Senate Study Bill 3129 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED GOVERNOR BILL) A BILL FOR An Act providing for the beginning farmer tax credit program 1 administered by the Iowa finance authority and department of 2 revenue, providing for fees, and including effective date 3 provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5100XL (8) 91 da/jh

S.F. _____ H.F. _____ Section 1. Section 16.77, subsections 2 and 4, Code 2026, 1 are amended to read as follows: 2 2. “Agricultural assets lease agreement” or “ lease agreement” 3 means an a type of agricultural assets transfer agreement for 4 the transfer of agricultural assets from an eligible taxpayer 5 to a qualified beginning farmer by lease as provided in section 6 16.79A . 7 4. “Eligible taxpayer” or “taxpayer” means a taxpayer who 8 may participate in the beginning farmer tax credit program, 9 including by meeting all the criteria as provided in section 10 16.79 . 11 Sec. 2. Section 16.77, Code 2026, is amended by adding the 12 following new subsections: 13 NEW SUBSECTION . 2A. a. “Agricultural assets sale agreement” 14 or “sale agreement” means a type of agricultural assets transfer 15 agreement for the transfer of agricultural assets from an 16 eligible taxpayer to a qualified beginning farmer by sale as 17 provided in section 16.79A. 18 b. As used in paragraph “a” , “agricultural assets sale 19 agreement” only includes a transfer by any of the following: 20 (1) A cash sale contract in which the taxpayer receives a 21 fixed cash payment in full at one time. 22 (2) An installment contract in which the taxpayer receives 23 scheduled payments over a period of years, including under a 24 fixed cash payment arrangement or under a risk distribution 25 payment arrangement. 26 NEW SUBSECTION . 2B. “Agricultural assets transfer agreement” 27 or “transfer agreement” means an agricultural assets lease 28 agreement or agricultural assets sale agreement. 29 Sec. 3. Section 16.78, Code 2026, is amended by adding the 30 following new subsection: 31 NEW SUBSECTION . 1A. Under the program, a beginning farmer 32 tax credit is allowed for agricultural assets that are subject 33 to an agricultural assets transfer agreement entered into by an 34 eligible taxpayer and a qualifying beginning farmer as provided 35 -1- LSB 5100XL (8) 91 da/jh 1/ 21

S.F. _____ H.F. _____ in this subpart. 1 Sec. 4. Section 16.79, subsection 1, Code 2026, is amended 2 to read as follows: 3 1. A taxpayer is eligible to participate in the beginning 4 farmer tax credit program if the taxpayer meets all of the 5 following requirements: 6 a. The taxpayer is a person who may acquire or otherwise 7 obtain or lease agricultural land in this state , including by 8 lease or sale, pursuant to chapter 9H or 9I . However, the 9 taxpayer must not be a person who may acquire or otherwise 10 obtain or lease agricultural land exclusively because of an 11 exception provided in one of those chapters or in a provision 12 of another chapter of this Code including but not limited to 13 chapter 10 , 10D , or 501 , or section 15E.207 . 14 b. The taxpayer has entered into an agricultural assets 15 transfer agreement that includes any of the following: 16 (1) An agricultural assets lease agreement with a qualified 17 beginning farmer to lease agricultural land assets as provided 18 in section 16.79A . 19 (2) An agricultural assets sale agreement with a qualified 20 beginning farmer to sell agricultural assets as provided in 21 section 16.79A. 22 c. The taxpayer has not been at fault for terminating a 23 prior agreement under the program or another agreement in which 24 the taxpayer was allowed to claim a tax credit under section 25 175.37 as it existed prior to January 1, 2015, or section 16.80 26 as it existed prior to January 1, 2018. 27 d. If the transfer agreement includes the lease transfer 28 of a confinement feeding operation structure as defined in 29 section 459.102 , the taxpayer is not a party to a pending 30 administrative or judicial action, including a contested case 31 proceeding under chapter 17A , relating to an alleged violation 32 involving an animal feeding operation as regulated by the 33 department of natural resources, regardless of whether the 34 pending action is brought by the department or the attorney 35 -2- LSB 5100XL (8) 91 da/jh 2/ 21

