One perhaps unintended consequence of legislation-- House Bill 1999-- introduced to prohibit the sale or transfer of state tax credits will significantly impact family farmers using the popular Resource Enhancement and Protection (REAP) Program to fund the installation of farm conservation practices.
The REAP farm conservation tax credit program was established in 2007 to help pay for between 50 and 75 percent of the cost of conservation practices by giving farmers tax credits for those costs.
It is the only significant new source of state farm conservation funding enacted in the last decade. $10 million of tax credits have been funded annually in recent years and the program is always over subscribed.
REAP has helped fund more than 4,800 on-farm projects that have kept nearly 12 million pounds of nitrogen, nearly 800,000 pounds of phosphorus, and more than 700,000 tons of sediment out of waterways.
It was recently suggested at the PA Chesapeake Bay Watershed Planning Steering Committee the REAP Program be expanded to help put more farm conservation practices on the ground to meet Pennsylvania’s water quality cleanup obligations.
It is estimated as many as one in three farmers sell or transfer tax credits they cannot immediately use because of generally lower tax liabilities. The sales help generate the cash needed to help pay for the loans used to fund the conservation practices.
Eliminating the ability of a farmer to sell a credit means the REAP Program instantly becomes much less attractive to use and as a result reduces its effectiveness in funding farm conservation practices, perhaps by as much as one-third.
The prime sponsor broadly believes tax credits should be limited to benefitting the original company applying for them and objects to the sale or transfer of the credits to others. He notes in his summary of the legislation “upwards of 99 percent of credits are sold” for some programs, which is clearly not the case with REAP.
Another difference between REAP and most of the other tax credit programs is REAP benefits small businesses-- family farmers. The others generally benefit large, sometimes multinational companies.
House Bill 1999 includes more than a dozen tax credit programs like the Research and Development, Film Production, Video Game Production, Entertainment Economic Enhancement, Manufacturing, Keystone Special Development Zone and Keystone Innovation Zone that make up the bulk of the tax credits issued.
Besides REAP, the Historic Preservation Incentive and Coal Refuse Energy and Reclamation tax credit programs would no longer be able to sell their credits to others.
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