The Holy Nut and the "Interest Charge - Domestic International Sales Corporation"

Submitted: Dec 14, 2017
By: 
Badlands Journal editorial board

 

 

As the Republican so-called "tax-reform" bill lurches forward, the Valley, specifically the Almond Industry, gives it the Ol' Valley Whine because the bill cuts the Interest Charge-Domestic International Sales Corporation.

It's going to be a sad Christmas in the Church of the Holy Nut if that ain't fixed before voting time. (For all we know, it has already been fixed, but, then, we, citizens of the nation, will be the very last to know what's in that bill.)

One of the high priests of the Holy Nut is Bill Lyons, Jr., former secretary of the state Department of Food and Agriculture (they say it only cost him a few hundred thousand  in bundled funds to the Gray Davis campaign to secure the honor). Also, about the same time, he bought a few hundred acres adjacent to the intersection of SR 99 and the Campus Parkway to UC Merced, managed its annexation in the City of Merced with dispatch, and was a leader in persuading the state to locate the campus there.

Bill Jr. has taken it upon himself to make the Official Valley Whine to all the McClatchy Chain outlets that will accept it. Meanwhile, back on the home place, Billy, son of Bill Jr., is busy almond farming.

Below, you'll find the hair-raising tale of what the government is putting these poor heirs and agribusiness folk through in our Valley, which grows 100 percent of the nation's almonds and exports 70 percent to other nations.

We guess that export-led agricultural growth is great as long as they don't change the tax rules and all the bees don't die, the aquifer doesn't dry up and there are still people who want to work in the fields and orchards. -- blj

 

11-30-17

Modesto Bee

Senate GOP tax bill will hurt almond industry. California Republicans must step in

Bill Lyons

Special to The Bee

http://www.modbee.com/opinion/state-issues/article187441808.html

If a critical federal export tax program gets the knife in Congress’ final Tax Cuts and Jobs Act, California’s $5 billion almond industry would receive one of the deepest and most painful cuts.

Roughly 104,000 California jobs generated by the almond industry are at stake in the fast-moving tax overhaul being debated in Congress, and 97,000 of those jobs are in the Central Valley where the ag-dependent economy has struggled for a decade.

As California’s leading agricultural export and third highest valued crop, almonds play a vital role in our local, state and national economies. Congressional leaders need to take immediate steps to avoid crushing California’s almond industry.

House Majority Leader Kevin McCarthy of Bakersfield and Rep. Devin Nunes, R-Visalia, who sits on the committee that wrote the bill, can come to the rescue, as can California’s other House Republicans.

No one has talked about the potential impact of the federal tax overhaul on almonds yet, because few people are aware of it. Of utmost concern to those of us in the almond industry is a little-understood program called IC DISC, which stands for “interest charge domestic international sales corporation.”

Congress created this type of corporation in 1971 to encourage U.S. exports, and shaped an opportunity for agribusiness, food and beverage companies to lower federal taxable income with dividends while helping address the trade deficit. The current House measure retains the IC DISC. But the Senate package does not.

Preserving this export tax tool is make-or-break for small family farms and the California almond industry, which exports 70 percent of its crop. The IC DISC enables the industry to be a valued solution toward addressing our nation’s trade deficit with other countries.

With growing conditions for almond trees uniquely suited to the micro-climates here, the California Central Valley provides 100 percent of the North American almond supply and 80-85 percent of the world’s supply. That translates into huge economic benefits for the Golden State, to the tune of $21 billion in gross revenue across all industries, adding $11 billion to California’s total economy.

That doesn’t even include the valuable global health benefit provided thanks to this nutritious nut.

It’s easy for representatives to talk about the huge tax overhaul in broad terms when it is moving so swiftly through Congress. But please do pause to understand where the impacts to this significant industry would be felt here in Central Valley.

If the IC DISC is eliminated, 21,000 direct almond industry jobs would be dramatically reduced, hitting the labor force hard in an already hard-hit region, and there would be gut-wrenching cuts to the 104,000 industry-related jobs, including growers, shellers and processors.

The economies in Chico, Chowchilla, Ceres, Manteca, Merced, Madera, Tracy and many more communities would be dealt a blow when joblessness rises and spending dips. The world’s almond supplies would dwindle and prices would climb.

California’s economy would suffer on multiple levels. More than a million acres of almond orchards stretch like a vital artery in the Central Valley in districts represented by Rep. Doug LaMalfa, R-Richvale, Rep. Tom McClintock, R-Elk Grove, Rep. Jeff Denham, R-Turlock, Rep. David Valadao, R-Hanford, plus McCarthy and Nunes.

Growers, shellers and processors are proud to be part of a thriving crop that is the lifeblood of the Central Valley economy. Preservation of the export tax program, IC DISC, in the Tax Cuts and Jobs Act package can keep it that way. Congressional representatives need to hear from constituents about the importance of IC DISC to our family farms and our region.

Bill Lyons is an almond grower and the General Manager of Mapes Ranch, L.P. and was California’s secretary of the Department of Food and Agriculture from 1999-2004, reception@almondalliance.org.

