Important information: CARES package for farmers passed last week

Paul

Niekerk: And it all comes down to this. 2 on, 2 out, bottom of the 9th. The Farmers lead by 1. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and today we want to have a conversation around the COVID-19 relief package that's out. There's been a ton of questions on that, and we've got Paul Niefer Paul, go ahead and introduce yourself, and we'll kind of get some conversation going here.

Paul

Niekerk: Yeah, I'm Paul Niekerk. I'm principal of CliftonLarsonAllen based in Washington State. A lot of people probably know me from the column I do for Top Producer magazine called FarmCPA or our blog farmcpatoday.com. So I think a lot of people already know who I am.

Chris

Barron: Yeah, and you, you get all over the country all the time and do more speaking events than about anybody I know.

Paul

Niekerk: So, so although right now I'm not— I'm, I'm stuck in my little home office in Dayton, Washington for the last couple weeks.

Chris

Barron: So yeah, this is a, this is a crazy, uh, time, crazy season for all of us for sure. Um, you know, I was telling you offline, Paul, we've been getting kind of a fair amount of questions just on you know, with this most recent quote-unquote Phase 3 or whatever assistance package that's coming from the government. And really a lot of questions just around agriculture specific because, you know, there's, there's talk, you know, and you listen to the media, nobody really talks very much about the, you know, what implications are there here, what opportunities are there here that we can get a little relief on the farm side of things. So I kind of want to start out with the options, you know, there's a couple of things in there for the small business component. I want to have you talk a little bit about how that relates to agriculture and the farm operations.

And, and so there's, you know, I know there's two options. You can have the payroll tax credit side of things, that's option one, that you can possibly get some relief. Have you explain that side of it. But then there's also the SBA loan which is another option. And so why don't you start out and kind of, you know, if you want to talk about both of them together or kind of explain one of them and then the other one as to how that might tie into some of our farm operations that do have payroll.

Paul

Niekerk: Yeah, I think what we'll do, let's go through the payroll tax credit yet. There's a refundable, which we like that word, We like the word refundable because that means even if you don't owe that amount of tax, you get a payment from Uncle Sam for the difference. So essentially, there's a payroll refundable payroll tax credit equal to 50% of wages paid during this crisis. And when they're talking about 50%, they're really talking about the employer's share of FICA is really what they're talking about. So for every quarter where there's some type of COVID-19 shutdown order, So if there's— for even one day, so right now in the first quarter, we certainly have a shutdown order. I think Iowa's got a shutdown order. We have a shutdown order. So you'd automatically qualify. If it goes into April 1, that quarter is also going to qualify.

So you have two quarters of refundable payments based on the amount of payments you pay to your employees. Now there's a limit of $10,000 per quarter. Quarter per employee, and that includes health benefits that you pay for the eligible employees. So let's say that you paid, you know, $20,000 of wages between quarter 1 and quarter 2. That's going to be a refundable credit against your payroll taxes. Let's say your payroll taxes are $18,000. That means the extra $2,000 is refundable to you. So that's a pretty good deal. Plus there's also a deferment, a delay of paying those payroll taxes. You only have to— for all of 2021, or excuse me, all of 2020, half of the payroll taxes are owed on December 31st, 2021, and the other half is owed on December 31st, 2022. Now that's the payroll tax credit, but if you elect to do the SBA loan, you're not allowed to do the payroll tax credit.

So you have to take a look at and determine which is the better. So now let's jump over to the SBA loan. That one's a little quirky for Ag because in order to qualify for it, you have to self-certify to the bank that you're directly affected by, you know, the COVID-19 crisis, so to speak. And right now in most states almost across the country, ag is considered to be an essential service. So like, out in our area, everybody's doing spring work right now. You know, nobody in ag is really shut down right now. So can you self-certify? Plus, the loan that you're eligible for is based on your average payroll for 1 month. So let's say you're a row crop farmer, you pay payroll of $100,000 during the year, you divide that by 12, and That's about $8,000, then you multiply it by 2.5 times, so your loan amount that you would qualify for is roughly $20,000.

