HF 2732 (LSB 6588YH (3) 91)

HOUSE FILE 2732

BY  TUREK

A BILL FOR

An Act providing for water quality practices, including an edge-of-field practice tax credit and cover crop practice tax credit.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  159.5A  Water quality practice.
   1.  The department, acting through the division of soil conservation and water quality, may enter onto land in order to inspect a water quality practice and verify that such practice has been established and maintained as required in chapter 467. In entering onto the land, the division shall have the powers conferred upon commissioners of soil and water conservation districts under chapter 161A as if the water quality practice were a soil and water conservation practice or erosion control practice established on a voluntary or mandatory basis using cost-share moneys.
   2.  Subsection 1 does not require the department to enter onto land to inspect and verify the establishment or maintenance of a water quality practice.
    Sec. 2.  NEW SECTION.  161A.11  Water quality practice —— cooperation with the division.
   The commissioners of a district where a water quality practice is to be or has been established under chapter 467 are deemed to be the agents of the division and shall act under the direction and supervision of the division in entering onto land located in the district in order to inspect a water quality practice and verify that it has been established and maintained as required in chapter 467. In entering onto the land, the commissioners have all the powers conferred upon them under this chapter as if the water quality practice were a soil and water conservation practice or erosion control practice established on a voluntary or mandatory basis using cost-share moneys.
    Sec. 3.  NEW SECTION.  161A.77  Limitations on financial assistance —— water quality practice tax credits.
   A person is not eligible to receive an award of financial assistance that is not required to be repaid by the recipient, including but not limited to cost-share moneys under this chapter, for that portion of the amount awarded under the water quality practice program as either an edge-of-field practice tax credit or cover crop practice tax credit under chapter 467.
    Sec. 4.  NEW SECTION.  422.11K  Water quality practice program —— tax credits.
   1.  The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by an edge-of-field practice tax credit allowed under chapter 467.
   2.  The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by a cover crop practice tax credit allowed under chapter 467.
    Sec. 5.  Section 422.33, Code 2026, is amended by adding the following new subsection:
   NEW SUBSECTION.  24.  a.  The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by an edge-of-field practice tax credit allowed under chapter 467.
   b.  The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by a cover crop practice tax credit allowed under chapter 467.
    Sec. 6.  NEW SECTION.  467.1  Definitions.
   As used in this chapter, unless the context otherwise requires:
   1.  a.  “Cover crop” means a water quality practice that is planted for seasonal vegetative cover and that is all of the following:
   (1)  Part of a crop rotation cycle.
   (2)  Not intended for harvest.
   (3)  Established in a manner that promotes soil health.
   b.  “Cover crop” includes grasses, legumes, forbs, and other vegetation specified by the department. 
   2.  “Cropland” means any land suitable for use to produce grains, seed crops, and forages. 
   3.  “Department” means the department of agriculture and land stewardship.
   4.  a.  “Edge-of-field practice” means a water quality practice designed to slow, filter, and process surface and subsurface water draining from cropland.
   b.  “Edge-of-field practice” includes all of the following:
   (1)  A bioreactor installed as part of or connected to a field drainage system.
   (2)  A wetland established as part of or connected to a crop field.
   (3)  A saturated buffer.
   (4)  Cropland integrated with a prairie grass strip.
   (5)  A riparian buffer strip.
   (6)  A grassed waterway.
   (7)  An area maintained in permanent vegetation cover, including perennial vegetation cover consisting of grasses or legumes, including but not limited to grasslands or forages.
   (8)  A wetland area if the area is mostly underwater or waterlogged during the growing season and is characterized by vegetation of hydric soils.
   (9)  Any other measure recognized by the department that manages nutrients and reduces contributing contaminant loads to receiving surface waters, including by detaining sediment-laden water, reducing the volume or velocity of precipitation-induced surface water, filtering sediment-laden water, or reducing nutrient loss through tile drainage systems.
   5.  “Eligible taxpayer” means a person that meets all of the following requirements:
   a.  Is eligible to claim the family farm tax credit under chapter 425A.
   b.  Has a net worth not exceeding two million dollars according to generally accepted accounting principles.
