SSB 3129 (LSB 5100XL (8) 91)

SENATE/HOUSE FILE _____

BY  (PROPOSED GOVERNOR BILL)

A BILL FOR

An Act providing for the beginning farmer tax credit program administered by the Iowa finance authority and department of revenue, providing for fees, and including effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 16.77, subsections 2 and 4, Code 2026, are amended to read as follows:
   2.  “Agricultural assets lease agreement” or “lease agreement” means an a type of agricultural assets transfer agreement for the transfer of agricultural assets from an eligible taxpayer to a qualified beginning farmer by lease as provided in section 16.79A.
   4.  “Eligible taxpayer” or “taxpayer” means a taxpayer who may participate in the beginning farmer tax credit program, including by meeting all the criteria as provided in section 16.79.
    Sec. 2.  Section 16.77, Code 2026, is amended by adding the following new subsections:
   NEW SUBSECTION.  2A.  a.  “Agricultural assets sale agreement” or “sale agreement” means a type of agricultural assets transfer agreement for the transfer of agricultural assets from an eligible taxpayer to a qualified beginning farmer by sale as provided in section 16.79A.
   b.  As used in paragraph “a”, “agricultural assets sale agreement” only includes a transfer by any of the following:
   (1)  A cash sale contract in which the taxpayer receives a fixed cash payment in full at one time.
   (2)  An installment contract in which the taxpayer receives scheduled payments over a period of years, including under a fixed cash payment arrangement or under a risk distribution payment arrangement.
   NEW SUBSECTION.  2B.  “Agricultural assets transfer agreement” or “transfer agreement” means an agricultural assets lease agreement or agricultural assets sale agreement.
    Sec. 3.  Section 16.78, Code 2026, is amended by adding the following new subsection:
   NEW SUBSECTION.  1A.  Under the program, a beginning farmer tax credit is allowed for agricultural assets that are subject to an agricultural assets transfer agreement entered into by an eligible taxpayer and a qualifying beginning farmer as provided in this subpart.
    Sec. 4.  Section 16.79, subsection 1, Code 2026, is amended to read as follows:
   1.  A taxpayer is eligible to participate in the beginning farmer tax credit program if the taxpayer meets all of the following requirements:
   a.  The taxpayer is a person who may acquire or otherwise obtain or lease agricultural land in this state, including by lease or sale, pursuant to chapter 9H or 9I. However, the taxpayer must not be a person who may acquire or otherwise obtain or lease agricultural land exclusively because of an exception provided in one of those chapters or in a provision of another chapter of this Code including but not limited to chapter 10, 10D, or 501, or section 15E.207.
   b.  The taxpayer has entered into an agricultural assets transfer agreement that includes any of the following:
   (1)  An agricultural assets lease agreement with a qualified beginning farmer to lease agricultural land assets as provided in section 16.79A.
   (2)  An agricultural assets sale agreement with a qualified beginning farmer to sell agricultural assets as provided in section 16.79A.
   c.  The taxpayer has not been at fault for terminating a prior agreement under the program or another agreement in which the taxpayer was allowed to claim a tax credit under section 175.37 as it existed prior to January 1, 2015, or section 16.80 as it existed prior to January 1, 2018.
   d.  If the transfer agreement includes the lease transfer of a confinement feeding operation structure as defined in section 459.102, the taxpayer is not a party to a pending administrative or judicial action, including a contested case proceeding under chapter 17A, relating to an alleged violation involving an animal feeding operation as regulated by the department of natural resources, regardless of whether the pending action is brought by the department or the attorney general.
   e.  The taxpayer is 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.
   f.  The taxpayer is not a partner of a partnership, shareholder of a family farm corporation, or member of a family farm limited liability company that is the lessee of an agricultural asset that is part of an agricultural lease agreement.
    Sec. 5.  Section 16.79, subsection 2, paragraph e, Code 2026, is amended to read as follows:
   e.  Does not own more than a ten percent ownership interest in an agricultural asset included in the agricultural assets transfer agreement.
