Ongoing Discussions to Resolve Section 199A Tax Issue

From: Chris Henney, President and CEO, Ohio AgriBusiness Association and Randy Gordon, President and CEO, National Grain & Feed Association

We wanted to update you on efforts underway in Washington to address the unforeseen impacts of Section 199A of the Tax Cuts and Jobs Act (P.L. 115-97), enacted by Congress and signed into law by President Trump on Dec. 22.

As you know, while it was written as a replacement intended to provide the same benefits to agricultural cooperatives as existed under the “old” Section 199 of the previous tax code (which was deleted in the new tax law), Section 199A has been interpreted as providing a significant tax advantage to producers who sell commodities to agricultural cooperatives rather than companies organized as independent, privately held or investor-owned businesses.  Specifically, the provision as written allows producers to deduct up to 20 percent of their total gross sales to farmer-owned cooperatives, letting some farmers reduce their taxable income to zero – while providing a smaller deduction – about 20 percent of net income when selling to non-cooperatives.  Many analysts believe that the tax benefit under Section 199A is so great that it threatens to undermine the competitive landscape of the marketplace – not only for grains and oilseeds, but for other products as well.

Once the implications and unintended consequences of Section 199A were recognized, several senators have made a concerted effort to find ways to correct the situation.  Sen. John Hoeven, R-N.D., and several others requested that our national association – the National Grain and Feed Association (which represents an even mix of cooperative and non-cooperative businesses) – work with the National Council of Farmer Cooperatives (NCFC) to explore potential legislative solutions.

The two organizations – NCFC and NGFA – subsequently issued a joint statement on Jan. 11 to alert industry members and the agricultural media that Section 199A was under active review, and that the two organizations were “committed to reaching a solution in a thoughtful and expeditious manner” and to “working with Congress to address this issue promptly.” You can read that joint statement by clicking here.

In the ensuing week, progress has been made in exploring options for a legislative solution.  Convened under the auspices of NCFC and NGFA, tax experts and staff members from organizations and companies representing both cooperatives and independent/private agribusinesses have conducted several meetings, conference calls and email exchanges – including over the Martin Luther King holiday weekend – to explore alternatives to achieve the shared two-fold objective of:  1) preserving the benefits that cooperatives and their farmer-patrons previously enjoyed under the “old” Section 199 provision of the tax code; and 2) correcting the unintended consequences of the new Section 199A on producers’ marketing decisions that could change the competitive landscape of the marketplace.  That work is continuing and intensifying as options for addressing the issue are explored, studied and refined.  Given the complexity of the issue, and the need to get it right, tax experts are evaluating potential approaches and options very diligently and thoroughly to achieve the intended two-fold objective.

NGFA believes that the discussions have been very productive and are being conducted in good faith and earnestly with the goal of achieving an equitable legislative solution in the near-term.  NCFC President and CEO Chuck Conner and NGFA President and CEO Randy Gordon are working closely together on this mutual effort.

The effort to resolve the issue is being supported strongly and constructively by senators and congressional offices with jurisdiction over tax policy, including Sens. John Hoeven, R-N.D., John Thune, R-S.D., Senate Agriculture Committee Chairman Pat Roberts, R-Kan., Sen. Chuck Grassley, R-Iowa, and Sen. Mike Rounds, R-S.D., among others.  Sen. Hoeven and his staff have convened several meetings over the last week to touch base on the status of our discussions, and Sen. Hoeven personally has expressed a fervent desire to arrive at an equitable and correct legislative solution to change the current Section 199A legislative provision expeditiously to resolve any marketplace uncertainty.

Several senators and senatorial offices have issued similar sentiments within the last week.  A spokesman for Sen. Thune was quoted on Jan. 11 as saying that, “Ultimately, Sen. Thune believes that producers should make decisions about where and how to sell their products without the tax code unfairly tipping the scales in favor of marketing to one type of business entity or another.”

Meanwhile, Sen. Rounds in a Jan. 12 statement said: “The inclusion of Section 199A in the tax law was always (intended) to maintain the status quo for the agricultural sector.  It has come to our attention that some producers are concerned that the law, as written in the new tax code, gives an unfair advantage to cooperatives over independent operators. This was never the intent, and I am pleased there is widespread support among producers and Congress to address this concern. We have been working with our colleagues and stakeholders from both sides on a legislative fix. Those conversations have been productive, and we look forward to finding a solution in a timely manner.”

Further, in a statement issued Jan. 12, USDA Under Secretary for Marketing and Regulatory Programs Greg Ibach stated: “The aim of the Tax Cuts and Jobs Act was to spur economic growth across the entire American economy, including in the agricultural sector. While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry. The federal tax code should not pick winners and losers in the marketplace. We applaud Congress for acknowledging and moving to correct the disparity, and our expectation is that a solution is forthcoming.  USDA stands ready to assist in any way necessary.”

NGFA remains committed to working 24/7 with its member companies, State and Regional Affiliates, and other stakeholders representing both cooperative and non-cooperative-owned firms in other sectors of agribusiness to arrive at an equitable solution that preserves the benefits that cooperatives and their farmer-patrons previously enjoyed under the “old” Section 199, while addressing the unforeseen impacts and unintended consequences of the “new” Section 199A on producers’ marketing decisions.  Such an outcome will preserve a marketplace that fosters fair competition and marketing choices for farmer-customers in determining where and to whom they sell their commodities.

OABA will continue to communicate with our members on this issue and share ideas and concerns with NGFA. 

If you have concerns about how Section 199A will affect your business, we encourage you to contact your members of Congress to inform them, let them know that efforts are underway to devise a solution, and to encourage them to enact an appropriate fix as soon as possible.