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ON-FARM UTILITIES TAX EXEMPTION Priority: Reduce the sales tax on utilities for agricultural operations Bill # Background For several sessions Arkansas Farm Bureau has sought the reduction or elimination of the sales tax on farm utilities. Energy use and prices continue to rise. Both of these factors have resulted in a climbing increase in both the cost of energy to the farmer resulting in higher taxes on energy.

The integrated structure of the poultry industry makes it impossible for farmers to pass on this added expense to consumers. So while the cost for energy and thus taxes have risen, the income for farmers has remained the same. Poultry companies under pressure from rising feed and transportation have not been able to keep farmer pay on pace with input costs shouldered by the farmers.

For growers of poultry, their input costs are dominated by the expenses they incur on utilities needed to heat and cool their production facilities. LG and Natural Gas are used for heat, while electricity is needed for both lighting and cooling. These expenses amount to over $10,000 per year per poultry house. Farms with poultry grow-out facilities generally have 2-8 houses.

Poultry is the largest agricultural product produced in Arkansas in terms of cash receipts, providing 47 percent of the total in 2010. According to the 2007 Census of Agriculture, a total of 6089 farms in Arkansas produced some type of poultry in 2007. The census also shows poultry farms in every county in Arkansas.

The bill before the 89th General Assembly will focus on a reduction or elimination for poultry farmers and other animal agriculture operations including dairy. This narrowed focus will mean a smaller cost to state revenues but will result in meaningful tax relief for farmers.

Talking Points  Within the mix of rising operational costs on the farm utility costs are rapidly increasing energy prices. Since sales tax is based on value, more money is pouring into state coffers than ever before.  Tax relief from this bill would directly benefit producers, as all producers are responsible for their own utilities bill.  Tax relief in this package would put dollars back into rural Arkansas where most farmers and ranchers conduct business. A $6 million tax exemption for agriculture will mean as much as a $20 million impact to the economy. The first communities of benefit will be rural Arkansas.  Manufacturers and other industries have a reduced tax rate on their utilities. We believe the importance of agriculture is no less significant to the state’s economy.  Farmers in neighboring states pay no taxes or reduced tax rates on utilities.  Grower payments from their integrator are set in established contracts. The recent escalating and/or volatile nature of energy prices has caused severe instability in grower incomes.

Farm Bureau Policy Taxes 153 Agriculture should be considered as an industry and should have the same privileges and/or exemptions as other industries. We support removal or reduction of the sales tax on propane, natural gas and electricity used in the production of poultry and other agricultural products