Grain Companies, Co-ops Agree On Tax Benefit Fix03/14/2018
The National Council of Farmer Cooperatives (NCFC) and National Grain and Feed Association (NGFA) today issued a joint statement regarding a stakeholder-driven proposal to resolve the unintended consequences of Section 199A of the Tax Cuts and Jobs Act.
The two organizations said they support inclusion of the legislation to amend Section 199A as part of the fiscal year 2018 Omnibus appropriations bill this month, and believe it warrants bipartisan support. The legislation, if approved by Congress, would be retroactive to the start of the 2018 tax year on Jan. 1.
NCFC and NGFA expressed appreciation to House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin Hatch, R-Utah, and the Congressional Joint Committee on Taxation for developing legislative language over the last week that is designed to achieve the two fundamental objectives of stakeholders:
•First, to replicate to the greatest extent possible the tax benefits accorded to farmer-owned cooperatives and their farmer-patrons under the previous Section 199, also known as the Domestic Production Activities Deduction (DPAD), of the tax code, as it existed prior to its repeal in the Tax Cuts and Jobs Act enacted on Dec. 23, 2017; and
•Second, to restore the competitive landscape of the marketplace as it existed in December 2017 so that the tax code does not provide an incentive for farmers to do business with a company purely because it is organized as a cooperative or private/independent firm.
“Throughout the tax reform process that began last year, NCFC has consistently called on Congress to retain DPAD for farmer co-ops and their member-owners and this legislation largely meets that goal. The old Section 199 had a proven track record of letting farmers keep more of their hard-earned money. We expect these provisions to do the same,” said Chuck Conner, president and CEO of NCFC. “By combining the individual-level business deductions that farmers can claim and the pass-through from their co-ops, farmers selling to cooperatives have the opportunity to see benefits in excess of the 20 percent 199A pass-through deduction.”
“We would also like to recognize the tireless efforts of Sens. John Thune of South Dakota and John Hoeven of North Dakota to ensure fair treatment for farmer co-ops and their member-owners,” Conner continued. “They have brought together both sides and fostered an atmosphere that has made today’s proposal possible.”
NGFA President and CEO Randy Gordon said great care was taken by stakeholders to develop a concept that provides tax relief to farmers, as envisioned in the tax-reform law, while restoring to the maximum extent possible the competitive balance in the marketplace. NGFA noted its members consist of an almost equal number of grain, feed and grain-processing businesses organized as cooperatives and private/independents.
“Given the complexities of the issue and the different types and sizes of businesses, no legislation will ever be perfect for every income or business situation,” Gordon said. “But the stakeholder concepts on which this legislative language is based have been analyzed and reanalyzed in excruciating detail by tax experts representing both cooperative and private/independent businesses, as well as Congressional tax staff experts. We believe the solution merits enactment so that competitive choices remain available to agricultural producers and the marketplace – not the tax code – determines with whom they do business. We appreciate the commitment of members of Congress, Republicans and Democrats alike, to get it fixed.”
NGFA joined in thanking Sens. Thune and Hoeven, as well as Sens. Chuck Grassley, R-Iowa, and Pat Roberts, R-Kan., for working with stakeholders, as well as several Democratic senators who have expressed an interest in seeing the issue resolved.
NCFC and NGFA said they will remain engaged on this critical issue until a stakeholder-led solution is enacted by Congress.
Democrats may block fix
One step forward and another back: That’s what seems to have happened with the agreement that grain companies and farmer cooperatives reached to fix the Section 199A deduction.
Shortly before the agreement was announced yesterday, Senate Minority Leader Charles Schumer let it be known that he didn’t want to allow the 199A fix in a pending omnibus spending bill unless Republicans agreed to reopen the new tax law that created 199A.
Democrats “don’t have much of an inclination” to pass the 199A fix “unless they want to open up other parts of the tax bill,” Schumer said.
Keep in mind: Schumer may be bluffing, or he may be just using the 199A issue as leverage to get something else that Democrats want in the spending bill. But remember, this is exactly the same problem that Democrats ran into after passing the Affordable Care Act on a partisan basis. Republicans wouldn’t cooperate with fixing problems in that.
There’s no way Republicans will allow Democrats to undo the tax law just to get the 199A issue addressed.
As for the fix itself: Agricultural tax expert Paul Neiffer has posted an analysis spelling out how the new provisions would work for various farmers. The agreement essentially recreates the way that co-ops used to use a tax deduction that was repealed by the tax law. All farmers who are not organized as C corporations would still get a 20-percent deduction on net farm income.
Read a summary and the text of the 199A fix here.