Business and Financial
Following a flurry of activity before its break, the Ohio General Assembly can now enjoy a few lazy days of summer. While the legislature spent much of its energy passing the state budget, it also moved several bills affecting agriculture. Here’s the latest update on legislation that's moving down at the capitol.
Solar and wind facilities. We wrote earlier about S.B. 52, the wind and solar facility siting bill the legislature passed in late June. Despite pressure to veto the bill, Governor DeWine signed the legislation on July 12; its effective date is October 9, 2021. The new law requires developers to hold a public meeting in a community at least 90 days prior to applying for project approval, allows counties to designate restricted areas where wind and solar projects may not locate, sets up a referendum process for county residents to have a voice in restricted area designations, adds two community officials to the project review process at the Power Siting Board, and establishes rules for decommissioning of projects, including performance bonds.
Natural gas services. While communities will have a say in siting wind and solar facilities after S.B. 52’s passage, the opposite will be true for natural gas services. H.B. 201 guarantees that persons have a right to obtain natural gas and propane services, subject to municipal home rule authority and regulatory oversight. The bill prohibits political subdivisions from limiting or preventing gas and propane services within its boundaries. Governor DeWine signed the bill on July 1 and it becomes effective on September 28, 2021.
State budget. It took a good while, but the governor signed the state budget bill, H.B. 110, on June 30 and it took effect on July 1. Highlights of agricultural provisions in the bill include:
- H2Ohio. Requires state agencies that prepare the already mandated annual report on the H2Ohio fund to present the report to the Senate and House finance committees each year. ORC 126.60(D).
- Ohio Proud. Allows the Ohio Department of Agriculture (ODA) to sell merchandise that promotes the Ohio Proud program, and to use proceeds for the Ohio proud, international, and domestic market development fund. ORC 901.171(B) and (C).
- Liming inspections. Allows the ODA director to enter into agreements with private parties for the inspection, sampling, and analysis of liming material and allows those parties to enter onto private and public land for inspections. ORC 905.59.
- OSU Extension. Establishes a farm production, policy, and financial management institute in OSU Extension to address the integration of farm production practices, agricultural marketing, farm policy, and financial management challenges for farm owners and managers, lending agencies, ag teachers, and OSU professionals and provides the institute $250,000 each year for two years. ORC 3335.38.
- Farmers market inspections. Removes the option for a farmers market to register and be inspected as a farm market with ODA. ORC 3717.221(A) and (B).
- Wine taxes. Makes the 2 cents per gallon wine tax revenue credited to the Ohio Grape Industries Fund permanent. R.C. 4301.43.
- Southern Ohio Agricultural and Community Development Foundation. At the end of 2021, abolishes the foundation and its board, which was established in 1998 through the Tobacco Master Settlement Agreement with tobacco manufacturers. Any remaining funds will transfer to the Ohio Proud Marketing Fund.
- H2Ohio. Appropriates $49.3 million each year to the H2Ohio program for 2022 and 2023.
- Farmland preservation. Allocates $500,000 for the purchase of agricultural easements in 2022 and 2023.
- Soil and water phosphorus program. Allocates $10.7 million in 2022 and 2023 for programs to assist in reducing phosphorus in the Western Lake Erie Basin.
- SWCDs in Western Lake Erie Basin. Allocates $3.85 million to support Soil and Water Districts in the Western Lake Erie Basin in complying with former S.B. 1 and assisting with soil testing, nutrient management plan development, manure management technologies, filter strips and water management.
Bills on the move
Beginning farmers. H.B. 95 finally passed the House on June 28, 2021—it was introduced in February and lagged in the last legislative session. The proposal allows individuals to be certified as beginning farmers either through USDA or a certification program by ODA, Ohio State or Central State. Certification criteria includes: farming in Ohio less than 10 years, having a net worth of less than $800,000, providing a majority of labor and management for the farm, demonstrating adequate knowledge of farming, submitting projected earning and profits, demonstrating that farming will be a significant source of income, and participation in an approved financial management program. The bill would establish two income tax credits, one for owners who sell land and agricultural assets to certified beginning farmers and another for beginning farmers that attend a financial management program. The bill now requires Senate approval.
Slow-moving vehicles. H.B. 30 had its first hearing before the Senate Transportation committee on June 23. The proposal passed the House in April. The bill aims to increase visibility of animal-drawn vehicles by changing marking and lighting requirements. The vehicles would have to display either an SMV emblem or reflective micro prism tape rather than reflective tape on the rear, a flashing yellow lamp at the top and rear, in addition to current lighting requirements.
Earning statements. A bill passed by the House on June 16 has been referred to the Senate Small Business and Economic Opportunity Committee. H.B. 187 would require all employers to provide employee with a written or electronic statement of the employee’s earnings and deductions for each pay period, to include total hours worked and hourly rate, total gross wages, amounts and purposes of addition or deductions from wages, and total net wages. The bill also establishes a request and violation reporting system for employers who fail to provide the statements.