   6.  “Farming practice” includes but is not limited to a decision regarding crop production, including crop types and varieties to plant, cultivation and harvesting methods, and the application of materials including manure and commercial fertilizers, tillage, and crop rotation systems.
   7.  “Soil and water conservation practice” means the same as defined in section 161A.42.
   8.  “Soil health” means the continued capacity of soil to permanently sustain plant and animal life.
   9.  “State fiscal year” means the fiscal year described in section 3.12.
   10.  “Tax credit” means any of the following:
   a.  An edge-of-field practice tax credit.
   b.  A cover crop practice tax credit.
   11.  “Water quality practice” means any of the following:
   a.  An edge-of-field practice.
   b.  A cover crop practice.
    Sec. 7.  NEW SECTION.  467.2  Water quality practice program —— administration.
   1.  This chapter shall be administered by the department of agriculture and land stewardship. The department of revenue shall cooperate with the department of agriculture and land stewardship in administering this chapter. 
   2.  The department of agriculture and land stewardship and the department or revenue shall adopt rules pursuant to chapter 17A necessary or desirable to administer this chapter.
    Sec. 8.  NEW SECTION.  467.3  Water quality practice program —— purpose.
   1.  A water quality practice program is established in the department of agriculture and land stewardship.
   2.  The purpose of the program is to establish new water quality practices as part of existing farming practices, including by providing for the establishment of measures that limit sediment or nutrients from being conveyed by subsurface drainage or surface water runoff or leaching and that may be part of a soil and water conservation practice and that may promote soil health.
    Sec. 9.  NEW SECTION.  467.11  Edge-of-field practice tax credit.
   As part of the water quality practice program as provided in section 467.3, an edge-of-field practice tax credit is allowed against the taxes imposed in chapter 422, subchapter II, as provided in section 422.11K, and in chapter 422, subchapter III, as provided in section 422.33, subsection 24.
    Sec. 10.  NEW SECTION.  467.12  Cover crop practice tax credit.
   As part of the water quality practice program as provided in section 467.3, a cover crop practice tax credit is allowed against the taxes imposed in chapter 422, subchapter II, as provided in section 422.11K, and in chapter 422, subchapter III, as provided in section 422.33, subsection 24.
    Sec. 11.  NEW SECTION.  467.13  Tax credit application —— approval process.
   1.  The department of agriculture and land stewardship, in cooperation with the department of revenue, shall establish criteria and procedures for the review and approval or disapproval of applications submitted by persons seeking to participate in the water quality practice program by being awarded any of the following:
   a.  An edge-of-field practice tax credit. The amount of the tax credit shall not exceed fifty percent of the estimated or actual cost of establishing the edge-of-field practice, whichever is less.
   b.  A cover crop practice tax credit. The amount of the tax credit shall not exceed fifty percent of the estimated or actual cost of establishing the cover crop practice, whichever is less.
   2.  The department shall not approve an application under subsection 1 unless all of the following apply:
   a.  The person is an eligible taxpayer.
   b.  The person agrees to establish and maintain a water quality practice associated with an edge-of-field practice tax credit or a cover crop practice tax credit for not less than ten years.
   3.  An eligible taxpayer may apply for and be approved for the establishment of both an edge-of-field practice tax credit and a cover crop practice tax credit, as described in subsection 1, so long as each application applies to the establishment of a separate and distinct water quality practice.
    Sec. 12.  NEW SECTION.  467.14  Tax credit application —— approval.
   1.  Subject to subsection 2, the department shall approve applications to participate in the water quality practice program by awarding a tax credit pursuant to section 467.13 on a first-come, first-served basis. 
   2.  The department shall not approve an application if the aggregate amount awarded for all tax credit awards exceeds ten million dollars in any state fiscal year.
   3.  Applications that were approved by the department but for which a tax credit was not awarded shall be placed on a wait list in the order that the applications were received by the department and shall be given priority for being awarded a tax credit in the succeeding state fiscal year.
    Sec. 13.  NEW SECTION.  467.15  Tax credit award.
