Business and Financial
Written by Barry Ward, Director, OSU Income Tax Schools
Significant tax related changes as a result of the new legislation passed in response to COVID-19 have created some questions and perhaps consternation over the past few months. Taxpayers and tax professionals alike are wrestling with how these changes may affect tax returns this year and beyond. OSU Income Tax Schools is offering a Summer Update to address these issues and other important information for tax professionals and taxpayers.
The OSU Income Tax Schools Summer Update: Federal Income Tax & Financial Update Webinar is scheduled for August 13, 2020and will be presented as a webinar using the Zoom platform.
- New tax provisions implemented by the CARES Act and Families First Coronavirus Response Act and how to account for them such as the new net operating loss rules, the payroll tax credit, etc.
- Paycheck Protection Program Loan Issues: loan applications, forgiveness issues and the IRS ruling on loan expenditures that are forgiven under PPP are not tax deductible and how to account for them in preparing a return, etc.
- Dealing with the IRS in these difficult times. Also, what it means to the practitioner as to “dos” and don’ts” regarding the announcement that beginning this summer the IRS will allow the electronic filing of amended returns.
- The “Hot IRS Audit Issues – Pitfalls for S Corporations and Partnerships." Basis of entities as to the rules and related rulings, how to track basis in these entities, creation of basis where none had been computed in prior tax years, losses in excess of basis and when they are not allowed, definition of an excess distribution, taxation of excess distributions, distribution of appreciated property, conversion of C corporations to S corporations - do and don'ts, computation of the Built-In Gains Tax, inference and imputation of a reasonable wage for purposes of the computation of the qualified business income deduction, etc.
- Other rulings, developments, and cases.
- John Lawrence, CPA, John M. Lawrence & Associates: Instructor
- Barry Ward, Director, OSU Income Tax Schools: Co-Host & Question Wrangler
- Julie Strawser, Program Assistant, OSU Income Tax Schools: Co-Host and Webinar Manager
- August 13th, 2020: 10 am – 3:30 pm (lunch break: noon – 12:50 pm)
- Cost: $150
- Registration information and link to the registration page is at https://farmoffice.osu.edu/osu-income-tax-schools
- This workshop is designed to be interactive with questions from the audience encouraged.
Continuing education offered
- Accountancy Board of Ohio (5 hours)
- IRS Office of Professional Responsibility (5 hours)
- Continuing Legal Education, Ohio Supreme Court (4.5 hours)
Written by Peggy Kirk Hall and Barry Ward, Leader, Production Business Management
Many farmers have utilized the CARES Act’s Paycheck Protection Program (PPP) to obtain federal funds to help with payroll and certain non-payroll expenses in the wake of COVID-19. As we’ve discussed on our Farm Office Live webinars here, Congress revised the PPP with the passage of the Paycheck Protection Program Flexibility Act earlier this month. As a result of the new legislation, the Small Business Administration released a series of Interim Final Rules (IFRs) and a new forgiveness application. The IFRs, available here, clarify certain points contained in the bill and provide revisions to previous IFRs. All of these changes affect how farmers can use the funds and how much of the funds can be forgiven from loan repayment requirements.
The new PPP provisions
- The “covered period” that applies to the issuance and use of PPP loan expenditures was to end on June 30, 2020, but the law now extends that date to December 31, 2020. This means that borrowers now have until December 31 to spend PPP loan proceeds.
- The “covered period” for loan forgiveness has also changed. Borrowers will now be able to have up to 24 weeks of costs forgiven and not subject to repayment. But borrowers who received loans prior to June 5, 2020 may choose to use the 8-week period provided in the original PPP. A borrower need not wait until the end of the covered period to apply for forgiveness if the borrower has expended the loan funds prior to the end of the covered period.
- The requirement that 75% of loan proceeds be used for payroll costs in order to receive full forgiveness has been reduced to 60%. This means that forgiveness is not applicable for any portion of non-payroll costs that exceed the 40% maximum for non-payroll. Under the original law, forgivable non-payroll costs could not exceed 25%.
- The amount eligible for forgiveness can equal the full loan amount plus accrued interest, and the IFR revises the eligible costs for both the 8-week and 24-week covered periods as follows:
- Payroll costs for 24 weeks at a maximum of $46,154 per employee and for 8-weeks at a maximum of $15,385 per employee, as well as benefits such as health care costs, state payroll taxes paid by the employer, and retirement contributions. Note that there are limitations to including health insurance contributions made on behalf of self-employed persons, general partners and owner-employees of S-corporations and to including employer retirement payments on behalf of self-employed persons or general partners.
