Source: Peggy Kirk Hall, Associate Professor, Agricultural & Resource Law
Taxes, Taxes and More Taxes.
WOW … Just WOW!!
You can count on tax law to generate interest in the agricultural community and that’s certainly the case with several tax bills recently introduced in Congress. Within the last month, members of Congress proposed a flurry of tax proposals that could impact agriculture if enacted. Of course, passing tax legislation is always difficult and subject to partisanship, and we expect that to be the case with these bills.
Here’s a look at the tax proposals receiving the most attention.
Death Tax Repeal Act of 2021. Sen. Thune (R-SD) and Rep. Smith (R-MO) are the primary sponsors of S. 617 and H.R. 1712, companion bills introduced March 9 that propose to repeal the federal estate tax, which the sponsors claim to be “the most unfair tax on the books.” The Act would also repeal the generation-skipping tax and make modifications to the computation of the federal gift tax, beginning at 18% under $10,000 and incrementally increasing by an additional 2%. Cosponsors of the Senate proposal includes 30 other Republicans, and the House bill has 137 cosponsors including one Democrat. The bills were referred to committee but have yet to see any further action.
For the 99.5 Percent Act. Introduced March 25 by Senators Sanders (D-VT), Gillibrand (D-NY), VanHollen (D-MD), Reed (D-RI) and Whitehouse (D-RI) to “tax the fortunes of the top 0.5% and reduce wealth inequality,” this bill would reduce the federal estate tax exemption from its current level of $11.7 million per individual. Under the proposal, estates in excess of $3.5 million per individual and $7 million per couple would pay the estate tax, which would begin at 45% for estates between $3.5 and $10 million. The tax would increase incrementally, reaching 65% for estates over 1 billion. The proposal would also reduce the lifetime gift tax exemption from its current level of $11.7 million to $1 million but would not reduce the annual $15,000 per person per year gift tax exemption for cash gifts. It would limit the exemption for gifts to trust at $20,000 per year. Protections for farmland include allowing farmland value to be lowered by up to $3 million for estate tax purposes and increasing the maximum exclusion for conservation easements to $2 million. The bill would also prohibit reduced valuation for assets held in a pass-through entity, affecting the 35% valuation discount that is typical for farmland LLCs.
Sensible Tax and Equity Promotion (STEP) Act. A group of Democrats in the Senate introduced the STEP Act on March 29 in an effort to “close the stepped-up basis loophole by taxing unrealized capital gains when heirs inherit huge fortunes on which the original owner never paid income taxes.” The proposal would tax the transfer of property that has a net gain either during lifetime or at death. During lifetime, a completed transfer to a non-grantor trust or individual other than spouse would be subject to tax but the first $100,000 of cumulative gain would be exempt. At death, the first $1 million of appreciated assets would pass without taxation. Transfers to charity, spouses, charitable trusts, qualified disability trusts would be exempt, as would gains on residences up to $250,000 per individual or $500,000 for married couples. Taxes on illiquid property such as farms and some farm assets could be paid in installments over a 15-year period, and any taxes paid under the Act would be deductible from the federal estate tax. The bill would also require gains on non-grantor irrevocable trusts to be reported every 21 years.
Corporate Tax Dodging Prevention Act. Another bill by Sen. Sanders (D-VT) would go after the corporate tax rate. The bill would restore the top corporate tax rate to 35%, its level prior to the reduction to 21% by the Tax Cuts and Jobs Act of 2017. It also includes a number of provisions to reduce the ability of corporations to avoid paying federal taxes by moving income and profits offshore.
We are likely to see several more tax proposals in Congress in the coming year and time will tell whether any of them will have traction. Some may merely be bargaining chips among the many legislative agendas in Washington. One thing is certain–tax bills will continue to generate interest in the agricultural world, so we’ll keep readers updated on these and future proposals.
Source: Emerson Nafziger, Department of Crop Sciences, University of Illinois
“Every agronomic decision is a good one for someone” is a quote that I saw recently that reminds us that being “entrepreneurial” is high valued in today’s business world, rewarded in some cases by large amounts of venture capital invested in startup companies. That’s as true in crop agriculture as in any other business, and it means that startups are under pressure to find or create niches and product(s) to fill them, and to demonstrate that these products are widely sellable. The “grand prize” can be sale of the startup to a larger company, yielding a large return for investors and a chance for the entrepreneur to get a large financial award and perhaps move on to bigger projects.
The result is an increasing number of novel crop inputs, accompanied by creative marketing campaigns. Such campaigns often employ the trappings of science to help build trust in such inputs and those who develop them. Photos of serious-looking people examining flasks or test tubes while dressed in white lab coats populate websites, especially for startups that are developing and selling novel inputs such as microbes, or the less specific terms “biologicals” or “biostimulants.” Companies tend to point to field trials they have in their database, and a selected set of such results may be available to potential customers. Testimonials are very common, and almost every such website includes mention of the positive ROI (return on investment) that buyers can expect from use of this product.
Unsurprisingly, company websites tend to highlight data selected for the purpose of supporting sales—it would make little sense from a marketing standpoint to show all of the data. A few decades ago, it was common for companies to engage university researchers to conduct trials on novel products, and for companies to use such results (at least the favorable ones) to help support sales. There may have been cases in which results from universities were insufficiently positive to support sales, and a product wasn’t taken to market as a result. But for the most part, university testing was used to demonstrate that the company had enough confidence in the product that it supported public research on it even without knowing what such research might show.