   1.  After the department of agriculture and land stewardship has approved all applications by eligible taxpayers participating in the water quality practice program under section 467.14, and after the department has approved all eligible taxpayers’ corresponding tax credit awards, the department shall do one of the following:
   a.  Issue a tax credit certificate to each eligible taxpayer that has been awarded an edge-of-field practice tax credit.
   b.  Issue a tax credit certificate to each eligible taxpayer that has been awarded a cover crop practice tax credit.
   2.  The tax credit certificate shall be issued and contain the information required by the department of revenue.
   3.  Under either tax credit, an individual may claim the tax credit as 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.
   4.  To claim the relevant tax credit, an eligible taxpayer shall include a tax credit certificate for that tax credit with the eligible taxpayer’s tax return pursuant to rules adopted by the department of revenue.
   5.  A tax credit certificate, unless rescinded by the department of agriculture and land stewardship, shall be accepted by the department of revenue as payment for taxes pursuant to chapter 422, subchapters II and III, subject to any conditions or restrictions placed by the department of agriculture and land stewardship upon the face of the tax credit certificate and subject to the limitations of the water quality practice program, including the application approved by the department.
    Sec. 14.  NEW SECTION.  467.16  Tax credit award —— limitations.
   1.  A tax credit awarded under section 467.15 to an eligible taxpayer shall not be transferable to any other person other than the eligible taxpayer’s estate or trust upon the eligible taxpayer’s death pursuant to rules adopted by the department of agriculture and land stewardship.
   2.  A tax credit in excess of the eligible taxpayer’s tax liability for the tax year is not refundable but may be credited to the tax liability for the following ten tax years or until depleted, whichever is earlier. A tax credit shall not be carried back to a tax year prior to the tax year in which the eligible taxpayer redeems the tax credit.
   3.  If the eligible taxpayer fails to comply with any requirement of the water quality practice program or the terms of the approved application, as determined by the department of agriculture and land stewardship, that department may revoke the tax credit award and may rescind any tax credit certificate that has been issued. The department of agriculture and land stewardship shall notify the department of revenue of any required repayment of an awarded tax credit. Such repayment shall be considered a tax payment due and payable to the department of revenue by any taxpayer that claimed the tax credit, and the taxpayer’s failure to make the repayment may be treated by the department of revenue in the same manner as a failure to pay the tax shown due, or required to be shown due, with the filing of a return or deposit form.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   GENERAL PROVISIONS. This bill provides for a water quality practice program (program) administered by the department of agriculture and land stewardship (DALS) in cooperation with the department of revenue (DOR). The purpose of the program is to establish new water quality practices as part of existing farming practices, including by providing for the establishment of measures that limit sediment or nutrients from being conveyed by subsurface drainage or surface water runoff or leaching and that may be part of a soil and water conservation practice and that may promote soil health.
   TAX CREDIT PROVISIONS. The program provides for two separate tax credits: (1) an edge-of-field practice tax credit and (2) a cover crop practice tax credit. The bill provides for the consideration and approval of applications submitted to DALS by eligible taxpayers seeking to participate in the program. A person is eligible to participate in the program if the person is eligible to claim the family farm tax credit (Code chapter 425A) and has a net worth not exceeding 
$2 million. The person must also agree to establish and maintain a water quality practice associated with a tax credit for at least 10 years. The amount of the tax credit cannot exceed 50 percent of the estimated or actual cost of establishing the water quality practice, whichever is less. DALS cannot approve an application, if the aggregate amount awarded for all tax credit awards exceeds $10 million in any state fiscal year (July 1 through June 30). Upon approval of a tax credit award, DALS must issue the eligible taxpayer a tax credit certificate to be included as part of the eligible taxpayer’s tax return according to DOR requirements. The bill provides limitations upon the transferability of a tax credit and the use of the tax credit to offset income. 
   ENFORCEMENT. DALS or a commissioner of a soil and water conservation district is authorized to enter onto land where a water quality practice is established in the same manner as a commissioner may enter on the land where a soil and water conservation practice financed with state cost-share moneys is established (Code chapter 161A). If the eligible taxpayer fails to comply with any requirement of the program or the terms of the approved application, DALS may revoke the tax credit award and may rescind any tax credit certificate that has been issued. In that case, DOR must seek repayment of the tax credit award by considering the repayment amount as a past due tax amount.