By: Jackson Bolstad, Rapid City Journal
RAPID CITY, S.D. — When December comes to an end, the only things left from a long line of John Deere Green tractors in RDO Equipment parking lot in Rapid City may be the imprint of tire treads in the soft ground.
The continued demand from consumers for beef and the dwindling livestock numbers have raised beef sales to record prices over the past year, which means the annual income for many Black Hills ranchers is up.
While that could have meant a drastic spike in taxes for area farmers and ranchers, a 1-year tax break extension, signed into law by President Barack Obama on Friday, will allow them to deduct equipment purchases from their 2014 taxes.
The tax break, known as Section 179 because that is its title under the federal tax code, is available to most businesses for purchases of equipment. A website called section179.org explains: "All businesses need equipment on an ongoing basis, be it machinery, computers, software, office furniture, vehicles, or other tangible goods. ... Section 179 is designed to make purchasing that equipment during this calendar year financially attractive."
The tax break allows businesses to deduct up to $500,000 when they file their 2014 tax returns, provided those businesses spend that money on equipment and put it into use by midnight Dec. 31, according to the website.
"You can use (the tax break) to adjust your income to stay in a lower tax bracket," said Marvin Jobgen, who operates a ranch north of Scenic. "It's a tool to use so you don't have big swings in your taxes from year to year."
It's essential for farmers and ranchers to be able to make necessary investments into their business without being penalized for it, said Jobgen, who bought a new loader tractor from Jenner Equipment this year to help feed his nearly 400 head of cattle.
While higher prices on the consumer end of things don't always go over well with the public, they do translate well for farms and ranches, said John Mitchell, a certified public accountant with Casey Peterson & Associates, Ltd., in Rapid City.
"When you're talking tractors, sprayer, air drills, combines, you're talking a hundred (thousand) to three hundred thousand dollars for one item," Mitchell said. "They have massive pieces of equipment that cost enormous dollar amounts."
Tax incentives are especially helpful when it comes to reinvesting profits back into the farm or ranch, Mitchell said.
"If you're a wage earner, your income is pretty steady from one year to the next," Mitchell said. "But in farming and ranching, you could go from making an enormous profit one year to having a substantial loss the next year. (The government) has to level it out, and Section 179 is one way they can do that."
Mitchell made dozens of phone calls on Thursday and Friday to area ranchers, advising them to proceed with any deals they may have had on hold while waiting for the bill to be signed, he said.
"I believe there were a lot of people who had deals ready to go, and just hadn't pulled the trigger until they knew if they could deduct it," Mitchell said.
Sales at RDO Equipment and Blake's Trailer Sales & Service haved spiked in the last few days, as area ranchers and farmers try to make purchases before the Dec. 31 deadline for the 2014 tax season.
Many of those same ranchers stalled making large equipment purchases throughout the year, fearing that Section 179 would fail to pass, said Sid Houdek, general manager of RDO Equipment at 1540 Deadwood Ave.
Those farmers and ranchers were leery about spending money because if the tax extension didn't go through, they would need that money to pay 2014 taxes, he said.
RDO Equipment sold three loader tractors on Thursday alone, as people were trying to take advantage of Section 179, Houdek said.
But RDO Equipment's inventory is limited, and tax rules require that the new owner take delivery of any equipment by midnight Dec. 31 to count it among 2014 tax deductions.
With only a few shopping days left to make the purchases, there isn't enough time to bring in new equipment and deliver it, Houdek said. It's "a little too late," for a lot of ranchers looking to replace equipment, he said.
"The 11th hour deal isn't going to help anybody," Houdek said. "It's fortunate for the guys who made the move early to get a deal, but it isn't going to help a lot of other people who are lost in the mix."
While RDO Equipment may be feeling some strain from late action by the U.S. Congress, other businesses are seeing big profits, including car dealerships and smaller equipment dealerships like Blake's Trailer Sales & Repair at 3602 Cambell St. in Rapid City.
"People are coming in and telling us they are here to spend some money," said Blake Batchelder, owner of Blake's Trailer Sales & Repair.
Batchelder said he's sold an average of two trailers every day, which can sell for upwards of $60,000 brand new, since the U.S. Senate passed the tax extension passed on Thursday.
"When farmers and ranchers have more money, they spend money," Houdek said. "When they make good money, the community sees that cash. They buy cars, they replace equipment, they come in and do major repairs on equipment and even buy more Christmas gifts."
The extension of the tax break is a welcome relief, even with so little time remaining in the year to make purchases, said Jobgen, who has been tax planning since October.
"It's nice that they got it passed, but it would have been better if it would have even been three months ago," Jobgen said.