S.F. _____ H.F. _____ general. 1 e. The taxpayer is not classified as a habitual violator for 2 a violation of state law involving an animal feeding operation 3 as regulated by the department of natural resources under 4 chapter 459 . 5 f. The taxpayer is not a partner of a partnership, 6 shareholder of a family farm corporation, or member of a 7 family farm limited liability company that is the lessee of 8 an agricultural asset that is part of an agricultural lease 9 agreement. 10 Sec. 5. Section 16.79, subsection 2, paragraph e, Code 2026, 11 is amended to read as follows: 12 e. Does not own more than a ten percent ownership interest 13 in an agricultural asset included in the agricultural assets 14 transfer agreement. 15 Sec. 6. Section 16.79, Code 2026, is amended by adding the 16 following new subsections: 17 NEW SUBSECTION . 3. Parties to an agricultural assets 18 transfer agreement who are related as family members may 19 participate in the program so long as the taxpayer is otherwise 20 eligible under subsection 1 and the beginning farmer is 21 otherwise qualified under subsection 2. 22 NEW SUBSECTION . 4. A taxpayer shall no longer participate 23 in the program subject to any of the following eligibility 24 limits: 25 a. The taxpayer has participated in the program for more 26 than fifteen years. 27 b. (1) By participating in the program, the taxpayer has 28 received a total of all tax credits under all agricultural 29 assets transfer agreements in excess of two hundred fifty 30 thousand dollars. 31 (2) (a) Subparagraph (1) does not apply to a taxpayer whose 32 application to participate in the program was approved by the 33 authority pursuant to section 16.82A before the effective date 34 of this Act. 35 -3- LSB 5100XL (8) 91 da/jh 3/ 21

S.F. _____ H.F. _____ (b) This subparagraph is repealed on January 1, 2037. 1 NEW SUBSECTION . 5. An eligible taxpayer participating in 2 the beginning farmer tax credit program by entering into an 3 agricultural assets lease agreement may also elect to exclude 4 net income received by an eligible individual pursuant to a 5 farm tenancy agreement as allowed in section 422.7, subsection 6 14, during the same tax year. 7 Sec. 7. Section 16.79A, Code 2026, is amended to read as 8 follows: 9 16.79A Agricultural lease assets transfer agreement. 10 1. a. A beginning farmer tax credit is allowed only 11 for agricultural assets that are subject to an agricultural 12 lease assets transfer agreement entered into by an eligible 13 taxpayer and a qualifying beginning farmer participating in 14 the beginning farmer tax credit program established pursuant 15 to section 16.78 . 16 b. The tax credit is allowed regardless of whether the 17 principal agricultural asset is soil, pasture, or a building or 18 other structure used in farming. 19 2. The agricultural assets transfer agreement must include 20 the lease of terms of the transfer of agricultural land located 21 in this state or agricultural improvements located in this 22 state , and may provide for the rental of agricultural equipment 23 as defined in section 322F.1 . 24 3. a. The agricultural assets transfer agreement must 25 include provisions which that describe the consideration 26 paid for the agreement transfer in a manner that allows the 27 authority to calculate the value of the lease or sale in order 28 to determine the tax credit amount as provided in section 16.82 29 16.82B, 16.82C, or 16.82D . 30 b. The agreement must be in writing. 31 c. The transfer agreement cannot be assigned and the 32 agricultural land subject to the transfer agreement cannot be 33 subleased. 34 4. In the case of an agricultural assets lease agreement, 35 -4- LSB 5100XL (8) 91 da/jh 4/ 21

