NGFA Member Alert: Section 199A Provision of Tax Cuts and Jobs Act of 2017

Posted on 01/12/2018 8:57 AM

Details action NGFA is taking to address ‘important industry issue’

Randy Gordon, President and Chief Executive Officer of the National Grain and Feed Association (NGFA), sent the following “member alert” regarding Section 199A of the Tax Cuts and Jobs Act of 2017:

“As you've been reading, considerable concern has been raised in the marketplace about how the new Section 199A — included during the waning hours of congressional consideration of the Tax Cuts and Jobs Act of 2017 — is influencing producer marketing decisions. As an organization whose members consist of both farmer-owned cooperatives and independently organized businesses, I want to briefly report on the actions NGFA has taken — and is taking— to address this important industry issue.

1. During congressional action on the tax bill, the NGFA did not engage - either pro or con - in consideration of preserving Section 199 of the previous tax code. NGFA was not privy to the new Section 199A language prior to its inclusion in the final law, and became aware of it shortly after Christmas.

2. Once becoming aware of the language, we immediately contacted several of our Associate member companies that have extensive tax expertise and asked them for their evaluation of its impacts, if any. Given the complexity and varying initial interpretations of the language and its potential impacts, this fact-gathering process took some time to complete.

3. In early January, NGFA's staff began receiving information from reputable tax analysts that the Section 199A language had been drafted in a way that potentially could significantly skew producers' decisions on which type of business entity with which to market their commodities.

4. To gain a greater understanding, NGFA staff during the first week of January met with the tax staff from the offices of Sens. John Hoeven (R-N.D.) and John Thune (R-S.D.) to learn their intent in including the Section 199A language in the law. At the time NGFA met with them, these senators' offices, too, were just beginning to be made aware that producers selling commodities solely to cooperative-owned businesses would be able to significantly reduce their federal income tax liability — to the point that it would influence where and with whom they market their products. Both senators' offices emphasized that the language was intended solely to replicate the tax treatment previously available to co-op farmer-members commensurate with the former Section 199 that was being deleted from the tax bill, and was never intended to provide a significant tax advantage to producers based on the type of company to which they sold their commodities.

5. With these insights and the results of the factual analyses we'd received, NGFA's Executive Committee, during its already-scheduled Jan. 7-8 meeting, discussed this issue extensively. It is important to stress that up until the deliberations at this policy meeting, NGFA had engaged only in fact-gathering and analysis. It also is important to emphasize that NGFA's Executive Committee consists of both cooperative and non-cooperative-owned member companies — and like all committees, is charged with representing the best interests of the industry as a whole.

6. Following its extensive and thoughtful deliberations on this matter, the NGFA Executive Committee directed that NGFA staff engage with Congress, the National Council of Farmer Cooperatives (NCFC) and other affected stakeholders in a good-faith effort to address the unintended consequences of Section 199A in a way that replicates the tax treatment previously available to co-op farmer members under the previous Section 199, but does so in a way that restores a level playing field and does not provide a tax-based incentive that influences farmers' marketing decisions. The Executive Committee also noted the sense of urgency in working proactively to resolve this issue, given marketing-related decisions and actions that some producers and companies already were beginning to take.

7. On Jan. 8, NGFA was invited by Sen. Hoeven's staff to a meeting with several organizations, including NCFC, as well as several co-op and non-co-op companies, to discuss this issue. During the meeting, Sen. Hoeven, his staff and the staff of Sen. Thune made it clear that the Section 199A language was having unintended consequences and unforeseen impacts on producers' marketing decisions, and that they wanted NGFA to take a lead role given the balanced composition of our membership in working with NCFC and other stakeholders to reach an "equitable solution" in an expeditious manner.

8. On Jan. 11, the organizations and companies again met with the staffs of Sens. Hoeven and Thune, as well as tax staff members representing Senate Agriculture Committee Chairman Pat Roberts (R-Kan.) and several other senators, to begin discussions on how to address the issue. During the meeting, the NGFA committed to working intensely with NCFC and tax experts representing both cooperatives and non-cooperative businesses to arrive at an equitable solution in an expedited manner. That work is scheduled to begin on Jan. 12.

9. One other significant result of the Jan. 11 meeting with the senators' staffs was that NGFA and NCFC agreed to issue a joint statement to their respective members and the media about these developments, which can be accessed with this link. The joint statement is intended to alert industry members that this matter is under active review, and that the two organizations "are committed to reaching a solution in a thoughtful and expeditious manner and to working with Congress to address this issue promptly."

10. Going forward, NGFA will work with its members and other stakeholders representing both cooperative and non-cooperative-owned companies to arrive at an equitable solution that preserves the benefits that cooperatives and their farmer patrons previously enjoyed under Section 199 of the tax code, while addressing the unforeseen impacts of Section 199A on producers' marketing decisions that could change the competitive landscape of the marketplace. We will continue to keep NGFA members informed and updated as these discussions progress."


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