Tax law gives unexpected break to some farmers
MINNEAPOLIS (AP) — Key senators and farm groups are trying to fix a provision in the federal tax overhaul that gave an unexpected tax break to farmers who sell their crops to cooperatives rather than regular companies.
Lawmakers say they didn't intend to give a competitive advantage to co-ops. But it's not clear they can rework the legislation given the partisan divide on Capitol Hill. That means many companies – from local grain companies to agribusiness giants such as Cargill and ADM – could wind up paying more for crops than co-ops.
The provision from GOP Sens. John Thune of South Dakota and John Hoeven of North Dakota surfaced in the final days of the debate over the tax bill, which President Donald Trump signed last month. Thune and Hoeven wanted to replace a deduction that benefited co-ops in the old law, which was being dropped, and they wanted to make sure farmers didn't wind up with a tax increase.
But the final language went further than maintaining the status quo.
"I think at the end of the day what it boiled down to is the staff didn't know what they were doing. ... They rushed this thing through," said U.S. Rep. Collin Peterson of Minnesota, the ranking Democrat on the House Agriculture Committee.
Agricultural co-ops are typically owned by farmers, and they provide their members with help with marketing crops, purchasing supplies and various other services. They range from small and local co-ops to big, nationwide ones such as Land O' Lakes and Sunkist Growers.
The new provision lets farmers deduct 20 percent of their gross sales to co-ops, but only 20 percent of their net income if they sell to other companies. The difference is big enough that farmers who sell to co-ops could entirely eliminate their tax bills.
"If it stands the way it is, you're going to see a dramatic change in who farmers sell their product to," said Paul Neiffer, a partner with CliftonLarsonAllen, a national accounting firm with clients on both sides.