|
 President Donald Trump signed the Republican tax
overhaul into law in December that allows farmers a 20 percent tax
deduction on payments for sales of crops to co-ops, but not for
sales to private or investor-owned grains handlers1.
Some lawmakers have said they made a mistake by including the new
language in last-minute changes to the bill1. The last
minute addition to the tax bill passed late last year was supposed
to continue an existing tax break that benefited cooperatives2,
not make this significant change.
Rob Holcomb, a University of Minnesota Extension educator and tax
expert, says farmers can gain thousands of dollars in tax breaks by
selling their grain to a co-op. Here's how it works: If a farmer
sells grain to a privately owned grain elevator, they can claim a 20
percent deduction on the net proceeds, or profit, from the sale. But
if they sell to a cooperative they can claim the 20 percent
deduction on the gross, or total amount of the sale. Holcomb used a
simplistic example. A farmer sells $500,000 worth of grain and makes
$100,000 in profit. Selling to a co-op would result in a $100,000
tax benefit, while selling to a private company limits the tax
benefit to $20,0002.
The impact of 199a might mean that some producers would be able to
wipe out all their federal tax liability.
On Wednesday February 14, Republican U.S. Senator Orrin Hatch said
he and other senators were working toward “a solution to this issue
that does not choose winners and losers1.”
There are, though, some state organizations that feel enthusiastic
about maintaining it. The genie may be out of the bottle and will be
hard to put back in4.
Teresa Castanias, a Certified Public Accountant, led the effort to
get this special provision for cooperatives into old Section 199.
She thinks that it is possible that there won't be a fix negotiated.
“From what I have seen, negotiations are going nowhere at this
point. Everything they try hurts someone, and they are fixated on
the “double counting” aspect of this (income to the patron is a
deduction for the coop). Current 199A(g) doesn’t have a double
counting problem though, so I am not sure why they haven’t worked
more from that angle. The 199A(g) benefit should still be pretty
good for most ag coops. From what I hear, there is a growing
interest in keeping the law as is from all parties involved.
Particularly in the farm sector where word is out in the press that
farm income is down to a 12 year low nationwide. I was at an ag coop
conference last week, and that was the general mood of the
participants that I talked to4.”
Castanias said, “Of even greater interest is that the provision
creates a huge opening for professionals to work around the Section
199A exclusions. Worker owned cooperatives in the fields of health,
law, accounting, etc. are not out of the question4” to take
advantage of these tax benefits.
If legislators are going to make changes, they will want to make
them soon. The longer the delay, the more costly it is to the
government and to non-cooperative grain and livestock buyers. It
also becomes, as you note, the status quo, and harder to reverse4.
Locally, 199a is having quite an impact. However at this time Paul
Crombie, CEO of Elkhart Grain, a private grain company said, “In
this post harvest time the effect is hard to gauge but we don’t
greatly feel the full effect of 199a yet.”
Crombie said, “Legislators indicated 199a had unintended
consequences they were going to fix. If it stands as written,
producers will sell grain to coops. So far the U.S. Senate is not
releasing any language, and both producers and consumers are
anxiously awaiting the specific changes in the language of the bill.
The advantage of selling to a coop at today’s prices would amount to
about 70 cents on a bushel.” Elkhart Grain has had some limited
discussion on becoming a coop. Crombie believes that if it stands,
then businesses outside of ag may find their way to also get the tax
credit.
[to top of second column] |
General Manager Troy Bauer of Hartsburg Grain, a
private grain company, said that they "are a private surrounded by
coops. If the law doesn’t change, in the long run it will put us out
of business. If it doesn’t change by harvest, it will have a
dramatic effect.”
“We are operating assuming it is going to get fixed.
Dysfunctional as Washington DC is, though, we are not 100% sure it
is going to get done. Timing is really important,” Bauer said.
Bauer said, “For Hartsburg Grain, because of our size and financial
restraints, becoming a coop is not a viable choice.”
“The fear is that we will not see profitable volume.
Our costs are fixed and we need a certain volume to cover our
operating costs. Hartsburg Grain is in a strong enough financial
position that we could handle it one season but not two,” Bauer
added.
Finally, Bauer said, “There are challenges every year. This is one
challenge I can do nothing about.”
Scott Docherty, CEO/General Manager of Top Flight Grain in
Monticello, a coop grain company with elevators in Logan County,
said, “We have seen an increase in calls from current customers and
others who have traditionally not been customers of Top Flight
inquiring about becoming members.”
Docherty believes there will be resolution put forth in the March 23
Omnibus Spending Bill that is currently before the U.S. Congress.
Docherty said, “If it does not get amended, coops will see a pickup
from producers.” He does not think they will get overrun, but would
likely experience a 10-20% increase.
In a conciliatory note, Docherty said they were not out to steal
customers. “Top Flight will work with the privates to allow their
customers to sell to our coop to receive the tax credit but then
give the sale to the private elevator they usually do business
with.”
Docherty said he wants to make sure people know that it will get
worked out, and believes that the tax code will revert back in an
amendment to eliminate the language giving tax credits of 20% on the
gross.
[Jim Youngquist]
1U.S.
tax law co-op preference 'wasted money': agricultural companies by
Tom Polansek, Mark Weinraub
2Co-op
chaos: Provision from tax bill has farmers, companies scrambling by
Dan Gunderson
3Lobbies
Seek Ag Tax Change by Chris Clayton
4Cooperative
Glitch In Tax Bill May Mean Food Fight In Congress by Peter J Reilly
5A
“seismic shift”: Federal tax changes jeopardize private grain
elevator business By Morgan Chilson
|
