Federal and State Bills Give Tax Credits to Investors in Farmer-Owned Co-ops

Tax credits would be a huge boon to the formation of farmer-owned
co-ops, which depend on investments from commodity farmers who have been
devastated by the depressed prices of the last few years. In an attempt to give
farmers a helping hand, Rep. John Thune has introduced the Farmers'
Value-Added Agricultural Investment Tax Credit Act (H.R. 1094), which
would allow producers to receive a 50 percent tax credit on investments in
producer-owned, value-added enterprises. The tax credit could be for up
to $30,000 per year, and applied for over 20 years. The bill wouldn't
eliminate the risk involved with starting a value-added co-op (and
indeed it shouldn't), but it gives meaningful financial assistance to farmers
wishing to participate in these businesses. It would enable
participating members to recover more quickly their initial capital investment, which
will in turn, hopefully, make the co-ops more profitable. It's currently
pending before the House Ways & Means Committee.

The Value-Added Development Act for American Agriculture (H.R. 1093),
also introduced by Thune, is a companion bill to the value-added investment
tax bill. It would provide $50 million in grants over three years to create
Agriculture Innovation Centers, which would provide technical assistance
and market and business development services for new value-added
ventures. These services are vital to farmers, who only have so much time to
devote to launching co-ops when they are working their farms, and who have
limited expertise in the extreme complexity of rules and programs that are
available in each state. The bill has been referred to the House Agriculture Committee.

A number of states have already taken the lead in helping to build a
thriving value-added farmer-owned co-op sector. In 1999 Missouri
approved a New Generation Cooperative Incentive Tax Credit Program, which gives a
tax credit of $15,000 (or 50 percent of their investment, whichever is less)
to members who make cash investments in new generation co-ops. The credit
is allocated specifically to co-ops that produce products or renewable
fuels from agricultural commodities. $6 million will be available every year
until 2010. 

Oklahoma offers a 30 percent state income tax credit to farmers who
invest in a new value-added plant. Just this year North Dakota lawmakers
approved a state income tax credit of up to $6,000 annually for people who invest
in agricultural processing cooperatives. In Iowa, the newly passed House
File 716 allows cooperatives to earn a New Jobs and Income Tax Credit of up
to 10% of their investment in the production of ethanol.

Lastly, in May the Colorado legislature passed HB 1086, which created
the Agriculture Value-Added Development Board within the Department of
Agriculture. The Board will make grants, loans and loan guarantees, and
equity investments, and will also offer tax credits to eligible
agricultural value-added cooperatives. The tax credit is available for
members of eligible agriculture value-added cooperatives in an amount
equal to the lesser of 50 percent of the member's investment or $15,000, up to
a maximum amount per project of $1,500,000 (these are the same limits as
the Missouri tax credit). $4 million is available for tax credits on an
annual basis. Ten percent of the tax credits are reserved for projects with
capital costs equal to or less than $1 million. 

For more information:

Full Text of the Farmers' Value-Added Agricultural Investment Tax Credit
Act (H.R. 1094)  http://thomas.loc.gov/cgi-bin/query/z?c107:H.R.1094:

Information on the Missouri and Oklahoma co-op tax credit legislation
from the New Rules Project of the Institute for Local Self-Reliance. 
http://www.newrules.org/agri/taxpol.html

Full Text of Colorado House Bill 1086 
http://www.state.co.us/gov_dir/leg_dir/olls/sl2001/sl.191.htm

Last Revised: August 27, 2001

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