    Sec. 6.  Section 16.79, Code 2026, is amended by adding the following new subsections:
   NEW SUBSECTION.  3.  Parties to an agricultural assets transfer agreement who are related as family members may participate in the program so long as the taxpayer is otherwise eligible under subsection 1 and the beginning farmer is otherwise qualified under subsection 2.
   NEW SUBSECTION.  4.  A taxpayer shall no longer participate in the program subject to any of the following eligibility limits:
   a.  The taxpayer has participated in the program for more than fifteen years.
   b.  (1)  By participating in the program, the taxpayer has received a total of all tax credits under all agricultural assets transfer agreements in excess of two hundred fifty thousand dollars.
   (2)  (a)  Subparagraph (1) does not apply to a taxpayer whose application to participate in the program was approved by the authority pursuant to section 16.82A before the effective date of this Act.
   (b)  This subparagraph is repealed on January 1, 2037.
   NEW SUBSECTION.  5.  An eligible taxpayer participating in the beginning farmer tax credit program by entering into an agricultural assets lease agreement may also elect to exclude net income received by an eligible individual pursuant to a farm tenancy agreement as allowed in section 422.7, subsection 14, during the same tax year.
    Sec. 7.  Section 16.79A, Code 2026, is amended to read as follows:
   16.79A  Agricultural lease assets transfer agreement.
   1.  a.  A beginning farmer tax credit is allowed only for agricultural assets that are subject to an agricultural lease assets transfer agreement entered into by an eligible taxpayer and a qualifying beginning farmer participating in the beginning farmer tax credit program established pursuant to section 16.78.
   b.  The tax credit is allowed regardless of whether the principal agricultural asset is soil, pasture, or a building or other structure used in farming.
   2.  The agricultural assets transfer agreement must include the lease of terms of the transfer of agricultural land located in this state or agricultural improvements located in this state, and may provide for the rental of agricultural equipment as defined in section 322F.1.
   3.  a.  The agricultural assets transfer agreement must include provisions which that describe the consideration paid for the agreement transfer in a manner that allows the authority to calculate the value of the lease or sale in order to determine the tax credit amount as provided in section 16.82 16.82B, 16.82C, or 16.82D.
   b.  The agreement must be in writing.
   c.  The transfer agreement cannot be assigned and the agricultural land subject to the transfer agreement cannot be subleased.
   4.  In the case of an agricultural assets lease agreement, all of the following apply: 
   c.  a.  The lease agreement must be for at least two years, but not more than five years. The lease agreement may be renewed any number of times by the eligible taxpayer and qualified beginning farmer for a term of at least two years, but not more than five years. However, an eligible taxpayer shall not participate in the program for more than fifteen years.
   d.  b.  The lease agreement shall not include a lease or rental of equipment intended as a security.
   e.  The agreement cannot be assigned and the agricultural land subject to the agreement shall not be subleased.
   f.  c.  (1)  The agricultural assets shall not be leased or rented at a rate for a price that is substantially higher than the market rate price for similar agricultural assets leased or rented within the same community.
   (2)  As used in subparagraph (1), when referring to an agricultural asset that is cropland, “substantially higher” means not more than thirty percent above the average cash rent paid for cropland rented in the same county according to the most recent cash rent survey for cropland published by a unit of Iowa state university of science and technology recognized by the authority.
   5.  a.  In the case of agricultural assets transferred by an agricultural assets sale agreement, the agricultural assets shall not be sold at a price that is substantially higher than the market price for similar agricultural assets sold within the same community.
   b.  As used in paragraph “a”, when referring to an agricultural asset that is cropland, “substantially higher” means not more than thirty percent above the average purchase price for cropland paid in the same county according to the most recent purchase price survey for cropland published by a unit of Iowa state university of science and technology recognized by the authority.
   4.  6.  a.  The An agricultural assets lease agreement or an agricultural assets sale agreement in the form of an installment contract may be amended after the authority approves an application and makes a tax credit award under section 16.82A without changing the eligibility status of the taxpayer, except as provided in paragraph “b”.
   b.  The underlying lease agreement or installment contract for agricultural land may only be amended without submitting a new application if any of the following apply:
   (1)  (a)  The For a lease agreement, its terms of the as amended lease are more favorable to the qualified beginning farmer, including but not limited to the rent payment being reduced.
