Iowa-2023-HF2676-Introduced

H.F. 2676 Section 1. NEW SECTION . 422.11N Cow-calf operations credit. 1 The taxes imposed under this subchapter, less the credits 2 allowed under section 422.12, shall be reduced by a cow-calf 3 operations credit allowed and a cow-calf operations credit 4 refund paid under subchapter X. 5 Sec. 2. Section 422.33, Code 2024, is amended by adding the 6 following new subsection: 7 NEW SUBSECTION . 11. The taxes imposed under this subchapter 8 shall be reduced by a cow-calf operations credit allowed and a 9 cow-calf operations credit refund paid under subchapter X. 10 Sec. 3. NEW SECTION . 422.120 Definitions. 11 As used in this subchapter, unless the context otherwise 12 requires: 13 1. “Appropriation amount” means the amount of the 14 appropriation for a fiscal year as provided in section 422.124 15 available to support a cow-calf operations credit refund paid 16 under section 422.126 plus any additional appropriation made 17 to the department for that same fiscal year and for that same 18 purpose. 19 2. “Cow-calf operation” or “operation” means land and 20 facilities located in this state where a cow-calf operation 21 herd is maintained. 22 3. “Cow-calf operation cattle” or “cattle” means any of the 23 following three types of cattle: 24 a. A mature beef cow bred or for breeding. 25 b. A bred yearling heifer. 26 c. A breeding bull. 27 4. “Cow-calf operation herd” or “herd” means at least one 28 head of each of the three types of cow-calf operation cattle 29 that are maintained together. 30 Sec. 4. NEW SECTION . 422.121 Administration. 31 1. The department shall adopt all rules pursuant to chapter 32 17A that it determines are necessary or desirable to administer 33 this subchapter. 34 2. The department shall publish all forms required for 35 -1- LSB 5979HV (2) 90 da/jh 1/ 11

H.F. 2676 an eligible taxpayer to comply with this subchapter. The 1 department shall provide for procedures for the receipt, 2 filing, processing, and return of documents in an electronic 3 format, including but not limited to the transmission of 4 documents by the internet. The department shall provide for 5 authentication of the documents that may include electronic 6 signatures as provided in chapter 554D. 7 Sec. 5. NEW SECTION . 422.122 Allowance. 8 1. There is allowed a cow-calf operations credit that may be 9 claimed by eligible taxpayers for tax years beginning on and 10 after January 1, 2025. 11 2. Only qualifying cow-calf operation cattle are counted 12 in calculating an allowable credit. Cattle qualify, if on 13 December 31 of the taxpayer’s tax year and on the previous July 14 1, the cattle are part of a cow-calf operation herd maintained 15 at a cow-calf operation. 16 3. a. The amount of an allowable credit equals fifteen 17 dollars and fifty cents multiplied by the number of qualifying 18 cow-calf operation cattle counted by the eligible taxpayer as 19 provided in subsection 2 subject to allocation as provided in 20 section 422.127. 21 b. The maximum allowable credit amount that may be claimed 22 by an eligible taxpayer shall not exceed four thousand dollars. 23 Sec. 6. NEW SECTION . 422.123 Taxpayer eligibility. 24 A taxpayer is eligible to claim the allowable credit under 25 section 422.122, if all of the following apply: 26 1. The taxpayer is all of the following: 27 a. The owner of an interest in one or more qualifying 28 cow-calf operation cattle that are part of a cow-calf operation 29 herd as described in section 422.122. 30 b. The owner or lessee of an interest in the cow-calf 31 operation where the qualifying cow-calf operation cattle are 32 maintained. 33 c. Able to directly or indirectly acquire or otherwise 34 obtain, own, lease, or hold agricultural land for purposes of 35 -2- LSB 5979HV (2) 90 da/jh 2/ 11