S.F. _____ H.F. _____ all of the following apply: 1 c. a. The lease agreement must be for at least two years, 2 but not more than five years. The lease agreement may be 3 renewed any number of times by the eligible taxpayer and 4 qualified beginning farmer for a term of at least two years, 5 but not more than five years. However, an eligible taxpayer 6 shall not participate in the program for more than fifteen 7 years. 8 d. b. The lease agreement shall not include a lease or 9 rental of equipment intended as a security. 10 e. The agreement cannot be assigned and the agricultural 11 land subject to the agreement shall not be subleased. 12 f. c. (1) The agricultural assets shall not be leased or 13 rented at a rate for a price that is substantially higher than 14 the market rate price for similar agricultural assets leased or 15 rented within the same community. 16 (2) As used in subparagraph (1), when referring to an 17 agricultural asset that is cropland, “substantially higher” 18 means not more than thirty percent above the average cash rent 19 paid for cropland rented in the same county according to the 20 most recent cash rent survey for cropland published by a unit 21 of Iowa state university of science and technology recognized 22 by the authority. 23 5. a. In the case of agricultural assets transferred by 24 an agricultural assets sale agreement, the agricultural assets 25 shall not be sold at a price that is substantially higher than 26 the market price for similar agricultural assets sold within 27 the same community. 28 b. As used in paragraph “a” , when referring to an 29 agricultural asset that is cropland, “substantially higher” 30 means not more than thirty percent above the average purchase 31 price for cropland paid in the same county according to the 32 most recent purchase price survey for cropland published by 33 a unit of Iowa state university of science and technology 34 recognized by the authority. 35 -5- LSB 5100XL (8) 91 da/jh 5/ 21

S.F. _____ H.F. _____ 4. 6. a. The An agricultural assets lease agreement 1 or an agricultural assets sale agreement in the form of 2 an installment contract may be amended after the authority 3 approves an application and makes a tax credit award under 4 section 16.82A without changing the eligibility status of the 5 taxpayer, except as provided in paragraph “b” . 6 b. The underlying lease agreement or installment contract 7 for agricultural land may only be amended without submitting a 8 new application if any of the following apply: 9 (1) (a) The For a lease agreement, its terms of the as 10 amended lease are more favorable to the qualified beginning 11 farmer, including but not limited to the rent payment being 12 reduced. 13 (b) For an installment contract, its terms as amended are 14 more favorable to the qualified beginning farmer, including but 15 not limited to the sales price being reduced. 16 (2) A party has changed their name. 17 (3) The owner of an agricultural asset is changed to the 18 owner’s estate or trust upon the eligible taxpayer’s death. 19 c. If an amendment to an a lease agreement or an installment 20 contract changes the total amount that will be paid to the 21 eligible taxpayer under the lease agreement or installment 22 contract , the eligible taxpayer shall notify the authority in a 23 manner and form prescribed by the authority within thirty days 24 of the date the amendment is executed by the parties. 25 (1) If the amendment will reduce the total amount paid 26 to the eligible taxpayer under the agreement as determined 27 in section 16.82B, 16.82C, or 16.82D , the authority shall 28 recalculate and reduce the eligible taxpayer’s tax credit award 29 under section 16.82A . 30 (2) If the amendment will increase the total amount paid 31 to the eligible taxpayer under the agreement as determined 32 in section 16.82B, 16.82C, or 16.82D , the tax credit award 33 under section 16.82A shall not be increased unless the eligible 34 taxpayer submits an amended application to the authority in 35 -6- LSB 5100XL (8) 91 da/jh 6/ 21

S.F. _____ H.F. _____ the manner and form prescribed by the authority and that meets 1 the requirements of section 16.81 . If the amended application 2 is approved under section 16.81 , the authority may increase 3 the amount of the tax credit award. The increased amount of 4 the tax credit award shall be subject to the aggregate award 5 limitation in section 16.82A for the calendar year in which the 6 increased award is made. 7 (3) This paragraph “c” does not apply to an amendment to an 8 a lease agreement or installment contract that requires a new 9 application under paragraph “b” in order to be valid. 10 7. An application shall not be for longer than the period 11 that the applicant could be awarded a tax credit under the 12 applicable transfer agreement as determined in section 16.82B, 13 16.82C, or 16.82D, and subject to the limitations provided in 14 section 16.79. 15 5. 8. An eligible taxpayer or qualified beginning farmer 16 may terminate an a lease agreement or installment contract as 17 provided in the lease agreement or installment contract, or 18 as provided by law. The eligible taxpayer must notify the 19 authority of the termination within thirty days of the date of 20 termination in the manner and form prescribed by the authority. 21 Sec. 8. Section 16.81, subsection 1, Code 2026, is amended 22 to read as follows: 23 1. The deadline for submitting an application to the 24 authority to claim a beginning farmer tax credit is August 1 of 25 each year shall be established by rule adopted by the authority 26 that allows the authority to make tax credit awards to eligible 27 taxpayers under section 16.82A. The department may establish 28 different deadlines for applications including different 29 forms of agricultural lease agreements and agricultural sale 30 agreements as provided in section 16.82B, 16.82C, or 16.82D . 31 The application shall be for a period that is not longer than 32 the term of the lease. 33 Sec. 9. Section 16.81, subsection 2, paragraph b, Code 2026, 34 is amended to read as follows: 35 -7- LSB 5100XL (8) 91 da/jh 7/ 21