   (b)  For an installment contract, its terms as amended are more favorable to the qualified beginning farmer, including but not limited to the sales price being reduced.
   (2)  A party has changed their name.
   (3)  The owner of an agricultural asset is changed to the owner’s estate or trust upon the eligible taxpayer’s death.
   c.  If an amendment to an a lease agreement or an installment contract changes the total amount that will be paid to the eligible taxpayer under the lease agreement or installment contract, the eligible taxpayer shall notify the authority in a manner and form prescribed by the authority within thirty days of the date the amendment is executed by the parties.
   (1)  If the amendment will reduce the total amount paid to the eligible taxpayer under the agreement as determined in section 16.82B, 16.82C, or 16.82D, the authority shall recalculate and reduce the eligible taxpayer’s tax credit award under section 16.82A. 
   (2)  If the amendment will increase the total amount paid to the eligible taxpayer under the agreement as determined in section 16.82B, 16.82C, or 16.82D, the tax credit award under section 16.82A shall not be increased unless the eligible taxpayer submits an amended application to the authority in the manner and form prescribed by the authority and that meets the requirements of section 16.81. If the amended application is approved under section 16.81, the authority may increase the amount of the tax credit award. The increased amount of the tax credit award shall be subject to the aggregate award limitation in section 16.82A for the calendar year in which the increased award is made.
   (3)  This paragraph “c” does not apply to an amendment to an a lease agreement or installment contract that requires a new application under paragraph “b” in order to be valid.
   7.  An application shall not be for longer than the period that the applicant could be awarded a tax credit under the applicable transfer agreement as determined in section 16.82B, 16.82C, or 16.82D, and subject to the limitations provided in section 16.79.
   5.  8.  An eligible taxpayer or qualified beginning farmer may terminate an a lease agreement or installment contract as provided in the lease agreement or installment contract, or as provided by law. The eligible taxpayer must notify the authority of the termination within thirty days of the date of termination in the manner and form prescribed by the authority.
    Sec. 8.  Section 16.81, subsection 1, Code 2026, is amended to read as follows:
   1.  The deadline for submitting an application to the authority to claim a beginning farmer tax credit is August 1 of each year shall be established by rule adopted by the authority that allows the authority to make tax credit awards to eligible taxpayers under section 16.82A. The department may establish different deadlines for applications including different forms of agricultural lease agreements and agricultural sale agreements as provided in section 16.82B, 16.82C, or 16.82D. The application shall be for a period that is not longer than the term of the lease.
    Sec. 9.  Section 16.81, subsection 2, paragraph b, Code 2026, is amended to read as follows:
   b.  The authority may establish different rates based on separate categories of applications or agricultural lease assets transfer agreements as determined relevant by the authority.
    Sec. 10.  Section 16.81, subsection 3, Code 2026, is amended to read as follows:
   3.  The agricultural development board shall review and recommend approval of an application for a tax credit as provided by rules adopted by the authority. The application must include a copy of the agricultural lease assets transfer agreement. The authority may require that the parties to an a transfer agreement provide additional information as determined relevant by the authority.
    Sec. 11.  Section 16.82, subsections 3, 5, 6, and 7, Code 2026, are amended by striking the subsections.
    Sec. 12.  Section 16.82A, Code 2026, is amended to read as follows:
   16.82A  Beginning farmer tax credit awards —— amount and availability.
   1.  Under the beginning farmer tax credit program, the authority shall award a total tax credit award and the amount of the tax credit award that will be issued by way of a tax credit certificate in each future year under an agricultural assets lease agreement or an agricultural assets sale agreement subject to the limitations provided in this subpart.
