San Joaquin Farm Bureau Federation


By Craig W. Anderson

Two bills introduced in Congress intended to repeal the onerous estate tax would benefit farm and ranch families by helping them pass the family business to the next generation without having to sell it for taxes.

In a January letter to the House and Senate, AFBF President Zippy Duvall said the organization supports the bipartisan legislation, H.R. 631, the Death Tax Repeal Act of 2017 introduced by Reps. Kristi Noem [R-SD] and Sanford Bishop [D-Ga.] and S. 205 by Sen. John Thune [R-S.D.]

Duvall noted that the bills, if passed into law, would "help protect the family farms that grow American's food and fiber, often for rates of return that are already minuscule compared to almost any other investment they could make."

Tax in conflict with government

The irony of the estate tax is that it is in direct conflict with the stated desire of governments federal, state and local to preserve and protect the nation's family-owned farms and ranches. Individuals, family partnerships and family corporations own more than 97 percent of the nation's 2 million farms and ranches.

Family fought feds

"Farm Bureau has been trying for a long time to repeal this tax," said Bruce Fry, of Mohr-Fry Ranches, Lodi and past SJFB president. "My family's been through the estate tax hassle. We had to sell a major portion of our ranch to pay the taxes and it seems the timing is right and the votes and support from the current administration may be there to finally pass this tax reform and end the double taxation of the estate tax."

Fry has traveled to Washington, D.C., to testify before the Ways and Means about his family's story and how the estate tax can drive families out of farming.

Others say "Repeal it!"

Driving home the point of how important this legislation is, the AFBF and more than 55 other organizations that are part of the Family Business Estate Tax Coalition sent letters to Sen. Thune and Reps. Noem and Bishop thanking them for the legislation and their support for eliminating the estate tax, more commonly known as the "Death Tax."

"The death tax has to go," said SJFB President Andrew Watkins. "It's an injustice and tremendously unfair for the ag industry even with the exemptions, as ag tends to be cash poor and capital-rich."

Protect, not harm

Farm Bureau believes tax laws should protect, not harm, family farms and tax policies that don't punish capital-intensive businesses and especially do not prevent family members from following the agricultural legacy supported by family farms.

Current law

Current estate tax law gives an exemption of $5.54 million per person with the top rate set at 40 percent and indexed for inflation. Unfortunately for farmers and ranchers, 90 percent of farm and ranch assets are not liquid and when the taxes on an agricultural business exceed cash and other liquid assets, surviving family partners can be forced to sell land, buildings or equipment to pay the tax and, hopefully, keep the business afloat. Far too often the farm has to be sold to pay its accrued death tax. 

Crippling or eliminating a farm or ranch also harms the rural communities and businesses supported by ag. Recent increases in agriculture cropland values averaging 7.6 percent have greatly expanded the number of farms and ranches nearing the limit of the estate tax exemption.

Unfair double taxation

"Farms are capital intense, multi-generational and usually without the liquidity needed to pay off these taxes," Watkins said. "Nationwide has helped with an estate planning program, but it would be best to eliminate the potential need to sell the farm to pay the taxes. It's blatantly unfair to pay taxes all your life and then demand your family pay more taxes after you've died."

"Simply put, it's double taxation," said Fry. "And don't forget the thousands of dollars that are spent on lawyers and accountants to figure out the estate tax owed. This tax can easily ruin the opportunity farmers and business owners' have to continue with their family businesses. It ruins their livelihood."

Special Use Valuation not the answer

A Special Use Valuation allows farmers, ranchers and other business owners the ability to reduce their estate taxes by allowing a limited amount of business property to be valued for its actual use rather than for its highest value use. This allows farmland to be value at its farm value rather than what it would be worth if sold for development.

However, many farmers and ranchers are leery of using this valuation because of its complexity and the potential of being hit with significant penalties when its terms of use are violated.

The Special Use Valuation also has a restriction that the money gleaned from it must be paid back within 10 years if the property's use is changed or it is sold outside the family. Other questionable restrictions contribute to the reluctance felt by many regarding using this valuation program.

Land value soars

Fry pointed out that the $5 million exemption doesn't go very far in high land value areas such as, for example, the Napa Valley where property values approach $500,000 per acre.

Why don't politicians act?

Fry added, "I don't understand the mindset of the House and Senate for not repealing this punishing tax before now. Farm Bureau must educate our lawmakers at the federal and state levels so they'll fully understand why this blatantly unfair tax needs to be eliminated."