H.F. 2676 farming under chapter 9H, 9I, 10, or 501. 1 d. Not classified as a habitual violator for a violation of 2 state law involving an animal feeding operation as regulated by 3 the department of natural resources under chapter 459. 4 e. Subject to taxation under subchapter II or III. 5 2. The taxpayer’s income does exceed an adjustable income 6 limit. The taxpayer’s adjustable income limit equals the 7 taxpayer’s federal taxable income. In the case of married 8 taxpayers, their combined federal taxable income shall be used 9 to determine if they may claim the allowable credit. The 10 taxpayer’s adjustable income limit shall be calculated as 11 follows: 12 a. The base rate for the calendar year beginning January 1, 13 2024, shall equal one hundred ninety-one thousand dollars. 14 b. (1) For the tax year beginning January 1, 2025, and for 15 each subsequent tax year, the eligible taxpayer’s base rate as 16 specified in paragraph “a” is multiplied by the cumulative index 17 factor for that tax year. 18 (2) (a) “Cumulative index factor” means the product of the 19 annual index factor for the 2025 calendar year and all annual 20 index factors for subsequent calendar years. 21 (b) The annual index factor equals the annual inflation 22 factor for that calendar year as computed in section 422.4 for 23 purposes of the individual income tax. 24 Sec. 7. NEW SECTION . 422.124 Appropriation —— limitation. 25 For the fiscal year beginning July 1, 2025, and ending 26 June 30, 2026, and for each fiscal year thereafter, there 27 is appropriated from the general fund of the state to the 28 department three million dollars to pay cow-calf operations 29 credit refunds as provided in section 422.126. 30 Sec. 8. NEW SECTION . 422.125 Credit claim form —— filing 31 requirements. 32 1. An eligible taxpayer shall only claim a cow-calf 33 operations credit allowed under section 422.122 for the 34 taxpayer’s tax year by completing a cow-calf operations 35 -3- LSB 5979HV (2) 90 da/jh 3/ 11

H.F. 2676 credit claim form including all information required by the 1 department. The claim form must include all of the following: 2 a. The count of the cow-calf operation cattle in which 3 the eligible taxpayer owns an interest as provided in section 4 422.122. 5 b. The eligible taxpayer’s ownership percentage interest in 6 the counted cow-calf operation cattle as provided in section 7 422.123. 8 c. A calculation of the cow-calf operations credit claimed 9 by the eligible taxpayer. 10 2. The eligible taxpayer must file the cow-calf operations 11 credit claim form with the department as required by the 12 department. The claim form shall be attached to the taxpayer’s 13 income tax return for the tax year in which the credit is 14 claimed. The claim form must be filed within ten months after 15 the last day of the tax year of the return. The department 16 shall not grant the taxpayer an extension for filing the claim 17 form. The taxpayer has the burden to maintain tax records that 18 support the claim form. Upon request by the department, a 19 taxpayer shall allow the department to examine the tax records 20 used to support the claim form. 21 3. The department shall review and approve or disapprove all 22 cow-calf operations credit claim forms, if properly submitted 23 to the department according to procedures established by the 24 department. 25 4. A taxpayer who files a fraudulent cow-calf operations 26 credit claim form shall forfeit any right or interest in a 27 cow-calf operations credit refund payment, as provided in 28 section 422.126, in subsequent tax years. 29 Sec. 9. NEW SECTION . 422.126 Credit refund computation and 30 payment. 31 1. On or before February 28, the department shall compute 32 all payable claimed cow-calf operations credits approved by the 33 department as provided in section 422.125, for a refund payment 34 for the eligible taxpayer’s prior tax year. If a credit cannot 35 -4- LSB 5979HV (2) 90 da/jh 4/ 11

