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Amendment Fixes Tax Provision for Cooperatives
USAgNet - 12/18/2017

Senator John Hoeven (R-N.D.) announced that his amendment to maintain the fair tax treatment of cooperatives, which he authored with Senator John Thune (R-S.D.), has been included in the conference committee's final tax relief package. The elimination of Section 199 in Congress' draft tax bills presented a significant problem for cooperatives, threatening to increase their taxes and leading to higher costs for their members. The Hoeven-Thune language included in the final bill fixes this provision, ensuring cooperatives in North Dakota and across the nation will benefit from Congress' tax relief legislation.

"We worked hard to ensure the final tax relief legislation provided certainty for cooperatives and treated them fairly," Hoeven said. "Cooperatives provide vital services for our communities and agriculture producers and fill an important role in our economy. I appreciate Senator Thune, as well as our colleagues in the Senate and the House, for working with us to secure this important provision for our cooperatives. I look forward to advancing this and the rest of our tax relief legislation to help grow our economy and benefit middle-class Americans, workers, small businesses, farmers and ranchers."

"Throughout the debate on tax reform, Senator John Hoeven has worked tirelessly to ensure that farmers and their co-ops were treated fairly. In particular, the Senator recognized early on that the elimination of the Section 199 deduction threatened to raise the tax burden of many producers and cooperatives. The provisions that he and Senator John Thune were able to secure in the bill will, we believe, keep money in the pockets of family farmers across the country at a time when low commodity prices mean that every penny counts. We strongly support this bill and thank Senator Hoeven for his leadership."--Chuck Conner, President & CEO of the National Council of Farmer Cooperatives

Tom Astrup, president and CEO of American Crystal Sugar Company, applauds Senator Hoeven for his hard work on behalf of family farmers. Senator Hoeven fought effectively to craft a good alternative to Section 199, the Domestic Production Activity Deduction, which is eliminated under the tax bill. We think the alternative will continue to provide important job creating incentives to rural America, which is extremely important given this challenging period for the farm economy.

"Senator Hoeven's leadership in the tax reform debate means that CHS members--both farmers and local co-ops--will continue to be engines of economic activity in North Dakota and across the territory we serve. The Section 199 deduction helped to create jobs and broaden the tax base in many rural communities and the loss of the deduction would have had impacts far beyond agriculture. Senator Hoeven has prevented that scenario through his efforts to make the new tax code work for co-ops and their members. On behalf of CHS and our farmer-owners, I would like to thank him for being a champion of agriculture," said Jay Debertin, president and CEO of CHS Inc.

"Land O'Lakes and our members thank Senator Hoeven today for his dedication to making the tax reform package work for family farmers and the co-ops they own. Senator Hoeven led the effort to ensure that eliminating the Section 199 deduction does not have the unintended consequence of raising taxes on producers during hard times across the countryside. The provisions included in the final package will offset the loss of this deduction, we believe, and help encourage job creation and growth across rural America," said Chris Policinski, president and CEO of Land O'Lakes, Inc.

In a release from the National Milk Producers Federation (NMPF, Jim Mulhern, president and CEO, noted, "National Milk has worked closely with House and Senate members on the tax reform conference package to achieve a positive outcome for dairy farmers and their cooperatives, and we're pleased that conferees have completed work on a package that should provide important relief. The final compromise to address the loss of the Section 199 deduction will help protect farmer-owned businesses from a major tax increase at a time when America's farm sector is struggling with low commodity prices and reduced incomes.

"America's dairy farmers, who overwhelmingly rely on cooperatives to market their milk, appreciate the determined efforts by Sens. John Hoeven (R-ND) and John Thune (R-SD), as well as multiple House members, including Agriculture Committee Chairman Mike Conaway (R-TX), to seek a fair and reasonable solution to this challenge. Their efforts will help prevent a higher tax bill for cooperatives and avert the loss of economic activity in rural communities that these businesses help generate. We're also grateful for the numerous senators on both sides of the aisle who elevated this issue during the debate.

"At issue is the loss of the benefit that both farmers and cooperative businesses enjoy from the Section 199 deduction, also known as the Domestic Production Activities Deduction (DPAD). This important provision of the tax code applies to proceeds from agricultural products marketed through cooperatives, making the Section 199 an important means of reducing taxation for farmers and cooperatives alike. Cooperatives pass the vast majority of the benefit -- nearly $2 billion nationwide -- directly to their farmer owners, then reinvest the remainder in infrastructure improvements for the marketing and processing of food products.

"The final tax package released on Friday repeals the DPAD, but the legislation allows cooperative members to claim a new 20-percent deduction on payments from a farmer cooperative. Cooperatives would also be able to claim the 20-percent deduction on gross income less payments to patrons, limited to the greater of 50 percent of wages or 25 percent of wages plus 2.5 percent of the cooperative's investment in property. This favorable treatment for gross income will help minimize any potential increase in the tax burden on farmer-owned cooperatives.

"NMPF believes that this provision, plus components of the bill that increase exemption levels from the federal estate tax, enhance depreciation and expensing opportunities for producers, and preserve farmers' ability to deduct interest expenses, should help farmers and cooperatives alike. The fix offered by Sens. Hoeven and Thune recognizes that farmer cooperatives play an indispensable role in our nation's economy and need to be treated fairly in the final tax legislation."

Congressman Kevin Cramer (R-N.D.) worked to gather support for the amendment in the House of Representatives, along with Congresswoman Kristi Noem (R-S.D.) and chairman of the House Committee on Agriculture Mike Conaway (R-Texas). Other cosponsors of the amendment in the Senate included Senators Cory Gardner (R-Colo.), John Boozman (R-Ark.), Joni Ernst (R-Iowa), Roy Blunt (R-Mo.), James Risch (R-Idaho), Mike Rounds (R-S.D.), Jerry Moran (R-Kan.), Tom Cotton (R-Texas) and Steve Daines (R-Mont.).

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