Co-op Tax Benefit to be Fixed This Month, Lawmaker Says

Retroactive Fix for 199A Provision Likely Attached to Omnibus Bill


By Tony Dreibus, Successful Farming - 3/9/2018


A fix for a provision in the recently passed tax bill that gives farmers an incentive to sell grain to cooperatives instead of non-cooperative elevators or ethanol production facilities is being worked on and likely will likely be part of an omnibus bill set to be passed on March 23.


Provision 199A, which was part of the tax bill implemented in December, was added to offset the loss of the prior 199 rider that was eliminated by the new law. The problem arose when it was discovered that the new provision, in general, allows member farmers to take a deduction equal to 20% of gross sales, limited to 100% of their taxable income overall, when selling to their cooperative.


Those who aren’t members or sell to an ethanol facility or non-cooperative can generally only take a deduction equal to 20% of their qualified business income, which is grain sales income minus expenses, said Kristine Tidgren, the director of the Center for Agricultural Law and Taxation and an adjunct assistant professor of agriculture education at Iowa State University.


While that’s still a decent deduction, the 199A provision puts non-cooperative grain purchasers at a competitive disadvantage, a problem that needs to be mended, lawmakers said.


“The fix is still in the works,” said Rep. David Young, a Republican who represents Iowa’s Third District. “We should’ve done it in the last bipartisan budget plan that we did four weeks ago. My gut tells me this is going to be done before March 23 in this next omnibus appropriations bill.”


An omnibus bill is a tool used by lawmakers to package several measures – often subjects unrelated to each other – into one single vote. The fix for the 199A code likely will be retroactive, so growers who decide to sell to a cooperative to get the tax break may be jumping the gun.


Tidgren told Successful Farming that the results of the provision ended up being a consequence that was unforeseen when it was passed in the tax bill.


“What’s come out in public statements from senators and from the USDA, it was unintended – the vast discrepancy in treatment,” she said.


Even if 199A was left in place, it’s unlikely cooperatives would have the capacity to handle the grain farmers would want to sell them during harvest, said Keri Jacobs, a professor in the economics department at Iowa State…


… The National Council of Farmer Cooperatives said in a statement that it’s working with stakeholders including cooperatives, non-cooperative owned business, and lawmakers to find an “equitable” solution that benefits co-ops and farmer patrons while addressing the unforeseen consequences on producers’ marketing decisions. ..


… Young said he’s spoken to members of the community and industry leaders representing cooperatives, larger private entities, and commodity groups. Most believe fixing 199A as soon as possible “is an urgent matter, and I see it as an urgent matter,” he said.


It’s unlikely to be controversial as the fix has bipartisan support from lawmakers on both sides of the aisle…