What is in this article?:
• In its most recent session, the Alabama Legislature passed the Irrigation Incentives Bill, which provides a state income tax credit of 20 percent of the costs of the purchase and installation of irrigation systems.
• The bill also allows the tax credit on the development of irrigation reservoirs and water wells, in addition to the conversion of fuel-powered systems to electric power.
“Self-employment tax is 13.3 percent, and most farmers I work with are in a 15 to 25 percent bracket. So if you add those together, you’re looking at roughly 30 percent between the two,” says Yeager.
The state income tax rate is about 5 percent, he adds, so it’s not as big an issue as is the federal tax.
“Since it’s an Alabama tax, you have to be an Alabama taxpayer to claim the tax incentive. You have to have an agricultural trade or business that qualifies under the NAICS Sector 11 Designation.
“How do you know if you qualify under that? If you filed a Schedule F last year, in the top center of that schedule is a code. Most all agricultural enterprises have an 11 in front of it. If you’re a farmer and you file a Schedule F, you’ll qualify,” he says.
The agricultural activity must occur within Alabama, says Yeager, and you must conform to existing environmental and water quality regulations.
A qualified reservoir, which is an off-stream upland pond or lake with the sole purpose of being a source of water for irrigation, qualifies for the credit, he says. “You can’t dig a pond to water cattle or a recreational pond and qualify for this credit.”
Pretty much all irrigation equipment — pivots, pumps, pipes — will qualify, says Yeager. “The conversion of irrigation from fuel to electricity also qualifies. If you’ve got diesel irrigation and you want to convert it, this may be an opportunity to take advantage of this credit.”
The credit can be taken only in the year the property is placed into service, he says.
“The placed-into service date is the date that it is ready and available for use. It’s not the date that it’s necessarily used. If you get your crop in this fall, and you decide you want to put in a pivot, and you put down a deposit on it but they don’t come construct it until after the first of the year, you’ve got a credit for 2013 and not 2012. If they finish it on Dec. 31, 2012, then you’ve got a 2012 credit.”
The credit is 20 percent of the un-reimbursed costs or $10,000, says Yeager. If you cost-share with NRCS or some other agency on a program, then that must be taken into consideration.
For example, if you put in a $100,000 reservoir and the agency cost-shares for $40,000, you’ve got $60,000 towards which you can apply the credit. At 20 percent, that’s $12,000, so your credit is the maximum $10,000.
The credit, he continues, is limited to one purchase or installation of equipment or a reservoir per taxpayer, it is non-refundable, and it can only be applied in the year in which it’s placed into service.
“If you’ve got a ‘0’ state income tax liability, and even if you qualify for the $10,000 credit, you don’t get any credit. If you have a $2,500 tax liability, you get a $2,500 credit.”