Is it worth the hassle of going to your bank for a $20,000 loan, whereas you could get the payroll tax credit, and that's sort of an automatic one, and I have a feeling you're probably going to end up getting more money back— see, it's a refundable tax credit— than you would on the SBA loan. Now for our farmers out there that they are dairy farmers and specialty crops like fruits, nuts, and so on that have a much higher payroll and are paying out quite a bit of payroll right now, likely in that case perhaps the SBA loan is going to make more sense. But I think the key right now, you've got to talk to your banker about the SBA loan. You have to talk to your tax professional about the Payroll Tax Credit, then you're going to have to compare the two and make your decision what's going to be the easiest.

Remember, anytime you're dealing with getting a bank loan, although they're waiving a lot of the requirements, that anytime you're dealing with getting a bank loan, they require a lot of documentation, whereas the Payroll Tax Credit is simply your tax professional— likely that's the person that helps you with payroll— just preparing that form. So those are— that's That's sort of the 30,000-foot view on the payroll tax credit versus the SBA loan.

Chris

Barron: Okay, roll back to the payroll tax credit for a minute. Question there, so let's say that you're a producer who has employees that maybe you have some payroll, maybe have some payment in kind or whatever. Crop share, or maybe you have some contract labor. How does the contract labor portion of that fit in? I mean, can you— is there a way to show that as labor? Because that's really a labor payment, it just doesn't go through payroll. So is that—

Paul

Niekerk: does that qualify? That likely is not going to qualify, although there is some provisions, and a lot of this Like, I typically use the term, we have a law, now we need the rules. Right now we have the law and we have no rules.

Chris

Barron: Right.

Paul

Niekerk: So all this is going to be determined later on, fairly soon. I think the IRS will come out with some rulings here in the next couple of weeks. They're going to need to. Under current law, contract labor would not count. Payment in kind wages likely would count. That, you know, the IRS may come out and say that that doesn't qualify because it doesn't incur payroll taxes. So I'm not going to guarantee that payment in kind wages are going to qualify for any payroll tax relief because they don't generate payroll taxes. So that's something that if farmers purely do payment in kind, they're going to need to wait for the rules from the IRS to determine whether that qualifies or not.

Chris

Barron: Okay, let me ask you, what for the typical producer that's listening to this then, what's the process on the payroll tax credit option look like if they call their tax person and say, okay, I want to try to implement this in our operation, what's the process look like?

Paul

Niekerk: Likely what's going to happen is that when you do your wage calculation and your payroll taxes come— let's say your payroll tax for FICA and Medicare shows that you owe $10,000. You're likely not going to pay any of that, and then when you file your 943 at the end of the year, because that's the other issue. Most other taxpayers file 941s quarterly. They're going to get relief much quicker than a farmer does because a farmer files a 943 at the end of the year. Now there may be some type of process where the IRS allows you to get a quicker tax refund. That could happen where it's an advance type payment against your 943. That, that might happen.

So what's going to happen is when you pay your payroll taxes, let's say your normal amount you're supposed to pay in is $10,000 for those type of taxes, you might pay in zero now because, hey, this has all been deferred, and B, there may be some type of relief where you actually get money from Uncle Sam sooner. Again, Chris, we need to have the rules. We don't know it for sure yet. Yeah, and, but taxpayers right now should not be paying any, um, they shouldn't be. Now we got to be a little careful because you're still We're only talking the employer share of FICA and Social Security tax. All the other— the employee share, they still need to pay that in. The withholding taxes, they need to pay that in. Again, we need to have the rules here before we go too far down the road.

Chris

Barron: How long before we have the rules because we're going to have payroll due here for the majority of the farm operations? Again here in the middle of the week. And so when you look at, you know, Tuesday or Wednesday, you know, the 1st of April, let's say for example, is payroll.

Paul

Niekerk: What do you—

Chris

Barron: do you not apply anything in this month, or do you?

