Update: Governor Reynolds signed this bill into law on May 21, 2019.
Last week, the Iowa House and Senate passed HF 768, a bill to enhance Iowa’s Beginning Farmer Tax Credit Program. Once signed by the Governor, the new law will strengthen a program that faced significant cuts in 2018. Under the bill, the Iowa Finance Authority may issue up to $12 million in tax credit certificates each tax year, an increase from $6 million under 2018 law. Notably, the $7.9 million in agreements that existed as of the end of calendar year 2018 are not included as part of the new $12 million cap. The bill changes the formal name of the program to the “Beginning Farmer Tax Credit Program” from the credit named the “agricultural assets transfer tax credit.” The program will continue to provide tax credits to eligible Iowa taxpayers who lease agricultural land (and associated improvements or equipment) to qualified beginning farmers.
Although the Iowa Finance Authority (IFA) will retain oversight authority for the program, the bill requires the agricultural development board to designate one of its members to serve on the IFA’s board of directors. The agricultural development board is also tasked with reviewing and recommending approval of applications for the tax credit.
The bill provides that only “eligible taxpayers” may receive a credit under the program. Eligible taxpayers must meet all of the following requirements:
Once eligible, taxpayers may not participate in the program for more than 10 years.
A qualified beginning farmer must first be a “beginning farmer” under Iowa Code § 16.58. This means that he or she must have a “low or moderate net worth,” which, for 2019, has been set by the IFA at $680,590. A “qualified beginning farmer” with whom the lease agreement is executed must also meet all of the following conditions:
To qualify for the program an agricultural lease must meet the following conditions:
Once admitted to the program, the lease may be amended (without requiring a new application) only if:
If a change is made to the agreement that impacts the total amount paid to the eligible taxpayer, the taxpayer must contact the IFA within 30 days. The IFA will recalculate the tax credit based upon any decrease. If the amendment increases the total price paid, the tax credit award will not be increased unless an amended application is submitted and approved. This approval will not be granted unless the terms of the change are more favorable to the beginning farmer. A beginning farmer or eligible taxpayer is authorized to terminate the agreement. The taxpayer must notify IFA of that termination within 30 days. If the taxpayer is at fault for the termination, tax credits will be disallowed for the year of the termination. A taxpayer who does not notify the IFA of a termination will be deemed “at fault.”
The deadline for submitting applications is August 1 of each year. The application shall be for a period not longer than the term of the lease. The IFA is authorized to collect fees and adopt rules necessary to administer the program.
The agricultural development board is required to review and recommend approval of applications for the tax credit. As part of this process, IFA will calculate the amount of the tax credit that may be issued to that applicant. IFA must approve all applications on a first-come, first-served basis and issue tax credit certificates to approved taxpayers. Applicants who are renewing existing leases, however, receive priority.
The IFA will calculate the tax credit based on the type of rent payment arrangement agreed to by the parties. For an agreement which requires a fixed cash rent, the tax credit amount equals 5 percent of the gross amount paid to the taxpayer under the agreement. For an agreement requiring rent payable on a commodity share basis, the tax credit amount equals 15 percent of the amount the taxpayer would receive as a rent payment from the sale of his or her share of the crop in each harvest year. This amount is based upon an equation using data compiled by USDA. For a flexible-rent arrangement under which the taxpayer receives a fixed payment, but also shares some risk, the tax credit amount equals 5 percent of the fixed amount and 15 percent of the amount paid as a percentage of the gross value of the commodity. A tax credit cannot exceed $50,000 in any tax year. An unused tax credit may be carried forward for up to ten years.
The bill provides that any approved application for the agricultural asset transfer tax credit is deemed an approved application under the beginning farmer tax credit program. The bill allows a taxpayer who claimed a tax credit under the agricultural assets transfer tax credit and its associated (now repealed) custom farming contract tax credit to continue to carry over the respective tax credits for the remaining 10 years or the depletion of the tax credit.
The bill takes effect upon enactment and applies retroactively to January 1, 2019, to tax years beginning on or after that date.
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