An amendment co-authored by North Dakota Senator John Hoeven to the huge tax cut bill passed by Congress late last year, provides generous tax breaks to farmer-owned cooperatives and to farmers who sell grain to them. But it could create real problems for privately owned elevators. If it’s not fixed, somehow, there’s not a farmer anywhere who is going to want to do business with private elevators.
As the tax bill entered its final days in December, the bill’s authors (whoever they were) eliminated what was known as the Section 199 tax deduction, also known as the Domestic Production Activities Deduction (DPAD), a tax break for businesses that perform domestic manufacturing and certain other production activities (like farming). It was established by the American Jobs Creation Act of 2004 in an effort to ease the tax burden of domestic manufacturers and as a result make the investment in domestic manufacturing facilities more advantageous The IRS later ruled it applied to farming as well. As of the day Donald Trump signed the tax bill, it no longer exists.
Farm groups found out about it and lobbied like crazy to hold on to Section 199 the last weeks before the bill’s passage, but to no avail. Then somehow Hoeven snuck in a last minute amendment which put back in a form of the deduction, but only for farm cooperatives, and greatly increased its generosity. Beneficiaries are the co-ops, and the farmers who sell their grain to farm cooperatives, such as CHS or Land O’Lakes, or their local equity elevator, owned by its members. Under the amendment, the co-ops can take the deduction or pass it along to the farmers. In theory, it doesn’t really matter, because the farmers own the co-ops.
The problem is, it only applies to those cooperative-owned elevators. There’s another section of the new law that applies to farmers who sell their grain to local privately-owned elevators, or giant corporate-owned elevators like Cargill and ADM. They won’t get the tax break, which is substantial. So instead of a tax cut from this bill, those farmers could be facing big tax increases.
The result is, no one will want to sell to private elevators. If a farmer is not a member of a local co-op now, he’s going to want to be pretty quickly. Because for farmers selling a million dollars worth of grain, which is not unusual these days, the difference in taxes could be as much as $80,000. That’ll buy a new pickup. A nice one.
I learned of this from a brother-in-law of mine who’s a CPA and does accounting work for a number of elevators, both co-op and private. He’s been talking to congressional staffers about the problem, and says it is not going to be an easy one to solve.
According to the agribusiness website Feedstuffs, a news source that’s part of the Farm Progress Network, Hoeven secured the co-sponsorship of Sen. John Thune of South Dakota for the amendment, and then went to bat for it as the final version of the bill emerged in late December. The amendment allows for a 20 per cent tax deduction on payments farmers receive from a farmer-owned cooperative. But the same deduction isn’t available for payments from private elevators. So where do you think a farmer is going to want to sell his grain?
Co-ops around the country are ecstatic, and are heaping praise on Hoeven. Jay Debertin, president and CEO of Cenex Harvest States, (CHS) the largest co-op in the country said “The Section 199 deduction helped 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.”
BUT ONLY FOR CO-OPS.
Chris Policinski, president and CEO of Land O’Lakes, another large co-op, and Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF) also singled out Hoeven for praise.
For now, private elevator owners are keeping mum while they analyze their situation. North Dakota has about 400 elevators. Probably half are co-ops, half are private.
There’s no easy fix. The loss of the Section 199 deduction for private elevators is law. It’ll take a new law to fix it. A new law is likely to need 60 votes to pass the Senate. When’s the last time anything got 60 votes in the Senate?
Hoeven’s been a consistent champion for co-ops, but I’m not sure how he pulled this off. It happened in the last minutes, and I’m guessing a lot of things happened in the last minutes in this bill. That’s the danger of having a partisan bill pass on a party-line vote with no hearings. No one knows what’s in the bill.
Don’t weep for Cargill and ADM. They will survive. It’s the small, rural elevators that are in trouble. Stay tuned.
P.S. I’m an English major. This is pretty confusing stuff. If I have this wrong, and you’re a CPA or a math major, tell me and I’ll try to fix it.
The Prairie Blog 
This law or policy, on its face, will force farmers to sell their products to cooperatives (and likely a fee to belong to the cooperative) and drive private elevators out of business solely on the basis of government policy. Do you know why Hoeven would openly seek to benefit cooperatives and destroy private elevators? Not fair in my book and one of the many things that is wrong with our government. Curtis Wells
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Both Hoven and Kramer were on Prairie Public today talking about ‘public-private partnerships’ being implemented in North Dakota for upgrading ‘infrastructure’ such as roads, bridges, water systems, etc. Seems like just another means of bringing in corporations to run things in North Dakota.
Everyone ready for ‘toll roads’? That was mentioned as a solution to ND budget problems. Anyone game for the idea of a Spanish or Chinese corporations building toll roads?
I’m not sure I understand this concept of ‘cooperatives’ as they now exist in North Dakota. We bought into a lamb cooperative when we first moved here 20 years ago. It was supposed to be a locally controlled market, but just a few years down the line, it turned out the buyers from Iowa seemed to get the price advantage on our organic lambs, and WE were responsible for trucking them there.
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I’m checking this, but I believe that only Crystal sugar passes part of this deduction on to farmers. I’ve never received any such deduction. But, it would benefit farmer owners by giving the coop more capital to pay operating expenses, thus improving profits to distribute.