H.F. 2676 be computed by that date because a taxpayer is not a calendar 1 year filer, the taxpayer’s approved claim form shall be held 2 over for computation and payment of a credit for the taxpayer’s 3 following tax year. 4 2. The department shall pay each eligible taxpayer up to the 5 maximum allowable credit amount. 6 3. The department shall determine whether it will make full 7 credit refund payments or partial credit refund payments to 8 eligible taxpayers in a tax year by dividing the appropriation 9 amount by the total amount of all payable claimed credits 10 approved by the department. 11 a. If the appropriation amount is equal to or more than the 12 total amount of payable claimed credits, the department shall 13 make full credit refund payments to all eligible taxpayers. 14 b. If the appropriation amount is less than the total 15 amount of payable claimed credits, the department shall make 16 partial credit refund payments, in lieu of making full credit 17 refund payments, to all eligible taxpayers. In that case, the 18 department shall make to each eligible taxpayer submitting an 19 approved claim form the sum of the two partial credit refund 20 payments as follows: 21 (1) The first refund payment which shall be made to all such 22 eligible taxpayers not awarded a full credit refund payment, 23 by dividing the appropriation amount by the total number of 24 eligible taxpayers filing approved claim forms. 25 (2) The second refund payment which shall be made to 26 each such eligible taxpayer not awarded a full credit refund 27 payment. Each such taxpayer shall be assigned the same 28 percentage of the remaining appropriation amount as would have 29 been awarded to that taxpayer if full refund payments were 30 being made. 31 4. An eligible taxpayer who is awarded a partial credit 32 refund payment is not entitled to any remaining unpaid amount 33 of the partial credit refund. The taxpayer is not entitled to 34 carry forward or carry back to another tax year any remaining 35 -5- LSB 5979HV (2) 90 da/jh 5/ 11

H.F. 2676 unpaid amount of the partial credit refund. The taxpayer 1 shall not use a credit refund as an estimated payment for a 2 succeeding tax year. 3 Sec. 10. NEW SECTION . 422.127 Allocations. 4 1. A percentage of a cow-calf operations credit refund 5 payment made in section 422.126 shall be awarded to one or 6 more eligible taxpayers, under circumstances identified by the 7 department, including any of the following: 8 a. If an eligible taxpayer owns or leases an interest in a 9 cow-calf operation that is partially located in and partially 10 located outside this state. 11 b. (1) Except for married taxpayers, if two or more 12 eligible taxpayers jointly own or lease an interest in the 13 same cow-calf operation and jointly own a percentage of all 14 qualified cow-calf operation cattle that are part of a cow-calf 15 operation herd maintained at the operation. 16 (2) For married taxpayers in which one or both spouses are 17 eligible taxpayers, any of the following: 18 (a) If only one spouse as an eligible taxpayer owns or 19 leases an interest in a cow-calf operation and independently 20 owns an interest in all qualified cattle that are part of a 21 cow-calf operation herd maintained at the operation. 22 (b) If both spouses as eligible taxpayers jointly own or 23 lease an interest in the same cow-calf operation and jointly 24 own all qualified cattle that are part of a cow-calf operation 25 herd maintained at the operation. 26 (3) If each spouse separately owns or leases an interest 27 in a separate cow-calf operation and independently owns an 28 interest in all qualified cattle that are part of a cow-calf 29 herd maintained at that operation. In that case, each spouse 30 as an eligible taxpayer may claim up to the maximum allowable 31 credit amount without allocation to the other spouse. 32 2. An individual may claim a cow-calf operations credit 33 refund allowed a partnership, limited liability company, 34 subchapter S corporation, or estate or trust electing to have 35 -6- LSB 5979HV (2) 90 da/jh 6/ 11