Moratorium on animal feeding facilities. A bill introduced by two representatives from northwestern Ohio would affect new and expanding animal feeding facilities in the Maumee watershed. H.B. 349 would not allow the Ohio Department of Agriculture to approve a permit for a new construction or expansion of a “regulated animal feeding facility” if it is in the Maumee watershed and the director of ODA has determined that the spring load of total phosphorus for the Maumee River exceeded 860 metric tons and total dissolved reactive phosphorus exceeded 186 metric tons in the preceding calendar year. Regulated animal feeding facilities are those housing over 250 dairy cattle; 300 beef cattle; 3,000 piglets; 750 hogs; 25,000 egg layers; 37,500 meat chickens; 9,000 egg layers and meat chickens if on liquid manure handling system; 16,500 turkeys; 3,000 sheep and 150 horses. H.B. 349 was referred to the House Agriculture and Conservation committee on June 16, 2021.
"Farm Office Live" returns this summer as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis, and other related issues. Targeted to farmers and agri-business stakeholders, our specialists digest the latest news and issues and present it in an easy-to-understand format.
The live broadcast is presented monthly. In months where two shows are scheduled, one will be held in the morning and one in the evening. Each session is recorded and posted on the OSU Extension Farm Office YouTube channel for later viewing.
|July 23, 2021||10:00 - 11:30 am||December 17, 2021||10:00 - 11:30 am|
|August 27, 2021||10:00 - 11:30 am||January 19, 2022||7:00 - 8:30 pm|
|September 23, 2021||10:00 - 11:30 am||January 21, 2022||10:00 - 11:30 am|
|October 13, 2021||7:00 - 8:30 pm||Februrary 16, 2022||7:00 - 8:30 pm|
|October 15, 2021||10:00 - 11:30 am||February 18, 2022||10:00 - 11:30 am|
|November 17, 2021||7:00 - 8:30 pm||March 16, 2022||7:00 - 8:30 pm|
|November 19, 2021||10:00 - 11:30 am||March 18, 2022||10:00 - 11:30 am|
|December 15, 2021||7:00 - 8:30 pm||April 20, 2022||7:00 - 8:30 pm|
Topics we will discuss in upcoming webinars include:
- Coronavirus Food Assitance Program (CFAP)
- Legislative Proposals and Accompanying Tax Provisions
- Outlook on Crop Input Costs and Profit Margins
- Outlook on Cropland Values and Cash Rents
- Tax Issues That May Impact Farm Businesses
- Legal Trends
- Legislative Updates
- Farm Business Management and Analysis
- Farm Succession & Estate Planning
To register or to view a previous "Farm Office Live," please visit https://go.osu.edu/farmofficelive. You will receive a reminder with your personal link to join each month.
The Farm Office is a one-stop shop for navigating the legal and economic challenges of agricultural production. For more information visit https://farmoffice.osu.edu or contact Julie Strawser at firstname.lastname@example.org or call 614.292.2433
Tags: Farm Office Live, farm management, Farm Succession, Estate Planning, Farm Business, Dairy Production, Farm Tax, Agricultural Law, Resource Law
Pesticide drift is a risk many farmers face. Pesticides in the wrong place can injure unintended targets such as crops, trees and other vegetation, animals, and people, and can raise questions of liability for the misapplication. What should you do if you suspect pesticide drift? Whether you’re on the sending or the receiving side of it, here’s a summary of what could happen after an incident of pesticide drift.
Documentation. Many pieces of information are necessary to analyzing whether and why pesticide drift occurred and can be helpful to determining liability. Documentation of an incident should include:
- Date, time, and location of the potential drift occurrence.
- Weather conditions at the time of the occurrence, including temperature, wind speed, and wind direction.
- Photographs of the site at the time of the possible drift.
- Date, time, and description of any damages that become noticeable after the pesticide application. Note that damage symptoms may not be visible for at least 7 days.
- Photographs of damages. A series of photographs taken over several weeks can help document damages as they develop, and a phone or time stamp will ascertain the date and time of each photograph.
- Identify of the applicator.
- Notes of conversations between neighbors, investigators, the applicator, and others.
Ohio Department of Agriculture (ODA) investigation. A person who believes drift occurred can file a pesticide complaint with the Pesticide Regulation Section of ODA, which has the authority to investigate an alleged pesticide drift situation and assess potential risks to human health, damages to crops and vegetation, and whether the applicator violated Ohio pesticide laws.
If someone files a pesticide complaint, ODA’s investigation could include reviewing maps of the properties, visiting the site, talking with the person who filed the complaint, taking photographs, and collecting samples. The agency might also seek a written statement from the complaining party and others aware of the occurrence. The inspector next meets with the pesticide applicator to gather information about the application, such as pesticide applied, pesticide labels, mixing and spraying practices, and weather conditions.
After reviewing a case, ODA submits an investigation report to the complaining party. If a violation occurred, the agency takes enforcement action against the applicator in the form of a warning, civil penalty, license restriction, or criminal prosecution. It could take months for ODA to complete the investigation and make an enforcement decision. Note that an ODA investigation and decision does not address compensation to any harmed parties—that must come through other mechanisms.
Settlement. It’s not uncommon for parties to agree between themselves on how to handle harm from a pesticide misapplication, especially if the damages are minor. Settlement might include a direct payment for estimated losses of crops or other goods, replacement of vegetation, or remediation of the damaged area. A well written settlement agreement can clarify the terms and prevent future liability issues from arising.
