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

BACKGROUND —— GENERAL.1A).58).82).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.81) entered into by the eligible taxpayer and qualified beginning farmer.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. 79A). An eligible taxpayer may participate in the program for a maximum of 15 years. BACKGROUND —— FORMS OF AN AGRICULTURAL LEASE AGREEMENT.82). Under the first form, the eligible taxpayer enters into a fixed cash payment arrangement in which the taxpayer receives an unadjusted rent payment., 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. _____ 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.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.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.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. _____ 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). _____ 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.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.