A change in the federal tax overhaul that passed at the end of 2017 may jeopardize privately owned grain elevators, and if it’s not fixed will cause a “seismic shift” in the industry, a Kansas official said.

Included in the tax package in Section 199a was a provision that rewards farmers with tax savings if they take their grain to a cooperative, which is member owned, rather than a private grain elevator. If a farmer sells $100,000 in grain to a co-op, he or she will receive $20,000 in tax deductions, or 20 percent of gross sales.

If grain is sold to a privately owned elevator, the farmer will receive a deduction for 20 percent of farm income, which is a much smaller deduction than 20 percent of gross sales.

“We were really blindsided by it,” said Joe Hund, owner of Geary Grain Inc., a Junction City elevator that’s been in his family since 1978. “We just were shocked to learn of this provision.”

Hund said multiple organizations and individuals are working to get the 199a provision changed, including the National Grain and Feed Association, and senators Pat Roberts and Jerry Moran.

One of those organizations is the Kansas Grain and Feed Association. President and CEO Ron Seeber left Monday for Washington, D.C., to talk with officials about this tax change that has many of his organization’s members concerned.

“It is a seismic shift in the way business is done in the grain industry,” Seeber said. “From what we hear, it was unintended. However, it certainly does change the playing field. We have strong concerns from our membership that I’m passing on in person. This is a big deal. Our membership is made up of both independents and co-ops, but everybody understands this is a seismic shift.”

Although Hund and Seeber both said the intent is to change the tax provision, there is some doubt it can happen. It could be tough to get the 60 votes that would be required to change the tax bill in a divided Congress.

The tax bill’s strong incentive for farmers to take their grains to a co-op could mean that, in many cases smaller farmers would pay little to no taxes because of the 20 percent tax deduction on gross sales, Hund said.

“That’s about as good a margin as what most grain producers, in aggregate, might have for a margin,” he said. “If you were able to deduct 20 percent, so many people would probably pay no income tax.”

Greg Ibach, undersecretary at the U.S. Department of Agriculture, said in a statement that efforts are being made to address concerns about Section 199a.

“While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry,” he said. “The federal tax code should not pick winners and losers in the marketplace.”

Hund said he’s confident the change wasn’t made to run privately owned elevators out of business, and it was probably mistaken language that provided this shift. As a small operator with just one elevator, he’s confident the big companies like Cargill will be out fighting the good fight to get the language changed.

“They’re going to have powerful lobbies that will try to get this changed,” he said. “It’s funny that I’m lumped together with multi-national firms.”

A Cargill spokeswoman refused to comment on the issue, referring calls to Seeber.

Hund remains hopeful that a fix will come. He’s tripled his storage facilities in the last 10 years and invested significantly in growing Geary Grain.

“You spend a lifetime doing this. It takes so much money and so much time in this business to build storage and handling facilities,” he said. “You do it on the assumption that you’re being encouraged to do it, and that the economies will work. When something like this comes along . . . I’ve spent a lot of money on facilities and it’s kind of like too bad. How could this really happen? That’s why I’m hopeful it just really won’t happen.”