Source: Ohio Farm Bureau
Taxes are becoming more of a hot topic in Washington D.C. and some of the plans being proposed would have a disastrous impact on rural Ohio and rural America as a whole. Proposed legislation in Congress would tax capital gains at death and eliminate stepped-up basis as a way to raise revenue for government spending, causing Farm Bureau to issue an Action Alert to our members. Ty Higgins has more with OFBF’s public policy vice president, Jack Irvin.
Source: Chris Zoller, Extension Educator, ANR, Tuscarawas County
The United States Department of Agriculture (USDA) announced this week it is establishing new programs and efforts to provide financial assistance to farmers negatively impacted by the Coronavirus pandemic.
The new program is called the USDA Pandemic Assistance for Producers and is intended to reach a broader representation of producers than previous COVID-19 aid programs. The program will place a greater emphasis on small and socially disadvantaged producers, specialty crop and organic producers, timber harvesting, as well as support for the food supply chain and producers of renewable fuels.
The USDA Pandemic Assistance for Producers program administered by the Farm Service Agency (FSA) includes four parts. Details below were provided in a news release from USDA.
USDA will dedicate at least $6 billion to develop a number of new programs or modify existing proposals using discretionary funding from the Consolidated Appropriations Act and other coronavirus funding that went unspent by the previous administration. Where rulemaking is required, it will commence this spring. These efforts will include assistance for:
- Dairy farmers through the Dairy Donation Program or other means:
- Euthanized livestock and poultry;
- Specialty crops, beginning farmers, local, urban and organic farms;
- Costs for organic certification or to continue or add conservation activities
- Other possible expansion and corrections to CFAP that were not part of today’s announcement such as to support dairy or other livestock producers;
- Timber harvesting and hauling;
- Personal Protective Equipment (PPE) and other protective measures for food and farm workers and specialty crop and seafood producers, processors and distributors;
- Improving the resilience of the food supply chain, including assistance to meat and poultry operations to facilitate interstate shipment;
- Developing infrastructure to support donation and distribution of perishable commodities, including food donation and distribution through farm-to-school, restaurants or other community organizations; and
- Reducing food waste.
by: Chris Zoller, Extension Educator, ANR, Tuscarawas County
Liquidity is the ability of a farm business to quickly convert current assets to cash to pay short-term (less than 12 months) cash obligations, debt, family living, and taxes. It is one of several measures used to gauge farm financial performance over time. The United States Department of Agriculture Economic Research Service (USDA-ERS) is forecasting a decline in farm sector liquidity in 2021. This article will discuss working capital, current ratio, and times interest earned ratio financial measures.
Source: Chris Zoller, Barry Ward, & Mike Estadt, OSU Extension
Thousands of Ohio crop acres are rented from landowners by farmers. While the most common is likely a cash agreement, the flexible lease may be worthy of consideration for some farmers. This article will provide a broad overview of the flexible lease option, including advantages, disadvantages, and structure.
The information provided here is only a summary from the Fixed and Flexible Cash Rental Arrangements for Your Farm published by the North Central Extension Farm Management Committee. Anyone interested in learning more about flexible leasing arrangements is encouraged to read more about this topic at this site: https://aglease101.org/wp-content/uploads/2020/10/NCFMEC-01.pdf.
What is a Flexible Lease?
Because of uncertainties with prices, yields, and input costs, some farmers and landowners are apprehensive about entering into a fixed long-term cash rental arrangement. From the perspective of the farmer, the concerns include poor yields, commodity price declines, or sharp increases to input prices might impact cash flow if there is a long-term fixed arrangement. In times like we are experiencing now, landowners want to capitalize on high commodity prices or high yields.
Therefore, the operator and landowner may turn to the use of a flexible cash rent of one kind or another. The idea of a flexible cash rent usually pertains only to the rent charged for cropland.
Advantage of Flexible Leases
Source: Chris Zoller, Extension Educator, ANR, Tuscarawas County
The United States Department of Agriculture (USDA) recently released the interagency report: USDA Agricultural Projections to 2030. These long-term projections include several assumptions related to the Farm Bill, macroeconomic conditions, farm policy, and trade agreements. While long-term projections are based on assumptions and many unknowns, they do provide a glimpse of how U.S. farm commodity prices may perform over the next several years. Anyone interested in reading specific details is encouraged to see the report available here: https://www.ers.usda.gov/webdocs/outlooks/100526/oce-2021-1.pdf?v=3513.2.
This article briefly summarizes selected selections of the 102-page report, including U.S. crop prices, milk production, U.S. farm income, and government payments. Figures from the report are included to accompany the text.
U.S. Crop Prices
Rising global demand for diversified diets and protein will continue to stimulate import demand for grains. Increased demand for these crops is accompanied by rising competition for market share from countries such as Brazil, Argentina, the EU, and the Black Sea region. The United States also faces challenges related to ongoing tensions with trade partners and a relatively strong U.S. dollar. Although strong trade competition continues, U.S. commodities remain generally competitive in global agricultural markets, with U.S. corn and soybean exports projected at record highs by 2030/31. Nominal prices for wheat, cotton, and rice are expected to rise modestly between 2021/22 and 2030/31.