Area beet co-ops figure tax reform bill deduction would mean $21M hit
WAHPETON, N.D. — Farmers in cooperatives are fighting a "pretty huge" change in the federal tax reform package making its way through Congress.
Curt Wickstrom, president and chief executive officer Minn-Dak Farmers Cooperative of Wahpeton, says he's told co-op members to contact their congressional delegations to effect "some type of correction" before the bill passes.
Sens. John Hoeven, R-N.D., and Jerry Moran, R-Kan., on Nov. 30 introduced an amendment that would retain the "Domestic Production Activities Deduction" for agriculture. If the amendment gets added to the Senate bill and the bill passes, it would preserve lawmakers' ability to bring up the topic in reconciliation with the House.
The provision is called the Section 199 tax deduction. As co-ops like Minn-Dak pay their shareholders for their beets, the individual shareholders are allowed to deduct a portion of that from their income taxes.
Minn-Dak flows through $4 million to $7 million in deductions to its shareholder-growers. The impact for a 500-acre Minn-Dak grower is about $15,000, Wickstrom says. The issue will likely be a point of discussion at the co-op's Dec. 5 annual meeting in Fargo.
American Crystal Sugar Co., based in Moorhead, Minn., is working on the same issue. "Valley-wide, we estimate that the loss of Section 199 will result in an annual net tax increase for our shareholders of $9 (million) to $14 million just for American Crystal," says Kevin Price, American Crystal's vice president of government affairs.
That's an $11 million to $21 million annual hit for the Red River Valley in sugar beets alone. Other co-ops have a similar problem.
"Of course the timing couldn't be worse given the ag economy with depressed commodity prices. Our growers need all the tools that they have. This would be a fairly significant hit for them," Wickstrom says, adding, "Sometimes these bills move forward without an understanding as to what the impact is going to be for those involved."
He says individual cooperatives, as well as the National Council of Farm Cooperatives, are working to educate elected representatives.
$1B of $1.5T
Jon Doggett, executive vice president of the National Corn Growers Association, says the co-op deduction is one of the important issues within the tax bill. The NCGA is one of 160 groups who have signed a letter urging the House Ways and Means Committee not to take that provision out because it's important to the cooperatives.
"A lot of our members are co-op members," he says. "We're pushing on that one, but that's going to be a heavy, heavy lift because it costs money to put that back in."
Doggett thinks that's about $1 billion out of a reform package worth $1.5 trillion. He says the problem with these kinds of bills is that they solve one problem but create another problem for someone else.
"You can rob Peter to pay Paul, but sooner or later Peter is going to get pretty upset," he says.
Doggett, who spoke on a panel at the Northern Ag Expo in Fargo on Nov. 29, says agriculture needs to be wary of being cut as conservative members look to sequestration — across-the-board spending cuts — to offset the trillion-dollar tax cuts.
The NCGA sees pluses and minuses within the tax bill but is not taking a position on it.
"It's a marginal plus for most of our growers," he says, noting the organization doesn't take a position on the overall bill because there are different versions that can change quickly.
"When we get to a final, final bill, we may may take a look at it and make that decision," he says.
Other important pieces include how farmers can expense new and used farm equipment and how they use cash accounting and depreciation schedules.
Doggett thinks the tax bill and appropriations bill schedules will have a big influence in determining what's in a new farm bill and when it's passed. He thinks the earliest a farm bill will be addressed will be February or March, but it's likelier in the summer.
"There are even a few folks very quietly saying we could use another extension," he says.