   1.  2.  a.  Upon approval of an application as provided in section 16.81, the authority shall make a tax credit award to the eligible taxpayer. The tax credit award shall equal the sum of the tax credits calculated by the authority under as determined in section 16.82 16.82B, 16.82C, or 16.82D for all eligible years under the an approved agricultural asset transfer agreement. 
   b.  The authority shall notify the eligible taxpayer of the tax credit award under the program. The notification shall include the type and form of the transfer agreement, the total tax credit award, the amount of the tax credit award that will be issued by way of a tax credit certificate in each future year under the approved agreement, and a statement that the eligible taxpayer has no right to receive tax credit certificates and claim tax credits under the program if all requirements of the program and transfer agreement and the program are not satisfied.
   c.  If, after a tax credit award is made, the eligible taxpayer or qualified beginning farmer no longer meets the requirements of the program or transfer agreement or the program, the authority may revoke the tax credit award and may rescind any tax credit certificate that has been issued. 
   2.  3.  The amount of beginning farmer tax credits that may be awarded by the authority in any one calendar year under the beginning farmer tax credit program shall not in the aggregate exceed a limit of twelve million dollars. Tax credits shall be awarded by the authority not later than December 15 of each calendar year after the agricultural development board reviews applications as provided in section 16.81 and the authority determines tax credit amounts for the approved applications as provided calculated in section 16.82 16.82B, 16.82C, or 16.82D, aggregated for purposes of meeting the annual program award limits.
   3.  4.  a.  The authority shall issue a tax credit certificates certificate on an annual basis to each eligible taxpayers taxpayer who have has received a tax credit award. The tax credit certificate shall contain the information required by the department.
   b.  The aggregate amount of tax credit certificates issued to an eligible taxpayer shall not exceed the eligible taxpayer’s tax credit award or the taxpayer’s eligibility limit as provided in section 16.79.
   c.  A tax credit certificate, unless rescinded by the authority, shall be accepted by the department as payment for taxes pursuant to chapter 422, subchapters II and III, subject to any conditions or restrictions placed by the authority upon the face of the tax credit certificate and subject to the limitations of the program.
    Sec. 13.  NEW SECTION.  16.82B  Tax credit amount determination —— cash sale contract based on a fixed full payment.
   1.  a.  The authority shall determine the amount of the beginning farmer tax credit that may be awarded to an eligible taxpayer pursuant to an agricultural assets transfer agreement in the form of a cash sale contract in which the eligible taxpayer receives a fixed cash payment in full.
   b.  The rate equals the fixed payment received by the eligible taxpayer during the eligible year multiplied by a rate of five percent.
   2.  The tax credit is subject to all of the following:
   a.  The amount of the tax credit shall not exceed one hundred thousand dollars and is subject to the eligibility limits provided in section 16.79.
   b.  Any amount of the tax credit in excess of the eligible taxpayer’s tax liability for the tax year is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the taxpayer’s tax liability for the following tax year.
   c.  The tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer redeems the tax credit.
   d.  The tax credit shall not be transferable to any other person other than the eligible taxpayer’s estate or trust upon the taxpayer’s death pursuant to rules adopted by the department.
   3.  The amount of the tax credit that may be awarded to an eligible taxpayer shall be used by the authority to approve the eligible taxpayer’s total tax credit award by way of a tax credit certificate issued in each eligible year under the approved lease agreement or approved installment contract as provided in section 16.82A.
    Sec. 14.  NEW SECTION.  16.82C  Tax credit determination —— agricultural lease or installment contracts based on a fixed scheduled payments arrangement.
   1.  The authority shall determine the amount of the beginning farmer tax credit that may be awarded to an eligible taxpayer based on a fixed scheduled payments arrangement and pursuant to an agricultural assets transfer agreement in the form of an agricultural lease or installment contract in which the taxpayer during the course of an eligible year receives one or more scheduled fixed cash payments.
   2.  a.  In the case of a lease agreement, except as provided in paragraph “b”, the tax credit equals the sum of the fixed payments received by the taxpayer in an eligible year multiplied by a rate of ten percent.
   b.  For a lease agreement, the tax credit equals the sum of the scheduled fixed cash payments multiplied by a rate of twelve percent, if either of the following applies:
   (1)  The lease agreement provides for the transfer of agricultural land used to produce a crop, and the sum of the cash payments received by the eligible taxpayer is less than the average sum of cash payments received by other lessors under comparable leases in the same county according to the most recent cash rent survey for cropland published by a unit of Iowa state university of science and technology recognized by the authority.
