NC Cooperative Extension Service

"Establishing Tobacco Quota Basis
for
Pitt County, North Carolina"

Mitch Smith, County Extension Director

403 Government Circle - Suite 2
Greenville, NC 27834

Introduction

On October 22, 2004, President Bush signed into law the American Job Creation Act of 2004, which included the Fair and Equitable Tobacco Reform, commonly referred to as the tobacco buyout bill. Under this legislation, payments will be made to tobacco quota holders and producers. The federal tobacco marketing quota and price support loan programs have ended. As a result of this legislation, tobacco growers and allotment holders are now faced with crucial tax decisions.

Establishing a Basis

Before tax planning can begin, taxpayers (former quota holders) will have to determine the historical value or a basis for their allotments. Such information is essential in order for quota holders to reduce their capital gains taxes on tobacco transition payments which can be received in nine remaining installments or in one lump sum payment. Establishing a basis is necessary in order for quota holders to calculate their gain on federal and state taxes.

The basis is the value of quota when it was obtained. Capital gains is calculated by determining the difference between that basis and the buyout payments. Taxes are paid on the gain that one's property has made so the higher the basis amount, the more that can be subtracted from the value used to calculate capital gains taxes.

There were generally three ways that an individual could acquire tobacco quota and basis. Those ways were: by purchase, by inheritance or by gift. Basis may also be adjusted if there has been a change to the basis value.

Quota owners attempting to calculate a basis value without actual data must remember the three general methods of acquiring basis and not randomly select a number. A reasonable effort on the part of the quota holder must be made. If historical data is available, quota holders may be able to extrapolate a value for tobacco quota many years after the quota was actually acquired.

Sources of Historical Data

If quota holders lack actual transaction accounts but acquired the quota from other than the US Government when it was originally assigned (1938), quota holders may be able to assign a value to the basis based upon historical records. These records may come from permanent farm records but where allocation to quota was not made at the time of purchase. Possible sources of records for basis values may include:

  1. The Pitt County Tax Assessor's Office

    Table 1. Tobacco Quota Tax Values for Pitt County

      Tax Value for County Quota
    Period Tax Value
    1981-1995
    $1.00
    1996-2004
    $2.00

    Source: Pitt County Tax Assessor's Office

  2. Real estate transaction records for a county
  3. Private banks and lenders
  4. Independant appraisers
  5. USDA publication "Farm Real Estate Values in the United States by County 1850-1982. ERS Statistical Bulletin 751, Published March 1987" (see Table 2)
  6. The North Carolina Department of Agriculture and Consumer Services
  7. The North Carolina Cooperative Extension Service
  8. Personal information regarding the buying or selling of tobacco quota (i.e. canceled checks)

Table 2. Farm Real Estate Values for Pitt County (1850-1982)

  Value of Farmland and Buildings in Pitt County, NC
Year Dollars Per Acre
1940
$71
1945
$84
1950
$198
1954
$288
1959
$448
1964
$505
1969
$512
1974
$815
1978
$1,553
1982
$1,822

Source: ERS Statistical Bulletin 751, Published March 1987 - Note: The figures in the preceding table are real estate values which may or may not include land. Using some interpolation of this information may be helpful in assisting former quota holders to detemine a basis which will be acceptable to the IRS and the North Carolina Department of Revenue.

Local Estimates

In an effort to support other sources used to determine historical tobacco quota basis, a survey was conducted in September 2005 among 128 active county tobacco growers. The purpose of this survey was to solicit personal opinions regarding the value of tobacco quota since 1960. Tables 3, 4, 5, 6 and 7 represents the results of this survey with thirty (23.4%) county tobacco producers participating. Each value stated by these thirty producers is listed along with the actual responses from in this survey.

The information provided in Tables 3 - 7 reflects the opinions of thirty active tobacco producers and is provided solely for review. This information is a small sample of county tobacco growers' opinion and is not intended to replace other reasonable efforts expended to acquire historical tobacco quota values. Tobacco growers and former allotment holders should refer to Table 2 when attempting to establish historical tobacco quota values.

Quota holders should demonstrate reasonable efforts in determining the basis of tobacco quota when records for a farm are missing. When using third party historical data to calculate basis of tobacco quota, erring on the side of conservatism is prudent. This is to safeguard quota holders in the event that they are asked to defend their assessments of the tobacco quota values.

Table 3. Quota Values Stated for 1960-1969

  Historical Tobacco Quota Values in Pitt County, NC
(1960-1969)
Value Per Pound Percent of Opinions Responses
$1.50
5%
1
$1.60
5%
1
$1.75
5%
1
$2.00
30%
6
$3.00
25%
5
$3.25
5%
1
$3.50
10%
2
$4.00
5%
1
$5.00
10%
2

Table 4. Quota Values Stated for 1970-1979)

  Historical Tobacco Quota Values in Pitt County, NC
(1970-1979)
Value Per Pound Percent of Opinions Responses
$1.50
4.3%
1
$1.80
4.3%
1
$2.00
13%
3
$2.38
4.3%
1
$2.50
22%
5
$2.75
4.3%
1
$3.00
9%
2
$3.25
4.3%
1
$3.30
4.3%
1
$3.50
13%
3
$3.75
4.3%
1
$4.00
4.3%
1
$6.00
4.3%
1
$8.00
4.3%
1

Table 5. Quota Values Stated for 1980-1989
  Historical Tobacco Quota Values in Pitt County, NC
(1980-1989)
Value Per Pound Percent of Opinions Responses
$2.00
7.1%
2
$2.20
3.6%
1
$2.35
3.6%
1
$2.50
7.1%
2
$2.75
7.1%
2
$2.78
3.6%
1
$2.88
3.6%
1
$3.00
14.3%
4
$3.50
25%
7
$3.70
3.6%
1
$4.00
14.3%
4
$4.50
3.6%
1
$8.00
3.6%
1

Table 6. Quota Values Stated for 1990-1999
  Historical Tobacco Quota Values in Pitt County, NC
(1990-1999)
Value Per Pound Percent of Opinions Responses
$2.00
3.3%
1
$2.25
3.3%
1
$2.50
3.3%
1
$2.75
3.3%
1
$3.00
16.7%
5
$3.25
10%
3
$3.50
16.7%
5
$3.75
13.3%
4
$4.00
13.3%
4
$4.50
6.7%
2
$5.40
3.3%
1
$6.50
3.3%
1
$7.00
3.3%
1

Table 7. Quota Values Stated for 2000-2004
  Historical Tobacco Quota Values in Pitt County, NC
(2000-2004)
Value Per Pound Percent of Opinions Responses
$3.00
6.7%
2
$3.25
6.7%
2
$3.50
6.7%
2
$4.00
23.3%
7
$4.25
3.3%
1
$4.50
23.3%
7
$4.75
3.3%
1
$5.00
10%
3
$5.25
3.3%
1
$5.90
3.3%
1
$6.00
10%
3


Disclaimer: Information provided is for informational purposes only: nothing herein constitutes the provision of legal advice or accounting services. Quota owners should contact their tax practitioner relative to their circumstances in regards to these issues. IRS may issue rules and regulations providing guidance with regard to the tobacco quota buyout.

This page (http://www.ces.ncsu.edu/pitt/ag/tobacco/quotavalues.html) was created by Mitch Smith, County Extension Director, September 14, 2005. Last revised on November 10, 2005.

Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Employment and program opportunities are offered to all people regardless of race, color, national origin, sex, age, or disability. North Carolina State University at Raleigh, North Carolina A&T State University, U.S. Department of Agriculture, and local governments cooperating.