Here are the most important tax credits to consider for your farm or ag-related business
As Congress continues to debate federal tax reform legislation, New York State farmers and ag-related producers should be aware of state tax credits in 2017. These credits, designed for New York’s agricultural industry, can help producers further manage their tax impacts this year.
Here is a rundown of the most important tax credits to consider for your farm or ag-related business. Please note that the following descriptions are brief overviews of the various credits available. Additional requirements may need to be met in order to apply for the credits.
Alcoholic Beverage Production Credit
This credit is available to beer, cider, wine or liquor producers who meet certain eligibility requirements. The credit increases for large producers (in excess of 500,000 gallons a year).
Producers must meet all of the following requirements:
- Subject to tax under Article 9-A (Corporation/S Corporation) or Article 22 (individual, partnership, trust or estate),
- Registered as a distributor under Article 18 (Taxes on Alcoholic Beverages), and
- Produce 60 million gallons or less of beer or cider, 20 million gallons or less of wine or 800,000 gallons or less of liquor in New York State during the tax year.
- 14 cents (.14) per gallon for the first 500,000 gallons produced, plus
- 4.5 cents (.045) per gallon for each gallon produced in excess of 500,000 (up to 15 million additional gallons for beer, cider or wine and up to 300,000 additional gallons for liquor).
Farm Workforce Retention Credit
If you make more than $30,000 a year from all sources of income, and your federal gross income from farming is at least two-thirds of your excess federal gross income beyond $30,000, you may qualify for this credit. This credit applies toward operations with eligible farm employees (individuals employed for 500 hours or more per tax year, excluding executive officers).
The farm workforce retention credit is equal to a fixed dollar amount per eligible farm employee. For tax years beginning January 1, 2017, the credit amount per farm employee is $250. This amount increases to $300 in 2018, $500 in 2019,$400 in 2020 and $600 for 2021.
Under the definition of this tax credit, farming includes, but is not limited to, the raising or production of the following commodities:
- Field crops, including corn, wheat, oats, rye, barley, hay, potatoes and dry beans;
- Fruits, including apples, peaches, grapes, cherries and berries;
- Vegetables, whether raised conventionally or hydroponically, including tomatoes, snap beans, cabbage, carrots, beets and onions;
- Horticultural specialties, including nursery stock, ornamental shrubs and ornamental trees, and flowers;
- Livestock and livestock products, including cattle, sheep, hogs, goats, horses, poultry, farmed deer, farmed buffalo, ostrich, emus, fur-bearing animals, milk and eggs;
- Aquaculture products, including fish, fish products, water plants, and shellfish; and
- Honey and beeswax produced from the farmer’s own bees.
To be eligible for the credit, the farm employer must retain documentation of the hours worked for all eligible farm employees and make it available upon request.
Farmer’s School Tax Credit
An individual, or an estate or trust, engaged in the business of farming may be entitled to an income tax credit for the amount of eligible school district property taxes paid on qualified agricultural property in a given tax year. A person is also engaged in the business of farming if the person is a shareholder of a New York C Corporation, S Corporation or a partner in a Partnership or LLC.
Qualified agricultural property includes land and land improvements located in New York State that are used in agricultural production. It also includes structures and buildings that are located on the land and used or occupied to carry out agricultural production.
The definition of farming is the same as listed for the Farm Workforce Retention Credit, but is expanded to include the following:
- Sale of wine from a licensed farm winery, as provided in Alcoholic Beverage Control Law Article 6;
- Commercial boarding and training of horses as defined in Agriculture and Markets Law Section 301(13);
- Managed Christmas tree operation whether dug for transplanting or cut from the stump; and
- Sale of cider from a licensed farm cidery, as provided in Alcoholic Beverage Control Law Section 58-C.
Investment Tax Credit
Have you recently acquired, built or remodeled real property for the purposes of supporting your farming or ag-related business? You may be eligible for an Investment Tax Credit against the tax imposed by Article 9-A for the tax year you placed the qualified property in service.
The investment credit base is the cost (or other basis when placed in service in New York State for federal income tax purposes) of qualified tangible property. This is defined as buildings and structural components of buildings, less the amount of nonqualified, nonrecourse financing with respect to such property. Nonqualified, nonrecourse financing is any amount for which you are protected against loss and, generally, any amount borrowed from a person who has an interest in the activity in which the property is used.
Qualified property is tangible property, including buildings and structural components of buildings, that:
- Were acquired, constructed, reconstructed or erected by the taxpayer after 12/31/1968;
- Are depreciable under IRC section 167 or 168;
- Have a useful life of four years or more;
- Were acquired by the taxpayer by purchase under IRC section 179(d);
- Are located in New York State; and
- Are principally used by the taxpayer in producing goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing;
- Are an industrial waste treatment facility or air pollution control facility;
- Are research and development property;
- Are principally used as qualified film production facilities.
Manufacturer’s Real Property Tax Credit
Manufacturers may receive a real property tax credit if they are subject to Article 9-A or 22 of the state tax law in New York State and pay eligible real property taxes on property in New York that is:
- Owned or leased by the manufacturer, and
- Principally used during the tax year for manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing.
Eligible real property taxes must be paid by the taxpayer in the year the taxes become a lien on the real property and must be for real property as defined above.
If the qualified NY manufacturer leases the property from a related party, the taxes must be paid by the taxpayer as lessee pursuant to a written lease, and the taxpayer must pay the taxes directly to the taxing authority.
The amount of the credit is 20 percent of the eligible real property taxes paid by the taxpayer during the tax year.
Partnerships, S Corporations, estates, and trusts determine eligibility as a qualified NY manufacturer at the entity level for eligible real property taxes paid by the flow-through entity, and pass the distributive share of the credit through to the partners, shareholders or beneficiaries.
A manufacturer is a taxpayer that is principally engaged (more than 50 percent of the gross receipts) in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing during the tax year.
A taxpayer that contracts out its production activities to another entity cannot consider those activities in determining eligibility as a manufacturer.
For additional guidance on tax credits or tax planning for your farm or ag-related property, consult your CPA or contact Markowitz, Fenelon & Bank LLP’s (MFB) agricultural team on Long Island, www.mfbcpa.com.
Lynn A. Eckhardt holds the designations of Certified Public Accountant (CPA) and Accredited in Business Valuations (ABV). She has been working with various farmers since joining MFB in 1999. In addition to assisting business and individuals with their tax return needs, Lynn also has experience with the preparation of fiduciary and gift tax returns. When MFB decided to develop the business valuation part of the practice in the early 2000s, Lynn pursued the ABV credential which has helped round out the estate and gift tax department at MFB.