This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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Treat California Farmers with Tax Fairness
By Dennis Cardoza

I think most people wish their taxes were lower, or think they should be exempt from certain levies. We all want to keep as much of the money we work for as we can. But we must also pay a fair share to keep our roads safe and improve California's schools as well as ensure that the infrastructure remains sound and our towns and homes are safe and secure. As the author of one of the largest tax cuts in California history, I am keenly aware of the need for adequate funding balanced by realistic tax rates in our lives. There are, however, some taxes that hurt more than others.

California is the largest agricultural producer in the United States. But because of our tax laws, our farmers must spend more money than many of their competitors for tractors and other farm equipment. I believe the hard-working men and women in California agriculture should be able to compete on an equal footing against other farming states and heavily subsidized foreign agricultural interests.

That is why I introduced Assembly Bill 7 to eliminate the state sales and use taxes on farm equipment purchased for agricultural operations. Our state is currently one of only four to burden farmers with a full state sales tax on such machinery.

My bill, which is supported by a large coalition of agricultural interests and a bipartisan group of legislators, would afford our farmers a 6 percent savings when they purchase farm machinery within California. This will encourage them to buy in their community, and keep their money circulating within the state. Cash from such purchases ends up in local towns where it funds schools, pays local business wages and keeps alive the small communities that dot rural America.

But production costs continue to rise, and the current energy crisis has yet to be felt by many farmers. With spring planting just around the corner, agriculture could very well be shocked by the increased cost of running sprinklers and irrigation pumps. Farmers are already in a corner as they struggle to cope with commodity prices at levels not seen since the 1980s and cutthroat competition. They need our help to meet these challenges, and I believe that ending this tax inequality is a step in the right direction.

When a consumer purchases food and processed agricultural products, price is almost always a major consideration. Wholesalers set these prices, not the farmer. Unlike manufacturers of durable goods who pass on production cost increases to the buyer, farmers are "price takers," not "price makers." In other words, their perishable products are sold for what the market offers - take it or leave it.

Because of this, it is vital that we restore equity to the system and not penalize our agriculture sector in their competition with other states and highly subsidized foreign farm interests. This is not only good business, but also fair to those who work on extremely narrow price margins, and yet deliver the best meat, produce and processed foodstuffs in the world.

Dennis Cardoza, 
a Merced Democrat, has represented the 26th District in the state Assembly since 1996. The district includes all of Merced County and parts of Stanislaus and San Joaquin counties.

To those who say we need the revenue, I would answer that we will lose far more tax dollars if we allow farming to lose its prominence in our state. Farming and agricultural production represent the second-biggest commercial sector in California.

California agriculture is the most advanced in the world. Our farmers, in cooperation with our great university system, are at the cutting edge of agricultural technology. This enables them to bring consumers the safest, cheapest and most plentiful food in the world. We all benefit from the bounty of California's magnificent farm country. But when it comes to purchasing farm equipment, our farmers are getting a bad deal, and I think we need to help them.

(Editor's Note: Mr. Cardoza introduced AB 7 in the midst of a publicized State Board of Equalization crackdown on farmers who have not paid the California sales and use tax on tractors and other farm machinery purchased from out-of-state suppliers. According to published reports, the BOE has a pilot program involving "revenue opportunity specialists" who descend on California farmers, armed with information on buyers obtained from major out-of-state dealers. There are about 1,200 Californians who haven't paid taxes on farm equipment purchased from out of state, which the BOE estimates amounts to $8 million a year in uncollected taxes.

In a press release, Mr. Cardoza was critical of the board. "I don't agree with the Board of Equalization's recent efforts to persecute our local farmers - in fact, I find it reprehensible," he said. "I have chosen to work with the men and women of agriculture rather than against them. I feel that their contribution to our great state and country should be honored instead of vilified."

He said the board should have come to the Legislature with the problem instead of unleashing tax collectors on farmers.

The Los Angeles Times reported that the BOE acted at the behest of the Far West Equipment Dealers Association. Based in California, it has 350 member dealers in seven states and, according to BOE records, has sought action on this issue since 1996. However, The Times also quoted Jeff Huckins, general manager and chief executive of Woodland Tractor & Equipment: "We've never encouraged the Board of Equalization to go out on a mass investigation to audit every farmer in the state of California. Our goal is to try and see if we can't get the sales tax repealed somehow, some way."

The Far West group supports AB 7, as does the California Farm Bureau Federation.

The Sacramento Bee reported that BOE officials promised that, for now, they would work with the farmers on the tax problem. Dean Andal, a Republican former state legislator and current BOE member, said the Democrat-controlled Legislature in recent years failed to act on Republican-authored bills providing income tax credits on farm equipment purchases. He said existing law puts California farmers in an "untenable situation. It puts farmers in a hopeless spot.")