Farmers Union Opposed to Repeal of Tax Provision for Co-ops

Efforts by U.S. senators to reform a tax provision passed into law December 2017 may not be in the best interest of farmers or the viability of cooperatives, said Doug Sombke, President of South Dakota Farmers Union.

 The provision in question involves Section 199 of the tax code which applies to agricultural products marketed through cooperatives. Section 199 allows cooperatives to keep a tax deduction or pass it through to their farmer members.

 Under the new tax code, passed Dec. 2017, farmers can deduct up to 20 percent of their total sales to a cooperative to offset the loss of the previous Section 199. Private businesses get a tax benefit from a lower tax rate and a lower corporate tax. 

Before taking a position, Sombke took the time to visit with leadership from a traditional South Dakota cooperative (one where all patrons who do business with the cooperative receive patronage) and a closed cooperative (where patrons have to meet specific qualifications in order to receive dividends).

 “My understanding is, this newly passed cooperative tax reform measure is unclear how it will affect our cooperative and their members,” Sombke explains. “The only way we will support further action on Section 199 is to see it revised to the way it was prior to December 2017 or left alone. Anything else puts our farmers and cooperatives’ tax position in jeopardy.”

 Sombke said he is aware that Sen. John Hoeven (R-ND) and Sen. John Thune (R-SD) are working on a solution, collaboratively.