The Tax Cuts and Jobs Act gives farmers a bigger income tax deduction if they sell crops to agricultural cooperatives. This is a win for cooperatives like CHS at the expense of privately owned grain buyers, like Cargill and ADM.
The law creates what Roger McEowen, ag law and taxation professor at Washburn University School of Law, calls a “knock-down, drag-out fight” between cooperatives and private companies who buy grain.
National Grain and Feed Association staff began meeting with tax staff from the offices of Sens. John Hoeven, R-N.D., and John Thune, R-S.D., in early January. The two senators authored the provision, known as Section 199A.
It was hoped the Section 199A fix would be included in one of the budget deals negotiated by lawmakers following the passage of the Tax Cuts and Jobs Act, but it wasn’t.
This week, lawmakers discussed the issue during committee hearings.
During a Senate Finance Committee hearing on Feb. 14, Chairman Orrin Hatch, R-Utah, noted that the provision's current language "does not maintain the previous competitive balance between cooperatives, other agricultural businesses, and the farmers who sell their crops to them, which existed prior to enactment of the tax reform bill."
Hatch said he is committed to working with fellow leaders on the committee, Sens. Chuck Grassley, R-Iowa; Pat Roberts, R-Kan., and John Thune, R-S.D., and House Ways and Means Chairman Kevin Brady, R-Texas, "to develop a solution to this issue that does not choose winners and losers and is fair to everyone involved. Once a suitable solution is identified, my goal is to work with my colleagues to advance legislation that can be sent to the president for his signature as soon as possible," Hatch said.
During the same hearing, Grassley also commented on the "necessity for correcting" Section 199A.
"It is pretty simple that Congress would not pass a law that would put some segments of our economy out of business and that's why it needs to be changed," he said.
In the House Ways and Means Committee hearing on Feb. 15, Chairman Brady echoed those sentiments.
We know that certain parts of this provision have unintended consequences," he said, noting that he's committed to developing "the right solution now - one that's thoughtful, carefully crafted, and effective in restoring balanced competition in the marketplace."
Brady said he is "committed to taking action on a solution as soon as possible."
NGFA President Randy Gordon noted in a media statement that the Association is disappointed that a solution to correct Section 199A has not already been passed by Congress. However, "considerable progress has been made during the last several weeks of intensive effort toward reaching an equitable solution," Gordon said, adding that NGFA is "gratified that the many members of Congress with whom we and other stakeholders are engaged on this issue are equally committed to enacting an equitable solution as part of the next available legislative vehicle."
The NGFA notes that the two fundamental goals of these efforts remain to replicate the tax treatment accorded to cooperatives and their farmer-patrons under previous Section 199 of the tax code, and to do so in a way that restores the competitive landscape of the marketplace that existed prior to the enactment of Section 199A on Dec. 22, 2017.