Insurance coverage. An insurance policy can provide compensation for pesticide drift damages, but it’s important to ascertain whose insurance applies to the situation and whether there is coverage for the particular incident. Many policies provide coverage for losses resulting from negligence or unintentional behaviors, such as drift resulting from an unexpected gust or an equipment malfunction. Liability insurance held by the landowner, a tenant operator, or a custom applicator could cover the damages resulting from negligence.
Some insurance policies will not cover certain intentional actions that could cause pesticide drift. Failing to follow the label or applicable laws and regulations could lead to a loss of coverage, for example. Additionally, a policy might contain a “pollution exclusion” that would deem pesticides and herbicides as “pollution” that is not covered by the policy. Note that federal crop insurance policies typically are not applicable, as they do not cover crop losses resulting from pesticide drift.
Civil litigation. Sometimes a pesticide drift situation can end in civil litigation between the applicator and those who claim harm from the application. The most common legal claims for pesticide drift in Ohio are a negligence cause of action claiming that the applicator failed to use the required standard of care when applying the pesticides and a “negligence per se” action claiming that the applicator’s violation of pesticide laws caused the harm. The harmed party might sue everyone involved with the land where the application took place, including a landowner, tenant operator, and custom applicator, leaving the parties to fight among themselves about who is liable. Claimed damages might include compensation for lost crops, costs of restoration, differences in property value before and after the harm, and expenses for medical treatment. If insurance hasn’t already been considered, it could arise in the litigation setting.
Pesticide drift is a risk that we hope won’t become a reality. Many management strategies can reduce that risk--education, following label instructions, selecting the right nozzle for the job, calibrating spray equipment, spraying in appropriate weather conditions, adapting buffers for sensitive crops and animals on nearby properties, and more. If the risk does become reality, both the applicator and the harmed party should be aware and prepared for what might happen next.
Farms and financing--that's a common combination in agriculture. Because farm operators often use financing arrangements to fund the capital intensive nature of farming, we created the Financing the Farm law bulletin series. The series aims to help operators, especially new and beginning farmers, understand the legal workings of farm financing arrangements.
We've just added two new bulletins to the Financing the Farm series. "Personal Guarantees and Agricultural Loans" addresses the legalities of a personal guarantee--a personal promise made by a third party to pay the loan if the borrower fails to do so. We explain when lenders might require a personal guarantee for a loan, how a personal guarantee works, and issues and implications for entering into this type of agreement.
Our second new bulletin is "Understanding Farm Operating Loans." We discuss how operating loans can meet the cyclical needs of agricultural financing and review different types of operating loans. Security interests are a common feature of operating loans, and we explain that component of the loan agreement.
The new bulletins are available here on our Ag Law Library's Farm Finance Law shelf along with these other topics in the series:
- Promissory Notes
- Installment Contracts
- Leasing Arrangements
- Secured Transactions
- Statutory Agricultural Liens
We’re used to April showers in Ohio, but this year producers can also prepare for a showering of USDA pandemic assistance. Secretary Vilsack just announced the new “USDA Pandemic Assistance for Producers Initiative,” which will devote $12 billion to deliver financial assistance and programs for agricultural producers affected by COVID-19 market disruptions. The USDA aims to spread those programs to a wider set of producers than previous COVID-19 programs.
While many program details and rules are still under development and expected later this spring, several types of CFAP assistance are in motion now. First, the USDA announced the reopening of round two of the Coronavirus Food Assistance Program (CFAP2) on April 5. Producers who haven’t yet signed up for CFAP2 may do so for at least the next 60 days at https://www.farmers.gov/cfap/apply. USDA will be distributing $2.5 million in grants to further reach out to socially disadvantaged farmers who have not enrolled in CFAP2.
Several automatically issued payments are also in the works for eligible producers already enrolled in CFAP1 and 2. Producers need not submit new applications for these payments, and we’ve heard some producers have already received them. The payments include:
- Increased CFAP1 payment rates for cattle. Cattle producers eligible under CFAP1 will automatically receive payments based on inventory of cattle between April 16, 2020 and May 14, 2020. Rates per head will be $7 for feeder cattle less than 600 pounds, $25.50 for feeder cattle at 600 pounds or more, $63 for slaughter/fed cattle, $14.75 for slaughter/mature cattle and $17.25 for all other cattle.
- CFAP2 crop payments. Additional payments of $20 per acre for producers of eligible flat-rate or price-trigger crops under CFAP2, which includes Ohio crops of alfalfa, corn, hemp, sorghum, soybeans, sugar beets, wheat and other grains, listed at https://www.farmers.gov/pandemic-assistance/cfap.
- CFAP additional assistance payments. Formula adjustments and payments for applications filed under the CFAP AA program will include pullets and turfgrass sod, corrections for row-crop producers with non-Actual Production History insurance to use 100% of 2019 ARC-county option benchmark yield in the payment calculation, revisions to sales commodity applications to include insurance indemnities, noninsured Crop Disaster Assistance Program payments, and Wildfire and Hurricane Indemnity Program Plus payments.
The additional payments for swine producers and contract growers included in the CFAP Additional Assistance are not yet are their way. These payments are on hold as they will require regulatory revisions, but FSA is accepting applications at https://www.farmers.gov/pandemic-assistance/cfap.