H.F. 2676 the income taxed directly to the individual. The amount 1 claimed by the individual shall be based upon the pro rata 2 share of the individual’s earning of the partnership, limited 3 liability company, subchapter S corporation, or estate or 4 trust. 5 EXPLANATION 6 The inclusion of this explanation does not constitute agreement with 7 the explanation’s substance by the members of the general assembly. 8 BACKGROUND —— GENERAL. In 1996, the general assembly 9 established the livestock production tax credit refund (credit 10 refund) in Code sections 422.120 through 422.123 codified 11 as division X (now subchapter X) that authorized eligible 12 taxpayers to claim a refund tax credit (credit) in an amount 13 based on the cost of producing certain farm animals associated 14 with beef, dairy, pork, sheep, and poultry operations (1996 15 Iowa Acts, chapter 1197). The details of the credit were 16 further described in rules adopted by the department of revenue 17 and finance (today the department or revenue) under 701 IAC 18 43.8. In 1997 and 1999, the general assembly amended the 19 provisions in the division (1997 Iowa Acts, chapter 206, and 20 1999 Iowa Acts, chapter 151) and in 2009 the general assembly 21 eliminated the provisions entirely (2009 Iowa Acts, chapter 22 179). 23 BACKGROUND —— CALCULATION. The 1996 Iowa Act established 24 a formula to calculate the credit based on a flat rate of 25 10 cents multiplied by a corn equivalency factor assigned to 26 each species of listed farm animals maintained as part of a 27 herd or flock at a livestock production operation (operation). 28 The Act accounted for both mature and immature farm animals 29 (e.g., farrow to finish and farrow to feeder pig) and types of 30 operation (cow-calf, feedlot, and dairy). The corn equivalency 31 factor was based on the farm animal’s relevant consumption of 32 corn or a corn substitute having relative comparable value, 33 which presumably corresponded to the comparative weights of 34 the farm animals, ranging from a broiler assigned a 0.15 corn 35 -7- LSB 5979HV (2) 90 da/jh 7/ 11

H.F. 2676 equivalency to a dairy cow assigned a 350 corn equivalency 1 (for a similar scale of corresponding animal weights see Code 2 section 459.102). For example, the credit for an operation 3 maintaining turkeys assigned a corn equivalency of 1.5 for 4 each bird would be calculated as $0.10 x 1.5 = $0.15). The 5 next step would be to multiply the product of the per turkey 6 credit refund by the total number of turkeys maintained at 7 the operation. If the operation contained 15,000 turkeys, 8 the total animal credit refund amount would be calculated 9 as $0.10 x 1.5 x 15,000 = $2,250. Alternatively, for a 10 cow-calf operation, the assigned corn equivalency for each 11 qualifying head of cattle that was part of a herd maintained 12 at an operation was 111.5 or $11.15 per head. If an operation 13 contained 280 qualifying cattle, the total credit refund amount 14 would be calculated as $0.10 x 111.5 x 280 = $3,122. 15 BACKGROUND —— PROCEDURES. The 1996 Iowa Act established 16 a number of procedures. The taxpayer was required to file 17 a claim for the refund within 10 months from the last day 18 of the taxpayer’s tax year (October 31 for a calendar year 19 filer). An extension by the taxpayer was not allowed. A 20 claim for a credit refund had to be made on forms published by 21 the department. The department was required to determine by 22 February 28 of each calendar year whether the total amount of 23 claims for refunds for the prior calendar year exceeded the 24 amount available to fully pay all claims. 25 BACKGROUND —— LIMITATIONS (RESTRICTED TO COW-CALF 26 OPERATIONS). The 1996 Iowa Act provided that for the tax 27 year beginning on and after January 1, 1996, the credit 28 refund applied only to cow-calf operations. The 1997 Iowa 29 Act extended that restriction to all future tax years, while 30 leaving the Code sections establishing the general credit 31 refund applying to all farm animals intact but unfunded. The 32 1997 Iowa Act specified that a cow-calf operation must include 33 a herd consisting of three types of qualifying cattle: mature 34 beef cows bred or for breeding, bred yearling heifers, and 35 -8- LSB 5979HV (2) 90 da/jh 8/ 11

