January 9, 2018: The Wall Street Journal reports the story.
An amendment co-authored by North Dakota Senator John Hoeven to the huge tax cut bill passed by Congress late last year, provides generous tax breaks to farmer-owned cooperatives and to farmers who sell grain to them. But it could create real problems for privately owned elevators. If it’s not fixed, somehow, there’s not a farmer anywhere who is going to want to do business with private elevators.Read more at the linked article.
As the tax bill entered its final days in December, the bill’s authors (whoever they were) eliminated what was known as the Section 199 tax deduction, also known as the Domestic Production Activities Deduction (DPAD), a tax break for businesses that perform domestic manufacturing and certain other production activities (like farming). It was established by the American Jobs Creation Act of 2004 in an effort to ease the tax burden of domestic manufacturers and as a result make the investment in domestic manufacturing facilities more advantageous The IRS later ruled it applied to farming as well. As of the day Donald Trump signed the tax bill, it no longer exists.
Farm groups found out about it and lobbied like crazy to hold on to Section 199 the last weeks before the bill’s passage, but to no avail. Then somehow Hoeven snuck in a last minute amendment which put back in a form of the deduction, but only for farm cooperatives, and greatly increased its generosity. Beneficiaries are the co-ops, and the farmers who sell their grain to farm cooperatives, such as CHS or Land O’Lakes, or their local equity elevator, owned by its members. Under the amendment, the co-ops can take the deduction or pass it along to the farmers. In theory, it doesn’t really matter, because the farmers own the co-ops.
The problem is, it only applies to those cooperative-owned elevators. There’s another section of the new law that applies to farmers who sell their grain to local privately-owned elevators, or giant corporate-owned elevators like Cargill and ADM. They won’t get the tax break, which is substantial. So instead of a tax cut from this bill, those farmers could be facing big tax increases.
I don't have a dog in this fight, but three comments:
- free market capitalism will solve this problem, if it's a problem at all
- Congress can easily tweak the law now that the bill has been signed
- private elevators will find ways to get around this (how many angels can dance on the head of a pin?)