   (2)  The lease agreement is for a term of either four or five years.
   c.  For a lease agreement, the amount of the tax credit awarded to an eligible taxpayer in an eligible year shall not exceed fifty thousand dollars and is subject to the eligibility limits provided in section 16.79.
   3.  a.  In the case of an installment contract, the tax credit applies to the amount of the sales price attributable to the loan’s principle as described in the installment contract according to an amortization schedule approved by the authority.
   b.  For an installment contract, the tax credit equals the sum of the fixed cash payments received by the taxpayer in an eligible year multiplied by a rate of five percent.
   c.  For an installment contract, the amount of the tax credit awarded to an eligible taxpayer in an eligible year shall not exceed one hundred thousand dollars and is subject to the eligibility limits provided in section 16.79.
   4.  In the case of a lease agreement or installment contract, as applicable, all of the following apply:
   a.  Any amount of the tax credit in excess of the eligible taxpayer’s tax liability for the tax year is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following tax year.
   b.  The tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer redeems the tax credit.
   c.  The tax credit shall not be transferable to any other person other than the eligible taxpayer’s estate or trust upon the taxpayer’s death pursuant to rules adopted by the department.
   5.  In the case of a lease agreement or installment contract, as applicable, approved by the authority as provided in section 16.82A, the amount of the tax credit that may be awarded to an eligible taxpayer shall be used by the authority to approve the total tax credit award by way of a tax credit certificate issued in each eligible year under the approved lease agreement or approved installment contract as provided in that section.
    Sec. 15.  NEW SECTION.  16.82D  Tax credit determination —— agricultural lease or installment contract based on a risk distribution payments arrangement.
   1.  The authority shall determine the amount of the beginning farmer tax credit that may be awarded to an eligible taxpayer based on a risk distribution payment arrangement and pursuant to an agricultural assets transfer agreement in the form of an agricultural assets lease agreement or installment contract in which during the course of an eligible year the taxpayer receives one or more scheduled payments.
   2.  In the case of an agricultural assets lease agreement or an installment contract calculated on a commodity share basis in which the eligible taxpayer receives as payment a percentage of the commodity produced on the agricultural land subject to the transfer, all of the following apply:
   a.  The amount of the tax credit equals the gross amount that the eligible taxpayer would receive as a payment from the sale of the taxpayer’s share of the crop in each harvest year multiplied by the rate determined under paragraph “b”. The amount of the tax credit shall be based on an equation established by rule adopted by the authority which shall use data compiled by the United States department of agriculture, which shall include all of the following factors:
   (1)  The past ten-year average per bushel yield for the same type of grain as produced on the transferred agricultural land in the same county where the transferred agricultural land is located excluding the years of highest and lowest per bushel yields.
   (2)  The per bushel state price established for the same type of grain harvested as described in subparagraph (1). Price information shall be averaged from the past five years excluding the years of the highest and lowest per bushel state price.
   b.  In determining the applicable rate of the sum of scheduled payments under paragraph “a”, the following shall apply:
   (1)  (a)  For a lease agreement, except as provided in subparagraph division (b), fifteen percent.
   (b)  For a lease agreement with a term of either four or five years, seventeen percent.
   (2)  For an installment contract, five percent.
   3.  In the case of an agricultural assets lease agreement, or an installment contract, calculated on a flexible basis, in which the eligible taxpayer receives an amount attributable to a fixed cash payment and a commodity share payment, and one or more of the payments are subject to adjustment according to risk-sharing factors, the amount of the tax credit equals the sum of the following:
   a.  To the extent that a portion of the amount of the rent payment or installment payment as applicable is calculated on the basis of scheduled fixed cash payments as described in section 16.82C, that portion of the tax credit amount equals the same percent of the fixed cash payment applied in the same manner as provided in section 16.82C.
   b.  To the extent that a portion of the amount of the rent payment or installment payment as applicable is calculated on a commodity share basis as described in subsection 2, that portion of the tax credit amount equals the same percent of the amount that the eligible taxpayer would receive from the sale of the eligible taxpayer’s share of the commodity in the same manner as provided in subsection 2.
   c.  (1)  To the extent that the amount of the rent payment or installment payment as applicable may be adjusted after taking into account all risk-sharing factors provided in the corresponding lease agreement or installment contract, as applicable, that portion of the tax credit equals the same percent of the highest adjusted amount that the eligible taxpayer could receive in excess of the amounts calculated in paragraphs “a” and “b” based on an equation adopted by rule by the authority.
