Property Taxes Can Still Be Expensed . . .

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Last week the House Ways and Means Committee released its long-awaited federal tax reform proposal.  The proposal would change how farmers and ranchers are taxed both as individuals and as businesses.  Many farmers and ranchers are wondering if property taxes paid on land, buildings, and equipment could still be expensed as business expense under the proposal.  Yes-the ability to deduct property taxes as a business expense by farmers and ranchers on Schedule F would continue.  The changes made to the state and local taxes deduction only applies to itemized deductions claimed on Schedule A filed by individuals.  The deduction for state income or sales taxes would no longer be allowed, but property taxes of up to $10,000 on the principal residence could be deducted.  The limit would, however, apply to any property taxes deducted on a farm or ranch residence claimed on Schedule A.  The average tax rate paid on residential property in Nebraska was roughly 2.0 percent in 2016.  At that rate, the limit on property tax deductions would affect Nebraskans with homes valued at more than $500,000.

Wheat Field2One of the bigger changes proposed under the plan affects “pass-through” entities like sole proprietorships, partnerships or S-corporations.  Today, income from pass-through entities is reported on individual returns and taxed at individual rates.  Under the proposal, such business entities could claim 30 percent of the pass-through income as a “return to investment” and be taxed at a maximum rate of 25 percent. The remaining 70 percent would be taxed at individual rates like today.  It is unclear whether the 25 percent tax rate is a flat-rate, or if rates would phase-up until reaching that level.  This provision could potentially reduce taxes on farm business income depending on where individuals fall in terms of brackets and rates.  It has been suggested that nearly one-half of the farm and ranch operations in Nebraska could experience tax reductions with this provision.

A couple other provisions in the proposal are worth noting.  First, the plan would allow businesses with less than $25 million in gross receipts to use cash accounting for tax purposes and deduct interest as a business expense.  According to USDA data, only 0.40 percent of farms have gross receipts which exceed $25 million, so a large majority of farm and ranch operations would continue to be able to use cash accounting and deduct interest expenses.  Second, the plan would double the exemption for estate taxes and eventually repeal the tax in 2024.  At the same time, the plan would maintain the stepped-up basis for heirs.

The Ways and Means Committee is expected to mark up the bill yet this week and the full House will consider it shortly thereafter.  The U.S. Senate will have its turn at the wheel as well.  Stay tuned as Congress hopes to have a package passed by the end of the year.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Forecast State Receipts Adjusted Downward . . .

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The Nebraska Economic Forecasting Board (NEFAB) on Oct. 27 adjusted its state revenue forecasts downward resulting in a budget shortfall of roughly $195 million for the current budget biennium.  NEFAB revenue forecasts are used by state senators to set the state spending.  Senators adopted a biennial budget earlier this year, but because they are required by the constitution to balance the budget, the decrease in forecast revenue means budget adjustments will be necessary during the 2018 legislative session in order to balance.

NEFAB revenue forecasts declined $100 million for the current fiscal year and $123 million for fiscal year 2018-19.  NEFAB projects revenues to grow, but at a slower rate than it forecast in April when it last met.  In April, it projected revenues to grow 5.6 percent in FY2017-18, and 5.4 percent in FY2018-19.  Most of the slowdown in revenues is due to lower individual income tax revenues.  Actual revenue growth averaged 0.3 percent over the last two fiscal years.  Historically, state tax revenues have grown at an average rate of 4.7 percent.  The chart below shows the state’s percentage revenue growth since 1982.  Note, the chart still reflects the NEFAB forecasts made in April.
tax receipts and budget

The state’s revenue growth is generally thought to be a good reflection of economic activity in the state.  The Legislative Fiscal Office said in its August budget report, “Beside inflation, this revenue growth over time reflects the ebb and flow of economic activity and economic cycles.  It reflects new businesses created and existing businesses that close.  It reflects new products and services added to the tax base and existing products and services that are eliminate or expire.  The key is the net impact.  The new or expanded businesses, products or services more than offsets those that decline or disappear.”  In looking at the chart, it’s easy to spot the economic downturns which have occurred in the past, 1986, 2002-03, and 2009-10.  The most recent decline in revenue growth, though, is different in that it has occurred while the state’s overall economy continues to grow.

So how does the latest NEFAB forecasts reflect on the Nebraska economy?  First, it’s probably reflective of the ongoing struggles in agriculture, which accounts for over one-fourth of the state’s gross domestic product.  While there are signs farm income may have hit a bottom, nobody is forecasting robust growth in near future for agriculture.  Second, it’s probably a reflection that the Nebraska’s economy is like the overall U.S. economy.  Economic growth is expected to continue, but at sluggish pace.  Thus, the projections of revenue growth greater than 5 percent like those made by NEFAB in April just isn’t in the cards.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

SALT & Taxes . . .