- Owner compensation replacement is calculated according to 2019 net profit. The forgiveness limit for an 8-week covered period is 8/52 of the 2019 net profit, up to $15,385 and for a 24-week covered period, is restricted to two and a half months or 2.5/12 of 2019 net profit, up to $20,833.
- Mortgage interest, rent payments on lease agreements, and utility payment costs are eligible to the extent that they would be deductible as business mortgage, rent and utility payments on Form 1040 Schedule F or Schedule C. Note that although this language defines the forgivable portions of these non-payroll costs, such costs are not actually deductible if forgiven.
- Employers will have a longer period to rehire employees and restore salaries without reducing the forgiveness amount. This “safe harbor” date for rehiring employees is extended to December 31, 2020.
- An employer who isn’t able to rehire employees by the end of the “safe harbor” period may qualify for an exemption from a corresponding forgiveness reduction that would occur if the employer can document that:
- The employer is unable to rehire persons who were employees on February 15, 2020 or to rehire similarly qualified persons, or
- The employer is unable to return to the same level of business activity it was at before February 15 due to COVID-19 standards and requirements.
- For new loans taken out after June 5, loan proceeds that are not forgiven may be repaid in five years rather than two years. Loans prior to June 5 remain at a two-year repayment term, unless the lender agrees otherwise.
- Borrowers can defer repayment of the loan until the date that the lender receives the borrower’s forgiveness amount, or until 10 months from the end of the borrower’s forgiveness period if not applying for forgiveness.
- The original law prohibited borrowers from using the CARES Act provision that allows employers to defer payroll taxes once they received loan forgiveness, but the new law allows borrowers who receive forgiveness to also defer payroll taxes under the CARES Act.
The forgiveness application and process
A new forgiveness application was also released to correspond with the changes in the new PPP Flexibility Act. As laid out in the application instructions, borrowers are eligible to use a shorter “EZ application” for loan forgiveness if they meet one of these criteria:
- Borrower is self-employed and has no employees or
- Borrower didn’t reduce salaries or wages for employees by more than 25% and didn’t reduce numbers or hours of employees or
- Borrower experienced reductions in business activity as the result of health directives related to COVID-19 and did not reduce salaries or wages of employees by more than 25%.
The forgiveness process could take up to five months. It begins with a borrower submitting the application to the lender that provided the loan, who will have 60 days to review the application and send the approved application on to the SBA. The SBA will have up to 90 days to review the application, confirm the amount to be forgiven and remit to the lender the forgivable amount and any accrued interest, less any advance payments made to the borrower under the Economic Injury Disaster Loan program.
Despite the recent changes to PPP, several gray areas and uncertainties remain, such as:
- PPP Loans received prior to June 5, 2020 allow the borrower to choose between an 8 week and a 24 week covered period. Farmers with a loan based on owner compensation replacement and no employees will likely benefit from choosing the 24 week covered period to meet the criteria for full loan forgiveness. One possible downside with choosing the 24 week covered period might be further rule changes that might be unfavorable to the borrower, although this is unlikely. There is still uncertainty as to whether a self-employed person needs to write a check to themselves to qualify for forgiveness based on the owner compensation replacement portion of the PPP Loan. The safe alternative would be to write this check even if the check is deposited back into the same account.
- According to some sources there is ongoing discussion regarding legislation that would grant forgiveness to all PPP loans under $150,000. This discussion of a safe harbor based on the size of the PPP loan is apparently being advanced by certain banks.
We encourage employers who obtained a PPP loan to talk with their lenders and accountants to capitalize on and comply with the PPP changes and make decisions about the forgiveness options. For those who have not yet applied for a PPP loan, the deadline is soon approaching —applicants have until June 30, 2020 to apply for a loan.
Read more about the PPP’s original provisions in our blog post here.