S.F. _____ H.F. _____ b. The authority may establish different rates based on 1 separate categories of applications or agricultural lease 2 assets transfer agreements as determined relevant by the 3 authority. 4 Sec. 10. Section 16.81, subsection 3, Code 2026, is amended 5 to read as follows: 6 3. The agricultural development board shall review and 7 recommend approval of an application for a tax credit as 8 provided by rules adopted by the authority. The application 9 must include a copy of the agricultural lease assets transfer 10 agreement. The authority may require that the parties to an a 11 transfer agreement provide additional information as determined 12 relevant by the authority. 13 Sec. 11. Section 16.82, subsections 3, 5, 6, and 7, Code 14 2026, are amended by striking the subsections. 15 Sec. 12. Section 16.82A, Code 2026, is amended to read as 16 follows: 17 16.82A Beginning farmer tax credit awards —— amount and 18 availability. 19 1. Under the beginning farmer tax credit program, the 20 authority shall award a total tax credit award and the amount 21 of the tax credit award that will be issued by way of a tax 22 credit certificate in each future year under an agricultural 23 assets lease agreement or an agricultural assets sale agreement 24 subject to the limitations provided in this subpart. 25 1. 2. a. Upon approval of an application as provided in 26 section 16.81 , the authority shall make a tax credit award 27 to the eligible taxpayer. The tax credit award shall equal 28 the sum of the tax credits calculated by the authority under 29 as determined in section 16.82 16.82B, 16.82C, or 16.82D for 30 all eligible years under the an approved agricultural asset 31 transfer agreement. 32 b. The authority shall notify the eligible taxpayer of 33 the tax credit award under the program. The notification 34 shall include the type and form of the transfer agreement, the 35 -8- LSB 5100XL (8) 91 da/jh 8/ 21

S.F. _____ H.F. _____ total tax credit award, the amount of the tax credit award 1 that will be issued by way of a tax credit certificate in each 2 future year under the approved agreement, and a statement 3 that the eligible taxpayer has no right to receive tax credit 4 certificates and claim tax credits under the program if all 5 requirements of the program and transfer agreement and the 6 program are not satisfied. 7 c. If, after a tax credit award is made, the eligible 8 taxpayer or qualified beginning farmer no longer meets the 9 requirements of the program or transfer agreement or the 10 program , the authority may revoke the tax credit award and may 11 rescind any tax credit certificate that has been issued. 12 2. 3. The amount of beginning farmer tax credits that may 13 be awarded by the authority in any one calendar year under the 14 beginning farmer tax credit program shall not in the aggregate 15 exceed a limit of twelve million dollars. Tax credits shall 16 be awarded by the authority not later than December 15 of each 17 calendar year after the agricultural development board reviews 18 applications as provided in section 16.81 and the authority 19 determines tax credit amounts for the approved applications as 20 provided calculated in section 16.82 16.82B, 16.82C, or 16.82D , 21 aggregated for purposes of meeting the annual program award 22 limits. 23 3. 4. a. The authority shall issue a tax credit 24 certificates certificate on an annual basis to each eligible 25 taxpayers taxpayer who have has received a tax credit award. 26 The tax credit certificate shall contain the information 27 required by the department. 28 b. The aggregate amount of tax credit certificates issued to 29 an eligible taxpayer shall not exceed the eligible taxpayer’s 30 tax credit award or the taxpayer’s eligibility limit as 31 provided in section 16.79 . 32 c. A tax credit certificate, unless rescinded by the 33 authority, shall be accepted by the department as payment for 34 taxes pursuant to chapter 422, subchapters II and III , subject 35 -9- LSB 5100XL (8) 91 da/jh 9/ 21

