Tax credits aid beginning farmers

Summary#

HB 6437 would create a new act, the Beginning Farmer Tax Credit Program Act. It would direct the Michigan Department of Agriculture and Rural Development, working with the Department of Treasury, to certify beginning farmers and approve income-tax credits for owners who sell or rent them farm assets. The bill appears intended to increase opportunities for beginning farmers. It is introduced, not law, and would not take effect unless HB 6438 is also enacted.

  • The departments would have to create and run an application process before January 1, 2027, and report annually on the program.
  • A qualifying asset owner could receive a credit for a sale, cash-rent agreement, or share-rent agreement with a certified beginning farmer. The bill sets different rates and maximum amounts for each type.
  • A beginning farmer would need to meet conditions including Michigan residency, farming experience or knowledge, profit potential, and a plan to provide most of the farm’s labor and management. Certification would last three years, with renewal required.
  • The program would have a stated annual credit limit of $5 million, with a limited carry-forward of unused capacity.
  • The bill would require applicant records, allow department inspections, and require people with certain personal interests in an applicant’s agricultural asset to disclose that interest and not take part in related decisions.

What it means for you#

  • Farmers seeking to begin farming: You would have to apply for certification and meet the bill’s eligibility tests. Certification alone would not give you a tax credit; the credit is for an asset owner who sells or rents assets to you.
  • Farm asset owners: You could apply for a credit if you meet the bill’s conditions, including showing that at least half your income is from farming and providing tax and agreement records. The bill’s eligibility wording also says the applicant must be a beginning farmer, creating uncertainty about whether an asset owner can qualify.
  • Michigan agriculture and treasury departments: They would have to administer the program together, review applications, issue certifications, and report on the program. The agriculture department would also have access to relevant records and inspection rights.
  • Other taxpayers: The bill would create a tax credit, but would not directly change your tax rate or create a direct payment to beginning farmers.

Money#

The bill caps approved credits at $5 million per calendar year, but does not estimate actual credits or administration costs.

  • For a sale, the credit would be 5% of the lower of the sale price or fair market value, up to $32,000.
  • For cash rent, it would be 10% of gross rental income in each of the first three years, up to $7,000 per year. For share rent, it would be 15% of the cash equivalent of gross rental income, up to $10,000 per year.
  • The bill permits carrying forward some unused credit capacity for one year, up to $1 million. How this works alongside the $5 million annual limit is unclear.
  • No publicly available information on staffing or administrative costs.

What is unclear#

  • The credit applicant appears to be the asset owner, but one eligibility condition says the applicant must be a beginning farmer. The bill does not explain how those provisions fit together.
  • The bill refers to a credit under section 281 of the Income Tax Act, but that Act was not supplied, so its current wording and interaction with this new program could not be verified.
  • It is unclear how the carry-forward provision fits with the $5 million annual limit, or what happens when eligible applications exceed available credits.
  • The bill gives the department authority to set application details and some eligibility requirements, but does not set decision timelines or an appeal process.
  • The bill has no start-date provision in the supplied text and depends on HB 6438, which was not supplied. No publicly available information on when the program would begin if both bills became law.

Case for#

  • A possible argument for the bill is that tax credits for selling or renting farm assets could encourage owners to make land, equipment, and other assets available to qualifying new farmers.
  • Requiring applicants to show farming experience or knowledge, profit potential, and a plan to do most of the work could target the credit toward people preparing to operate a farm.
  • Annual reporting on credit amounts, locations, asset types, and applicants could help lawmakers assess whether the program is reaching beginning farmers.

Case against#

  • The applicant-versus-beginning-farmer wording may make it unclear who can actually receive a credit, undermining the program unless clarified.
  • The bill would reduce income-tax revenue through credits, but supplies no estimate of take-up or of the departments’ costs to run the program.
  • The $5 million limit could leave some eligible applications unfunded, and the bill does not explain how competing applications would be prioritized.
  • The department would set important application and eligibility details, while the bill does not provide decision timelines or an appeal process.