Paul

Niekerk: I, yeah, I think the IRS is going to shoot out some quick quick guidance next week, I would guess. Okay, okay, maybe, maybe. Also, right in the, right in the tax law or the bill itself, it specifically states that the IRS shall not assess penalties if the taxpayer can prove that, hey, the reason we didn't pay it is because we didn't think we had to pay it because of this bill. Now, I'm going to tell you, dealing with the IRS and trying to get those penalties abated can be a royal pain in the keister, so to speak. So Yeah, I almost, you know, on this first payroll, I'd almost err on the side of paying in. Certainly you want to pay in all the employee portion and you want to pay in all the federal income tax withheld. You don't ever skip that. We're only talking about the employer portion of FICA, which for a lot of farm operations, right, has to be a pretty small number.

Chris

Barron: Right. Okay, and then is there any questions or anything else on the payroll credit side before I go back over the SBA loan? Is there anything?

Paul

Niekerk: No, I think we've covered it. Again, I think for farmers, row crop farmers, I'm going to underline the word row crop, I think I'm leaning right now toward the payroll tax credit because I think it's going to give you more money, it's going to give you more relief than getting an SBA loan.

Chris

Barron: Okay, is it worth messing around for those farmers which, you know, a lot of people listening to this maybe have one employee or maybe themselves and another family member or whatever, you know, is there a level that it's—

Paul

Niekerk: Yeah, I think if you're not paying— if your payroll, cash payroll, cash wages that you're paying, if it's less than $50,000, you're not going to waste your time doing an SBA loan, I don't think. Yeah, because that's— let me just do some quick math. Let's say it's $50,000 divided by 12 times 2.5. You qualify for a $10,400 loan. If you got $50,000 times 0.062, that's $3,100 payroll tax credit that you might get. So yes, the SBA might be— might be $56,000 better, could be, but you have to prove that you paid during— between now and the end of June that you paid $10,000 in wages and some other costs. Maybe you will do that. Yeah, it's— maybe it's $30,000, something like that. It's just hard to know.

Chris

Barron: So a lot of it has to do with how much documentation one is willing to work through on the SBA loan as opposed to having your tax person guide you through the payroll tax credit.

Paul

Niekerk: You got to remember, you're getting ready to do spring planting, right? More important, qualifying for a $5,000 loan right now or getting 5,000 acres of corn and soybeans planted as fast as you can. Right.

Chris

Barron: But on the other hand, to your point, you've got, you know, there's some dairy, some large dairy operations out here. There's a lot of, you know, operations that, you know, feedlot or cattle operation and/or some of these specialty crops or whatever. If you got, like I said, a fair amount of employees, that might be easier to do the SBA loan.

Paul

Niekerk: Yeah. And plus, look, dairy, they're employing those people constantly between now and June 30th. Whereas somebody that might only have a part-time help that comes in during spring planting for 2 weeks, that payroll cost may not be very much. Right.

Chris

Barron: So is there anything else on the SBA loan I haven't asked about before we go to another segment here?

Paul

Niekerk: I think, you know, the SBA loan, it's supposed to be streamlined. We're supposed to get the money fairly quickly. But, you know, that's going to be up to the bank to go ahead and deal with it. Now, it is quote a loan, but it's actually— I think you and I talked offline a day or two ago— it's more of a grant as long as you spend the money on labor, including such as health insurance costs, mortgage payments, rent payments, those type of payments. You're going to qualify. But again, you have to be willing to self-certify that COVID-19 has directly affected your operation. A drop in farmland, I mean, a drop in commodity prices, I'm not sure if that qualifies as being directly affected by COVID because there's certain farmers out there now that are being paid 5 times what they've earned before.

You know, say the egg farmers, the egg guys, they're actually getting a net benefit from COVID but as we know, other farmers such as cattle farmers, hog farmers, cotton farmers, you know, they're being penalized right now by COVID. But is that a direct result? I just don't know.

Chris

Barron: That might be a follow-up for us to find out what the— you know, and some of that stuff may or may not even, you know, be decided.