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Legislate in haste, repent the unforeseen consequences at leisure! I’m certain that this is only one of hundreds of problems contained in this legislation that should have been subject to months of review and discussion. I am disgusted by the lack of concern shown by those who voted in favor of this legislation, most of whom had not even read it.
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I belong to a local farmer owned grain elevator, in northwest North Dakota that passes the dpad along to its patrons annually for the last several years.
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Good to know that information. Thank you.
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Jim, you have an accurate accounting of this mess. Major commodities such as corn, wheat and beans are often sold through a coop elevator, but many of the minor corps such as flax, canola, edible beans, etc are about 50/50 sold through coop/private marketing firm. Many of these are smaller operations in rural North Dakota.
Eliminating the Domestic Production Activities Deduction (DPAD) makes no sense. It is counterproductive to some guy’s theme of “Make America Great Again”. A kick in the gut of rural American businesses 😦
This is just one of many more scenarios of bad legislation that did not have one public hearing.
Good reporting!!!
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Jeffrey Waagen I somehow stumbled across your prairie blog news. very delightful. I am a man from Bottineau area. And I have been fighting for the last two years to protect my small rural business. From being over run by out of state and out of this country. [workers from Canada]companies. since 2000 I have work with every state and federal government agencies in applying for a rural loan programs. but never could have enough of a down payment to make it. After ten years, and three major surgeries putting plates and screws in my neck and back, and was told to apply for social security disability which took almost five years of being denied. I was awarded a small surgery award from the workmen compensation for my trouble and finally awared disability a little later. This all happen, from me working day and night to earn money to feed my family and save money for my down payment. To purchase some used equipment to start a small sewer cleaning and television inspection work. A much need services for rural towns and communities. I have never been I guy sit still. in 2010 I called social security and went to lots of government procurement information meeting for services under the pretense that I qualified for disadvantage person. during this short period many people in the community, that have been listing to me, about safer and easer ways of digging around gas lines ,propane lines you name it. This equipment is the proper way to dig around utilities.One day I was contact from a business. They said they had spoke to someone who knew of me and said to call me I know of how to operate that equipment . For it was starting to be required to work for the oil companies for services. I told them,I am on social security now and that I would have see what I can do. So I called them back, told them what I can do, they said, they are willing to work within the guidelines. So I work a couple jobs for them. But their truck was awful to work and drive. I was to sore to fight that truck. But I ask them, if I could find a more comfortable truck to drive and operate. would you allow me to work for you with my truck, they said yes. to make the long story short. I Took some of that, what I called surgery money and I went to a local credit union. And they granted me a loan to buy a used Vacuum truck. I went on finding a truck. I purchased a truck and went to work right away. then drilling rig consultants where very impressed of how fast the truck could vacuum considering at the time there was only a few of these trucks around. made a good name for that company. As years went by, things look great. Never working in the oil and gas business. I applied my knowledge from cleaning sewer lines and different tanks as such. and became very busy. I ended up buying more used equipment with cash. was able to buy newer things as money was available. when I heard on the radio of people being killed from trying to clean tanks with hazardous fumes I just shook my head. I have knowledge of this particular kind of equipment that would be safer to use. Plus the oil and gas industry was looking for someone to step up to plate. so I went to a local bank to see if I qualified for a business loan in which I did. The local lender applied for a 80% loan garuntee through the usda rural development program. I was the most grateful man on the earth. unfortunately in less than two years that ruthless usda loan and that lender reposed all my equipment and sold it for nothing. just so they can get their money. I have tired every way possible way to set down with the local senators and representatives. I have tried to set up a meeting with both governor Dalyrimpl and Bergum only for their office support person shelly, is all I know her by, and she told me go to my local county welfare office to seek food and shelter if needed. I have pestered Hoeven, Heitkamp, Cramer, and even Mr. Trump who promised a lot . And have not received any true help but sorry Mr. Waagen we can’t forced companies to hire you. When all I was asking for was to set up maybe a tax break for companies who would be willing to give small business like mine a chance for work. after all I work for many of these companies in the past. But when the congress and Obama administration started the clean power act. The big companies from Texas, Canada, Minnesota, you named it, hurts small business like mine.And by the way the local lender and the usda, what I think was some wrongful banking practices, they are happy to take my home too. I feel I have done all I can do as a humane. my loan payment was not much. I think right around $ 6000 dollars a month for seven years. but when you have business, who are coming here to this state of north dakota, because we can’t seem to figure out, to stop our congress from being influenced from large private-corporate companies to retain their jobs. Its our the voters own faults for continuing allowing the same people, voting cycle after voting cycle, to promise us great things. And when these large companies don’t want to pay a person. well it becomes a vicious cycle of who’s got money. I am owed money and I owe people money. But at least congress has all the money they need to police the world at the expense of my family, my family home, and my abilities to support my family, and the people who work for this small rural business to support their families.I hope these state employees and federal policy-law maker enjoy their wealth. And until the voters stand up for themselves and say enough is enough and take charge nothing well ever be done to insure our own needs. let them build in the national parks who cares. soon the common people will have any money to go see the parks anyway. We have became too lazy and greedy too say anything. And would rather watch our nabors and friends lose everything, so our elected official retain their employment. sorry for the bad writing. I am better working a vacuum truck. Jeffrey Waagen.
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Thanks for telling your story, Mr. Waagen. Good luck to you.
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Yes, thank you, Mr Waagan!
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