Tax Incentives Blog

2018 Farm Bill Sows Tax Breaks for Industrial Hemp

Written by Mark Echols. Updated May 15, 2019.

RD_HempFifty-four years ago, the U.S. government established the Agriculture Improvement Act – or ‘Farm Bill’ - to address agricultural, conservation, forestry, nutrition, and food policy. Since it’s implementation, congress reviews and updates legislation approximately every five years.

The massive bill’s latest revision in December 2018 introduced new legislation that has sprouted a big win for the industrial hemp industry: the Hemp Farming Act of 2018. This marked addition legalizes industrial hemp farming and associated products at the federal level, granting individual state governments the power to support the crop within their state if they so choose.

Not High Enough

The plant in subject contains only a maximum 0.3 percent of tetrahydrocannabinol (THC) - the psychoactive chemical found in marijuana at a substantially higher dose.1 As they look and smell strikingly similar to the untrained eye, many people still confuse the plants. However, they are two biologically distinct species of the cannabis plant. The low concentration of THC in hemp renders it unsuitable as a psychoactive product, like marijuana - which remains federally illegal.

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Nevertheless, before the 2018 bill, federal law regarding industrial hemp was a patchwork of statutes, regulations, and court decisions that granted the importation of certain hemp products, but not the domestic production of the crop. The 2018 Farm Bill eliminates hemp as a controlled substance and allows farmers to pursue federal hemp cultivation permits

Sowing Tax-Saving Seeds

This decriminalization of hemp production powers farmers and agribusinesses to generate revenue from the crop. It has also sown the seeds for them to gather valuable savings and incentives by way of the federal R&D tax credit for researching and developing new and improved hemp plants and products.

Though the federal R&D tax credit has been around since 1981, pre-2018 hemp legislation strictly limited taxpayers’ ability to claim R&D tax credits for the cultivation of hemp-related products. Relief for the federal tax savings drought is here.

Additionally, many states offer incentives that piggy-back the federal rules regarding the credit’s qualifying activities.  With this new bill, industrial hemp producers can enjoy tax-saving opportunities that were previously planted out of reach.

Reaping Research and Development Rewards

To reap the bounty of newly available tax incentives raised through the bill, industrial hemp producers should look to certain farming and agricultural activities when developing new or improved hemp seeds, fibers, oils, and other merchandise:

  • Evaluating and testing new soil additives
  • Experimenting with new irrigation systems
  • Researching and developing improved strains of hemp crops
  • Designing new techniques to advance the harvest lifecycle
  • Developing new lighting designs
  • Researching cannabis flower harvesting methods

The Renewed Harvest

The Hemp Farming Act of 2018 has given pardon to a useful plant that will help spur the economy and job growth. And for those who seek to prosper from its production, they can enjoy lucrative tax-savings in their pursuit of its research and development.

And for those individuals and agribusinesses who want to maximize benefits, soliciting the help of an experienced R&D tax specialist will ensure they harvest the most credits and incentives possible.

 

 

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1. Hemp vs Marijuana, Ministry of Hemp, 2018

Topics: R&D Tax Credit

Mark Echols

Written by Mark Echols

Mark leads CTI’s national research and development (R&D) tax credits practice and is involved in all aspects of providing R&D tax credit services to his clients, including: conducting high-level R&D tax credit feasibility analyses, managing complex and comprehensive R&D tax credit studies and defending R&D tax credit claims under IRS and state taxing authority examinations.

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