Also in the still-under-development category is an additional $6 billion for new and modified programs from the Consolidated Appropriations Act as well as other unspent COVID-19 funds. The USDA projects that rules for these programs will also begin this Spring and will include funding for:
- Dairy Donation Program purchases and other assistance for dairy farmers
- Euthanized livestock and poultry
- Specialty crops, beginning farmers and local, urban, and organic farms
- Organic certification costs or to continue or add conservation activities
- Other possible expansion and corrections to the Coronavirus Food Assistance Program such as to support dairy or other livestock producers.
- Timber harvesting and hauling.
- Personal Protective Equipment (PPE) and other protective measures for food and farm workers and specialty crops and seafood processors and distributors.
- Improving the resilience of the food supply chain.
- Developing infrastructure to support donation and distribution of perishable commodities, including food donation and distribution through farm-to-school, restaurants, or other community organizations.
- Reducing food waste.
And that’s not all. Details for allocating an additional $500 million in new funding are also in development. That funding will be distributed as follows:
- $100M for Specialty Crop Block Program
- $100M for Local Agricultural Marketing Program
- $80M for Domestic Textile Mills Program
- $75M for Farmers Opportunities Training and Outreach Program.
- $75M for Gus Schumacher Nutrition Incentive Program
- $28M for National Institute of Food and Agriculture
- $20M for Animal and Plant Health Inspection Service (APHIS)
- $20M for Agricultural Research Service (ARS)
The USDA has stated that it will continue to develop program details and regulations through the spring. We’ll do our best to forecast what's to come, so stay tuned for more information on the Pandemic Assistance for Producers Initiative.
Update: Mengel Dairy Farms appealed the federal district court's decision regarding loss of business income (discussed below) to the 6th Circuit Court of Appeals. On July 16, 2021, the 6th Circuit Court of Appeals issued an opinion agreeing with the district court's decision. The 6th Circuit concluded that in order for Mengel Dairy Farms to receive insurance proceeds for loss of business income, Mengel Dairy Farms had to completely shut down its dairy farm. The 6th Circuit found that a reduction in business is simply not enough.
When was the last time you read your farm business insurance policy? Under your policy, do you know when coverage is triggered for loss of business profits and loss of assets? In the case below, you will learn about a dairy farm that recently dealt with the issue of stray voltage causing dairy cattle to unexpectedly pass away. Even though the farm had insurance, the farm continued to operate, albeit at a reduced capacity, while it dealt with the silent killer. The farm continued to operate under the assumption that any loss of business income and the loss of its primary assets would be covered under its insurance policy.
Mengel Dairy Farms
Mengel Dairy Farms (“Mengel”) could not begin to fathom why its dairy cattle were unexpectedly dying off. Beyond its loss of livestock, Mengel also suffered loss of milk production and business profits. The farm eventually hired an expert to help it determine the cause of death of its cattle. The expert determined that a stray electrical current was present on the property, causing the dairy cattle to die.
Mengel then proceeded to file an insurance claim with its insurance provider, Hastings Mutual Insurance Company (“Hastings”), hoping to receive insurance benefits for the lost cattle, cost of the investigation into the death of the cattle, the subsequent repairs to correct the stray electrical current, and for its lost business profits.
Hastings, however, sent out its own expert to help determine the cause of death of the cattle. Hastings’ expert could not find any stray voltage on the property but did believe that electrocution may have caused Mengel’s cattle to stop eating and ultimately die.
After its investigation, Hastings paid Mengel for the death of its cattle and the cost of the investigation into the deaths of the livestock, but Hastings rejected coverage for the loss of business income. Hastings then filed an action in the Federal District Court, asking the court to determine that there was no coverage for Mengel’s lost business income as a result of the electrocuted dairy cattle.
After Hastings filed its action, Mengel submitted a second insurance claim to Hastings for the death of additional livestock, costs of additional investigation and repair, and additional lost profits. Hastings did not provide any coverage, this time, to Mengel for its second insurance claim and instead issued a reservation of rights letter to Mengel stating that coverage for Mengel’s second claim may be subject to exclusions under Mengel’s insurance policy. Hastings then asked the court to also determine whether Hastings was required to pay for the loss of the additional dairy cattle and additional lost profits.
Coverage for Electrocuted Dairy Cattle
In its arguement to the court, Hastings claimed that under the dairy farm’s insurance policy, Hastings was not required to pay any insurance benefits for the additional dairy cattle that passed away from the stray electrical current. Hastings argued that even though death or destruction of livestock by electrocution is a covered peril under Mengel’s insurance policy, the term electrocution means instant death, and because Mengel’s cattle did not die instantly, Mengel was not entitled to insurance benefits for the cattle.
The Court disagreed. The court found that the term “electrocution” was an ambiguous term within the insurance policy because it was not expressly defined. Additionally, the court went on to analyze that coverage existed for both the death or destruction of livestock. The court determined that the term destruction encompasses more than just death. Reading the terms destruction and electrocution together, the court held that electrocution can consist of an event that does not necessarily result in instantaneous death but may still cause irreparable harm.
Therefore, the electrocution causing Mengel’s cattle to stop eating and ultimately die could be considered “destruction of livestock” which would be covered under the farm’s insurance policy.
