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Tax law adds to farmers’ fuel burden

Tax law adds to farmers’ fuel burden

If diesel fuel prices hitting $5 per gallon in the region weren’t enough of a problem, a quirk in st

If diesel fuel prices hitting $5 per gallon in the region weren’t enough of a problem, a quirk in state tax law is forcing farmers to wait several months before getting a rebate on various state and federal taxes they didn’t have to pay up front last year.

For Jim Shaul, who with his brother Dave grows vegetables on nearly 2,000 acres in Schoharie County, that adds up to a cash flow problem.

“Our fuel bill averages almost $30,000 a month,” Shaul said. “We have to put an awful lot up front now, and it makes it tighter for farmers than before.”

In general, farmers are exempt from paying taxes on items necessary for running the farm, such as fuel and animal feed. But now they have to pay taxes on diesel fuel and wait to get that money refunded.

Record high corn prices, partly fueled by nationwide speculation in corn-based ethanol production, is helping to ease the cash crunch, he acknowledged. “But now the government has more of our money to use,” he said.

No fuel, no food

The problem stems from a 2007 change in federal Environmental Protection Agency regulations that now require farmers to use the same ultra-low-sulfur diesel used by vehicles on the road. That ruling turned the fuel that most farmers and some marine and off-road users rely on into an “enhanced diesel fuel,” according to New York Farm Bureau spokesman Peter Gregg.

“Now the vendors have to pay the tax up front and are passing it along to the farmer,” he said.

Farmers can still apply to get the sales and excise taxes refunded, but it takes about four months, according to Gregg.

“Everybody is certainly feeling the pinch from rising fuel prices, so we don’t expect any special empathy. But at the same time, farmers use a tremendous amount of fuel to produce the food people eat, and it could potentially affect the future of agriculture,” he said.

The state Department of Taxation and Finance agrees that the outdated and complicated state regulations should be changed to correct the problem, according to department spokeswoman Susan Burns, but efforts to enact changes failed to gain approval in the recently ended state Legislature session.

Various state taxes account for about 40 cents per gallon of diesel, according to tax department officials. State and local sales taxes, generally 4 percent each, are added to the retail price to farmers. Included among the state taxes is a 14.65 cent petroleum business tax and an 8 cent excise tax.

Tax department legislation to fix the fuel definitions and revert back to the former exemption system were contained in former Gov. Eliot Spitzer’s budget package but did not make it through the Legislature last spring. Similar bills sponsored by state Sen. Elizabeth Little, R-Queensbury, and Assemblyman William Magee, D-Nelson, also did not gain final approval.

Use-specific rules

Complicating the technical process of changing the law is a state Legislature cap on state sales tax on motor fuels sold at a price above $2 a gallon, as well as procedures to avoid evasion of taxes by misuse of tax-exempted fuels for road vehicles that do not qualify, according to Burns.

As they were written, Little and Magee’s bills sought to clarify that the state’s petroleum business tax, diesel motor fuel excise tax and sales tax would not be required for the purchase of dyed non-road diesel by a distributor supplying specifically exempt categories, including farms.

Although farm diesel used to be dyed a reddish color to designate off-road use, according to Shaul, local fuel dealers now supply regular clear diesel, the same as highway fuel, to comply with the ultra-low sulfur rules.

Such undyed highway diesel also draws an additional 24.4 cents per gallon federal excise tax, according to Burns.

To coordinate bookkeeping for tax rebates, Shaul stores his fuel in three 1,000-gallon tanks. The tanks are separated into diesel for farm use, diesel for road use and gasoline.

Little’s bill passed the Republican-controlled state Senate 62-0 on June 24, according to Little spokesman Daniel MacEntee. Magee’s bill never reached the floor of the Democrat-controlled Assembly and was referred to a committee.

“It doesn’t really affect state revenues at all,” MacEntee said. “It’s really just a matter of reducing the work on our farmers, who have to go through the trouble of filling out the paperwork for a refund.”

Although the EPA change goes back to June 1, 2007, according to state tax officials, and it apparently was put into effect last fall, according to MacEntee, Shaul said farmers only started feeling the impact when they ordered bulk fuel deliveries this past spring.

“We’ve learned from farmers it’s a real hardship,” MacEntee said. Little expects to try again in the next legislative session, he said.

Costly enterprise

Ever since his late father, Max V. Shaul, started replacing horses by using his first rubber-wheeled tractor in 1939 to till fields, fuel costs have been a growing expense, Jim Shaul noted Wednesday.

Equipment such as a massive eight-wheeled 350 horsepower Steiger “Panther” tractor, used as the first plow on fields, can “go through $1,000 [in diesel fuel] when you’re running it 24 hours a day,” he said.

The machine, which pivots in the center, can cut a 12-foot swath to plow up a field before a lighter tiller pulverizes the soil. The big Steiger is one of more than 15 tractors, including some antique gasoline-fired Farmalls, used on the farm that includes fields over a 40-mile stretch from Middleburgh to Blenheim.

Tilling and planting typically takes about three weeks in the spring and is the most intensive use of fuel, but harvesting corn and various vegetables, melons and other crops continues throughout the growing season, according to Shaul.

This season, Shaul Farms is experimenting to save fuel by planting corn directly in about 100 acres of fields without plowing following an early May hay cutting. So far, the plants seem to be doing well, Shaul said.

During dry periods, including the past couple of weeks, two large irrigation machines are moved through various fields to spray water pumped from the Schoharie Creek through 1,400-foot-long hoses.

“Fuel costs about $500 a day irrigating this time of year,” Shaul said. It takes about four days to put the inch of water on fields that crops need each week, he said.

The effect of fuel costs on farmers can show up in various ways, Gregg, of the Farm Bureau, noted.

“Fuel prices account for about 6 percent of overall operating cost,” he said. “On dairy farms, the farmers bear the cost of hauling their milk to market ... with [fuel surcharges] adjusting every month.”

In one hand, out the other

Dairies are benefitting from relatively high milk prices, but at the same time, high corn prices mean high feed costs and petroleum components are pushing fertilizer prices higher.

Nitrogen fertilizer prices rose from about $600 per ton in 2007 to $850 per ton this season, according to Shaul. Potash used for side dressing between vegetable rows is up from about $230 last year to $400 now, he said.

Shaul said he uses about 200 pounds of potash per acre for his several hundred acres of vegetables.

Fuel costs can be more hidden for some smaller farmers, such as sheep raiser Linda Cross of Cripplebush Creek Farm in Carlisle.

In addition to factoring in the cost of higher diesel prices to haul sheep to slaughter when that time comes, a recent trip to take wool to Canada for processing was costly, she said.

In June, Cross said she and her husband Bob drove their Ford F350 diesel pickup to Prince Edward Island in eastern Canada to have their wool processed into about 75 blankets, which they could sell on their farm.

Fuel for the approximately 1,700-mile round trip ran about $5.70 per gallon, computed to equalize exchange rates, she said. The fuel bill totaled about $600, according to Bob, who did the driving.

Cross said she uses the Canadian processor because it returns her own wool in the blankets they make, rather than simply blending it with other bulk wools as some other mills do.

Even on small farms, fuel costs eat into haying operations, as well as small equipment such as chain saws, Bob Cross noted.

Maple Hill Farm operators Caroline Foote and Victor Putnam are trying to cut costs by making their own biodiesel fuel from waste vegetable oil on their Carlisle farm.

The small-scale operation primarily fuels equipment on the maple products and forest farm, but they hope to expand production, according to Foote.

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