The Section 199 deduction is a tax incentive for businesses that perform domestic manufacturing and production activities. It was established in 2004 as part of the American Jobs Creation Act.
In December of 2017, The Tax Cuts and Jobs Act repealed the Domestic Production Activities Deduction in Section 199, and created new deduction 199A.
Greg Ibach, The U.S. Department of Agriculture’s Under Secretary for Marketing and Regulatory Programs said, “the aim of the Tax Cuts and Jobs Act was to spur economic growth across the entire American economy, including the agricultural sector. While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry. The federal tax code should not pick winners and losers in the marketplace. We applaud Congress for acknowledging and moving to correct the disparity, and our expectation is that a solution is forthcoming. USDA stands ready to assist in any way necessary.”
199A went into effect on January 1, 2018. It allows for a gross sales deduction of 20% when selling to a cooperative only.
Budget legislation was later amended, retroactive to January 1, 2018. U.S. Secretary of Agriculture Sonny Purdue stated, “fixing Section 199A was a fundamental issue of fairness. We should not be picking winners and losers through the federal tax code by favoring one side over another. During my travels across the country, I met with countless farmers and members of the agriculture community who were affected by this so-called ‘grain glitch.’ I applaud Congress for hearing their voice.”
U.S. Department of Agriculture, Statement of Under Secretary Greg Ibach on Section 199A Tax Code Fix, Release No. 0010.18, January 12, 2018. https://www.usda.gov/media/press-releases/2018/01/12/statement-under-secretary-greg-ibach-section-199a-tax-code-fix
U.S. Department of Agriculture, Statement of Under Secretary Sonny Perdue on Section 199A Tax Code Fix, Release No. 0065.18, March 23, 2018. https://www.usda.gov/media/press-releases/2018/03/23/secretary-perdue-praises-section-199a-tax-code-fix-omnibus