Louisiana Milk Producers’ Refundable Tax Credits

Linda Benedict, Gauthier, Wayne M., Fannin, J. Matthew "Matt"  |  3/12/2009 9:07:07 PM

Wayne M. Gauthier and J. Matthew Fannin

Over the past few decades, the economics of American agriculture has created a structure in which the number of farmers has declined. The output of the remaining farmers has grown, and areas of production have shifted. This situation characterized the Louisiana dairy industry until 1978, when total Louisiana milk production peaked at 1.1 billion pounds. Since then, both the total number of dairy farmers and the amount of milk produced have declined annually. The negative implications of these declines on the economic well-being of rural communities across Louisiana led the state legislature to pass Act 461 in the 2007 legislative session. This act created the Louisiana Dairy Refundable Tax Credit Program (LDRTCP).

The refundable tax credit is applied against a dairy producer’s state income tax, and any excess of credit over taxes due is rebated to the producer. Act 461 specifies economic criteria to be used in calculating the refundable tax credits. The credits can be awarded only when current tax-year uniform milk prices are less than a calculated announced production price (APP). The APP reflects the three-year moving average cost of importing milk into Louisiana adjusted for the milk prices Louisiana dairy producers receive plus their cost of production. An individual dairy farmer can receive up to $30,000 in tax credits if both the number of qualifying fiscal quarters and the production levels are met subject to an annual cap of $2.5 million on total program cost.

Implementing the tax credit requires the cooperation of the Southeast Federal Milk Market Order (SEFMMO) office in Atlanta, Ga., Louisiana’s dairy farmers, and four state agencies. At the state level, the LSU AgCenter’s Department of Agricultural Economics and Agribusiness works jointly with the Louisiana departments of Agriculture and Forestry, Health and Hospitals and Revenue to implement the program. AgCenter economists compile and organize data from the state’s dairy farmers, the SEFMMO office and the other state agencies and use the data to calculate the refundable tax credit for each farmer.

Act 461 seeks to increase Louisiana’s milk production by providing dairy farmers with an incentive to increase production. For example, suppose a Louisiana dairy producer milks 125 cows a day with an average annual milk production of 15,000 pounds per cow. The total annual production would be 1,875,000 pounds of milk. Based on Table 1, this producer would have received a refundable tax credit of $7,500 in 2007. But if this farmer had had nine more cows each producing 15,000 pounds of milk or had the production from the existing herd increased by 125,001pounds, the farmer would have received a $10,000 tax credit.

The distribution of tax credits to 207 Louisiana dairy farmers for 2007 is summarized in Table 1. The milk-production ranges and corresponding tax credit levels are in the first two columns. Because of relatively higher milk prices in two of the four quarters in 2007, the state’s dairy farmers received only half of the available refundable tax credits as prescribed by law.

The second and fourth columns in Table 1 show the dollar distributions of the 2007 credits both to individual dairy producers and to all 207 Louisiana dairy producers. The last three columns show the percentage distributions of those credits across the ranges of the milk production schedule. For example, 21 of the 207 Louisiana dairy farmers each produced more than three million pounds of milk in 2007. Each producer in that production range was awarded a tax credit of $15,000. The $315,000 they received represented 25.05 percent of the total tax credits of $1,257,500 awarded in 2007.

Those 21 producers accounted for 10.14 percent of Louisiana’s 207 dairy farmers and 30.71 percent of 2007 milk production. Similar analyses of the tax credits to individual farmers can be applied to the other five ranges in the production schedule in the first column. At the lowest level of production – between one and one million pounds – 90 dairy producers representing 43.38 percent of Louisiana’s producers received 17.89 percent of the tax credits for producing 13.67 percent of the milk in 2007.

Louisiana milk production contributions to economic activity in 2007 were estimated at $199,355,679. Refundable tax credits issued in 2007 were $1,257,500, which means $0.63 was awarded in refundable tax credits for every $100 of economic activity attributable to milk production.

When economic conditions warrant, the tax program provides a refundable tax credit against the dairy farmers’ income tax liability. By so doing, it sustains an existing enterprise that contributes to economic activity in rural Louisiana. Assistance through these programs and other research and extension activities by the LSU AgCenter sustains a viable dairy industry in the state.
 
Wayne M. Gauthier, Associate Professor, and J. Matthew Fannin, Assistant Professor, Department of Agricultural Economics and Agribusiness, LSU AgCenter, Baton Rouge, La.

(This article was published in the winter 2009 issue of Louisiana Agriculture.)

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