H.F. 2676 breeding bulls. The 1999 Iowa Act provided that the credit 1 refund was based on a head count of the cattle (inventory) 2 conducted on December 31 of the tax year and required that the 3 same cattle must have been included in the herd inventory on 4 the previous July 1. 5 BACKGROUND —— LIMITATIONS (FINANCIAL CAPS). A number of 6 financial limitations applied to the credit refund. The 7 first and second limitations were established in the 1996 8 Iowa Act. The first limitation set a maximum allowable 9 amount (maximum credit cap) of $3,000 that could be awarded 10 to any one taxpayer. Thus, a taxpayer who owned a cow-calf 11 operation could not count more than 269 cattle when claiming 12 a credit refund ($0.10 x 111.5 x 269 = $2,999.35). The second 13 limitation set a maximum annual standing limited appropriation 14 of $2 million dedicated to pay all claimed credit refunds 15 allowed by the department in that fiscal year. If on February 16 28 the appropriated amount was available to cover all approved 17 credit claims, each of the approved claims would be paid up to 18 the maximum allowable credit cap. Otherwise, the appropriated 19 amount would be paid on a percentage basis in two rounds of 20 distributions. During the first round, each taxpayer holding 21 a claim was paid an equal amount up to the claimed credit’s 22 maximum credit cap. During the second round, the remaining 23 appropriation amount was apportioned among all taxpayers 24 holding claims that were not fully paid. Each such taxpayer 25 was assigned the same percentage of the remaining appropriation 26 amount as would have been awarded to that taxpayer if full 27 refund payments were made to all such waiting taxpayers. The 28 third financial limitation set an eligibility requirement for 29 taxpayers. The 1997 Iowa Act replaced a taxpayer net worth cap 30 with a taxpayer annual income cap. The former Act required 31 a taxpayer to have had a net worth of less than $1 million. 32 The new requirement provided that the taxpayer’s income could 33 not exceed $99,600 for the 1997 tax year and increased that 34 cap each tax year based on an inflation formula referred to 35 -9- LSB 5979HV (2) 90 da/jh 9/ 11

H.F. 2676 as a cumulative index factor which added together the rate of 1 inflation for each relevant year after the base year (see Code 2 section 422.4). 3 BACKGROUND —— ALLOCATIONS. Interest holders of certain 4 businesses, such as S corporations, were allowed to claim the 5 credit individually as a pass-through. 6 BILL’S PROVISIONS. This bill reestablishes the credit 7 refund based on the framework of the 1996 Iowa Act as amended, 8 but also makes certain changes. The former version of the 9 credit refund applied to livestock production operations but 10 in fact limited its application to only cow-calf operations. 11 The bill applies exclusively to cow-calf operations as defined 12 in the 1997 Iowa Act and eliminates language that refers to 13 those other types of operations. The bill assumes an inflation 14 rate of 92 percent (rounded) since the income cap for taxpayers 15 first applied to 1997 and later tax years and substitutes 16 $99,600 with $191,000 (rounded) as a base rate for the 2024 17 calendar year with subsequent increases calculated for tax 18 years beginning on and after January 1, 2025, using the same 19 inflation formula. The bill assumes an inflation rate of 43.75 20 percent (rounded) since the credit’s elimination in 2009. The 21 bill replaces the formula that had been used to calculate the 22 per head amount of the credit with a fixed amount of $15.50 23 assuming an inflation adjusted flat rate per head from $0.10 to 24 $0.14 calculated as $0.14 x 111.5 = $15.50 (rounded). It makes 25 two other inflation adjustments, including (1) the maximum 26 allowable credit amount by substituting $3,000 with $4,000 27 (rounded), and (2) the appropriation amount by substituting 28 $2 million with $3 million (rounded). It requires the filing 29 of documents with the department in an electronic format. It 30 provides that a taxpayer must be able to hold agricultural 31 land for farming under Iowa’s corporate and foreign farming 32 laws (see Code chapter 425A providing for the family farm 33 tax credit) and provides that a taxpayer operating an animal 34 feeding operation cannot be classified as a habitual violator 35 -10- LSB 5979HV (2) 90 da/jh 10/ 11