Amid a frenetic daily pace in Washington, Congress is slowly moving toward renewing the provisions of the Tax Cuts and Jobs Act of 2017, a major tax legislation that President Trump signed into law during his first year in office. The provisions are due to expire this year. The House and Senate have each approved their blueprints for the plan, but challenging negotiations lie ahead.
The National Milk Producers Federation (NMPF) is focusing attention on one piece: The Section 199A deduction, which is vital to dairy farmers and the cooperatives they own and merits being made permanent in this year’s tax law.
Section 199(A) of the Internal Revenue Code, known as the Qualified Business Income Deduction, was enacted in the 2017 tax law. It provides an up to 20% deduction on qualified business income for certain pass-through entities. It includes the benefits previously afforded to agricultural cooperatives under the earlier Section 199 tax deduction for domestic production. Dairy cooperatives benefit through their domestic manufacturing activity; they can either pass the deduction directly back to their member-owners or reinvest it into the cooperative.
This important public policy boosts economic stability in rural America, but it wasn’t an easy road to this point. Early in 2017, congressional tax writers indicated they were likely to repeal the previous Section 199 that dairy cooperatives had used for many years. Congress believed the previous provision would be redundant because most of the domestic manufacturers that had benefited from it would now benefit from the planned reduction in the corporate tax rate.
This would not have been the case for cooperatives, which don’t file taxes as corporations. Accordingly, farmers were staring down a significant tax increase, so NMPF got to work making a case for the important role Section 199 played in helping ag cooperatives stay competitive in today’s marketplace. House members wrote letters, Senators filed amendments, and stakeholders spoke loudly and in unison in support of preserving the benefits of Section 199.
The result of agriculture’s united efforts was the inclusion of farmer-owned cooperatives in the new Section 199A deduction. Letting it expire this year would raise taxes on dairy farmers and the cooperatives they own while other businesses enjoy continued tax relief. Congress should make this important deduction permanent to maintain certainty for producers and help them prosper in the coming years.
As dairy prepares for the hard work that lies ahead, the agriculture community is again speaking with one voice. NMPF is grateful to the many producer associations, cooperatives, and agricultural partners that have joined a letter in support of making Section 199(A) permanent in this year’s tax legislation. This early strong showing underscores the consensus behind continuing this key policy — a consensus that will be essential to getting the job done.
