations credits approved by the department as provided in section 422.125, for a refund payment for the eligible taxpayer’s prior tax year. If a credit cannot be computed by that date because a taxpayer is not a calendar year filer, the taxpayer’s approved claim form shall be held over for computation and payment of a credit for the taxpayer’s following tax year.
   2.  The department shall pay each eligible taxpayer up to the maximum allowable credit amount.
   3.  The department shall determine whether it will make full credit refund payments or partial credit refund payments to eligible taxpayers in a tax year by dividing the appropriation amount by the total amount of all payable claimed credits approved by the department.
   a.  If the appropriation amount is equal to or more than the total amount of payable claimed credits, the department shall make full credit refund payments to all eligible taxpayers.
   b.  If the appropriation amount is less than the total amount of payable claimed credits, the department shall make partial credit refund payments, in lieu of making full credit refund payments, to all eligible taxpayers. In that case, the department shall make to each eligible taxpayer submitting an approved claim form the sum of the two partial credit refund payments as follows:
   (1)  The first refund payment which shall be made to all such eligible taxpayers not awarded a full credit refund payment, by dividing the appropriation amount by the total number of eligible taxpayers filing approved claim forms.
   (2)  The second refund payment which shall be made to each such eligible taxpayer not awarded a full credit refund payment. Each such taxpayer shall be assigned the same percentage of the remaining appropriation amount as would have been awarded to that taxpayer if full refund payments were being made.
   4.  An eligible taxpayer who is awarded a partial credit refund payment is not entitled to any remaining unpaid amount of the partial credit refund. The taxpayer is not entitled to carry forward or carry back to another tax year any remaining unpaid amount of the partial credit refund. The taxpayer shall not use a credit refund as an estimated payment for a succeeding tax year.
    Sec. 10.  NEW SECTION.  422.127  Allocations.
   1.  A percentage of a cow-calf operations credit refund payment made in section 422.126 shall be awarded to one or more eligible taxpayers, under circumstances identified by the department, including any of the following:
   a.  If an eligible taxpayer owns or leases an interest in a cow-calf operation that is partially located in and partially located outside this state.
   b.  (1)  Except for married taxpayers, if two or more eligible taxpayers jointly own or lease an interest in the same cow-calf operation and jointly own a percentage of all qualified cow-calf operation cattle that are part of a cow-calf operation herd maintained at the operation.
   (2)  For married taxpayers in which one or both spouses are eligible taxpayers, any of the following:
   (a)  If only one spouse as an eligible taxpayer owns or leases an interest in a cow-calf operation and independently owns an interest in all qualified cattle that are part of a cow-calf operation herd maintained at the operation.
   (b)  If both spouses as eligible taxpayers jointly own or lease an interest in the same cow-calf operation and jointly own all qualified cattle that are part of a cow-calf operation herd maintained at the operation.
   (3)  If each spouse separately owns or leases an interest in a separate cow-calf operation and independently owns an interest in all qualified cattle that are part of a cow-calf herd maintained at that operation. In that case, each spouse as an eligible taxpayer may claim up to the maximum allowable credit amount without allocation to the other spouse.
   2.  An individual may claim a cow-calf operations credit refund allowed a partnership, limited liability company, subchapter S corporation, or estate or trust electing to have the income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earning of the partnership, limited liability company, subchapter S corporation, or estate or trust.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   BACKGROUND —— GENERAL. In 1996, the general assembly established the livestock production tax credit refund (credit refund) in Code sections 422.120 through 422.123 codified as division X (now subchapter X) that authorized eligible taxpayers to claim a refund tax credit (credit) in an amount based on the cost of producing certain farm animals associated with beef, dairy, pork, sheep, and poultry operations (1996 Iowa Acts, chapter 1197). The details of the credit were further described in rules adopted by the department of revenue and finance (today the department or revenue) under 701 IAC 43.8. In 1997 and 1999, the general assembly amended the provisions in the division (1997 Iowa Acts, chapter 206, and 1999 Iowa Acts, chapter 151) and in 2009 the general assembly eliminated the provisions entirely (2009 Iowa Acts, chapter 179).
   BACKGROUND —— CALCULATION. The 1996 Iowa Act established a formula to calculate the credit based on a flat rate of 10 cents multiplied by a corn equivalency factor assigned to each species of listed farm animals maintained as part of a herd or flock at a livestock production operation (operation). The Act accounted for both mature and immature farm animals (e.g., farrow to finish and farrow to feeder pig) and types of operation (cow-calf, feedlot, and dairy). The corn equivalency factor was based on the farm animal’s relevant consumption of corn or a corn substitute having relative comparable value, which presumably corresponded to the comparative weights of the farm animals, ranging from a broiler assigned a 0.15 corn equivalency to a dairy cow assigned a 350 corn equivalency (for a similar scale of corresponding animal weights see Code section 459.102). For example, the credit for an operation maintaining turkeys assigned a corn equivalency of 1.5 for each bird would be calculated as $0.10 x 1.5 = $0.15). The next step would be to multiply the product of the per turkey credit refund by the total number of turkeys maintained at the operation. If the operation contained 15,000 turkeys, the total animal credit refund amount would be calculated as $0.10 x 1.5 x 15,000 = $2,250. Alternatively, for a cow-calf operation, the assigned corn equivalency for each qualifying head of cattle that was part of a herd maintained at an operation was 111.5 or $11.15 per head. If an operation contained 280 qualifying cattle, the total credit refund amount would be calculated as $0.10 x 111.5 x 280 = $3,122.
