Proposed tax fix would address co-op advantage
WASHINGTON – Sen. John Hoeven, R-ND, says he is working to correct a new tax law provision that inadvertently created potential to give farmers a big financial advantage to sell production to cooperatives.
The implications of the provision became known after passage of the tax bill in December, and Hoeven said farm groups are on board with a proposed fix.
He explained the intent in drafting the tax bill was to preserve the Section 199 deduction for domestic production activity and ensure co-op members weren’t harmed by a change in the law.
However, the language adopted allowed for a scenario in which a farmer selling to a cooperative would be able to deduct 20 percent of sales, which could greatly impact tax liability on the profit. A farmer making a similar sale to an independent grain operator would receive a much less generous break with the allowed deduction of 20 percent of the profit.
Hoeven said the provision is being re-written in coming weeks as part of a larger funding bill being crafted.
“We already have everybody working together,” he said. “This is about working together and making sure that we have a good benefit for the farmers.”
Hoeven released a joint statement from Chuck Conner, president of the National Council of Farmer Cooperatives, and Randy Gordon, president of the National Grain and Feed Association, on the new Section 199A tax provisions.
They indicated their organizations are working with senators to arrive at an equitable solution that preserves the benefits that cooperative members enjoyed while addressing any unforeseen impacts on producers’ marketing decisions.
“NCFC, NGFA and our stakeholders are committed to reaching a solution in a thoughtful and expeditious manner, and to working with Congress to address this issue promptly,” they said.
Hoeven said fixes to major bills aren’t unusual. The proposed correction would restore the tax benefits associated with the original Section 199 deduction while keeping additional tax relief for farmers and ranchers, including lowered rates and the 20 percent deduction for pass-through income, he said.
“This tax relief is good for farmers and ranchers. Anybody out to do business, whether you do business with a cooperative or not, as a farmer, you are going to be better off,” Hoeven said.
Schramm is a senior staff writer with the Minot Daily News. This article previously appeared in the Thursday, Jan. 18 edition.
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