Paul

Niekerk: Is that Yeah, yeah, exactly, exactly. And actually, here, let me just sort of read the one little paragraph that describes this. And this is from the Senate. Requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions by COVID-19. They will use the fund to retain workers and maintain payroll, lease, and utility payments. And are not receiving duplicative funds for the same uses from another SBA program. So, you know, if that's what they have to self-certify, you know, you could say there's uncertainty of current economic conditions. You could certainly say that in the farm arena. So, I guess almost anybody could probably qualify for that. Mm-hmm.

Chris

Barron: Yeah. Well, and like I said, you know, there's a lot of farm operations that we work with that are clients that have other businesses too. So can you qualify or can you, you know, submit, you know, if you have a, you know—

Paul

Niekerk: Yeah, every business is going to sort of stand on their own. So let's say that you have a farmer, they also have a business. Let's say they have a bunch of restaurants or they have coffee stands or they have a travel agency or whatever it might be. Each one of those businesses is going to qualify for an SBA loan. As long as the total employees are less than 500. And even with a lot of the restaurants out there, they've set it up where each franchise location to some degree will qualify as a separate entity, so to speak. So it's going to be pretty easy for any franchise operation like McDonald's or Dairy Queen or Burger King, Taco Bell, whatever it might be, to qualify for these loans because they're the ones that really have been hit dramatically, almost other than maybe the airlines, the travel, and the entertainment industry.

They've probably been negatively impacted the most by COVID. Now farming, we know, have been impacted, but farmers are still able to do work and have revenue potentially coming in, whereas these type businesses have no revenue coming in.

Chris

Barron: Yeah, and I'm thinking of other examples like we've got operation that has, you know, like car washes and stuff, and I know that's pretty low right now, you know. A lot of— it's a lot of unique businesses out there that people don't think about that are directly impacted, that, you know, that, that are farmers that have vested interest in some of these other businesses as well.

Paul

Niekerk: Exactly, exactly.

Chris

Barron: And, you know, and also I'm thinking of like grain elevators that kind of thing, you know, privately owned, family-owned grain elevators, they would apply, right?

Paul

Niekerk: They would apply. They would certainly qualify. Now typically their labor is, yeah, I wouldn't say it's high compared to their revenue. There's certainly, actually some of those grain elevators have more volume going through their location right now, not less volume, you know, with all the wheat, if they're dealing with wheat, you know, wheat in heavy demand right now, but they would still qualify. And they probably would be looking at doing an SBA loan because that probably makes more sense.

Chris

Barron: Right. Yeah. And so I think the message here, unless I'm hearing this wrong then, Paul, is that, you know, you really got to look at your own specific situation and either have a conversation on the payroll tax credit credit with your tax provider, you know, your tax person, or have a conversation with your banker and probably a conversation with both just to make sure that you've done your due diligence and understand, you know, what options you have to mitigate some of the risk here moving forward.

Paul

Niekerk: Right. And I think the key too is don't just look at the $2 amounts. You have to look at how does it affect your operations. Again, if you qualify for a $10,000 SBA loan, and your payroll tax credit's only $3,000, yeah, the SBA makes a whole lot more sense. But if you're needing to get 5,000 acres of corn and soybeans planted right now, dealing with your banker may not be the highest priority.

Chris

Barron: Right, right. Okay, anything else on those things? And I got one more segment I want to get to, and then— and we can follow up on this, as you know, and maybe do a short conversation on this if there's any additional news or things that are hard, you know, that come out of this that are hard facts that we haven't discussed, I guess.

Paul

Niekerk: Well, I think we also need to go over some of the income tax effects, but we can do that after you ask me your next question.

Chris

Barron: Yeah, well, and well, let's go there because what I have is some kind of some other things that are in that bill. But go ahead, Paul, and touch on that.

