Significant provisions of the American Jobs
Creation Act of 2004 include:
• Repealing the foreign sales corporation/extraterritorial
income provisions that were declared an illegal trade
subsidy by the World Trade Organization.
• Enacting a new deduction for U.S.
manufacturers, including farmers.
• Extending the $100,000 small-business
capital expensing provision.
• Extending the replacement period
for livestock sold due to weather conditions.
• Allowing farmers to use income averaging
without triggering the alternative minimum tax.
• Increasing tax incentives for the
production of ethanol and biodiesel.
• Eliminating the tobacco marketing
and price support programs and approving a buyout of
quota owners and tobacco growers.
The American Jobs Creation Act of 2004 represents a major
overhaul of U.S. Federal income tax laws applicable to farmers and
other business taxpayers. The primary focus of the Act was the replacement
of a tax benefit that allowed U.S. exporters to exclude a portion
of their net foreign sales from their gross income, thus reducing
their tax burden. The World
Trade Organization (WTO) declared this exclusion a prohibited
export subsidy, which prompted the European Union to impose sanctions
on a variety of U.S. farm products, including some livestock and
livestock products, oil seeds, cereals, vegetables, fruits, nuts,
and cotton. Passage of the 2004 legislation has already resulted
in these retaliatory tariffs being lifted.
The Act replaces the exclusion with a new tax deduction
for income from domestic production activities for U.S. manufacturers,
including farmers. The new deduction goes well beyond the exclusion
and applies to all qualifying manufacturers, regardless of whether
they export, making it less likely to trigger WTO sanctions.
Thus, while few farmers directly benefited from the exclusion,
a majority of commercial farms will pay lower Federal income taxes
as a result of this new deduction. The new deduction is not limited
to farm corporations but is available to farm sole proprietors,
partnerships, S corporations and estates, and trusts. Farmer cooperatives
and agribusinesses involved in the production or processing of agricultural
products are also considered manufacturers. The deduction, however,
is limited to no more than 50 percent of wages paid to hired labor.
This limitation will reduce tax savings for farmers who would otherwise
qualify, but who use little or no hired farm labor in their farming
operation.
The Act contains other tax provisions of significance
to farmers, including a 2-year extension of the $100,000 small-business
expensing provision that allows most farmers to write off their
entire investment in farm machinery and equipment in the current
year. Other changes include an extension of the replacement period
from 2 years to 4 years or more for livestock sold on account of
weather-related conditions and a provision that will allow farmers
to use income averaging without triggering the alternative minimum
tax.
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