S.D. Farmers Union Urges Leadership to Vote with Senators Thune & Rounds to Make Section 199A of Tax Code Permanent

January 29, 2018

South Dakota Farmers Union President, Doug Sombke urges Congressional leadership to follow Senators Thune and Rounds' lead and vote to make section 199A of the tax code permanent.

"As it is written, section 199A is scheduled to sunset in 2025 - it needs to be permanent if our farmers and cooperatives are to remain competitive in the global marketplace," Sombke said.

Under previous tax law, farmers using Sec. 199 were entitled to a deduction of up to 9 percent of net farm income. The overall limit was 50 percent of wages paid and a final limit of taxable income. It could not create a net operating loss.

"The Section 199A deduction is designed to level the playing field between corporations-which are now taxed at 21 percent while pass-through farmers, would be taxed at 37 percent," Sombke said. He added that corporate tax rates are now permanent, while rates for individuals and other small businesses, including co-ops, is temporary.

"199A expires in 2025. The goal of the current negotiations is keep the competitive balance," Sombke said. "Returning to Sec 199 is not an acceptable outcome, it must be enhanced to maintain the balance. There is no reason businesses of all types get a boost from reform, but coops must maintain what they previously had. Congress must also make Sec. 199A permanent."

Since most farms don't have a significant wage base, they were able to use wages passed through from their cooperative. In 2018, under current law (199A) farmers are allowed a 20 percent deduction based on net farm income and net taxable income less net capital gains and cooperative distributions. Once that deduction is calculated, the farmer is allowed to add 20 percent of gross cooperative payments received as a patron. You must be a patron to receive this.

Senators Thune & Rounds along with others, support making Section 199A a permanent fixture in the tax code.

Today (Monday, Jan. 29, 2018) Sombke sent the following letters to support South Dakota's congressional leaders. He urges all South Dakotans to do the same. Contact Senator John Thune at (202) 224-2321. Contact Senator Rounds at (202) 224-5842

"Agriculture is our state's number one industry. If 199A were to go away, it could have devastating impact on commodity prices. Please support our state's growers and urge Thune and Rounds to remain steadfast in their support," Sombke said.

Letter to Rounds: 

January 29, 2018

The Honorable Mike Rounds
Hart Senate Office Bldg.,
Suite 502
Washington, DC 20510

Dear Senator Rounds:

I write on behalf of South Dakota Farmers Union (SDFU) to thank you for your past support of Section 199A and your current efforts to maintain the provision within the newly passed tax code. SDFU membership is concerned any changes to Section 199A will be detrimental to the cooperative owner, the farmers.

The language is beneficial to both the agriculture and cooperative communities. We have concern over the impact repeal would have. However, I do feel giving corporations permanent incentives and allowing 199A to sunset in 2025 is unfair to our farmer owners of the cooperatives.

Non-cooperative entities receiving the full benefit of a 40% rate reduction should be better positioned to compete locally and globally given the substantial tax savings they will recognize. The corporate rate reduction resulting from the tax reform package is much more valuable to the non-cooperative companies than to the cooperatives.

While cooperatives will benefit from the lower corporate rate on any savings (profits) they retain, cooperatives are largely pass-through entities, and single taxation takes place at the farmer level for all dollars allocated to the farmer owners of the cooperatives in the form of patronage allocations, equity redemptions, etc. Farmer owned cooperatives were formed for the mutual benefit of the farmers, not as investment vehicles for owners. One of the primary forces behind the formation of the cooperative system was the mutual benefit farmers would receive from the economies of scale associated with the joint marketing of their commodities. The farmer benefit of Section 199A is consistent with these principles.

An effort to revise or repeal Section 199A will not be in the best interest of farmers or the viability of cooperatives. We cannot allow corporations to have an advantage over cooperatives which ensure the livelihood of rural South Dakota communities. We would appreciate any attempt on the behalf of our members to help maintain Section 199A.

It actually levels the playing field. Keep in mind if tax cuts are good for the economy they should be good for the agriculture cooperatives and the farmers who own them and that should grow South Dakota's economy. Without 199A provisions farmers that do business with cooperatives may actually see a tax increase for their farm operations.

I believe Senators Hoeven's statement in the Congressional register (link to statement on page 22 of the Dec. 19, 2017 Congressional Record found at this link: https://www.congress.gov/crec/2017/12/19/CREC-2017-12-19-pt1-PgS8088-2.pdf) is accurate and a reflection of what should be done. It is not an error.

Thank you on behalf of your constituents from the agriculture and cooperative communities for which you serve continuing our fight to protect South Dakota's rural economy.

Sincerely, 
Doug Sombke, President, SD Farmers Union

 Letter to Thune:

 January 29, 2018

The Honorable John Thune
511 Dirksen Senate Office Building
Washington, DC 20510

Dear Senator Thune:

I write on behalf of South Dakota Farmers Union (SDFU) to thank you for your past support of Section 199A and your current efforts to maintain the provision within the newly passed tax code. SDFU membership is concerned any changes to Section 199A will be detrimental to the cooperative owner, the farmers.

Your language is beneficial to both the agriculture and cooperative communities and we have concern over the impact repeal would have. However, I do feel giving corporations permanent incentives and allowing 199A to sunset in 2025 is unfair to our farmer owners of the cooperatives.

Non-cooperative entities receiving the full benefit of a 40% rate reduction should be better positioned to compete locally and globally given the substantial tax savings they will recognize. The corporate rate reduction resulting from the tax reform package is much more valuable to the non-cooperative companies than to the cooperatives.

While cooperatives will benefit from the lower corporate rate on any savings (profits) they retain, cooperatives are largely pass-through entities, and single taxation takes place at the farmer level for all dollars allocated to the farmer owners of the cooperatives in the form of patronage allocations, equity redemptions, etc. Farmer owned cooperatives were formed for the mutual benefit of the farmers, not as investment vehicles for owners. One of the primary forces behind the formation of the cooperative system was the mutual benefit farmers would receive from the economies of scale associated with the joint marketing of their commodities. The farmer benefit of Section 199A is consistent with these principles.

An effort to revise or repeal Section 199A will not be in the best interest of farmers or the viability of cooperatives. We cannot allow corporations to have an advantage over cooperatives which ensure the livelihood of rural South Dakota communities. We would appreciate any attempt on the behalf of our members to help maintain Section 199A.

It actually levels the playing field. Keep in mind if tax cuts are good for the economy they should be good for the agriculture cooperatives and the farmers who own them and that should grow South Dakota's economy. Without 199A provisions farmers that do business with cooperatives may actually see a tax increase for their farm operations.

I believe Senators Hoeven's statement in the Congressional register ((link to statement on page 22 of the Dec. 19, 2017 Congressional Record found at this link: https://www.congress.gov/crec/2017/12/19/CREC-2017-12-19-pt1-PgS8088-2.pdf) is accurate and a reflection of what should be done. It is not an error.

Thank you on behalf of your constituents from the agriculture and cooperative communities for which you serve continuing our fight to protect South Dakota's rural economy.

Sincerely,
Doug Sombke,  President, SD Farmers Union


Last Modified: 01/29/2018 10:41:14 am MST

Back


Website Powered By PageFramer, Development By Robert Sharp & Associates