   BACKGROUND —— PROCEDURES. The 1996 Iowa Act established a number of procedures. The taxpayer was required to file a claim for the refund within 10 months from the last day of the taxpayer’s tax year (October 31 for a calendar year filer). An extension by the taxpayer was not allowed. A claim for a credit refund had to be made on forms published by the department. The department was required to determine by February 28 of each calendar year whether the total amount of claims for refunds for the prior calendar year exceeded the amount available to fully pay all claims.
   BACKGROUND —— LIMITATIONS (RESTRICTED TO COW-CALF OPERATIONS). The 1996 Iowa Act provided that for the tax year beginning on and after January 1, 1996, the credit refund applied only to cow-calf operations. The 1997 Iowa Act extended that restriction to all future tax years, while leaving the Code sections establishing the general credit refund applying to all farm animals intact but unfunded. The 1997 Iowa Act specified that a cow-calf operation must include a herd consisting of three types of qualifying cattle: mature beef cows bred or for breeding, bred yearling heifers, and breeding bulls. The 1999 Iowa Act provided that the credit refund was based on a head count of the cattle (inventory) conducted on December 31 of the tax year and required that the same cattle must have been included in the herd inventory on the previous July 1.
   BACKGROUND —— LIMITATIONS (FINANCIAL CAPS). A number of financial limitations applied to the credit refund. The first and second limitations were established in the 1996 Iowa Act. The first limitation set a maximum allowable amount (maximum credit cap) of $3,000 that could be awarded to any one taxpayer. Thus, a taxpayer who owned a cow-calf operation could not count more than 269 cattle when claiming a credit refund ($0.10 x 111.5 x 269 = $2,999.35). The second limitation set a maximum annual standing limited appropriation of $2 million dedicated to pay all claimed credit refunds allowed by the department in that fiscal year. If on February 28 the appropriated amount was available to cover all approved credit claims, each of the approved claims would be paid up to the maximum allowable credit cap. Otherwise, the appropriated amount would be paid on a percentage basis in two rounds of distributions. During the first round, each taxpayer holding a claim was paid an equal amount up to the claimed credit’s maximum credit cap. During the second round, the remaining appropriation amount was apportioned among all taxpayers holding claims that were not fully paid. Each such taxpayer was assigned the same percentage of the remaining appropriation amount as would have been awarded to that taxpayer if full refund payments were made to all such waiting taxpayers. The third financial limitation set an eligibility requirement for taxpayers. The 1997 Iowa Act replaced a taxpayer net worth cap with a taxpayer annual income cap. The former Act required a taxpayer to have had a net worth of less than $1 million. The new requirement provided that the taxpayer’s income could not exceed $99,600 for the 1997 tax year and increased that cap each tax year based on an inflation formula referred to as a cumulative index factor which added together the rate of inflation for each relevant year after the base year (see Code section 422.4).
   BACKGROUND —— ALLOCATIONS. Interest holders of certain businesses, such as S corporations, were allowed to claim the credit individually as a pass-through.
   BILL’S PROVISIONS. This bill reestablishes the credit refund based on the framework of the 1996 Iowa Act as amended, but also makes certain changes. The former version of the credit refund applied to livestock production operations but in fact limited its application to only cow-calf operations. The bill applies exclusively to cow-calf operations as defined in the 1997 Iowa Act and eliminates language that refers to those other types of operations. The bill assumes an inflation rate of 92 percent (rounded) since the income cap for taxpayers first applied to 1997 and later tax years and substitutes $99,600 with $191,000 (rounded) as a base rate for the 2024 calendar year with subsequent increases calculated for tax years beginning on and after January 1, 2025, using the same inflation formula. The bill assumes an inflation rate of 43.75 percent (rounded) since the credit’s elimination in 2009. The bill replaces the formula that had been used to calculate the per head amount of the credit with a fixed amount of $15.50 assuming an inflation adjusted flat rate per head from $0.10 to $0.14 calculated as $0.14 x 111.5 = $15.50 (rounded). It makes two other inflation adjustments, including (1) the maximum allowable credit amount by substituting $3,000 with $4,000 (rounded), and (2) the appropriation amount by substituting $2 million with $3 million (rounded). It requires the filing of documents with the department in an electronic format. It provides that a taxpayer must be able to hold agricultural land for farming under Iowa’s corporate and foreign farming laws (see Code chapter 425A providing for the family farm tax credit) and provides that a taxpayer operating an animal feeding operation cannot be classified as a habitual violator of environmental regulations (see Code section 16.79 providing eligibility criteria for the beginning farmer tax credit program). Finally, it expressly allows the department to calculate allocations of a credit when qualifying cow-calf operation cattle are owned by more than one taxpayer, including married taxpayers.