Legal, Tax, & Accounting
Farmer-owned cooperatives are central to America’s abundant, safe and affordable food, fuel and fiber supply. Without the antitrust protections granted by the Capper Volstead Act, many farmer cooperatives would cease to exist and the farmers and communities they serve would suffer irreparable harm.
Tax
The tax treatment of farmer cooperatives is found in Subchapter T of the Internal Revenue Code. Under Subchapter T cooperatives may pass through their earnings to their farmer-members without double taxation. Earnings from business conducted with or for a cooperative’s members are subject to single tax treatment as income of farmer members, provided the cooperative pays or allocates the earnings to its members. Earnings used to support the cooperative’s capital funding or other needs are taxed at regular corporate rates when retained, and taxed a second time when distributed to farmer members. Earnings from sources other than business with or for the cooperative’s members are taxed at regular corporate rates.
Antitrust
Without antitrust protections, price discussions among farmers would violate federal antitrust statutes. The Capper-Volstead Act provides limited antitrust immunity to farmers to join together to collectively process, prepare for market, handle and market their products. To qualify, the cooperative’s voting members must all be producers. The cooperative must choose to either operate under one member/one vote or must limit distributions on dividends to eight percent. The cooperative must conduct more than half of its business with members.
Policy Resolutions
- Oppose any action that would limit the effectiveness and efficiency of farmer cooperatives as such action would harm American agriculture and rural communities, resulting in a less reliable food, fuel, and fiber
- Maintain Capper-Volstead Act protections and coordinate industry response to recent legal challenges regarding the scope and applicability of the
- Maintain Internal Revenue Code Subchapter T tax provisions for farmer
- Promote tax and accounting policies that allow farmer cooperatives and their members to compete in today’s challenging marketplace and to pass on their operations to the next
- Ensure that Section 199A and Section 199A(g), the cooperative-specific provision, are extended beyond the December 31, 2025 expiration date or made a permanent part of the tax code.
Section 199A Deduction
Section 199A puts co-ops and small businesses on an even footing with big corporations which saw a significant decrease in their tax rate in 2017. It was a success and critical in seeing farmer co-ops and their members thrive through a pandemic, global unrest, and the highest inflation in a generation. Congress should stand up for agriculture and extend this important tax provision. Since farmers and their co-ops are not taxed like corporations, letting Section 199A expire will raise taxes on farmer co-ops and their member-owners, putting them at a disadvantage with competitors enjoying a corporate tax rate cut. Co-ops pass 95% of the deduction back to farmers, who reinvest it in their operations. That benefits the economy through job creation, increased spending on agricultural production, and investment in rural communities. Among NCFC members alone, $2 billion was returned to farmers in 2022.
State Fact Sheets
The Section 199A tax deduction impacts farmer cooperatives of all sizes, in every state. Learn more about Section 199A and how it affects cooperative businesses, find data specific to your state, and read first-hand accounts about the tangible benefits the Section 199A deduction has on America’s farmer-owned co-ops.
