People who breed or sell alpacas are miffed over a report by Arizona Senator Jeff Flake about how the animals are used for a tax loophole.
"The industry is not real happy," said Lisa Haselhorst of Grandview Suri Alpacas in Parker, Colorado. Flake "doesn't have his facts straight."
Flake targets write-offs for alpacas, gamblers, holders of municipal bonds, and others in his new report, "Tax Rackets: Outlandish Loopholes To Lower Tax Liabilities." [See below for the report.]
At his Washington, D.C., office on Wednesday, Flake gave visitors cupcakes decorated with alpacas along with the report in booklet form, according to a tweet from CQ Roll Call reporter Jennifer Shutt.
Alpacas are a South American herd animal related to camels. The reports notes that they were a "rarity" outside of zoos 30 years ago in the United States, but the country has since become home to more than 154,000 of them because of their tax benefits. Ohio and Washington have the most.
"The relatively recent fad of farming the furry animals in the United States, however, may have less to do with
harvesting fleece than fleecing taxpayers," the report states. "The tax benefits are promoted by breeders associations to encourage the purchase of alpacas."
Section 179 of U.S. tax code, a subject of countless other tax-loopholes stories, provides the benefit. As a website about the tax scheme explains, Section 179 "allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income."
The tax code could be similar for any kind of livestock, but according to Flake's report, alpacas are useful for this purpose because they have a relatively high purchase cost — which increases the amount of the tax write-off — and are easy to house and maintain.
Flake's report quotes from a social-media posting by a woman who claimed that she was able to do amazing things with her tax burden after she invested $300,000 in the purchase of alpacas, even though she made no money selling fleece.
The "huge carry-over loss" allowed her taxable income to drop to zero, giving her business "no tax liability," the woman states. She saves $10,000 a year in property taxes because the alpacas allow her property to be designated as agricultural. And her children received $680,000 in grants to go to college because her reportable household income dropped to zero.
"Certainly, many got into the business out of their love for alpacas and succeeded," the Flake report states. "For many others, the up-front tax benefits drive speculative endeavors, such as alpaca farming."
While the market for alpaca fleece "never took off," using alpacas as a tax shelter created a large demand, the report states.
"I don't feel like that's true at all," said Bud Synhorst, executive director of the Alpaca Owners Association, Inc. "I thought he was disingenuous in his comments ... For him to say the fleece industry has not taken off is pretty ridiculous. He doesn't know the industry."
For one thing, the United States has about 250,000 alpacas, not 150,000, he said.
Alpacas live about 10 to 20 years and are usually gentle animals. The animals can be a good business opportunity in and of themselves, he said.
"When we go and talk to people at a show anywhere in the country, we talk about the business model they want to use: Do they want to become a breeder, do they want a big fleece business, or a cottage industry," Synhorst said. "Tax breaks isn't in the Top 10 list of of things I talk to them about."
Synhorst also took issue with Flake's video, saying the claim of abuse, even if he meant they were abusing tax code, "was very National Enquirer-ish," Synhorst said.
Wendy Dittbrenner, president of Alpaca Breeders of Arizona and the owner of an alpaca farm in Prescott Valley, agreed that the concept of abuse shouldn't have been used as a metaphor for Flake's criticism of the tax scheme.
"That's not funny," Dittbrenner said, adding that Flake should know better considering his son was once accused of animal abuse.
The main problem with Flake's report, Dittbrenner said, is that it denigrates the entire industry because of a tax loophole that few people can actually use.
"That is absolutely not an accurate portrayal of our industry," she said. "I'm appalled with what he put out there without any research or accuracy."
Dittbrenner's association represents about 25 alpaca businesses and doesn't promote the idea of alpacas as a tax shelter, she said.
Sure, if someone opens up a million-dollar business and buys $300,000 in alpacas, the person might get a good tax break, she said. But taking advantage of the tax code is something wealthy people do regularly, and for the Section 179 provision, they could use horses or any other livestock.
"He found a tax benefit that 99.9 percent of us don't realize and would never be in a position to care about," she said.
Most people who buy alpacas will have to spend a lot of time taking care of them, sometimes late at night or very early in the morning, Dittbrenner said.
Farming alpacas is a labor of love — but also a potential money-making, environmentally sustainable business. And she's angry at Flake for failing to see that.
"He is hurting a good industry," she fumed. "We are literally working so hard to grow this natural textile in his home state. It's not petroleum-based and isn't shipped from overseas. We're growing a green and natural resource. What could be better?"
While Flake's knowledge of the industry is unclear, online articles show that the alpaca industry was marketed as a quick way to get rich in the mid-2000s. But many people who bought the animals to make a profit on their wool lost money.
"The fundamental fact is that in this country, an alpaca, as an asset, an income-producing asset, is worthless. It has no value at all," an agriculture economy expert told a Grist.org writer for a 2015 article.
Haselhorst admitted that Flake could have targeted alpacas because the industry has made too much hay about the alpaca tax benefits.
"I know it's a selling point for many people," she said.
Haselhorst's website, as Flake noted prominently in his report, had one web page dedicated entirely to the tax code.
"Let Uncle Sam buy your alpacas for you!" says the web page, "The Tax Benefits of Owning Alpacas."
If a person's income is sufficient, "You can write 100% of your original purchase price off, up to a maximum of $250,000, in the year of purchase," the page states.
The company recently took the page down, but its text can still be seen in Flake's report and on Archive.org.
Flake's report covers billions of dollars' worth of tax benefits that benefit individuals, rather than Americans in general, in a variety of schemes.
"Clearly, federal taxes are needlessly complicated, blatantly unfair, and way too high for most Americans, " Flake wrote in his report, which he said identified $50 billion in potential savings over the next 10 years, if the loopholes can be shut.
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Congress should look at "scrubbing the tax code" to find more loopholes totaling hundreds of billions of dollars, according to Flake.
"The result would be reduced tax bills for most American families and small businesses, greater prosperity and
opportunity for all, and a simpler, flatter, and fairer tax code that is far less susceptible to manipulations and rackets," Flake wrote.
See below for Flake's report, "Tax Rackets: Outlandish Loopholes to Lower Tax Liabilities."