Corporate Tax Bill Boosts Rural Needs

Comprehensive tax bill approved by House-Senate joint conference committee benefits farmers, cooperatives, small businesses, rural letter carriers, ethanol, biodiesel and biomass. Compiled by staff

Published on: Oct 7, 2004

On Wednesday the House-Senate conference committee reconciled differences between each chamber’s manufacturing tax and trade bill. Their action clears the conference report for consideration in each chamber yet this week before the representatives head home for the congressional year.

Several key provisions were included that benefit the agricultural sector. Here is an outline of those provisions.

Renewable fuels get big boost

Volumetric Ethanol Excise Tax Credit (VEETC) was approved. This substantially overhauls the fuel excise tax system by ensuring that every gallon of gasoline or gasoline blended with ethanol contributes a full 18.4 cents to the Highway Trust Fund. These initial steps begin restructuring tax incentives for ethanol so ethanol use will contribute to the Highway Trust Fund instead of unrelated government programs.

The final bill also extends the current ethanol excise tax incentive set to expire in 2008 to December 31, 2010. The 5.2-cents-per-gallon tax break on ethanol-blended fuels makes them price competitive at the pump, and the extension is important to attract the capital investment needed to build new plants and expand ethanol production.

The conference report creates a $1 per gallon tax credit for biodiesel made from virgin oils such as soybeans and animal fats and a 50-cents-per-gallon credit for biodiesel made from recycled oils. These new incentives, authorized thru 2006, will help make biodiesel more competitive with traditional diesel fuel in the marketplace.

Farmer coop initiatives

The IRS determined that some cooperatives should be exposed to a regular corporate tax due to the fact that they are using organic value-added practices rather than manufactured value-added practices. This bill allows cooperative producers to receive the same tax benefits from general business credits as large companies. Updates for agricultural cooperatives include:

  • A modification to cooperative marketing rules to include value-added processing involving animals;
  • An extension of declaratory judgment procedures to farmers’ cooperative organizations;
  • Payment of dividends on stock of cooperatives without reducing patronage dividends;
  • The apportionment of credits, meaning cooperatives could allow eligible patrons the benefit of general business credits earned by the cooperative, which clarifies that the tax credit for small ethanol producers can flow through to the patrons of those cooperatives.

Income averaging for farmers

When Congress passed income averaging for farmers a few years ago, it neglected to take into account the problem of running into the alternative minimum tax, which many farmers are facing now. Years ago, the alternative minimum tax was meant to make sure upper income individuals paid their fair share of taxes, but increasingly is hitting middle-income taxpayers. This legislation will fix this growing problem for farmers.

Livestock amendment assists producers

The final FSC legislation includes a Sen. Tom Daschle, D-S.D., authored provision that would provide favorable tax treatment for ranchers forced to sell cattle during periods of drought and reinvest in cattle, equipment, or machinery during a four-year period following the sale of the cattle.

Current law allows those who sell cattle during a weather-related disaster two years in which to either re-purchase a like amount of cattle or pay taxes on the income received from the sale. Under the Daschle amendment, that time period would be extended to four years, and producers would be permitted to reinvest an amount equivalent to the sale of cattle into their farm through the purchase of machinery or equipment.

Tax fairness to rural letter carriers

The U.S. Postal Service recognizes that in rural areas, it is often more practical for letter carriers to use their personal vehicle rather than a post office vehicle. The Postal Service pays an equipment maintenance allowance for letter carriers to use their vehicles. However, in rural areas, this allowance often does not cover the entire cost of using the vehicle. Sen. Chuck Grassley’s, R-Iowa, bill allows the carriers’ expenses that are not covered by the equipment maintenance allowance to be deductible because they are business expenses that are not reimbursed by the employer.