Paul

Niekerk: Well, certainly for all the farmers out there that their taxable income off of their either their 2019 return if it's been filed, or their 2018 return if it's a single taxpayer, as long as their gross income is less than $75,000, or if they're married, less than $150,000. They're each going to qualify for a $1,200 payment. That payment, you know, they say it's going to be out in a couple weeks. I'm guessing more like 2 months. The last time they tried to do a payment like this, it took the IRS 2 months to get money out.. And then if you have a child, a certain child, you'll get an extra $500. Now a lot of people have already asked me, hey, I don't file a tax return because I'm retired and all I collect is Social Security. You're still going to qualify for the $1,200. The IRS will look at the Social Security records. You'll still get your money.

However, if you were claimed— let's say you're a college student and you're claimed on your parents' tax return— you're not going to get a $1,200 payment. There's a provision related. If you need to take some money out of your 401 plan, out of your IRA to help cover living costs, the penalty is not going to apply up to the first $100,000 that you take out. Plus, you can pay that back over a 3-year period and not have it be counted as a distribution. So that's a pretty good deal. There is a token— I'm going to call it a token. If you do a cash contribution to a church or to a charity, you can deduct $300 of that even though you don't itemize. To me, that's such a minor amount that I wouldn't even worry about it. Um, on the farm side, there is a nice provision. Let's say 2020, or even in 2018 or 2019, you're going to have a large loss, and I'm probably looking more at 2020.

Under the old rules, you could only carry that back 2 years and you were limited to a maximum loss of $500,000. This year, or starting now, you can carry it back 5 years and there's not going to be any limit on those losses. So let's say that you generate a $700,000 loss because you just have a bad year and you paid a bunch of tax back in 2015 or 2016, you can actually go back and get that money. So that, that will be good. The loss limit rules that they had, they're sort of suspending that for 20— through 2020. I think for most of my farmers that's affected some of them, but very few. There's some other provisions, but they're pretty esoteric. So those are the key ones. You're going to get your direct payments. NOLs are now 5 years and they're unlimited, which is good, and you can carry it back 5.

Problem is it gets a little messy because we already have some taxpayers that had to carry forward their NOLs from '18 and '19. Now can they carry that back, and how is the IRS going to allow some type of expedited relief on that? I just don't know what's going to happen there.

Chris

Barron: Okay, well, that's a big deal though, you know, if a producer does show a loss this year because of the lower commodity prices and/or whatever else. We get to deal with yet this year, you can carry that forward for 5 years and work that, that in.

Paul

Niekerk: Well, actually, you can carry it back 5 years, Chris. You can carry it back.

Chris

Barron: Okay, so not forward.

Paul

Niekerk: Well, you can always care— you have an unlimited carry forward. And now instead of waiting to get your money, you can carry it back and get your money a lot sooner.

Chris

Barron: Gotcha. Okay. Okay, anything else that's in this bill that is more directly correlated to agriculture that, that you see?

Paul

Niekerk: Well, yeah, we know that they've set aside, and we, you and I were talking offline a little bit, so what, what is the final numbers? I've heard like approximately $9 billion for livestock and specialty crops. That would be your fruits, your nuts, your grapes, and then livestock, because they would include cattle this time. The MFP payment was only for hogs and dairy. This would certainly bring cattle in because they've been dramatically impacted by COVID, at least temporarily they've been impacted. And then also we know CCC, the Commodity Credit Corporation, has gotten an additional what, another $16 billion, which may bring them back up to about $30 billion. That will allow them to do some type of— it's not going to be called MFP because it has nothing to do with tariffs. It'll be some type of program.

I'm guessing dollar amount probably similar to last year's MFP, maybe even a little bit bigger.

Chris

Barron: Yeah, that's kind of what I'm hearing too. I mean, as far as The MFP 3 is probably a no-go as far as it being labeled that way, but, but as far as, you know, dealing with, dealing with this and probably getting some kind of compensation payment midsummer sounds pretty likely.

Paul

Niekerk: Now we have to be a little careful because everybody's going to assume, okay, I'm a corn and soybean guy, therefore I'm going to get a bigger payment than I got last year. I think we have to be careful because this is going to be across the board. You know, the hay guy that generates $2,000 per acre or $1,000 per acre in gross revenue and the corn guy that generates $600, you know, under last year's bill, the alfalfa guy might have gotten $5 or $10 per acre and the corn guy got $60 or $70 per acre. This year, might each get $30. So the alfalfa guy is going to be happy and the corn guy is not going to be happy. So we have to be careful. If you're a corn and soybean grower, I would not assume that you're going to get a large payment like you did last year. You're going to get some type of payment, but I just don't know if it's going to be as large.

