Proposed U.S. tax law revision would close coop loophole

by Susan Reidy
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WASHINGTON, D.C., U.S. – U.S. lawmakers have reached an agreement to revise a portion of the new tax law that gave farmers an incentive to sell crops to cooperatives but not private or investor-owned grain handlers.

The tax law had an unintended consequence of creating inequity within the agricultural business community, lawmakers said. They have been working with stakeholders, the administration and commodity groups to find a solution that will level the playing field.

The provision, Section 199A, gave farmers a 20% deduction on payments for sales to farmer-owned cooperatives. This created an unintentional incentive, putting grain handlers such as Archer Daniels Midland Co., Bunge and Cargill at a disadvantage.

The new agreement has two fundamental objectives:

  • Replicate the tax benefits under the previous Section 199 of the tax code, as it existed prior to its repeal in the Tax Cuts and Jobs Act enacted on Dec. 23, 2017.
  • 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 cooperatives or private/independent firms. 

National Grain and Feed Association (NGFA) President and Chief Executive Officer 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. 

President and Chief Executive Officer Randy Gordon
President and Chief Executive Officer Randy Gordon 

“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.” 

The agreement is expected to be included in a spending bill that must be passed by the end of March. 
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