Tax Proposal Addresses Ag Needs

House tax reform bill allows for ag to continue using cash accounting, makes Section 179 deductions permanent and helps fund waterway needs.

The U.S. tax code remains in desperate need of repair and for the many family-owned small businesses that make up the U.S. agricultural industry, changes could make the difference between staying in business or not.

Wednesday House Ways and Means Committee chairman Dave Camp (R-Mich.) dished out some groundbreaking ideas to help jump-start the discussion. And for the most part, he seems to have adequately hit the sweet spot when it comes to some preferred ways to approach the change on behalf of the agricultural industry.

American Farm Bureau Federation president Bob Stallman said Camp’s approach to simplifying the tax code is a “strong and much-needed start to what will surely be an extensive tax reform discussion.”

Kevin Kester, National Cattlemen’s Beef Assn. policy division vice-chair, added tax reform is needed to help keep producers competitive in the global marketplace.

The proposal includes a requirement that businesses with gross receipts of more than $10 million use the accrual method of accounting. The Ways and Means Committee noted that the bill specifically excludes agriculture. This is a major change from earlier drafts that included agriculture in the required shift from cash-to-accrual accounting.

The provision spares ag producers from what would have been a $4.8 billion increased tax expenditure over the next four years. This was a large concern given the industry only has $1.2 billion in cash on hand to cover these taxes, according to a study released by Kennedy and Coe and Farmers for Tax Fairness the week prior.

“Moving agriculture into accrual accounting would be devastating to our industry, especially our feedyard sector,” said Kester.

The proposal would make expensing deductions under Section 179 permanent which enables farmers and other small businesses to deduct business-related purchases like equipment and infrastructure.

Taxpayers would be able to expense up to $250,000 of investments in new equipment and property per year, with the deduction phased out for investments exceeding $800,000 (with both amounts indexed for inflation). The provision would also restore and make permanent rules allowing computer software and certain investments in real property to qualify for section 179 expensing…The provision would be effective for tax years beginning after 2013.

“While not as generous as the $1 million level in the Senate proposal, we certainly applaud Chairman Camp for including Section 179 expensing in perpetuity,” Kester said of the proposal.

Camp suggests allowing deferral of gain on like-kind exchanges to be repealed. The provision would be effective for transfers after 2014. However, a like-kind exchange would be permitted if a written binding contract is entered into on or before December 31, 2014, and the exchange under the contract is completed before January 1, 2017.”

Kester said NCBA’s strongly opposes the provision. “By removing like-kind exchanges from the tax code you will significantly limit the ability of farmers and ranchers, of which many are asset-rich and cash poor, to use the tax code to keep their family-owned assets from being swallowed up by land developers.”

The proposal eliminates the Biodiesel Tax Credit. Ray Gaesser, American Soybean Assn. president, said ASA believes the credit is “worthy of extension given the many benefits it provides.”

Waterways Council, Inc. (WCI) president and chief executive officer Michael J. Toohey praised the inclusion of a recommendation to increase, by 6 cents per-gallon, the 20-cent-per-gallon user fee paid for by inland waterways towboat operators into the Inland Waterways Trust Fund (IWTF).

“WCI, along with its carrier, shipper, agriculture, labor, conservation and port community members, is deeply appreciative for the leadership shown by Chairman Camp to recommend a user fee increase that will allow more money to be collected into the Inland Waterways Trust Fund to modernize our critically important inland waterways system,” Toohey said.

Kester warned, “It looks like true tax reform will probably be unachievable until next year due to partisan quarrels and the 2014 election season.” Previously both Speaker of the House John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) expressed serious doubts that any meaningful tax reform can be achieved prior to the November elections.

 

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