Farmer Co-ops Get Boost in New Tax Law, But Will It Stick?

Farmer Co-ops Get Boost in New Tax Law, But Will It Stick? Click to Enlarge

BISMARCK, N.D. - A late addition to the tax law passed in December could give North Dakota farmer cooperatives a boost, but will lawmakers keep it around?

Known as Section 199A, it was added to the tax bill at the last minute, to preserve a deduction that allows farmers to deduct up to 20 percent of their total sales to cooperatives.

Corporations and independently owned agriculture companies say that hurts their businesses, with deductions that aren't nearly as high.

But Mark Watne, president of North Dakota Farmers Union, says these businesses won't be in bad shape because they received tax cuts in other places.

"If they're an independent, not a corporation, they had their rates come down, which they could certainly share with their customers some way," he points out. "Or if they're incorporated, they have the right to share the 35 percent down to the 21 percent corporate tax rate. So, they're playing both sides of this thing, a little bit."

Section 199A was an attempt to replace another tax provision from 2004, known as Section 199.

Watne is afraid legislative dealings to address the concerns could wipe out the deduction completely, which he says would be detrimental for co-ops.

He says Section 199 was originally passed as a job-creating measure and the revised version is expected to do the same.

Watne says farmers who are part of user-owned cooperatives see the benefits of this model in their bottom lines.

"Farmers, if you do business with the cooperative and you've got ownership of that cooperative, you get some of the earnings credited back to you," he explains. "If you do business with a private business that does not share some of their profits back with you, then there's just less potential for earning. So, the cooperative business model is an excellent tool for agriculture."

U.S. Sen. John Hoeven of North Dakota and other lawmakers say they're working on a solution that would restore Section 199 as it stood before the new tax law.

But Watne says political gridlock in Congress might make it hard to pass this change easily.

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