“Will I be liable for that?” is a common question we hear in the legal world. COVID-19 has made that question even more commonplace, especially as more businesses reopen or expand services and more people reengage in public activities. About a dozen states have acted on the liability concern and passed COVID-19 liability protections, and Congress is also deliberating whether federal legislation is necessary. Here in Ohio, the House and the Senate have been reviewing separate immunity proposals. Yesterday, Ohio’s House passed its bill, which aims to limit liability in certain situations where a person claims harm from the transmission of COVID-19.
The language of House Bill 606 effectively explains the House’s intent in putting forth its proposal, stating that:
- The Ohio General Assembly is aware that lawsuits related to the COVID-19 health emergency numbering in the thousands are being filed across the country.
- Ohio business owners, small and large, as they begin to re-open their businesses are unsure about what tort liability they may face, and recommendations regarding how best to avoid infection with COVID-19 change frequently.
- Businesses and premises owners have not historically been required to keep members of the public from being exposed to airborne viruses, bacteria, and germs.
- Those individuals who decide to go out into public places are responsible to take those steps they feel are necessary to avoid exposure to COVID-19, such as social distancing and wearing masks.
The House bill declares that for the above reasons, any COVID-19 “orders and recommendations from the Executive Branch, from counties and local municipalities, from boards of health and other agencies, and from any federal government agency, do not create any new legal duties for purposes of tort liability.”
The bill’s reference to not establishing a legal duty in regards to COVID-19 is important, as it forms the basis of immunity from liability for COVID-19 infections. Under Ohio law, a person who can prove that harm resulted because another failed to meet a required duty of care can make a successful claim of negligence and receive damages for harm caused. Negating a legal duty of care for handling of COVID-19 removes the possibility of civil liability.
The House bill clearly lays out its general liability protection in Section 4 and extends the immunity from March 9 to December 31, 2020 to “any person,” which includes an individual, corporation, business trust, estate, trust, partnership, association, school, for-profit, nonprofit, governmental, or religious entity, and state institution of higher education. But it also makes an exception from immunity where a person has acted recklessly, intentionally, or with wanton misconduct:
- No civil action for damages for injury, death, or loss to person or property shall be brought against any person if the cause of action on which the civil action is based, in whole or in part, is that the injury, death, or loss to person or property is caused by the exposure to, or the transmission or contraction of [COVID-19] or any mutation thereof, unless it is established that the exposure to, or the transmission or contraction of, any of those viruses or mutations was by reckless or intentional conduct or with willful or wanton misconduct on the part of the person against whom the action is brought.
Opponents to the bill claim that it would encourage persons not to take any COVID-19 precautions, but proponents argue that the bill does so by discouraging reckless behavior. Under the legislation, to behave recklessly means that “with heedless indifference to the consequences, the person disregards a substantial and unjustifiable risk that the person's conduct is likely to cause an exposure to, or a transmission or contraction of [COVID-19] or any mutation thereof, or is likely to be of a nature that results in an exposure to, or a transmission or contraction of, any of those viruses or mutations.”
In addition to the general immunity protection explained above, the House bill also provides temporary civil immunity for health care providers, grants immunity to the State for care of persons in its custody or if an officer or employee becomes infected with COVID-19 in the performance or nonperformance of governmental functions and public duties, and expands the definition of “governmental functions” for purposes of political subdivision immunity to include actions taken during the COVID-19 pandemic.
The Ohio Senate is working on its own version of a COVID-19 immunity bill. A fourth hearing on Senate Bill 308 took place on May 27 before the Senate Judiciary Committee. Several substitute bills have replaced the original bill, and it's yet uncertain what the final version will contain.
There’s much disagreement over what we know about COVID-19, but one thing we can agree upon is that it has left an impact on the food supply chain. For some food producers, that impact is creating opportunity. Many growers see the potential of filling the gaps created by closed processing facilities, thin grocery shelves, and unwillingness to shop inside stores. If you’re one of those growers who sees an opportunity to sell food, we have a few thoughts on legal issues to consider before moving into the direct food sales arena. Doing so will reduce your risks and the potential of legal liability.