Coverage for Lost Business Income
Since discovering the cause of death to its dairy cattle, Mengel reduced its farming operations to deal with the stray electrical current. Under Mengel’s insurance policy, coverage existed for lost business income “due to the necessary suspension” of operations. The insurance policy also indicated that the necessary suspension of farm operations must have been caused or resulted from an insured peril. Mengel thought that because it reduced operations for a covered peril (the electrocution of its livestock), it was entitled to coverage for its lost business income. Hastings disagreed and claimed that coverage did not exist for Mengel because the farm did not shut down its farming operations completely, it only reduced operations.
The court sided with Hastings. The court found that “necessary suspension” means a complete shutdown of operations, even if temporary. The court noted that a slowing down of business is not covered under the insurance policy. Therefore, Mengel’s claim for lost profits is not covered under the policy because it continued to operate at a reduced capacity.
Mengel filed its own claims against its insurer for bad faith and breach of contract. However, after the court’s determination that coverage existed for electrocuted cattle that did not die instantly and the court’s conclusion that Mengel was not owed any insurance benefits for lost profits, the parties settled their dispute out of court.
It may not be as easy as you think to determine what is covered (and what should be covered) under your insurance policy. Insurance companies do their best to draft insurance policies to be as precise as possible. Certain pre-requisites must be met in order for coverage to exist for a farmer and their business. It is vital that you understand what is covered (and not covered) under your insurance policy. You may be taking steps to remediate any issues with the assumption that insurance will cover any expenses or lost revenue you may endure, but as the above case demonstrates, this is not always true.
The Ohio General Assembly is off and running in its new session. Many bills that affect agriculture in Ohio are already on the move. Here’s a summary of those that are gaining the most momentum or attention.
Tax Conformity Bill – S.B. 18 and H.B. 48. The Senate has already passed its version of this bill, which conforms our state tax code with recent changes to the Internal Revenue Code made in the latest COVID-19 stimulus provisions of the Consolidated Appropriations Act. Both the Senate and the House will also exempt forgiven Paycheck Protection Program second-draw loan proceeds from the Commercial Activity Tax. The Senate version additionally exempts Bureau of Workers Compensation dividend rebates from the Commercial Activity Tax beginning in 2020, but the House bill does not. Both bills include “emergency” language that would make the provisions effective in time for 2020 tax returns.
Beginning farmers tax credits – H.B. 95. A slightly different version of this bill is returning after not passing in the last legislative session. The bi-partisan bill aims to assist beginning farmers through several temporary income tax credits:
- Businesses that sell or rent agricultural assets such as land, animals, facilities or equipment to certified beginning farmers can receive a 5% income tax credit for sales, a 10% of gross rental income credit for cash rents, and 15% of gross rental income for share rents.
- Certified beginning farmers can receive an income tax credit equal to the cost of participating in a certified financial management program.
Beginning farmers, among other requirements, are those in or seeking entry into farming in Ohio within the last ten years who are not a partner, member or shareholder with the owner of the agricultural assets and who have a net worth of less than $800,000 in 2021, which adjusts for inflation in subsequent years. Beginning farmers must be certified by the Ohio Department of Agriculture or a land grant institution. The House Agriculture and Conservation Committee will discuss the bill at its meeting on February 16.
Wind and solar facilities – S.B. 52. In addition to revising setback and safety specifications for wind turbines, this proposal would amend Ohio township zoning law to establish a referendum process for large wind and solar facility certificates. The bill would require a person applying for a certificate for a large wind or solar facility to notify the township trustees and share details of the proposed facility. That notification sets up opportunities for the township trustees or residents of the township to object to the application and submit the proposed application to a vote of township residents. A certificate would not take effect unless approved by a majority of the voters. A first hearing on S.B. 52 will be held on Tuesday, February 16 before the Senate Energy and Public Utilities Committee.
Grants for broadband services – H.B. 2 and S.B. 8. The Senate passed its version of this bill last week, which sets up a $20 million competitive grant program for broadband providers to extend broadband services throughout the state. The proposal would also allow broadband providers to use electric cooperative easements and poles, subject to procedures and restrictions. The bill had its second hearing before the House Finance Committee last week.
Eminent domain – H.B. 63. Based on a similar bill that didn’t pass last session, this bill changes eminent domain law in regard to property taken for the use of recreational trails, which include public trails used for hiking, bicycling, horseback riding, ski touring, canoeing and other non-motorized recreational travel. H.B. 63 would allow a landowner to submit a written request asking a municipality or township to veto the use of eminent domain for a recreational trail within its borders. The bill would also allow a landowner to object to a use of eminent domain for any purpose at any time prior to a court order for the taking, rather than limiting that time period to ten days as in current law. The bill had its first hearing before the House Civil Justice Committee last week.
Minimum wage increases. S. B. 51 and H.B. 69. Bills on each side of the General Assembly propose gradually increasing the state minimum wage to $15, but have different paths for reaching that amount. S.B. 51 proposes increasing the wage to $12/hour in 2022, followed by $1/hour increases each year and reaching $15 by 2025, which is when a federal bill proposes to establish the $15 minimum wage. H.B. 69 begins at $10/hour in 2022 with $1/hour increases annually, reaching $15 in 2027. S.B. 51 was referred last week to the Workforce and Higher Education Committee and H.B. 69 was referred to the Commerce and Labor Committee.
