How a Simple Tax Bill Error Threatens Precision Ag Adoption in the U.S.
When U.S. Congress reformed the tax code in late 2017, it naturally had broad implications on businesses and non-profits nationwide. Unfortunately, one of the unforeseen impacts of the tax reform has hampered rural electric co-ops’ (REC’s) ability to develop rural broadband infrastructure – and, by extension, precision agriculture adoption.
Organizations like electric co-operatives are considered tax-exempt organizations if 85% or more of their income comes from member payments. Before the tax bill, grants and other payments from the government were not considered to be different from income from members and could be applied for and taken without affecting the REC’s tax-exempt status.
Part of the bill changed the language on what are called “contribution(s) to the capital of the taxpayer” (from Congress, p.80). Unintentionally, this change made payments from programs like disaster relief or broadband access distinct from income from members, and therefore, could make these cooperatives tax-liable if they received more than 15% of their income in a year from non-members.
Obviously, this is a problem for RECs looking to take advantage of programs designed to boost broadband-speed internet access in underserved areas; either take advantage of the nearly $600 million set aside for rural broadband infrastructure, and endanger the organizations’ tax exemption – or wait for a fix to come from Washington. Or: do nothing at all and hold off developing key infrastructure in areas that need greater internet access the most.
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From a precision griculture perspective, the need for greater rural broadband access is paramount: without access to broadband-speed internet, many precision solutions simply cannot be deployed. Oversights like this have unquestionably impacted RECs’ decision making on taking grants like those offered for rural broadband access, and so it stands to reason that delays towards amending the law would have a impact on the precision agricultural industry as well.
Recently, improving broadband access to rural areas has become a priority on both sides of the aisle – beyond the provisions in the 2018 Farm Bill, measures like the AIRWAVES Act, and the Precision Agricultural Connectivity Act, we’ve seen the issue of broadband access become a campaign item for Democrats looking to court rural voters on the issue, too.
As for the changes to Section 118 of the Internal Revenue Code, which restricted the tax-exempt status of the nation’s RECs, there is thankfully good news: several lawmakers are looking at changes to restore the definition of “income” for the cooperatives. The ‘Revitalizing Underdeveloped Rural Areas and Lands (RURAL) Act’ is in committee in the Senate, and the House companion bill has also been proposed. These acts would carve out specific language for electric cooperatives to be exempted from the laws put in place in 2017 and would appear to offer a tidy solution to the tax problem for RECs.
While this mistake in the TCJA has had a negative impact on rural broadband access, and therefore on precision agriculture, it appears that there isn’t much opposition in Washington to restoring the tax status rural electric cooperatives have depended on to offer their services. With any luck, lawmakers will act quickly to prevent further delays in the deployment of this critical service for rural America and the precision agriculture industry.