Bill Summary – FastDemocracy

Fiscal Note
                                      Fiscal Services Division
HF 484 – Beginning Farmer Tax Credit (LSB1885HV)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 484 expands the existing Beginning Farmer Tax Credit program. The Bill:
• Specifies that an agricultural asset subject to a qualified agreement may include an
   agricultural improvement (building).
• Removes a requirement that a qualified lease must include agricultural land.
• Increases the current 10-year maximum that a taxpayer may participate in the program to 15
   years.
• Allows a taxpayer to participate in the program through multiple agreements and with more
   than one qualified beginning farmer.
• Allows agreements to be renewed more than once.
• Changes a current $50,000 per year limit on the annual amount of tax credits a single
   taxpayer may earn to a $50,000 per year, per agreement limit.
Background
The Beginning Farmer Tax Credit program provides tax incentives to owners of agricultural
assets who enter into leases or other agricultural contracts with qualified beginning farmers.
The current tax credit is equal to 5.0% of qualified cash rent payments or 15.0% of the market
price of the commodity produced on the land subject to the lease. The owner of the agricultural
asset(s) subject to a qualified agreement receives the benefit of the tax credit.
A farmer qualifies as a beginning farmer by meeting all of the following criteria:
• Is a resident of Iowa.
• Has sufficient education, training, or experience in farming.
• Has access to adequate working capital and production items.
• Will materially and substantially participate in farming.
• Does not own more than a 10.0% ownership interest in an agricultural asset included in the
    agreement with the taxpayer.
The program is subject to a maximum award amount (cap) of $12.0 million per calendar year.
Tax credits awarded under the program totaled $6.4 million for CY 2019 and $6.5 million for
CY 2020. The highest total for a year was CY 2017 at $9.6 million. The full award history is
provided in the following table.
                                               1
                    Beginning Farmer Tax Credit Program Awards
                                            In Millions
                  Award             Award             Award           Award
                    Year            Amount              Year          Amount
                CY 2007           $      1.3        CY 2014         $      6.5
                CY 2008                  2.0        CY 2015                7.0
                CY 2009                  2.7        CY 2016                8.6
                CY 2010                  3.6        CY 2017                9.6
                CY 2011                  5.2        CY 2018                6.0
                CY 2012                  5.8        CY 2019                6.4
                CY 2013                  6.0        CY 2020                6.5
Assumptions
Although the Beginning Farmer Tax Credit program has an annual cap of $12.0 million, the
program does not have sufficient demand under current law to fully utilize that cap. Utilization
over the past three years has averaged $6.3 million and the highest recent utilization was
CY 2020 at $6.5 million. Therefore, it is assumed that under current law the tax credit award
demand for future years will equal $6.5 million per year.
The changes provided in the Bill remove participation restrictions and expand the types of
agricultural assets that may be the subject of agreements. It is assumed for this projection that
the program expansions will increase awards by $2.5 million, to $9.0 million per calendar year.
The credits are not refundable or transferable, but unused credits may be carried forward for up
to 10 tax years. For reasons particular to each taxpayer, some earned tax credits are never
redeemed on a tax return. Based on the history of tax credit redemptions under this program,
the following tax credit redemption pattern is assumed:
• Year of award = 0.0%
• First tax year after award = 28.0%
• Second tax year = 15.0%
• Third through sixth tax year = 7.0%
• Tax credits that expire unused = 29.0%
Fiscal Impact
Expanding the Beginning Farmer Tax Credit program is projected to reduce General Fund
revenue by the following amounts:
• FY 2023 = $0.7 million
• FY 2024 = $1.1 million
• FY 2025 = $1.3 million
• FY 2026 = $1.4 million
• FY 2027 = $1.6 million
• FY 2028 and after = $1.8 million
                                                2
Sources
Beginning Farmer Tax Credit Program Evaluation Study (December 2020)
Contingent Liabilities Report (December 2020)
Department of Revenue
Legislative Services Agency analysis
                                                                        /s/ Holly M. Lyons
                                                                        February 15, 2021
Doc ID 1212647
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in
developing this fiscal note is available from the Fiscal Services Division of the Legislative Services
Agency upon request.
                                            www.legis.iowa.gov
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Statutes affected: 
Introduced: 16.58, 16.79A, 16.81, 16.82