Barry Ward, Leader, Production Business Management/Director, OSU Income Tax Schools
Congress passed the Consolidated Appropriations Act (CAA), 2021 on Monday, December 21, 2020 which was signed by the President on December 27th. The CAA funds the government through September 30, 2021, implements COVID-19 relief provisions, and extends a number of expiring tax provisions. The $2.3 trillion bill provides $900 billion in COVID-19 relief. This article highlights key provisions for farm related issues from several Acts within the CAA’s 5,593 pages.
Additional 2020 Recovery Rebates
“Economic Impact Payments”
The Act provides for “additional 2020 recovery rebates for individuals.” The additional recovery rebate credit is $600 for “eligible individuals” or $1,200 for “eligible individuals” filing a joint return. “Eligible individuals” are entitled to a $600 credit for each “qualifying child”. (Generally includes dependent children under the age of 17.) Phaseouts apply for higher income taxpayers.
Paycheck Protection Program Loans – Covered Expenses Now Deductible
Previously, the IRS and Treasury indicated that the expenses covered by PPP loans that were forgiven (or would be forgiven) would not be deductible. This new legislation now allows for these expenses to be deducted. This provision overrides IRS Notice 2020-32 and Rev. Rul. 2020-27. The CARES Act indicated that the loan proceeds from PPP loans are not to be included as taxable income. This tax treatment would apply to original PPP loans, as well as any subsequent loans made possible by the Act.
Paycheck Protection Program – Other New Guidelines
Qualified self-employed farmers who did not have employees and had less than $100,000 of net income in 2019 were not originally eligible for the maximum forgivable PPP loan. The new legislation now allows for the PPP loan forgiveness based on gross income rather than net income. Farmers are now able to receive a PPP loan of up to $20,833 (reduced by any loan already received) based on gross receipts of at least $100,000.
The legislation amends the Paycheck Protection Program (PPP) to extend the covered period from December 31, 2020, through March 31, 2021. An allocation of $284 billion is included to provide first and second PPP loans to small businesses. Details of the expanded program will not be known until SBA releases required guidance.
The PPP allows borrowers to spend proceeds on payroll costs and non-payroll costs of business mortgage interest, business rent payments, and business utility payments. This new legislation expands the allowable use of PPP loan proceeds.
The legislation allows borrowers to choose a covered period anywhere between an eight-week and 24-week covered period for purposes of loan forgiveness. The covered period must begin on the date the proceeds are disbursed.
The legislation provides a simplified forgiveness procedure for PPP loans up to $150,000. The new procedure provides that such loans “shall be forgiven” if the borrower signs a certification that shall not be more than one page in length and shall require minimal supporting information.
The legislation repeals the provision in the CARES Act requiring the SBA to reduce a borrower’s PPP forgiveness by the amount of an EIDL advance.
PPP Second Draw Loans
The new legislation establishes a PPP Second Draw Loan program that generally applies to businesses with 300 or fewer employees if the business had gross receipts during any quarter in 2020 that were reduced by at least 25 percent from the gross receipts of the business during the same quarter in 2019.
To be eligible for a second draw loan, the borrower must have received a PPP loan in 2020 and used all of the proceeds of that loan for permitted purposes.
The Act allows borrowers who have not yet received forgiveness to request an increase in their loan amount if they returned all or part of a PPP loan or did not take the full amount of a PPP loan to which they were entitled. This provision allows borrowers who received loans before more favorable regulations were enacted to take advantage of those new provisions.
Employee Retention Credit (ERC)
The legislation extends and expands the employee retention credit, allowing employers to remain eligible up until July 1, 2021. Previously, employers who received a PPP loan were ineligible to claim the ERC. The new legislation retroactively allows employers who receive PPP loans to claim the ERC and to treat payroll costs paid during the loan-covered period as qualified wages to the extent the wages are not paid for with forgiven PPP loan proceeds.
For the period from January 1, 2021 and prior to July 1, 2021 the ERC percentage increases from 50 percent of qualified wages to 70 percent. Employers can count qualified wages up to $10,000 per employee per quarter (instead of for all quarters) in calculating the credit. Employers qualify for the credit if their gross receipts for a calendar quarter are less than 80 percent of the gross receipts of the corresponding calendar quarter in calendar year 2019.
Economic Injury Disaster Assistance (EIDL) Loans and Advances
The Act allows Economic Injury Disaster Assistance (EIDL) Advances provided as emergency grants under the CARES Act to be excluded from gross income while the corresponding expenses would remain deductible. Additionally, loan forgiveness granted to an EIDL loan recipient under discretionary powers provided by the CARES Act does not result in gross income or a denial of deductions for allocable expenses.
New Net Operating Loss (NOL) Options
The new legislation provides farmers new net operating loss options not otherwise available in the wake of the CARES Act. Farmers have the option to temporarily carry back Net Operating Losses 2 or 5 years with some caveats.
Extension of Credits for Paid Sick and Family Leave
The Act extends the tax credits made available to employers by the Families First Coronavirus Response Act through March 31, 2021 (They were set to expire on December 31, 2020). This includes the sick and family leave credits for self-employed individuals. The new legislation does not provide additional credits for employees but allows for a larger window to utilize them if the employer chooses.
Emergency EIDL Grants
The Act appropriates an additional $20 billion for emergency EIDL grants. The Act extends the covered period for this program through December 31, 2021, and extends the period to approve the applications from three days to 21 days.
