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Section 199A(g) Deduction

Issue Briefs

NCFC Position: 

NCFC urges Congress and the administration to account for the unique tax status of farmer cooperatives when developing and implementing tax reform proposals.  

Current Status:

In 2017, Congress realized that eliminating the Domestic Production Activities Deduction (DPAD) (Section 199) without a replacement would have resulted in a significant tax increase for farmers across the country, especially because co-ops and farmers would not benefit from a corporate tax rate reduction. While NCFC and its members would have preferred retaining DPAD for agriculture, a new Section 199A(g) provides a similar deduction.  

Section 199A(g) expires at the end of 2025 (along with the rest of Section 199A). NCFC supports extending it or providing any other similar provision as it is very beneficial to both cooperatives and their farmer-members. 

Bills to make the broader Section 199A permanent have been introduced in both the House and the Senate.  

Background:

For almost 20 years, farmer co-ops and their members have benefitted from a deduction on domestic production income that promotes farmers, jobs, and rural communities. The deduction originated to help U.S. farmers compete against heavily subsidized foreign producers. 

The American Jobs Creation Act of 2004 created the Section 199 deduction (DPAD) to serve as a job creation measure. The deduction applied to proceeds from agricultural or horticultural products that are manufactured, produced, grown, or extracted by cooperatives, or that are marketed through cooperatives, including dairy, grains, fruits, nuts, soybeans, sugar beets, oil and gas refining, and livestock.   

Cooperatives could keep the deduction at the cooperative level, or pass it through to their farmer members, making it extremely beneficial to both. Section 199 benefits were returned to the economy through job creation, increased spending on agricultural production and increased spending in rural communities. 

DPAD was repealed in 2017 and a new Section 199A(g) came into effect through the Bipartisan Budget Act of 2018. Section 199A(g) was written to function like Section 199. 

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