S.F. _____ H.F. _____ to any conditions or restrictions placed by the authority upon 1 the face of the tax credit certificate and subject to the 2 limitations of the program. 3 Sec. 13. NEW SECTION . 16.82B Tax credit amount 4 determination —— cash sale contract based on a fixed full 5 payment. 6 1. a. The authority shall determine the amount of the 7 beginning farmer tax credit that may be awarded to an eligible 8 taxpayer pursuant to an agricultural assets transfer agreement 9 in the form of a cash sale contract in which the eligible 10 taxpayer receives a fixed cash payment in full. 11 b. The rate equals the fixed payment received by the 12 eligible taxpayer during the eligible year multiplied by a rate 13 of five percent. 14 2. The tax credit is subject to all of the following: 15 a. The amount of the tax credit shall not exceed one hundred 16 thousand dollars and is subject to the eligibility limits 17 provided in section 16.79. 18 b. Any amount of the tax credit in excess of the eligible 19 taxpayer’s tax liability for the tax year is refundable. In 20 lieu of claiming a refund, the taxpayer may elect to have the 21 overpayment shown on the taxpayer’s final, completed return 22 credited to the taxpayer’s tax liability for the following tax 23 year. 24 c. The tax credit shall not be carried back to a tax year 25 prior to the tax year in which the taxpayer redeems the tax 26 credit. 27 d. The tax credit shall not be transferable to any other 28 person other than the eligible taxpayer’s estate or trust 29 upon the taxpayer’s death pursuant to rules adopted by the 30 department. 31 3. The amount of the tax credit that may be awarded to an 32 eligible taxpayer shall be used by the authority to approve 33 the eligible taxpayer’s total tax credit award by way of a 34 tax credit certificate issued in each eligible year under the 35 -10- LSB 5100XL (8) 91 da/jh 10/ 21

S.F. _____ H.F. _____ approved lease agreement or approved installment contract as 1 provided in section 16.82A. 2 Sec. 14. NEW SECTION . 16.82C Tax credit determination —— 3 agricultural lease or installment contracts based on a fixed 4 scheduled payments arrangement. 5 1. The authority shall determine the amount of the beginning 6 farmer tax credit that may be awarded to an eligible taxpayer 7 based on a fixed scheduled payments arrangement and pursuant 8 to an agricultural assets transfer agreement in the form of 9 an agricultural lease or installment contract in which the 10 taxpayer during the course of an eligible year receives one or 11 more scheduled fixed cash payments. 12 2. a. In the case of a lease agreement, except as provided 13 in paragraph “b” , the tax credit equals the sum of the 14 fixed payments received by the taxpayer in an eligible year 15 multiplied by a rate of ten percent. 16 b. For a lease agreement, the tax credit equals the sum 17 of the scheduled fixed cash payments multiplied by a rate of 18 twelve percent, if either of the following applies: 19 (1) The lease agreement provides for the transfer of 20 agricultural land used to produce a crop, and the sum of the 21 cash payments received by the eligible taxpayer is less than 22 the average sum of cash payments received by other lessors 23 under comparable leases in the same county according to the 24 most recent cash rent survey for cropland published by a unit 25 of Iowa state university of science and technology recognized 26 by the authority. 27 (2) The lease agreement is for a term of either four or five 28 years. 29 c. For a lease agreement, the amount of the tax credit 30 awarded to an eligible taxpayer in an eligible year shall not 31 exceed fifty thousand dollars and is subject to the eligibility 32 limits provided in section 16.79. 33 3. a. In the case of an installment contract, the tax 34 credit applies to the amount of the sales price attributable 35 -11- LSB 5100XL (8) 91 da/jh 11/ 21

