Congress has passed a $1.3 trillion spending bill that’ll keep the federal government running. In that package, which President Donald Trump signed on Friday, is a fix for a troublesome provision for some grain businesses.
Passed in last year’s tax overhaul, the provision allows farmers to deduct up to 20 percent of their earnings from selling crops — but only to cooperatives. That threatens businesses that aren’t co-ops but also buy and sell commodities like corn, soybeans and wheat, including large companies like Cargill and Bunge to small, local grain elevators.
“It’s like getting a brick tied to your leg and [thrown] in the water and you swim against the other swimmer,” according to Kent Manning of Manning Grain, a family-owned company that trades corn, soybeans and milo in Fairmont, Nebraska. “It’s not going to be very easy to win.”
Even if he offers the same price, Manning said, farmers have an incentive to sell to nearby co-ops to take advantage of the tax breaks.
“Even five cents is a big difference if they have an advantage, especially in these times when [farmers] don’t have a lot of money they’re looking to get every penny they can out of their grain,” he said.
Tax accountants have noted the original provision, known as the “grain glitch,” could even have applied outside of agriculture, meaning everyone from doctors to mechanics could have formed co-ops and received tax benefits.
Congress’ fix, which was agreed on by Republicans and Democrats, removes the more favorable deduction from gross sales made to co-ops, but maintains deductions for things like dividends that agricultural co-ops pay their members. Farms also would be able to deduct up to 20 percent of their net income whether it comes from a co-op or not.
U.S. Rep. Adrian Smith is a Nebraska Republican and a member of the tax-writing House Ways and Means Committee. He said the change is “more market-oriented” so “distortions will not take place.” He added the fix “does not favor (co-ops) as heavily, certainly not at the expense of the independent grain operators we were hearing from.”
Agriculture Secretary Sonny Perdue weighed in Thursday morning, saying the fix is “simply an issue of fairness.”
“We should not be picking winners and losers through the federal tax code by favoring one side over another,” he said.
Manning is eager for the change to be approved before farmers sign contracts in the coming weeks to sell the crop they’ll harvest in the fall. And had Congress not reached a deal, he was looking into what it would take to reorganize his company as a co-op so that his business could pass on the tax incentives.