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The Chairman of the House Ways and Means Committee, the tax writing committee of the House of Representatives, announced a draft of the federal tax reform bill will be released November 1.   Leaders in both the House and Senate have expressed hope a tax package could be passed by Thanksgiving.  One taxing concern on the minds of many farmers and ranchers is the fate of the deduction for state and local taxes (SALT).  The concern is especially acute in Nebraska given the large amount of property taxes paid by agriculture, roughly $1.3 billion in 2016.

Captiol at night

Under the unified framework for tax reform, the Trump Administration and Republican Congressional leaders said they want to simplify the federal tax code by repealing all itemized deductions, except deductions for home mortgage interest and charitable contributions.  Itemized deductions are claimed by individuals on Schedule A filed with Form 1040.  Most farmers and ranchers file taxes as individuals-the 2012 USDA Census of Agriculture showed 85 percent of Nebraska farms filed taxes as either an individual or family.  Additionally, only 28 percent of farmers and ranchers itemize deductions.  It is these operations who itemize deductions the loss of the ability to deduct state and local taxes could affect.  The average annual deduction for state and local taxes reported by farm sole proprietors on Schedule A for 2009-2015 (excluding 2013) was $128.4 million.  Presumably, the deduction is for state income taxes, property taxes on farm residences, and taxes on personal vehicles.  For these operations, the loss of the deduction could increase federal income taxes an estimated $18 million per year if not offset by other changes.

Corn harvest in Illinois - SeptemberFarmers and ranchers also deduct state and local taxes paid as a business expense for their operations, be it as sole proprietors, partnerships, or corporations.  It is here where most of the property taxes paid by agriculture on land and machinery are likely reported and losing the ability to expense state and local taxes would result in a significant increase in federal taxes.  Fortunately, according to the lobbyist for American Farm Bureau, the ability to expense state and local taxes as a business expense will continue.  Congressional leaders have indicated the repeal of the state and local taxes deduction would only apply on individual returns, and not affect the expensing of taxes by businesses.  But stay tuned, the reform discussions are now beginning in earnest, and no one can predict what might happen.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Northeast Nebraska Counties Lead the State . . .

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As was the case in 2016, counties in northeast Nebraska had the highest average cash rental rates for agricultural ground in 2017.  Dixon County had the top average rental rate for irrigated ground in 2017 at $312/acre, surpassing Cedar County by $1/acre.  Last year Cedar County topped all Nebraska counties with a cash rent of $324/acre on irrigated land.   Knox, Wayne, Cuming and Platte Counties all had irrigated cash rents above $280 per acre in 2017.  Counties in Northeast Nebraska also led the state in cash rents on non-irrigated land in 2017.  Dakota County led the way at $266/acre, $5/acre less than last year, followed by Cuming, Thurston, Cedar and Wayne Counties.  Pierce and Cuming Counties had the highest 2017 rents for pasture ground at $73/acre.

The maps in the slideshow below, provided in a recent CropWatch released by the UNL Institute of Agriculture and Natural Resources, provides average cash rental rates for irrigated cropland, non-irrigated cropland, and pasture ground across the state. The data comes from surveys of Nebraska farmers and ranchers by the USDA-NASS.

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Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Property Tax Credit Averages $2.28 per Acre . . .

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The property tax credit for 2017 under the Property Tax Credit Act will reduce taxes on agricultural land an average $2.28 per acre.  To put the figure into context, property taxes levied on agricultural land for 2016 averaged $26.07 per acre.  The total amount of tax credit provided to agricultural land owners for 2017 will equal almost $105 million, or 8.7 percent of the total taxes paid in 2016.  In other words, without the credit, property taxes paid on agricultural on agricultural land for 2017 would be 8.7 percent higher.
The total credit amount for all real property owners will equal $224 million, an increase of $20 million over the previous year as provided in LB 958 passed in 2016.  LB 958 also provided that additional weight be given to agricultural land in distributing the credit monies.  In absolute dollar terms, Custer County agricultural property owners will receive the most credit at just over $2.95 million, followed by Holt County and Platte County property owners.  In percentage terms, the credit provided to Keya Paha County agricultural property owners will equal 14.6 percent of 2016 taxes paid, 13.6 percent for Loup County owners, and 13.2 percent for Wheeler County owners.   The map below plots the credit as a percentage of 2016 taxes paid on agricultural land in each county.  The more yellow or red the county spot, the greater the percentage.  For exact figures for each county, click here.
 

Prop Tax Credit 9-26-17

Source: Nebraska Department of Revenue

 

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

The Joys of September

Corn harvest in Illinois - SeptemberWhen it comes to Nebraska I love it when we get to September. From the cooler, crisper weather, to the shorter days and longer nights, to the promise of crops almost ready for harvest, September is a favorite time for me. September is also well known as the end of summer and the beginning of fall and while there are many other times of the year I enjoy, there is just something about September that grabs me every year.