Temporary Allowance of 100% Deduction for Business Meals
The new legislation allows for a 100 percent deduction for business meals where food or beverages is provided by a restaurant, for the 2021 and 2022 tax years.
Charitable Contributions Deduction by Non-Itemizers
For tax years beginning in 2021, the Act extends and increases the above-the-line deduction for cash contributions by non-itemizers to $300 for individuals and $600 for married filers.
Extension of Deferred Employee Portion of Payroll Taxes
The Act delays the repayment requirement for the employee portion of the payroll taxes that were deferred in response to the President’s August 8 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. Instead of requiring full repayment of these deferred taxes by April 30, 2021, the new legislation delays this deadline to December 31, 2021.
Tidgren, Kristine A. “What COVID Relief Provisions are in the Spending Bill?” Ag Docket Perspective on Agricultural Law & Taxation, Center for Agricultural Law and Taxation, December 23, 2020
Neiffer, Paul “Deeper Dive into PPP” Agribusiness Blog Farm CPA Today, CliftonLarsenAllen Wealth Advisors, December 22, 2020
H.R. 133 Consolidated Appropriations Act, 2021 https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf December 27, 2020
Ernst & Young LLP, Consolidated Appropriations Act, 2021 extends many credits and other COVID-19 relief, Tax News Update, December 23, 2020
Just in time for Christmas, Congress delivered quite a package this morning by passing new COVID-19 relief legislation. President Trump is expected to sign the bill soon. Buried in the 5,593 pages of the legislation is an allocation of nearly $11.2 billion dollars to the USDA. A large portion of the USDA funds will provide additional payments for agricultural producers under the Coronavirus Food Assistance Program (CFAP). Benefits for food processors, energy producers and timber harvesters are also in the bill, as well as funding for several other USDA programs and studies. We’ve categorized, compiled and summarized where the USDA funds are to go below.
- Supplemental CFAP payments of $20 per eligible acre for the 2020 crop year, for eligible “price trigger crops,” which includes barley, corn, sorghum, soybeans, sunflowers, upland cotton and wheat, and eligible “flat rate crops,” which includes alfalfa, amaranth grain, buckwheat, canola, cotton, crambe, einkorn, emmer, flax, guar, hemp, indigo, industrial rice, kenaf, khorasan, millet, mustard, oats, peanuts, quinoa, rapeseed, rice, rice, sweet, rice, wild, rye, safflower, sesame, speltz, sugar beets, sugarcane, teff, and triticale but excludes hay, except alfalfa, and crops intended for grazing, green manure, or left standing.
- $100 million in additional funding for the Specialty Crop Block Grant Program.
Livestock, poultry and dairy
- Supplemental CFAP payments to livestock or poultry producers (excluding packers and live poultry dealers) for losses from depopulation that occurred due to insufficient processing access, based on 80% of the fair market value of depopulated livestock and poultry and including depopulation costs not already compensated under EQIP or state programs.
- Supplemental CFAP payments to cattle producers for cattle in inventory from April 16 to May 14, 2020 according to different payment formulas for slaughter cattle, feeder cattle and all other cattle.
- Supplemental Dairy Margin Coverage payments for eligible operations with a production history of less than 5 million pounds whenever the average actual dairy production margin for a month is less than the selected coverage level threshold, according to a specified formula.
- $1 billion for payments to contract growers of livestock and poultry to cover not more than 80% of revenue losses from January 1 to December 22, 2020.
- $20 million for the USDA to improve animal disease prevention and response capacity.
- Establishment of a statutory trust via the Packers and Stockyards Act that requires a dealer with average annual purchases above $100,000 to hold cash purchases of livestock by the dealer in trust until full payment has been received by the cash seller of the livestock.
General payment provisions
- In determining the amount of eligible sales for CFAP, USDA must include a producer’s crop insurance indemnities, non-insured crop disaster assistance payment and WHIP payments, and may allow a producer to substitute 2018 sales for 2019 sales.
- USDA shall make additional payments under CFAP 1 and CFAP 2 to ensure that payments closely align with the calculated gross payment or revenue loses, but not to exceed the calculated gross payment or 80% of the loss. For income determination, USDA shall consider income from agricultural sales, including gains, agricultural services, the sale of agricultural real estate, and prior year net operating loss carryforward.
- USDA may take into account when making direct support payments price differentiation factors based on specialized varieties, local markets and farm practices such as certified organic production.
Marketing and processing
- $100 million for grants under the Local Agriculture Market Program for COVID-19 impacts on local agriculture markets. USDA may reduce and allow in-kind contributions for grant matching requirements.USDA may provide support to processors for losses of crops due to insufficient processing access.
- $60 million for a grant program for meat and poultry slaughter and processing facilities seeking federal inspection status or eligibility for the Cooperative Interstate Shipment program to modernize facilities or equipment, comply with packaging, labeling, and safety requirements and develop food safety processes.
- USDA must deliver a report on possible improvements to the Cooperative Interstate Shipment program that allows interstate shipments of meat and poultry products and on the availability and effectiveness of federal loan and grant programs for meat and poultry processing facilities and support for increasing processing capacity.
- USDA may make recourse loans available to dairy product processors, packagers or merchandisers impacted by COVID-19.
