Omnibus bill contains provisions important to farmers
Friday, March 23, 2018
Posted by: Jamie Mara, director of public relations
By Edge Dairy Farmer Cooperative
Brody Stapel, president of Edge Dairy Farmer Cooperative, spoke out about the inclusion of three important farm provisions in the federal omnibus funding bill.
The bill, approved by the Senate and House, awaits President Trump’s signature. Approval is needed to avoid a government shutdown.
Two of the items that would affect farmers are in the bill language, which will give them the power of law, and one is in the accompanying report language, which includes non-binding directives that help to clarify legislative intent and guide government agencies.
Here are the provisions:
The bill reverses the elimination of Section 199 in the recent tax reform bill. Section 199 is a deduction that was used by many farm cooperatives that manufacture or produce a product. Co-ops had been able to utilize this tax benefit themselves, but they could also pass on a portion of the deduction to their farmer members. Many dairy farmers enjoyed a tax savings because of Section 199.
In an attempt to deal with what would be a de facto tax increase for some farmers, the deleted Section 199 was replaced by Section 199A in the tax bill. This new section created a deduction for farms that sell to production co-ops, which gave them a more favorable tax treatment than those farms that do not sell to cooperatives. Private buyers of grain and milk, among others, were soon concerned about the imbalance created by Section 199A. The provisions in the omnibus bill would eliminate Section 199A and replace it with a modified version of Section 199, so a return to a slightly scaled back status quo.
Here are the changes:
- The old Section 199 treatment would be restored and co-op members could again claim a deduction passed through from a co-op.
- The farmer-level deduction (for most) would be changed to 20 percent of taxable income or qualified business income, which mirrors to the rate paid by other non-corporate taxpayers.
- Farmers who transact with a cooperative would also be subject to the following:
- The 20 percent deduction would be reduced by the lesser of 9 percent of qualified business income created by sales to the co-op or 50 percent of wages associated with such sales.
- This reduction would apply regardless of the amount of Section 199A deduction passed through by the co-op and is meant to replicate the deduction the farmer gave up by dealing with a co-op under the old version of Section 199.
- The co-op member’s total deduction for the year would be the pass-through deduction plus the modified 20 percent deduction.
- C corporations are not eligible for the 199A deduction as they are covered by new lower corporate rates established by the tax reform legislation.
- These changes would be retroactive to Jan. 1, 2018, so it would be like Section 199A never happened.
“Fair competition is at the base of any good economic sector. This fix addresses unintended consequences and restores fairness to the purchase of farm commodities including milk, which is something everyone in the dairy community should support,” Stapel said.
Air emissions reporting
This provision would continue to exempt livestock farms from reporting air quality requirements under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act). This also restores a previous status quo. The Bush, Obama and Trump administrations all agreed that such an exemption should exist.
However, it was imperiled by a decision in a lawsuit filed by environmental activist groups. The impact of that decision has been repeatedly delayed and this provision would prevent any government money from being spent to create or enforce any regulation requiring CERCLA reporting from livestock farms. This is a big help for many for those involved in animal agriculture.
“Congress never intended the Superfund law to apply to family farms. This provision ends uncertainty created by an activist lawsuit,” Stapel said.
In report language, the Food and Drug Administration (FDA) is directed to develop a standard of identity for dairy products based on existing FDA definitions for milk and dairy products. This is meant to address concerns about labeling certain plant-based products with names associated with dairy products like milk.
The newly requested FDA guidance is supposed to include how the food processing industry is supposed to implement the new standard and how FDA intends to enforce it. This report language is not binding, but it is a positive step forward in the ongoing discussion about how to address this growing mislabeling issue.
“It is good to see progress on this issue. Edge has been advocating for FDA to get serious on dairy-related mislabeling for years,” Stapel said. “This language is just a directive to FDA, so more work will be necessary to make sure the next steps are taken. Edge and our allies will keep the pressure on.”