199A Tax Code Fix Is No Fix, Farmers Say
The House Ways and Means Committee said Wednesday it hammered out an amendment to Section 199A of the new US tax code, but it seems not everybody felt the provision needed to be fixed.
A group of farmers in Kansas believe Section 199A, as it’s written, is just fine as it gives growers a bigger tax break – allowing them to keep more of their earned income – than the Section 199 provision it replaced and the proposed 199A fix.
“The (tax breaks proposed by 199A) were huge and were really going to help farm families that are struggling because it will put more money in their pockets,” said Randy Hutchins, a corn and soybean grower near Edgerton, Kansas, who also operates a custom cutting business. “If farmers have more money in their pockets, they’re going to be spending more in the local community, so it would help stimulate the rural economy as well.”
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. It allows, in general, farmers who are members of cooperative to take a deduction equal to 20% of gross sales, limited to 100% of their taxable income overall, when selling to their coop.
Non-members or those selling to an ethanol facility or non-cooperative can, in general, take only 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.
That puts non-cooperative grain purchasers at a competitive disadvantage, a problem that needed amending, lawmakers said. Rep. Kevin Brady, the chairman of the House Ways and Means Committee, which rewrote the provision, said the amendment fixes the “unintended consequences” added in the original writing of Section 199A.
“The solution reached today will restore the competitive balance that has long existed in the marketplace,” he said in a statement. “I look forward to working with my colleagues in the House and Senate to enact this solution as quickly as possible.”
The amendment was given approval by the National Council of Farmer Cooperatives (NCFC) and the National Grain and Feed Association (NGFA). The fix, they said, will replicate to the greatest extent possible tax benefits to farmer-owned cooperatives and patrons under the prior Section 199 that ended in December.
If approved, the amended provision will be retroactive to Jan. 1 and become part of the omnibus bill set to be passed on March 23, the NCFC and NGFA said in a joint statement. The amendment “warrants bipartisan support,” the groups said.
But the fix takes money out of farmers’ pockets, Hutchins said, citing a report from Keri Jacobs, an economist from Iowa State University.
Under the current law, which was passed in December, a grower earning $500,000 in gross income and selling to his or her cooperative would be able to deduct 20% of that amount -- or $100,000. If the producer’s expenses totaled $400,000, that’d leave him or her with a net income of $100,000, all of which the farmer could deduct from earnings, leaving taxable income at zero.
If the producer instead sells to a non-cooperative or an ethanol plant, he or she could only deduct 20% of the net, in this scenario $20,000, leaving them with an income of $80,000. Under the current tax laws, the grower would have a tax liability of more than $17,000, Hutchins said.
He and his fellow farmers are worried the committee amended Section 199A to look more like the latter rather than the former.
“That kind of gives you an idea of the impact (the proposed fix) could have on a farmer,” Hutchins said.
Fears that non-cooperatives and ethanol plants won’t be able to secure enough supplies or that coops will have trouble finding storage for the influx of grain are unfounded, he said. The non-coops already buy from cooperatives. The unamended provision will just ensure the pricing power stays with producers.
“When I go through the coop, they can get me a better price than what I can get directly because they have a million-plus bushels and I only have, say, 100,000 bushels,” he said. “For the coop, it helps them leverage their position as well. It’s a volume business.”
Money aside, another point of contention is that producers didn’t have a say when the House Ways and Means committee was rewriting 199A this week, Hutchins said.
“That’s our frustration – that we didn’t have a voice at the table,” he said. “The deal was done between the coops and the multinationals and didn’t include the farmers, so we’re stuck taking what they’re giving. Why would they take dollars away from family farmers? That’s the part that’s confusing – that’s the frustration.”
Large multinationals are getting breaks from the recently passed tax legislation to the tune of billions of dollars, Hutchins said, citing an ADM financial statement showing the company’s fourth-quarter income tax expense decreased $379 million.
Producers, meanwhile, aren’t seeing the same financial windfall, and the unamended 199A code at least gives them a helping hand in terms of tax relief, which is needed now more than ever due to low crop prices and reduced farm profitability.
He and his fellow farmers are hoping lawmakers realize the deal wasn’t made with input from producers and pull the amendment from the omnibus bill for further review.
The group has the backing of the National Farmers Union, which said in a statement Wednesday that amending 199A from how it’s currently written would take away the single most-important benefit family farms received from the GOP tax bill.
“Members of Congress are proposing to undo a newly instated tax break that is meant to level the playing field between agricultural cooperatives and corporations who received a dramatic tax break under the Tax Cuts and Jobs Act,” the NFU said. “National Farmers Union is urging Congress to instead seek a balance that does not weaken the important tax break for family farmers who sell to cooperatives.”
Hutchins said he’s been making marketing decisions based on how the code is currently written since the tax law was passed in December. Amending the bill and making it retroactive further hurts him – and his fellow producers – from a financial standpoint, adding insult to injury.
Legislators in ag states owe it to growers to take another look at Section 199A of the tax code and take input from family farms, he said.
“There’s still a chance (lawmakers) will say `we’re hearing from farmers and we need more hearings on this,’” he said. “Hopefully people will see it’s not fair for family farmers and they’ll say `let’s pull this out of the omnibus bill, let’s get input from family farms and make this fair for everybody. That’s our hope.”