   (2)  As used in this paragraph, “risk-sharing factor” means an occurrence or lack of occurrence that may affect the commodity’s production or profitability as provided in the agreement, and which may include but is not limited to production costs, per acre crop yield, gross revenue, or market price.
   (3)  The authority shall adopt rules establishing criteria for commonly used risk-sharing factors and adjustment limits.
   4.  a.  In the case of a lease agreement, the amount of the tax credit awarded to an eligible taxpayer in an eligible year shall not exceed fifty thousand dollars and is subject to the eligibility limits provided in section 16.79.
   b.  In the case of an installment contract, the amount of the tax credit awarded to an eligible taxpayer in an eligible year shall not exceed one hundred thousand dollars and is subject to the eligibility limits provided in section 16.79.
   5.  In the case of a lease agreement or installment contract, as applicable, all of the following apply:
   a.  Any amount of the tax credit that may be awarded to an eligible taxpayer for any year in excess of the eligible taxpayer’s tax liability for the tax year is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following tax year.
   b.  The tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer redeems the tax credit.
   c.  The tax credit shall not be transferable to any other person other than the eligible taxpayer’s estate or trust upon the taxpayer’s death pursuant to rules adopted by the department.
   6.  In the case of a lease agreement or installment contract, as applicable, approved by the authority as provided in section 16.82A, the amount of the tax credit that may be awarded to an eligible taxpayer shall be used by the authority to approve the total tax credit award by way of a tax credit certificate issued in each eligible year under the approved lease agreement or approved installment contract as provided in that section.
    Sec. 16.  Section 422.7, subsection 14, paragraph b, Code 2026, is amended to read as follows:
   b.  (1)  An individual who elects to exclude income received pursuant to a farm tenancy agreement under this subsection shall not claim any of the following in the tax year in which the election is made or in any succeeding year: the capital gain exclusion under subsection 13.
   (1)  The capital gain exclusion under subsection 13.
   (2)  The beginning farmer tax credit under section 422.11E.
   (2)  An individual who elects to exclude income received pursuant to a farm tenancy agreement under this subsection may also claim the beginning farmer tax credit as allowed under chapter 16, subchapter VIII, part 5, subpart B.
    Sec. 17.  RULEMAKING.  The Iowa finance authority and the department of revenue shall adopt rules necessary to administer this Act as provided in section 16.78.
    Sec. 18.  EFFECTIVE DATE.
   1.  Except as provided in subsection 2, this Act takes effect January 1, 2027.
   2.  The section of this Act that authorizes the Iowa finance authority and the department of revenue to adopt rules takes effect upon enactment.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   BACKGROUND —— GENERAL. This bill amends provisions in Code chapter 16 administered by the Iowa finance authority (IFA), which is a public instrumentality that acts to further a public purpose of promoting the state’s economy (Code section 16.1A). The agricultural development division is created within the IFA to provide assistance to beginning farmers who satisfy low or moderate net worth requirements (Code sections 16.2A and 16.58). One such program is the beginning farmer tax credit program (program) that facilitates the transfer of agricultural assets between a lessor who is the owner of agricultural assets (eligible taxpayer) to a lessee (qualifying beginning farmer) participating in the program (Code section 16.82). An agricultural asset means agricultural land, agricultural improvements, depreciable agricultural property, crops, or livestock (Code section 16.58).
