Congressional leaders reached a last-minute agreement to put a rewrite of the new Section 199A tax benefit for farmer co-ops in an omnibus spending bill that lawmakers must pass this week.
The 199A fix, which resulted from negotiations between the National Council of Farmer Cooperatives and the National Grain and Feed Association, will equalize tax treatment of commodity sales to cooperatives and non-co-ops, while also providing a flow-through deduction from co-ops to their members similar to the old Section 199 deduction for domestic production activities (DPAD).
In addition to that provision, the omnibus includes provisions to exempt concentrated animal feeding operations from having to report emissions under federal pollution laws,
The omnibus also includes $600 million for a pilot grant and loan program to extend broadband service to rural areas that currently lack it. Adequate broadband is defined as 10 Mbps downstream and 1 Mbps upstream.
"I think it's going to be a good bill for agriculture," Sen. Debbie Stabenow, D-Mich., said Wednesday at the Agri-Pulse Ag and Food Policy Summit.
The industry agreement to rework the 199A deduction was announced March 13, but Democrats resisted including it in the omnibus until Republicans agreed to add an expansion of a low-income housing tax credit.
The 20-percent Section 199A deduction was created by the tax law to ensure that pass-through businesses - partnerships, sole proprietorships and S corporations - received similar treatment to C corporations, which saw their top tax rate slashed from 35 percent to 21 percent under the bill.
The law provided a major advantage to co-ops, however, in that their farmers were allowed to deduct 20 percent of the value of their sales to cooperatives but only 20 percent of their net farm income when selling commodities to other buyers.
Stabenow joked Wednesday that the 199A deduction was so lucrative to co-ops, “I was thinking of becoming a co-op myself..”
House GOP leaders initially rejected a deal on the housing tax credit, but they were under heavy pressure from agribusiness interests and Republican rank-and-file members to get the 199A provision into the fiscal 2018 omnibus, and it was one of the last issues to be settled.
A House source familiar with the deliberations said some GOP lawmakers threatened to oppose the omnibus if the 199A fix were omitted.
Reps. David Young, R-Iowa, and Rick Crawford, R-Ark., got more than 80 colleagues to sign a letter to Republican leaders in February urging them to fix the Section 199A provision. Young said Wednesday that the provision "was desperately needed as spring planting and commodity marketing season is quickly approaching."
In a message to House GOP members on Wednesday, House Majority Whip Steve Scalise, R-La., listed the 199A fix among the reasons Republicans should support the bill.
NCFC and NGFA praised lawmakers for getting the provision in the bill.
"By combining the individual-level business deductions that farmers can claim and the recreated DPAD pass-through from their co-ops, farmers selling to cooperatives have the opportunity to see more of a tax deduction than farmers selling to non-cooperatives," said NCFC President Chuck Conner.
"This action fits in line with Congress's long history of public policy in support of co-ops and shows an appreciation of the unique relationship that co-ops have to their farmer-owners. It is a recognition that for many farmers, their co-op isn’t simply some business that they buy from or sell to, it’s an integral part, an extension of their operations.
NGFA President and CEO Randy Gordon said, "The inclusion of these provisions in the omnibus bill is a huge step in the right direction to preserve competitive choices for producers when marketing their agricultural products."
Also included in the bill is a $139 million increase in agricultural research spending from fiscal 2017 to $3.03 billion for fiscal 2018.
The bill provides $2.1 billion for international food aid and for programs to promote U.S. agricultural exports, a $130 million increase from fiscal 2017. The FY18 total includes more than $1.7 billion for Food for Peace and $207 million for the McGovern-Dole International Food for Education and Child Nutrition program.
And for the first time in a decade the farm bill conservation programs were not reduced, according to the National Sustainable Agriculture Coalition.
The bill also contains a number of policy provisions, including one barring the Food and Drug Administration from issuing guidance or regulations to reduce sodium consumption until completion of a study on what should be the recommended intake. The bill also continues a ban on the slaughter of horses.
