In 2008, Congress enacted a new agricultural chemical security credit that may apply to some farmers and will certainly apply to those farmers who have expanded their business into the fertilizer and farm chemicals operations. This credit allows you to take a 30% credit for expenses related to enhancing the security of a facility in regards to certain farm chemicals.
Taxpayers qualify who are engaged in the business of:
- Selling agricultural products, including specified agricultural chemicals, at retail, predominately to farmers and ranchers; or
- Manufacturers, formulators, distributors, or aerial applicators of such chemicals
In general, most fertilizers and related ag chemicals will qualify.
Taxpayers that may qualify from this credit include:
- Manufacturers of fertilizers and pesticides;
- Producers of the component chemicals that are used by other parties in the manufacture of fertilizers and pesticides;
- Commercial distributors of fertilizers and chemicals; and
- Taxpayers that aerially apply fertilizers and pesticides, such as farmers and ranchers or those engaged to aerially apply the chemicals to commercially raised livestock or commercially grown crops.
The broad nature of the provision suggest that it may apply from the point at which the chemical is produced to the point that it is applied.
The credit is equal to 30% of any qualified expenses used to enhance the security. These expenses include:
- Perimeter security;
- Measures to control access to the facility (i.e. fences, etc.);
- Identification systems;
- Lighting, motion sensors and other related security systems;
- Efforts to deter theft and sabotage;
- Computer network security; and
- Background checks for employees and visitors
Since this is a credit, this means that you can use it to offset your federal income tax on a dollar for dollar basis. For example, assume that you spend $50,000 on these types of expenses. You would be entitled to a 30% credit or $15,000 to offset against your income taxes. However, you are not allowed to deduct these costs against your taxable income, therefore, it is not totally a dollar for dollar credit.
The Journal of Accountancy has a good article on this credit if you think it may apply to your farm operation.