NGFA Calls on Congress to Act

Key Tax-Writing Lawmakers Acknowledge Competitive Imbalance of Section 199A

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Lawmakers added dozens of tax provisions to last week's two-year budget bill but failed to get a Section 199A fix added. (DTN photo by Chris Clayton)

OMAHA (DTN) -- Leaders of the National Grain and Feed Association see some rays of hope for resolving the Section 199A boondoggle in the tax law, following some comments made by lawmakers on the topic over the past few days.

NGFA issued a news release early Friday citing statements from leadership of the Senate Finance Committee and the House Ways and Means Committee, vowing that a fix would be coming as soon as possible to deal with the unintended consequences of the Section 199A language in the tax law.

Section 199A was the creation of a pair of senators -- Sens. John Thune of South Dakota and John Hoeven of North Dakota -- who thought they were providing some equilibrium to farmer cooperatives that were losing the Domestic Production Activities Deduction under the old tax law.

The new language on "qualified cooperative dividends" from cooperatives was written to benefit not just any patronage dividend, but also any "per unit retain allocation." That translates into any amount paid to farmers by cooperatives for products sold for them. The language also broadens out further into any revenue from a farmer cooperative "that is includible in gross income." The tax break amounts to 20% of all income that comes from those dividends or sales from a farmer cooperative.

NGFA has been pleading with Congress to fix the law essentially since the first week of the year when agricultural accountants and others began pointing out the major advantages for farmers selling to a cooperative. NGFA notes the new tax law is having an influence on how farmers market their commodities.

The tax disparity between selling to a farmer cooperative versus a private company has caused several major grain companies to consider forming cooperatives. The Wall Street Journal reported Scoular Co. and Green Plains Inc. are among the companies looking to register at least part of their business as cooperatives.

A spokesman for Green Plains told DTN the company formed Green Plains Grain Cooperative Corp. in mid-January in Kansas. The new co-op has been granted licenses so far in Minnesota, Indiana and Colorado and Green Plains is working to get licensed in other states.

"We are busy finishing up the details of the fee structure and membership details and will be ready to go if for some reason Congress does not get the law fixed," said Jim Stark, a spokesman for Green Plains, in an email to DTN.

Green Plains has not signed up any farmers so far, but those who do join would get the same benefits of selling to a traditional co-op, though there would be a nominal fee to join, Stark said.

The tax goal, NGFA stated, is to draft legislative language that would give cooperatives a tax break similar to what they received under the Domestic Production Activities Deduction, which equated to 9% of income for a cooperative, up to half of the amount a cooperative paid its workers in wages. Cooperatives then passed the benefits of that deduction back down to farmer patrons.

Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, said in a hearing on Wednesday that the Section 199A situation "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."

According to NGFA, Hatch said he is committed to "developing 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.

Sen. Charles Grassley, R-Iowa, also indicated a need to correct the Section 199A provision. "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," Grassley said.

On Thursday, House Ways and Means Committee Chairman Kevin Brady, R-Texas, also noted the problems being created in the countryside.

"We know that certain parts of this provision have unintended consequences," Brady said. The congressman added that he's committed to finding a solution that would effectively restore balance in the marketplace.

Randy Gordon, president of NGFA, said he remains disappointed Congress hasn't already acted on a solution. Lawmakers added dozens of tax provisions to last week's two-year budget bill but failed to get a Section 199A fix added.

Gordon still notes "considerable progress has been made during the last several weeks of intensive effort toward reaching an equitable solution." He added 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."

Chris Clayton can be reached at

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Chris Clayton