1. Follow COVID-19-related guidelines
Perhaps this goes without saying, but businesses should take COVID-19 guidelines seriously. Doing so will hopefully reduce the potential of a COVID-19 transmission in the operation while also minimizing the risk of an enforcement action and potential legal liability for failing to protect employees and customers. Follow the Ohio Department of Health Responsible RestartOhio Guidelines that are now in effect. Engaging directly with customers places a grower in the “Consumer, Retail and Services” sector guidelines, which are here. Mandatory requirements include protecting the health and safety of employees, customers and guests by establishing six-foot distances or barriers, wearing face masks, handwashing and sanitizing, checking for symptoms daily, posting signs, deep cleaning, and dealing with suspected and confirmed cases of COVID-19. The FDA has also issued “Best Practices for Retail Food Stores, Restaurants and Food Pick-Up and Delivery Services” here, and OSU’s direct marketing team has many helpful resources for implementing the practices here. Develop protocols based upon the guidelines, carefully train employees on protocols, and document your compliance.
2. Determine what food safety regulations apply to you
For food safety purposes, the Ohio Department of Agriculture and local county health department require licensing or inspection of certain types of food sale activities. The regulations are a bit messy, and it’s challenging to know when an operator is affected by these regulatory requirements. We’ve explained licensing laws pertaining to sales directly at the farm in this law bulletin, “Selling Foods at the Farm: When Do You Need a License?” There are more stringent requirements for those who sell meat, process food, or sell higher risk foods or several different types of foods. We’ve provided a few simple guidelines in the chart at the end of this post, but please refer to the above law bulletin for further details. Additionally, produce growers need to comply with Good Agricultural Practice (GAPs) and Food Safety Modernization Act (FSMA) rules. Learn more about those on our Fruit and Vegetable Safety Program website here.
3. Check your zoning
If you’re within a municipality, you may have zoning regulations that apply to your production and sales activities. Check your local zoning regulation to ensure that those activities are “permitted uses” within your designated zoning district. If not, you may need to seek a “conditional use” permit. Also be aware that some municipal zoning regulations regulate “home businesses,” and a home bakery or cottage food operation that has customers coming to the home to purchase the goods might fall into that category.
If you’re outside a municipality, Ohio’s agricultural exemption from county and township zoning applies to your production and sales activities. Local zoning can’t prohibit your activities regardless of your zoning district, with limited exceptions if you’re in a “platted subdivision” situation (on a lot under 5 acres in a platted area of at least 15 other contiguous lots). Note, however, that county and township zoning can regulate a “farm market” that receives more than 50% of its gross income from goods that weren’t raised on the owner’s farm. You might need to comply with a few zoning regulations that pertain to the size and setback lines for your structure, the parking area, and ingress and egress points for customers.
4. You may have to collect sales taxes on some items
Most takeaway food items to be consumed off-site, such as meat and produce, aren’t subject to Ohio’s sales tax. But if you sell items that are not exempt from sales tax, you’ll need to collect sales taxes on the items. If you’re planning to sell ready-to-eat items on site, beverages, flowers, or container plants, you must charge and collect sales taxes and obtain a vendor’s license in order to submit the taxes to the state. Find more details in our law bulletin on vendor’s licenses and sales taxes here.
5. Review contracting situations
You’ll likely be presented with a contract or agreement in many situations, such as a farmers’ market contract or an agreement for selling on an online sales platform. Or you may need to generate your own contract for selling whole animals or establishing a “community supported agriculture” operation. In either instance, read your contracts carefully. Be sure to include and review important terms such as price, quality delivery dates, payment processes, late fees, data use, and other provisions related to your type of sale. Don’t hesitate to involve an agricultural attorney to be sure that you’ve minimized your legal risk.
6. Talk to your insurance provider
Direct food sales might not be adequately covered by your insurance policy. You’ll need to know whether you have sufficient premises liability coverage if a customer is harmed on your farm, coverage for transporting foods or for selling at a farmers’ market (typically required by the market) and product liability coverage in case someone claims illness or other injury from consuming your food. You may need to increase coverage or purchase additional riders to the policy, depending on your risk level. Reviewing your policy with your provider and aligning coverage with your food sales activities is imperative to reducing your liability risk.
7. Do you need a separate business entity?
Consider whether your food sales activities put other assets at risk, and whether your insurance is sufficient to address that risk. If not, you should consider forming a separate business entity for your direct marketing business. Forming a Limited Liability Company for your direct food sales activities can help shield your other assets from the liability of the food sales. Talk with an agricultural attorney to assess your needs and determine what type of entity is best for your situation.