   BACKGROUND —— APPLICATION AND LEASE AGREEMENT REQUIREMENTS. An application to participate in the program must be submitted to IFA by August 1 of each year. The application must include an agricultural lease agreement (lease agreement) (Code section 16.81) entered into by the eligible taxpayer and qualified beginning farmer. The eligible taxpayer is entitled to claim a tax credit against the taxpayer’s individual or corporate income tax liability based on the form of rent arrangement and the payment amount provided in the lease agreement (Code section 16.82). Under the lease agreement, the beginning farmer assumes control over the leased agricultural assets for the term of the lease agreement. An application fee schedule is established by IFA rule based on costs necessary to administer the program. The lease agreement cannot exceed five years, but may be renewed (Code section 16.79A). An eligible taxpayer may participate in the program for a maximum of 15 years.
   BACKGROUND —— FORMS OF AN AGRICULTURAL LEASE AGREEMENT. There are two forms of a lease agreement, both based on payments received by the eligible taxpayer (Code section 16.82). Under the first form, the eligible taxpayer enters into a fixed cash payment arrangement in which the taxpayer receives an unadjusted rent payment. Under the second form, the eligible taxpayer enters into a risk distribution arrangement in which the taxpayer’s rent payment is calculated according to the amount that may be received from the sale of a commodity produced (e.g., harvested corn) on the leased agricultural land. There are two types of a risk distribution arrangement in which the taxpayer receives a rent payment, calculated on either a commodity share basis or flexible basis. For a rent payment made on a commodity share basis, the eligible taxpayer receives a percentage of the commodity sold. For a rent payment made of a flexible basis, the taxpayer may receive a portion of the rent payment based on a fixed rent arrangement and the remaining portion based on a commodity share arrangement. In addition, under a flexible basis, that total rent payment amount may be adjusted according to risk-sharing factors as provided in the lease agreement that may affect production of the commodity according to rules adopted by IFA.
   BACKGROUND —— TAX CREDIT. The rate of the tax credit depends on the form of the lease agreement (Code section 16.82). For a lease agreement under a fixed cash payment arrangement, the rate equals 5 percent of the amount of the cash rent payment received by the eligible taxpayer each year. For a lease agreement calculated on a commodity share basis, the rate equals 15 percent of the amount that the eligible taxpayer receives from the sale of the commodity each year. For a lease agreement calculated on a flexible basis, the tax credit is the sum of that portion of the rent payment attributable to a fixed cash rent arrangement and that portion attributable to a commodity share arrangement. In addition, for a lease calculated on a flexible basis, the sum of one or both payments may be adjusted based on risk-sharing factors as provided in the lease agreement according to rules adopted by IFA. The tax credit is subject to certain limitations. An eligible taxpayer cannot receive more than $50,000 in any one tax year. A tax credit in excess of the eligible taxpayer’s tax liability for the tax year is not refundable but may be carried forward until depleted but for not more than 10 years. The tax credit is not transferable.
   BACKGROUND —— TAX CREDIT RESTRICTION BASED ON INCOME EXCLUSION APPLICABLE TO FARM TENANCIES. An otherwise eligible taxpayer cannot participate in the program in any year that the taxpayer could receive rent payments under a lease agreement as provided in Code chapter 16 and also elect to subtract (exclude) rent payments from the computation of net income as allowed for an eligible individual under Code section 422.7(14). In order to be eligible under the exclusion election, the taxpayer must either be disabled or at least 55 years old. In addition, the taxpayer must have materially participated in a farming business for 10 years in the aggregate, and held the leased property for 10 years.
   BACKGROUND —— TAX CREDIT AWARDS. Tax credit awards are administered by IFA in cooperation with the department of revenue (DOR) (Code section 16.82A). After August 1 of each year, IFA is required to review and approve applications on a first-come, first-served basis and issue tax credit certificates to approved eligible taxpayers as proof of the award in the tax year for which the tax credit is claimed. The program is subject to an annual aggregate limitation of $12 million. If an application is approved, the eligible taxpayer may claim a tax credit each tax year for the entire term of the lease agreement not to exceed five years, so long as the aggregate amount of all awards does not exceed a $12 million aggregate limitation for that calendar year.