Besides the reasons above, maybe it is because I can see the end of the year coming and I know that after all the hard work of the spring and summer our time is short until Mother Nature sends us another blast of Nebraska winter. September can be so much better than the heat of summer or the cold of winter, and in the Green Industry the return of September also brings with it being able to stop fighting the heat and being able to enjoy our work outside. Moreover, while fall isn’t truly with us until we reach Friday September 22nd, there is so much we can do in our yards, gardens, and landscapes in September and on into the fall.

img_8349To me, and many of my fellow green industry professionals, fall is a great time for planting in our landscapes. While there are many who think the best time to plant in the landscape is in spring I actually prefer to install new plants in the late summer to early fall. The moderation of Mother Nature’s extremes offers us a wonderful time to plant, harvest, maintain and encourage our gardens and landscapes to even better levels. Mother Nature usually offers a bit of rain and nice lingering warmth to give our new plants a perfect chance to settle into place before winter blows into town. I also know how busy my schedule gets each spring. By planting in the fall, as soon as Mother Nature decides to warm up next spring my fall installed plants can “wake up” and begin growing before I even have time to think about planting.

And when talking about fall planting I always think we should mention a few plants that offer gorgeous fall color so our landscapes have interest all growing season long versus just spring and summer. For perennials consider the Sedums, Hardy Hibiscus, Goldenrod, and ornamental grasses. If you are looking for something more sizable consider varieties of Burning Bush, Althea (Rose of Sharon), Ninebark, Sumac, & Viburnum. And when it comes to trees I find the bright reds and oranges a wonderful choice versus the yellows of our many native tree varieties so consider Maple and Oak varieties.

Fall is also a wonderful time to experience beautiful color through the planting of fall blooming Mums and Asters. Whether you are changing out your summer annual beds or a few pots on the patio, to pockets of them mixed into your landscape beds, Mums and Asters are some of the most colorful plants in the landscape each fall. They are also able to withstand some cooler weather prolonging your enjoyment usually well through October or longer depending on Mother Nature. In most cases wait to transition your annual areas to Mums and Asters to when we start getting a bit cooler toward the middle to end of September. And don’t forget that with cooler weather you could plant another crop of pansies or other frost tolerant annuals.

TulipsAnd before we move on no discussion of fall planting would be complete without talking about spring flowering bulbs. Many feel spring is really here when we see the spring flowering bulbs poke their bright colorful blooms out of the ground at the start of spring. But to enjoy your own spring bulbs you need to install them this fall. Try to mix your colors and bulbs here and there through your landscape in areas that will receive southern or western sun for best results. Spring flowering bulb planting is almost fool proof and gives such a colorful return on a simple investment of your time.

Finally, as you read this we are nearing the end of the best time to do turf grass seeding. We generally recommend mid August to mid September as the best time to seed but typically you should be fine as long as you seed before the end of September. Remember to properly prepare the areas, sow good quality seed, and utilize a covering material like peat moss, compost, or straw to keep the new seed moist through germination. Then once your young grass has germinated let it get a bit shaggy before mowing and try to get at least three or four mowings on the new grass before winter hits to help harden it off.

September and the return of the fall can be such an amazing time to enjoy in Nebraska. Whether it is enjoying the change in the weather, accomplishing some tasks around your landscape, or maybe being a spectator at a Husker game, September can be such a great time in Nebraska. It certainly is one of my favorites.

 

Andy Campbell is manager of Campbell’s Nurseries Landscape Department. A Lancaster County Farm Bureau Member, Campbell’s, a family owned Nebraska business since 1912, offers assistance for all your landscaping and gardening needs at either of their two Lincoln garden centers or through their landscape design office. www.campbellsnursery.com.

It’s Official-Nebraska Farm Income Dropped for 2016 . . .

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The USDA Economic Research Service on August 30 released its official estimate of Nebraska net farm income for 2016.  The official estimate, $3.78 billion, is nearly $1 billion less than net farm income earned for 2015, and off almost 50 percent from net farm income reported for 2011.

farm income

In fact, 2016 net farm income is just slightly higher than the amount earned for 2010.  A decline in livestock receipts, about $2.1 billion, was the primary reason for the drop in net farm income.  Cash crop receipts were off slightly, but almost equal to that received in 2015.  Farm expenses were down also which helped compensate for the loss of revenue.

The cost of livestock purchases was down $1.7 billion, due to lower cattle prices, and fertilizer and insurance costs were also lower.  It was the third consecutive year net farm income declined in Nebraska, and unfortunately the most recent University of Nebraska estimate suggests 2017 net farm income will be down for a fourth consecutive year.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.