As Congress returns to work this month, they have a lot of unfinished business. Before leaving Washington, lawmakers were able to pass a $41 billion retroactive package of tax extenders, including provisions sought by farm groups containing a barge fuel tax increase, bonus depreciation and Section 179 and biodiesel credit. That will help as tax time nears.
The Tax Increase Prevention Act will extend for 1 year 55 different tax credits and deductions that expired either at the end of 2013 or during 2014. The bill passed the House Dec. 3 with a strong bipartisan vote of 378 to 46 and in the Senate 76-16 Dec. 16. However, Congress was unable to agree upon both 2015 and 2014, so the bill just allows for 2014 fixes and will set the stage for further tax reform in 2015, ag groups hope.
“While it's not the long-term fix we need, the legislation does include the dollar-per-gallon biodiesel tax credit, expensing for farm equipment and infrastructure under Section 179, and bonus depreciation on farm assets, all of which provide greater certainty and a more stable climate for the farmers and producers who make use of these programs," says Wade Cowan, a farmer from Brownfield, Texas and new president of the American Soybean Association.
Kent Bacus, director of legislative affairs for National Cattlemen’s Beef Association, adds the extension of Section 179, a provision that provides a higher deduction level for some capital expenditures, like machinery and equipment, and the extension of bonus depreciation are key for producers.
“Last year producers were able to expense up to $500,000 on capital investments, but this year that was lowered to $25,000,” says Bacus. “For large equipment purchases and other capital investments, cattle producers need certainty in order to properly plan for their business.”
Dennis Slater, president of the Assn. of Equipment Manufacturers, said the debate over the Section 179 expensing, bonus depreciation and the R&D tax credit was a matter of “real dollars and cents” for equipment manufacturers.
On the Senate floor, Sen. John Hoeven, R, N.D., says a permanent Section 179 fix could have been done, but was derailed when the President threatened to veto the legislation. Hoeven says farmers are still working on the year-end tax planning and some are still negotiating on buying equipment for next year.
“The depreciation and expensing rules affect the decisions they make,” he says.
Hoeven shared a letter from a constituent who said that lower commodity prices and no Congressional action on Section 179 have caused farmers to quit spending on everything from equipment purchases to supplies at the local farm supply.
The retroactive extension means producers will be operating under an expired tax code in 2015, but it could add the needed pressure to complete a comprehensive tax reform deal in the New Year, says Bacus.
Also included in the package was language from the House's Achieving a Better Life Experience (ABLE) Act, which carried with it a provision to increase the barge fuel fee by nine cents a gallon (from 20 to 29 cents) to fund needed waterways infrastructure projects.
The fee, which is supported by those in the waterways industry, dedicates funds to new waterways infrastructure construction and major rehabilitation of the inland waterways system through the Inland Waterways Trust Fund.
Each one cent increase in the Inland Waterways Tax equates to $3 – $4 million of additional revenue each year. Therefore, the 9 cent increase will annually generate between $27 – $36 million of additional revenue.
The Inland Waterways Tax is assessed on 12,000 miles of waters that include most of the nation’s largest rivers: the Mississippi, Ohio, Illinois, the lower Missouri, and the Gulf and Atlantic Intracoastal waterways, according to the Soybean Transportation Coalition.
The bill also creates an enhanced deduction for conservation easement donations. For easements donated starting in 2006 and through Dec. 31, 2014, the enhanced incentive raises the deduction a landowner can take from 30% of his or her income in any year to 50%. It also allows qualifying farmers and ranchers to deduct up to 100% of their income. Lastly, it extends the carry-forward period from five to 15 years.
As it stands, the incentive expired at the end of 2014, and landowners and land trusts across the nation will be faced with uncertainty again in 2015.
According to a statement from the Land Trust Alliance, “This on-again, off-again cycle of the conservation tax incentive has made easement donation planning difficult for landowners and land trusts." The group is hopeful the enhanced conservation easement donation can be a permanent part of the tax code in 2015.
The bill also includes the retroactive extension of the cellulosic and biodiesel tax credits for 2014. “While we greatly appreciate the retroactive extension of these tax credits that are vital to the production of cleaner-burning advanced biofuels for 2014, in only a matter of days they will lapse once again,” states Iowa Renewable Fuels Association executive director Monte Shaw.
“We urge the next Congress to act swiftly to extend these important provisions for 2015 to provide the policy certainty necessary for advanced biofuel producers to continue building upon the air quality and energy security progress achieved to date. The cloud of uncertainty for 2015 only grows darker when you factor in EPA inaction on the Renewable Fuel Standard,” Shaw concludes.