The Mountain State is home to more than 23,000 farms that generate over $750 million worth of crops and livestock annually. At just over 95%, our state leads the country in the percentage of family-owned farms. The Sensible Taxation and Equity Promotion (STEP) Act being considered by Congress puts at risk these family farmers who are the backbone of West Virginia agriculture.
The STEP Act cuts at the heart of family farming by axing a decades-old tax principle called “step up in basis.” Under existing law, the Internal Revenue Service “steps up” the cost of inherited land and business assets, farming equipment and machinery to account for inflation and the natural appreciation in value that occurs between when parents take ownership of the family business to when they die and pass it on to their children.
Stepped-up basis ensures that the new owners don’t have to pay taxes that could force them to cut back operations, lay off employees or sell the farm altogether.
In a misguided effort to close a supposed tax “loophole,” the STEP Act equates the value of a farm or business with the personal value of the family that owns it. When parents pass away, the IRS would treat the ensuing transfer of ownership as a sale and charge their children a steep new tax. The IRS would view it as if the children had owned the business from the beginning and sold it, and then make them pay taxes on their capital gains.
On top of that, the numbers clearly show that the STEP Act would force a majority of West Virginians to sell their farms.
For example, if a son and daughter worked on their family’s farm in Marshall County but lost their dad suddenly, they would become the new owners overnight. Their dad might have purchased the farm for $65,000 in 1980 but had grown the operation over the next four decades by bringing on workers and expanding his acreage. In what should be good news for the kids, the farm’s new value is $1.8 million. Unfortunately, under the STEP Act, what this would mean is that the children now owe the IRS over $300,000 in taxes.
Under the act, they would have 15 years to make the payment, but a local bank would be forced to classify their new obligation as a lien, likely drying up any lines of credit and nixing the chances of getting help with a loan. In almost all scenarios, the children would be forced to forfeit what their dad had dedicated 40 years of his life building for them.
West Virginia needs a strong voice for its middle-class and farming families, and we need a stronger voice against dangerous new proposals that attempt to generate revenue on the backs of American farmers. The current rules keep family farming in America’s DNA and helps the majority of West Virginia producers continue to put food on the table.
We need our representatives in Congress, especially Sen. Joe Manchin, D-W.Va., to vote no on the STEP Act. The STEP Act not only would hurt middle-income families that the Biden administration has pledged not to target with new taxes, but it would have a disproportionately catastrophic effects on West Virginian farmers and the state’s economy.
Kent Leonhardt is commissioner of the West Virginia Department of Agriculture.