S.F. _____ H.F. _____ to the loan’s principle as described in the installment 1 contract according to an amortization schedule approved by the 2 authority. 3 b. For an installment contract, the tax credit equals the 4 sum of the fixed cash payments received by the taxpayer in an 5 eligible year multiplied by a rate of five percent. 6 c. For an installment contract, the amount of the tax credit 7 awarded to an eligible taxpayer in an eligible year shall not 8 exceed one hundred thousand dollars and is subject to the 9 eligibility limits provided in section 16.79. 10 4. In the case of a lease agreement or installment contract, 11 as applicable, all of the following apply: 12 a. Any amount of the tax credit in excess of the eligible 13 taxpayer’s tax liability for the tax year is refundable. In 14 lieu of claiming a refund, the taxpayer may elect to have the 15 overpayment shown on the taxpayer’s final, completed return 16 credited to the tax liability for the following tax year. 17 b. The tax credit shall not be carried back to a tax year 18 prior to the tax year in which the taxpayer redeems the tax 19 credit. 20 c. The tax credit shall not be transferable to any other 21 person other than the eligible taxpayer’s estate or trust 22 upon the taxpayer’s death pursuant to rules adopted by the 23 department. 24 5. In the case of a lease agreement or installment contract, 25 as applicable, approved by the authority as provided in section 26 16.82A, the amount of the tax credit that may be awarded to an 27 eligible taxpayer shall be used by the authority to approve 28 the total tax credit award by way of a tax credit certificate 29 issued in each eligible year under the approved lease agreement 30 or approved installment contract as provided in that section. 31 Sec. 15. NEW SECTION . 16.82D Tax credit determination 32 —— agricultural lease or installment contract based on a risk 33 distribution payments arrangement. 34 1. The authority shall determine the amount of the beginning 35 -12- LSB 5100XL (8) 91 da/jh 12/ 21

S.F. _____ H.F. _____ farmer tax credit that may be awarded to an eligible taxpayer 1 based on a risk distribution payment arrangement and pursuant 2 to an agricultural assets transfer agreement in the form of an 3 agricultural assets lease agreement or installment contract 4 in which during the course of an eligible year the taxpayer 5 receives one or more scheduled payments. 6 2. In the case of an agricultural assets lease agreement or 7 an installment contract calculated on a commodity share basis 8 in which the eligible taxpayer receives as payment a percentage 9 of the commodity produced on the agricultural land subject to 10 the transfer, all of the following apply: 11 a. The amount of the tax credit equals the gross amount 12 that the eligible taxpayer would receive as a payment from 13 the sale of the taxpayer’s share of the crop in each harvest 14 year multiplied by the rate determined under paragraph “b” . 15 The amount of the tax credit shall be based on an equation 16 established by rule adopted by the authority which shall use 17 data compiled by the United States department of agriculture, 18 which shall include all of the following factors: 19 (1) The past ten-year average per bushel yield for the same 20 type of grain as produced on the transferred agricultural land 21 in the same county where the transferred agricultural land is 22 located excluding the years of highest and lowest per bushel 23 yields. 24 (2) The per bushel state price established for the same 25 type of grain harvested as described in subparagraph (1). 26 Price information shall be averaged from the past five years 27 excluding the years of the highest and lowest per bushel state 28 price. 29 b. In determining the applicable rate of the sum of 30 scheduled payments under paragraph “a” , the following shall 31 apply: 32 (1) (a) For a lease agreement, except as provided in 33 subparagraph division (b), fifteen percent. 34 (b) For a lease agreement with a term of either four or five 35 -13- LSB 5100XL (8) 91 da/jh 13/ 21

S.F. _____ H.F. _____ years, seventeen percent. 1 (2) For an installment contract, five percent. 2 3. In the case of an agricultural assets lease agreement, 3 or an installment contract, calculated on a flexible basis, in 4 which the eligible taxpayer receives an amount attributable to 5 a fixed cash payment and a commodity share payment, and one or 6 more of the payments are subject to adjustment according to 7 risk-sharing factors, the amount of the tax credit equals the 8 sum of the following: 9 a. To the extent that a portion of the amount of the rent 10 payment or installment payment as applicable is calculated on 11 the basis of scheduled fixed cash payments as described in 12 section 16.82C, that portion of the tax credit amount equals 13 the same percent of the fixed cash payment applied in the same 14 manner as provided in section 16.82C. 15 b. To the extent that a portion of the amount of the rent 16 payment or installment payment as applicable is calculated on 17 a commodity share basis as described in subsection 2, that 18 portion of the tax credit amount equals the same percent of the 19 amount that the eligible taxpayer would receive from the sale 20 of the eligible taxpayer’s share of the commodity in the same 21 manner as provided in subsection 2. 22 c. (1) To the extent that the amount of the rent payment 23 or installment payment as applicable may be adjusted after 24 taking into account all risk-sharing factors provided in the 25 corresponding lease agreement or installment contract, as 26 applicable, that portion of the tax credit equals the same 27 percent of the highest adjusted amount that the eligible 28 taxpayer could receive in excess of the amounts calculated in 29 paragraphs “a” and “b” based on an equation adopted by rule by 30 the authority. 31 (2) As used in this paragraph, “risk-sharing factor” 32 means an occurrence or lack of occurrence that may affect 33 the commodity’s production or profitability as provided in 34 the agreement, and which may include but is not limited to 35 -14- LSB 5100XL (8) 91 da/jh 14/ 21