Chris

Barron: Well, and wouldn't you say a lot of that has to do with, with how things progress moving forward too? I mean, A lot of people think that the commodity prices are impacted by this COVID-19 stuff, and really there's a larger reason specifically behind corn is the price of oil and the direct impact we've had on the market on the ethanol side of things.

Paul

Niekerk: And that's because you got Russia and Saudi Arabia, you know, trying to battle it out with each other. Now, did COVID drop the demand a little bit? Yes, it did. But it's also, you know, Saudis and Russia are just trying to see who's the biggest dog on the block, so to speak.

Chris

Barron: Right. And we may be better off rather than collecting that pseudo-MFP payment or whatever it's going to end up being called to, you know, you look at this Phase 4, Phase 5, you know, whatever else. The government deems necessary moving forward. Not that we have an endless amount of money that can be spent, but you know, when you look at the ethanol issue, you know, the corn growers may and probably are working that one pretty hard right now on the ethanol side of things, I would think.

Paul

Niekerk: Yeah, they're already discussing doing an ethanol stockpile, you know, same as our oil stockpile. —so, you know, the demand crunch right now is what, about an annual run rate of about 1 billion bushels of corn is not going into ethanol. Whereas if the government says, okay, we'll buy, you know, a couple billion gallons of ethanol to store, because it stores long-term, I think, fairly well, you know, that would prop up demand, and it wouldn't be a direct payment. So that might be worth it.

Chris

Barron: Right, right. So, but, you know, Sonny Perdue's got $30 billion there in this first, you know, now at the end of Phase 3. And so I guess my point is, is, and like I said, you don't want to count on anything, but the odds probably look pretty strong that they're going to have to do some things, and it's probably going to be more tied towards the ethanol side and the industry side. But hopefully that— that is a benefit to the operations, the farm operations as well. Exactly. Anything else I haven't asked? I mean, we've covered a lot of stuff here, and I think we need to probably follow up and we can do a shorter conversation later if there's some cleanup or some questions. If anybody wants to reach out to us and give us questions, if somebody wants to email you or send you a question, Paul, what's the best way to do that?

Paul

Niekerk: Yeah, you know, there's two ways. They could actually either call or text me on my cell phone, 509-961-9739. I don't mind, you know, getting a text or a call. Or my email is paul.neiffer, so N-E-I-F-F as in Frank, E-R, at claconnect.com, so C-L-A-C-O-N-N-E-C-T.com. Or they can check out the blog. I'll be doing a fair amount of posting on the blog, I think, over the next week or two on this subject. So those are some of the easiest ways to get a hold of me.

Chris

Barron: That sounds good. Again, really appreciate your time and your expertise on this. I know you study this stuff. We're recording this at what, 5 AM your time or something like that? You were texting me before 7 AM and and you're 2 hours ahead of me.

Paul

Niekerk: Yeah, I've been at work since 4, so I've been up since 3, so that's pretty typical this time of year for me.

Chris

Barron: Yeah, yeah, yeah. Well, we really appreciate all your efforts and all the things you do to benefit agriculture. You're a definite benefit to agriculture as a whole with the work you do, and we really, we all really appreciate it, Paul. Thanks.

Paul

Niekerk: Well, thank you very much, and I enjoy it. It's sort of my passion. I think Hopefully that comes through.

Chris

Barron: Yeah, it definitely does, and, and we appreciate that. Thanks, Paul, and thanks everybody for listening. And like we said, we'll be back with some more information on this, and if you have questions, please reach out. And again, thanks everybody for listening. We will catch you next time on the Ag View Pitch. Thanks for joining us on today's episode of the Ag View EggView Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net.

Paul

Niekerk: We'll catch you next time on the EggView Pitch.