- Until September 30, 2021, USDA may extend the term of marketing assistance loans to 12 months.
- $1.5 billion to purchase and distribute food and agricultural products to individuals in need, and for grants and loans to small and midsized food processors or distributors, seafood processing facilities, farmers’ markets, producers or other organizations for the purpose of responding to COVID, including for worker protections. USDA must conduct a preliminary review to improve COVID-19 food purchasing, including the fairness of purchases and distribution.
- $400 million for a Dairy Donation Program to reimburse dairy processors for purchasing and processing milk and partnering with non-profit organizations to develop donation and distribution plans for the processed dairy products.
Timber and energy
- $200 million for relief to timber harvesting and hauling businesses that experienced a loss of 10 percent or more in gross revenue from January 1 to December 1, 2020, as compared to the same period in 2019.
- USDA may make payments for producers of advanced biofuel, biomass-based diesel, cellulosic biofuel, conventional biofuel or renewable fuel produced in the U.S. for unexpected market losses resulting from COVID-19.
Training and outreach
- $75 million for the Farming Opportunities Training and Outreach Program for grants for beginning, socially disadvantaged and veteran farmers and ranchers impacted by COVID-19. USDA may reduce and allow in-kind contributions for grant matching requirements and waive maximum grant amounts.
- $28 million for grants to State departments of agriculture to expand or support stress assistance programs for agriculture-related occupations, not to exceed $500,000 per state.
- $75 million for the Gus Schumacher Nutrition Incentive Program, and USDA may reduce matching grant requirements.
We’ll keep digging through the legislation to report on other agricultural provisions. Or readers may take a look at H.R. 133 here. The USDA allocations we summarized are in Subtitle B, beginning on page 2,352.
Barry Ward & Julie Strawser, OSU Income Tax Schools
Dealing with the tax provisions of the COVID-related legislation for both individuals and businesses are among the topics to be discussed during the upcoming Tax School workshop series offered throughout Ohio in November and December.
The annual series is designed to help tax preparers learn about federal tax law changes and updates for this year, as well as learn more about issues they may encounter when filing individual and small business 2020 tax returns.
The tax schools are intermediate-level courses that focus on interpreting tax regulations and changes in tax laws to help tax preparers, accountants, financial planners and attorneys advise their clients. The schools offer continuing education credit for certified public accountants, enrolled agents, attorneys, annual filing season preparers and certified financial planners.
This is another important year for tax education as the new COVID-related legislation creates some challenges for tax practitioners to prepare tax returns. These schools offer an excellent set of instructors with a great deal of experience and training along with a top reference workbook to prepare tax practitioners to best serve their clients during this ongoing process of incorporating recent tax law changes in completing tax returns.
The workbook alone is an extremely valuable reference as it offers over 700 pages of material including helpful tables and examples that will be valuable to practitioners. Sample chapters of the reference workbook can be found at: https://go.osu.edu/WorkbookChapters
Topics/chapters to be presented this year during the two-day tax schools include:
Financial Distress, S-Corporation Tax Issues, IRS Issues, Business Entity Issues, Agricultural and Natural Resource Issues, Retirement and Investment Issues, Individual Tax Issues, Business Tax Issues, Trusts and Estates, Rulings and Cases, New Legislation.
This year, OSU Income Tax Schools will offer both in-person schools and online virtual schools.
In person schools:
1. Lima – November 2-3
Old Barn Restaurant and Grill
3175 W Elm Street, Lima, OH 45805
2. Fremont – November 4-5
Ole Zim’s Wagon Shed
1375 State Route 590, Gibsonburg, OH 43431
3. Ashland – November 11-12 SOLD OUT
John C. Meyers Convocation Center
820 Clermont Ave., Ashland, OH 44805
4. Dayton – November 17-18
Presidential Banquet Center
4548 Presidential Way, Kettering, OH 45429
5. Columbus – December 10-11 SOLD OUT
Nationwide & Ohio Farm Bureau 4-H Center
2201 Fred Taylor Dr., Columbus, OH 43221
Virtual Online Schools:
1. Webinar (Zoom)
November 9, 13, 16 and 19
Each Day 12:30 – 5pm
2. Livestream (Zoom)
Livestream of Columbus Tax School Location via Zoom
In addition to the tax schools, the program offers a separate, two-hour ethics webinar that will broadcast Dec. 4 at 10 a.m. The webinar is $25 for school attendees and $50 for non-attendees and is approved by the IRS and the Ohio Accountancy Board for continuing education credit
Register two weeks prior to the school date and receive the two-day tax school early-bird registration fee of $375. This includes all materials, lunches and refreshments. The deadline to enroll is 10 business days prior to the date of each school. After the school deadline, the fee increases to $425.
Additionally, the 2020 RIA Federal Tax Handbook is available to purchase by participants for a discounted fee of $45 each. Registration information and the online registration portal can be found online at:
A webinar on Ag Tax Issues will be held Dec. 18 from 8:45 a.m. to 3:30 p.m.
If you are a tax practitioner that represents farmers or rural landowners or are a farmer or farmland owner that prepares your own taxes, this five-hour webinar is for you. It will focus on key topics and new legislation related specifically to those income tax returns.
Registration, which includes the Ag Tax Issues workbook, is $150. Register by mail or on-line at http://go.osu.edu/agissues2020