S.F. _____ H.F. _____ production costs, per acre crop yield, gross revenue, or market 1 price. 2 (3) The authority shall adopt rules establishing criteria 3 for commonly used risk-sharing factors and adjustment limits. 4 4. a. In the case of a lease agreement, the amount of the 5 tax credit awarded to an eligible taxpayer in an eligible year 6 shall not exceed fifty thousand dollars and is subject to the 7 eligibility limits provided in section 16.79. 8 b. In the case of an installment contract, the amount of the 9 tax credit awarded to an eligible taxpayer in an eligible year 10 shall not exceed one hundred thousand dollars and is subject to 11 the eligibility limits provided in section 16.79. 12 5. In the case of a lease agreement or installment contract, 13 as applicable, all of the following apply: 14 a. Any amount of the tax credit that may be awarded to 15 an eligible taxpayer for any year in excess of the eligible 16 taxpayer’s tax liability for the tax year is refundable. In 17 lieu of claiming a refund, the taxpayer may elect to have the 18 overpayment shown on the taxpayer’s final, completed return 19 credited to the tax liability for the following tax year. 20 b. The tax credit shall not be carried back to a tax year 21 prior to the tax year in which the taxpayer redeems the tax 22 credit. 23 c. The tax credit shall not be transferable to any other 24 person other than the eligible taxpayer’s estate or trust 25 upon the taxpayer’s death pursuant to rules adopted by the 26 department. 27 6. In the case of a lease agreement or installment contract, 28 as applicable, approved by the authority as provided in section 29 16.82A, the amount of the tax credit that may be awarded to an 30 eligible taxpayer shall be used by the authority to approve 31 the total tax credit award by way of a tax credit certificate 32 issued in each eligible year under the approved lease agreement 33 or approved installment contract as provided in that section. 34 Sec. 16. Section 422.7, subsection 14, paragraph b, Code 35 -15- LSB 5100XL (8) 91 da/jh 15/ 21

S.F. _____ H.F. _____ 2026, is amended to read as follows: 1 b. (1) An individual who elects to exclude income received 2 pursuant to a farm tenancy agreement under this subsection 3 shall not claim any of the following in the tax year in which 4 the election is made or in any succeeding year: the capital 5 gain exclusion under subsection 13. 6 (1) The capital gain exclusion under subsection 13 . 7 (2) The beginning farmer tax credit under section 422.11E . 8 (2) An individual who elects to exclude income received 9 pursuant to a farm tenancy agreement under this subsection may 10 also claim the beginning farmer tax credit as allowed under 11 chapter 16, subchapter VIII, part 5, subpart B. 12 Sec. 17. RULEMAKING. The Iowa finance authority and the 13 department of revenue shall adopt rules necessary to administer 14 this Act as provided in section 16.78. 15 Sec. 18. EFFECTIVE DATE. 16 1. Except as provided in subsection 2, this Act takes effect 17 January 1, 2027. 18 2. The section of this Act that authorizes the Iowa finance 19 authority and the department of revenue to adopt rules takes 20 effect upon enactment. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 BACKGROUND —— GENERAL. This bill amends provisions in Code 25 chapter 16 administered by the Iowa finance authority (IFA), 26 which is a public instrumentality that acts to further a public 27 purpose of promoting the state’s economy (Code section 16.1A). 28 The agricultural development division is created within the 29 IFA to provide assistance to beginning farmers who satisfy low 30 or moderate net worth requirements (Code sections 16.2A and 31 16.58). One such program is the beginning farmer tax credit 32 program (program) that facilitates the transfer of agricultural 33 assets between a lessor who is the owner of agricultural 34 assets (eligible taxpayer) to a lessee (qualifying beginning 35 -16- LSB 5100XL (8) 91 da/jh 16/ 21

