Origin: Income tax or corporate excise as applied to business activity is typically imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of items that will be used over multiple years. Rather, the cost of such items must be capitalized and deducted as depreciation or amortization expenses over several years, based on the item's useful life. Code §§ 175 and 180 provide exceptions to the capitalization requirement for expenses incurred by farmers for (i) soil and water conservation expenses and (ii) fertilizer costs, respectively.
Code § 175 allows a deduction for soil and water conservation expenses in the year they are incurred even if the conservation measures provide a benefit over a number of years. The deduction cannot exceed 25% of a taxpayer's gross income derived from farming. To qualify for an immediate deduction expenses must be consistent with a plan approved by the federal Department of Agriculture or a similar state agency. Eligible expenses include amounts paid for (i) the treatment or moving of earth including leveling grading and terracing (ii) contour furrowing (ii) the construction control and protection of diversion channels drainage ditches earthen dams watercourses outlets and ponds (iv) the eradication of brush (v) the planting of windbreaks and (vi) expenses incurred in preserving endangered animal species under a recovery plan approved pursuant to the federal Endangered Species Act of 1973.
Code § 180 allows the immediate deduction of fertilizer costs even if the fertilizer's effect lasts for multiple years. There is no limit on the amount of the deduction and no requirement that the expenses be approved by any federal or state agency.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction allowed to farmers for soil and water conservation expenses and fertilizer costs. Thus Massachusetts conforms to the federal provisions allowing farmers to deduct such expenses immediately rather than recovering the expense over a period of years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to farmers. The deferral constitutes a Massachusetts tax expenditure.
Origin: IRC §§ 175, 180 and MGL c. 63, § 30
Corporate Excise Tax
Accelerated Deductions from Gross Income
2.314
Expensing of Certain Capital Outlays of Farmers
Income tax or corporate excise as applied to business activity is typically imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of items that will be used over multiple years. Rather, the cost of such items must be capitalized and deducted as depreciation or amortization expenses over several years, based on the item's useful life. Code §§ <a href="https://www.law.cornell.edu/uscode/text/26/175" target="_blank">175</a> and <a href="https://www.law.cornell.edu/uscode/text/26/180" target="_blank">180</a> provide exceptions to the capitalization requirement for expenses incurred by farmers for (i) soil and water conservation expenses and (ii) fertilizer costs, respectively.<BR><BR>Code § <a href="https://www.law.cornell.edu/uscode/text/26/175" target="_blank">175</a> allows a deduction for soil and water conservation expenses in the year they are incurred even if the conservation measures provide a benefit over a number of years. The deduction cannot exceed 25% of a taxpayer's gross income derived from farming. To qualify for an immediate deduction expenses must be consistent with a plan approved by the federal Department of Agriculture or a similar state agency. Eligible expenses include amounts paid for (i) the treatment or moving of earth including leveling grading and terracing (ii) contour furrowing (ii) the construction control and protection of diversion channels drainage ditches earthen dams watercourses outlets and ponds (iv) the eradication of brush (v) the planting of windbreaks and (vi) expenses incurred in preserving endangered animal species under a recovery plan approved pursuant to the federal Endangered Species Act of 1973.<BR><BR>Code § <a href="https://www.law.cornell.edu/uscode/text/26/180" target="_blank">180</a> allows the immediate deduction of fertilizer costs even if the fertilizer's effect lasts for multiple years. There is no limit on the amount of the deduction and no requirement that the expenses be approved by any federal or state agency.<BR><BR>Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction allowed to farmers for soil and water conservation expenses and fertilizer costs. Thus Massachusetts conforms to the federal provisions allowing farmers to deduct such expenses immediately rather than recovering the expense over a period of years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to farmers. The deferral constitutes a Massachusetts tax expenditure.
IRC §§ <a href="https://www.law.cornell.edu/uscode/text/26/175" target="_blank">175</a>, <a href="https://www.law.cornell.edu/uscode/text/26/180" target="_blank">180</a> and MGL <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section30" target="_blank">c. 63, § 30</a>
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