Tax reform was supposed to be good for business, it was not intended to create winners and losers in the marketplace. But sadly, that is just what the bill did for independent grain companies.
A late change to the tax bill had the unintended effect of giving farm cooperatives a major competitive advantage over independent grain handlers, dairy processors and ethanol producers. The results could be disastrous, if Congress does not fix its mistake.
The provision was slipped into the bill at the 11th hour in a well-intended effort to preserve an existing tax break for farmer-owned cooperatives, but even its authors acknowledge the language that made it into the bill has unintended consequences.
The spring planting season is right around the corner, and farmers are already writing contracts on the crops they will soon be putting in the ground. Farmers deserve the right to be able to sell whomever they choose for their individual needs. We cannot have federal tax policy dictate their decisions.
The problem is the legislation allows farmers to take a 20 percent deduction on their total sales to cooperatives, but just a 20 percent deduction on their net income, or profit, to independents. The way the law is written, some farmers could erase their entire tax bill just by selling to cooperatives.
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That may sound like a good deal, if you're a farmer, but it will cause long-term disruptions in the supply chain for a range of agricultural products, including corn, wheat, milk and livestock. Even ethanol producers could take a hit. And that upheaval will not be good for anyone in our industry.
Even individuals and businesses who have no intention to farm could purchase land to exploit this new tax loophole to lower or eliminate their tax bill. That will drive land values higher as large farms increase their rents from this tax benefit, driving the family farmers out of business. This happens at a time when we are already seeing high cash rent values, as commodity prices remain depressed.
When Congress embarked on this process, tax-writers attempted to make the code fair. This unintended accident contradicts that pledge. I would hate for partisan divisions to prevent both parties from fixing what everyone considers a mistake.
Minn-Kota Ag Products, the company where I work, is a fourth-generation, family-owned business which has been in operation for more than 80 years. We are a large employer in our area, which includes Minnesota and North Dakota. If this problem is not fixed, we will be converting a cooperative.
Agriculture Secretary Sonny Perdue warned that the Congressional Budget Office and voters in other states would take notice if thousands of businesses converted to co-ops. Many other businesses will become cooperatives as this issue is not limited to grain facilities.
This problem has created enormous uncertainty, and we need to make sure the remedy is applied retroactively so we can undo the damage this mistake has already caused.
We need Congress to correct the unintended consequences caused by Section 199A and restore normal business practices to the grain industry and agriculture as a whole.
Beyer is chief financial officer of Minn-Kota Ag Products based in Breckenridge, Minn.