S.F. _____ H.F. _____ farmer) participating in the program (Code section 16.82). 1 An agricultural asset means agricultural land, agricultural 2 improvements, depreciable agricultural property, crops, or 3 livestock (Code section 16.58). 4 BACKGROUND —— APPLICATION AND LEASE AGREEMENT REQUIREMENTS. 5 An application to participate in the program must be submitted 6 to IFA by August 1 of each year. The application must include 7 an agricultural lease agreement (lease agreement) (Code section 8 16.81) entered into by the eligible taxpayer and qualified 9 beginning farmer. The eligible taxpayer is entitled to claim 10 a tax credit against the taxpayer’s individual or corporate 11 income tax liability based on the form of rent arrangement 12 and the payment amount provided in the lease agreement (Code 13 section 16.82). Under the lease agreement, the beginning 14 farmer assumes control over the leased agricultural assets 15 for the term of the lease agreement. An application fee 16 schedule is established by IFA rule based on costs necessary to 17 administer the program. The lease agreement cannot exceed five 18 years, but may be renewed (Code section 16.79A). An eligible 19 taxpayer may participate in the program for a maximum of 15 20 years. 21 BACKGROUND —— FORMS OF AN AGRICULTURAL LEASE AGREEMENT. 22 There are two forms of a lease agreement, both based on 23 payments received by the eligible taxpayer (Code section 24 16.82). Under the first form, the eligible taxpayer enters 25 into a fixed cash payment arrangement in which the taxpayer 26 receives an unadjusted rent payment. Under the second 27 form, the eligible taxpayer enters into a risk distribution 28 arrangement in which the taxpayer’s rent payment is calculated 29 according to the amount that may be received from the sale 30 of a commodity produced (e.g., harvested corn) on the leased 31 agricultural land. There are two types of a risk distribution 32 arrangement in which the taxpayer receives a rent payment, 33 calculated on either a commodity share basis or flexible 34 basis. For a rent payment made on a commodity share basis, the 35 -17- LSB 5100XL (8) 91 da/jh 17/ 21

S.F. _____ H.F. _____ eligible taxpayer receives a percentage of the commodity sold. 1 For a rent payment made of a flexible basis, the taxpayer may 2 receive a portion of the rent payment based on a fixed rent 3 arrangement and the remaining portion based on a commodity 4 share arrangement. In addition, under a flexible basis, 5 that total rent payment amount may be adjusted according to 6 risk-sharing factors as provided in the lease agreement that 7 may affect production of the commodity according to rules 8 adopted by IFA. 9 BACKGROUND —— TAX CREDIT. The rate of the tax credit depends 10 on the form of the lease agreement (Code section 16.82). For 11 a lease agreement under a fixed cash payment arrangement, the 12 rate equals 5 percent of the amount of the cash rent payment 13 received by the eligible taxpayer each year. For a lease 14 agreement calculated on a commodity share basis, the rate 15 equals 15 percent of the amount that the eligible taxpayer 16 receives from the sale of the commodity each year. For a lease 17 agreement calculated on a flexible basis, the tax credit is 18 the sum of that portion of the rent payment attributable to 19 a fixed cash rent arrangement and that portion attributable 20 to a commodity share arrangement. In addition, for a lease 21 calculated on a flexible basis, the sum of one or both payments 22 may be adjusted based on risk-sharing factors as provided in 23 the lease agreement according to rules adopted by IFA. The tax 24 credit is subject to certain limitations. An eligible taxpayer 25 cannot receive more than $50,000 in any one tax year. A tax 26 credit in excess of the eligible taxpayer’s tax liability for 27 the tax year is not refundable but may be carried forward until 28 depleted but for not more than 10 years. The tax credit is not 29 transferable. 30 BACKGROUND —— TAX CREDIT RESTRICTION BASED ON INCOME 31 EXCLUSION APPLICABLE TO FARM TENANCIES. An otherwise eligible 32 taxpayer cannot participate in the program in any year that the 33 taxpayer could receive rent payments under a lease agreement 34 as provided in Code chapter 16 and also elect to subtract 35 -18- LSB 5100XL (8) 91 da/jh 18/ 21