 # # #


3-29-11

Forbes

DISC: The Big Tax Break for Exporters

Dean Zerbe

https://www.forbes.com/sites/deanzerbe/2011/03/29/ic-disc-the-big-tax-break-for-exporters/#47648e873f09

“Sounds too good to be true.”  It is the understandable reaction by business owners and accountants when they first hear about the export tax incentive for small and medium manufacturers known by the shorthand of “IC-DISC” -- (interest-charge domestic international sales corporation [ic-disc].  The terrible name is probably one of the reasons many people aren’t aware of this tax incentive).

Fortunately, the tax savings are true.  Unfortunately, while over 6000 small and medium businesses take advantage of the tax incentives of the IC-DISC, thousands more that are eligible are failing to do so.

The bottom line is that the tax laws provide an opportunity for a company to use an ic-disc to have the tax on 50% of its export income reduced by more than 50%.  Profits are taxed at the dividend rate (currently 15%) as opposed to ordinary income tax rates (top rate currently 35%).  I have seen first-hand in my work at alliantgroup companies that have doubled their after-tax income from the use of the ic-disc.   The tax deal agreed to in december 2010 extended for two years the benefits of the IC-DISC (which have been in place since passage of the jobs act of 2004).

What businesses can benefit from the IC-DISC?  (full disclosure: Alliantgroup, where I’m national managing director, consults on this tax break.)  This is the biggest misunderstanding by business owners – the net is cast much wider for IC-DISC than people think.   I find it easiest to think of three types of businesses that potentially qualify for the IC-DISC tax benefit:

1) a company that directly exports goods it manufactures.  Example:  company X manufactures widgets in ohio and ships to canada.   Note:  what counts as a manufactured good is also broader than many people realize – it can include software, films and many agricultural products.

2) a company provides architectural or engineering services that are conducted in the U.S. For a building/bridge built outside of the u.s.  Example:  an architectural firm based in Los Angeles designs a building that is built in China.

3) a company manufactures a good that is included in a product that is exported.  This is probably the largest missed opportunity for businesses when it comes to the IC-DISC.  IC-DISC tax incentives are also available in a situation where a company makes a component part that is included in a good that is exported.  Example: company Y makes tires that are included in a tractor that is shipped to South Africa.

So how does it all work?  Naturally big tax savings like this aren’t a walk in the park.  In a nutshell you are creating a separate entity (or sometimes several entities to maximize the tax benefits) – the “corporation” part of IC-DISC.  The exporter pays commissions to the IC-DISC.  The commissions are deductible to the exporter, and the deemed or actual dividend payment of the commission income in the ic-disc is taxed to the exporter’s shareholders/partners at the 15% rate (as opposed to being taxed as ordinary income – ex. 35% rate).

At the end of the day, the exporter receives a deduction of 35% on the commission payments made to the ic-disc and on the other hand only pays a 15% tax rate on the income repatriated from the ic-disc.  The bottom line – a permanent tax savings for U.S. Exporters and their shareholders of 10% or higher of net export income.  Oh happy day.

As mentioned, the first mistake companies make in regards to the ic-disc is failing to even get out of the gate and realize that they are eligible to take advantage of the tax incentive.  The second mistake companies make on the ic-disc according to David Ji, my colleague who lives and breathes ic-disc at AlliantGroup helping hundreds of companies qualify, is failing to take full advantage of the tax incentives.  Too often companies just do the “101” of ic-disc and not recognizing the significant tax benefits by separating high margin from low margin streams of income.

The white house and congress agree that a key to our nation’s economic recovery is strengthening our manufacturing sector and encouraging exports.  The IC-DISCis tailor-made to encourage exactly such activity – providing a tremendous tax incentive for small and medium business owners who manufacture and export.   The door is open for significant tax savings for these businesses – they just have to walk through.  For those interested, here for more details.

Update on irs audits:  the irs recently issued an audit guide for I-DISCs.  The irs is clearly getting focused in making sure  businesses stay on the straight and narrow path when it comes to the ic-disc.  The 52-page audit guide highlights four areas of particular interest for the irs -- 1) that the disc is valid -- that it was set up properly and that the disc was properly maintained; 2) that the export property is properly qualified (ex. It really is exported and that it was manufactured in the U.S.); 3) that the disc commissions are properly calculated; and, 4) errors on the 1120 iIC-DISC return.  Quite frankly, people have been comfortable with just "mailing it in" when it comes to doing the IC-DISC and not having the proper documentation and support for the IC-DISC. They aren't giving away these big tax savings.  Welcome to your wakeup call.

Update:  Fiscal Cliff -- the fiscal cliff agreement signed into law is good news for the ic-disc tax benefit -- keeping in place and making permanent the significant differential between taxation of dividends (top rate 20% -- plus 3.8% health care tax) v. Ordinary income (top rate 39.6% -- plus 0.9% health care tax) -- so the underlying basis for the ic-disc benefit stays in place.

# # #

 

 

Lyons was unable to plant conventional trees on the plot since it has a higher water table. He believes the dwarfing rootstock with a smaller root zone will work. He also thinks there could be less water usage and better efficiency with nutrients and fertilizers due to a smaller root zone. -- Pollock, Western Farm Press, Dec. 1, 2017

First, in case we hadn't deduced it, the Lyons family is involved in almond production and clearly, from this article, is planning to expand production on its high water-table land beside the san joaquin river.

