2/6: Enhanced Tax Laws Encourage Businesses to Donate Food and Produce
Two recent enhanced pieces of tax legislation, one Federal and the other state, offer tremendous benefits to large and small business donors in hopes of encouraging increased food and produce donations to food banks and other charitable organizations in this time of great need.
At the Federal level, an enhanced tax deduction for all business taxpayers was included in the American Tax Relief Act of 2012 – the “Fiscal Cliff” deal – passed by Congress on January 1, 2013 and signed into law by President Obama. This included an extension of tax incentives to foster increased donations of food and grocery products from small businesses to food banks, not just those donated by larger C level corporations.
As a result, the law extended the enhanced tax deduction for food and grocery product donations to all business taxpayers from Jan. 1, 2012 to Dec. 31, 2013, meaning that the law now applies to donations from non-C level corporations. The key is that this provision is retroactive for product donations already made to food banks and other charitable hunger-relief organizations in 2012, as it had previously expired at the end of 2011.
Just seven months earlier in late spring 2012, Arizona passed an enhanced law designed to encourage donations of Arizona-grown produce.
Designed with input from the farming community, the Charitable Crop Contribution Law (A.R.S. § 43-1025) allows Arizona farmers, growers, producers and others to reduce their tax burden by subtracting 100% of the wholesale market value of the donation from their Arizona adjusted gross income. It also removes complicated restrictions, making donating easier.
“Food banks are always in need of large donations, especially of fresh, nutritious food,” said Ginny Hildebrand, president & CEO of the Association of Arizona Food Banks. “We’re excited about the potential of these laws and in tandem hope they will foster increased donations at a time when Arizona food banks can really use them.”
By allowing the Federal tax deduction to all apply to all sizes of business taxpayers, including farmers, retailers, franchisees, ranchers and other small business owners, it enables them to take an enhanced tax deduction that is the sum of one-half of the unrealized appreciation (fair market value minus cost equals appreciation) plus the taxpayer's cost (the deduction cannot exceed two times the cost of the contributed property as described in IRC Section 170(e)(3)
As for donating Arizona-grown produce, analysis from the food banks shows that less than 1% of fresh produce grown in Arizona was being donated to food banks. The enhanced law now makes these produce donations common sense by allowing farmers and others to deduct the wholesale market price of the produce for tax purposes. The law also gets rid of complicated restrictions that entire crops be harvested on behalf of a charity. That means farmers can immediately donate food when they choose.