Ohio Agribusiness Association : New Federal Tax Law Creates Unintended Consequences

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Many media outlets are reporting that a provision in the new tax law gives growers a better deal at tax time if they sell their agricultural products to co-ops rather than other types of companies. The provision will allow farmers to deduct up to 20 percent of their total gross sales to cooperatives, letting some farmers reduce their taxable income to zero. Farmers would get a smaller deduction-about 20 percent of income-if they sell grain or other farm products to privately held or investor-owned companies. Tax lawyers and accountants say the new law will give cooperatives a significant edge over competitors.

Farm groups and agricultural cooperatives battled last year to preserve the Section 199 deduction on domestic U.S. production, which manufacturers also received. That deduction went away in the tax rewrite, but lawmakers including Sen. John Hoeven (R., N.D.) won the inclusion of the new deduction. Meant to compensate for the loss of Section 199, the new provision did not intend to put private firms at a disadvantage.

The Ohio AgriBusiness Association is aware of the issue and is working with the National Grain and Feed Association and other partners to reach an equitable solution. In the meantime, if you have concerns about how this will affect your business, we encourage you to contact your federal representatives to educate them about the effect this new provision will have on your business. Click here to find your federal representative.