That water table nullifies anything they might have to say about water consumption of high-density orchards. Observation of other crops, north coast apples and grapes for example, indicate the exact opposite. The whole purpose of dwarf varieties in high density plantings is to push the soil and the water well beyond any natural carrying capacity.

Like the IC-DISC, it's just one more technique for hereditary landowners like author Bill Lyons, Jr. And his son, ranch manager Billy, to squeeze more money out of their land and their government. -- blj

 

12-1-17

Western farm press

Grower trial: super high density almond planting on dwarf rootstock holds promise

The Lyons family has embarked on an experimental plot of super high density (SHD) almonds using dwarf rootstock.

Dennis Pollock

http://www.westernfarmpress.com/tree-nuts/grower-trial-super-high-density-almond-planting-dwarf-rootstock-holds-promise

Thinking small can work just fine.

Such is the case at the mapes ranch located west of Modesto where the Lyons family has embarked on an experimental plot of super high density (SHD) almonds using dwarf rootstock.

The trees are self-pollinating.

While there are other trials in California, some bigger than this nine-acre planting, Billy Lyons, the ranch’s manager, is perhaps the most willing of california growers experimenting with high density to talk about it.

While he emphasizes his planting is still in the pilot stage and he’s taking it year to year, he is pleased with how things are progressing in its third year.

In the second year, the yield was 500 pounds per acre. Lyons says most growers do not harvest almonds in second leaf.

He declined to disclose what his 2016 yield was but says it was enough to keep the trees in the ground. Lyons will say yield exceeded normal expectations in the third year of a conventional planting, 1,000 to 1,400 pounds depending on the variety.

Lyons’ harvest on the plot involves a single pass through the field. This is likely to please the Almond Board of California which supports keeping dust down at harvest.

A conventional harvest involves three passes – one with a shaker which drops nuts to the orchard floor, another with a sweeper that puts them in windrows, and a third that picks up the nuts.

In the mapes plot, a modified olive harvester drives along one side of a tree row, dropping almonds into a gondola pulled along the other side of the row. The nuts do not reach the orchard floor.

Lyons, son of former California Food and Agriculture Secretary Bill Lyons Jr., became enamored with the idea of trying out shd after traveling to spain where he saw shd plantings.

Travelling with him was Cliff Little, a friend of Lyons and the chief executive officer of Agromillora, a nursery in Gridley, Calif. which produces high-density olives worldwide and is producing hybrid rootstock for other species including peaches, nectarines, and plums.

Agromillora is headquartered in Barcelona,Sspain.

Upon seeing the spanish plantings, Lyons said, “This could work.”

It turns out the developer of the non-pollinated cultivar, Zaiger Genetics, is practically a neighbor of Lyons. Zaiger Family Genetics created the self-fertile variety Independence. It was grown for the test plot by Dave Wilson nursery of Hickman using Rootpac 20 rootstock.

The rootstock reduced the tree’s size and added to the benefits of high density.

Lyons was unable to plant conventional trees on the plot since it has a higher water table. He believes the dwarfing rootstock with a smaller root zone will work. He also thinks there could be less water usage and better efficiency with nutrients and fertilizers due to a smaller root zone.

The trees are topped and hedged mechanically.

For lyons, it’s not purely a matter of yield size. He believes he must take margins into account as well, seeking to keep his inputs low so he profits even if yields fall. He’s achieving this by cutting passes across the plot, mechanizing operations, using fewer bees for pollination, and putting in place other efficiencies tied to tree dwarfing.

He’s using just one variety to reduce the need for multiple harvests.

SHD has several potential benefits and drawbacks. The potential advantages include:

Mechanized pruning;

Increased airflow; and

Reduced dust during harvest

The option of harvesting without soil contact reduces the risk of contamination by soil-bound pathogens.

Possible disadvantages include harvester damage to the trees, but lyons says the tree trunk is not shaken as is customary with a conventional harvest.

Lyons said, “The trunk is the life source of the tree and we’re not touching it.”

Lyons says the harvester requires further modification. Robert liptrap, research and development manager for agromillora, said modifying mechanical harvesters is a key issue.

Both face a Catch 22 since it’s difficult to get an equipment manufacturer to make machines until there is acreage in the ground. But growers are reluctant to plant acreage unless they have needed harvesting equipment.

Steve Huffman, sales representative with Agromillora, says there are five trials in california which were harvested this year.

“We have an 80-acre trial that was planted this past winter and a 155-acre trial that will be planted next month,” huffman said. “We have about a dozen trials in all up and down the state.”

In Europe, more than 5,000 acres of high density almonds have been planted. Little said this number is expected to double over the next few years.

Little cautions that growers who are weighing whether to plant shd trials need to be aware “we don’t have 15 years of data here in California. We simply don’t have long-term data on the rootstock-variety complement.”

Lyons adds, “This may work for some people, but not for everybody.”

(Like if you don't have a high water table? --blj)

 

 

 

 

 

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