   BILL’S PROVISIONS —— AGRICULTURAL ASSETS TRANSFER AGREEMENT. The bill provides for an agricultural assets transfer agreement (transfer agreement) that includes an agricultural assets lease agreement (lease agreement) and a new agricultural assets sale agreement (sale agreement) which includes two forms of sales transactions: (1) a fixed cash sale contract in which the taxpayer receives a cash payment in full at one time and (2) an installment contract in which the taxpayer receives one or more scheduled payments each eligible year. The installment contract may be based on fixed cash payments or on the same risk distribution payment arrangement as applies to a lease agreement (a commodity share basis or flexible basis).
   BILL’S PROVISIONS —— APPLICATION AND PARTICIPATION. The bill provides that an application is not required to be submitted by August 1 so long as the authority may make tax credit awards that do not exceed the $12 million annual limitation. Parties to a transfer agreement who are related as family members may participate in the program so long as the taxpayer is otherwise eligible and the beginning farmer is otherwise qualified. A taxpayer participating in the program is subject to two limits. Regardless of the type of transfer agreement, the taxpayer is not eligible to participate in the program for more than 15 years. A new limit provides that the taxpayer is not eligible to receive a total of more than $250,000 in tax credits. The new provision does not apply to taxpayers currently participating in the program.
   BILL’S PROVISIONS —— TAX CREDIT (TRANSFER AGREEMENT BASED ON CASH PAYMENTS). The bill applies tax credits to those transfer agreements based on cash payments. For a sale contract based on the taxpayer receiving the full payment at one time, the tax credit equals 5 percent of the payment amount subject to an annual limit of $100,000. For a lease agreement, the rate is increased from 5 to 10 percent of the fixed cash payments, and for a sale contract in the form of an installment contract, the rate is 5 percent of the fixed cash payments based on the amount of the sales price attributable to principle. However, in the case of a lease agreement the rate may be increased by 2 percent (to 12 percent) under certain circumstances. The first circumstance occurs if land used to produce the cash payments is less than the average cash payments under comparable leases located in the same county. The second circumstance occurs if the term of the lease agreement is either four or five years. The $50,000 annual limit continues to apply to the lease agreement and the $100,000 annual limit applies to the installment contract. A tax credit for the lease agreement or installment contract is refundable. Consequently, the taxpayer’s election to carry forward the tax credit is limited to the following tax year.
   BILL’S PROVISIONS —— TAX CREDIT (TRANSFER AGREEMENTS BASED ON RISK DISTRIBUTION PAYMENTS ARRANGEMENTS). The bill applies tax credits to a transfer agreement which is either a lease agreement or a sale agreement in the form of an installment contract, if the transfer agreement is based on a risk distribution payments arrangement, including a commodity share basis or flexible basis. The same formula used to calculate the rate that applies under current law to a lease agreement based on a commodity share or risk-sharing arrangement now applies to both a payment made under a lease agreement and installment contract. For a lease agreement, the rate continues to be 15 percent, and for an installment contract the rate is 5 percent, mirroring the rate for fixed payment contracts either on a full one-time or installment basis. The bill provides one exception for a lease agreement. The rate is increased by two percentage points (to 17 percent) if a lease agreement has a term of four or five years (there is no increase based on comparable leases in the county). The $50,000 annual limit continues to apply to a lease agreement and the $100,000 annual limit applies to an installment contract. Again, the tax credit for a lease agreement or installment contract is refundable and the taxpayer’s election to carry forward the tax credit is limited to the following tax year.
   BILL’S PROVISIONS —— TAX CREDIT RESTRICTION BASED ON INCOME EXCLUSION APPLICABLE TO FARM TENANCIES. The bill provides that an eligible taxpayer may participate in the program to receive a tax credit based on rent payments received under a lease agreement as provided in Code chapter 16 and also elect to subtract (exclude) the same rent payments from the computation of net income as allowed for an eligible individual under Code section 422.7(14).
   BILL’S PROVISIONS —— EFFECTIVE DATES. Generally, the bill takes effect on January 1, 2027. However, a provision that authorizes IFA and DOR to adopt rules to administer the provisions of the bill takes effect upon enactment.