8. Keep great records
This one applies to everything above. Maintain records of what you do in regards to COVID-19 precautions, employee training, food safety compliance, and financial records of your expenditures and sales. If a liability incident arises, document it carefully. Keep the records for the required amount of time, which is typically three years for receipts for purchases and sales, ten years for insurance and employee records, and permanently for other records.
9. Don’t stop here
This list is a starting point for legal considerations for direct food sales, but it shouldn’t be the end. There may be other legal issues that affect your particularly situation. To learn more and fully consider all risks of direct marketing, talk with others who’ve directly sold food, visit with your accountant, lawyer and insurance provider, and learn the best practices for growing and marketing your food products.
Do you need a license for your direct-to-customer food sales?
Peggy Kirk Hall, OSU Agricultural & Resource Law Program
Emily Marrison, OSU Extension Coshocton County
We offer this chart as guidance and not as legal advice. Please confirm your specific situation and needs with the Ohio Department of Agriculture and your local county health department.
Selling meat for custom operator processing. You don’t need a license to sell an animal to a customer who will have it processed by a custom operator. But you can’t bring custom operator processed meat back to the farm and sell it to customers in individual portions; that type of sale requires processing by a federally approved processor.
Selling meat in individual portions. You may sell cuts of beef, pork and other livestock if the meat is processed and labeled by a processor that meets federal regulations and is deemed “fully inspected” by ODA (see a list of such facilities here).
Selling chickens processed at the farm. Growers may be surprised to learn that no license is required to process and sell up to 1,000 birds per year at the farm where the birds are raised. But if a grower sells the birds along with other food items such as produce, then the grower must register as a Farm Market and be inspected by ODA. The Farm Market registration form is here.
Selling eggs. A grower does not need a license to sell eggs produced at the farm where sold, as long as the grower has 500 or fewer birds. But if a grower wants to sell eggs through a farmer’s market or sells other low risk foods along with eggs, either a Farm Market registration and inspection from ODA (here) or a Retail Food Establishment license from the county health department is necessary.
Selling produce. Selling only fresh, unprocessed produce does not require any licensing. However, if selling other low risk foods along with produce, a grower must either register as a farm market through ODA or obtain a Retail Food Establishment license from the county health department.
Selling multiple food items. Regulation increases when a grower offers multiple types of food items for sale. If those items are “low risk,” the grower must register as a Farm Market with ODA, which involves a site inspection. If higher risk foods are involved, such as meat, eggs from offsite or from more than 500 birds, dressed poultry from offsite or from more than 1,000 birds, the grower must obtain a Retail Food Establishment license from the county health department.
Selling cottage foods and home bakery goods. Many home-prepared foods such as cookies, breads, jams, granola, snack mixes and more fall under Ohio’s cottage food law and require no licensing, but there are labeling requirements. See our law bulletin on Ohio’s Cottage Food Law here.
We've been anxiously waiting for details on additional financial support to farmers through the Coronavirus Food Assistance Program (CFAP). Those details finally arrived yesterday, when the USDA announced its Final Rule for CFAP's Direct Support to Farmers and Ranchers Program, which will allocate $16 billion in funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Commodity Credit Corporation.
The Farm Office team has digested the Final Rule and written an explanation in our latest news bulletin here: Sign up for USDA-CFAP Direct Support to Begin May 26, 2020. The news bulletin provides details on:
- Eligibility requirements for producers
- Eligible commodities
- Payment limitations
- Application and timeline
- Payment calculations, including examples of how to calculate payments
The Farm Office team will also host a webinar about Ohio's CFAP sign up process soon. Be sure to check back with this blog and our Farm Office Live page for further information about the webinar.
The Final Rule and additional information on CFAP are available on USDA's CFAP website.
Written by Ellen Essman and Peggy Kirk Hall
Many people are still working from home, but that hasn’t stopped legal activity in Washington, D.C. Bills have been proposed, federal rules are being finalized, and new lawsuits are in process. Here’s our gathering of the latest ag law news.
SBA posts Paycheck Protection Program (PPP) loan forgiveness application. We’ve been waiting to hear more about how and to what extent the SBA will forgive loans made under the CARES Act’s PPP that many farm businesses have utilized. The SBA recently posted the forgiveness application and instructions for applicants here. But there are still unanswered questions for agricultural applicants as well as talk in Congress about changing some of the forgiveness provisions, suggesting that loan recipients should sit tight rather than apply now. Watch for our future blog post and a discussion on the forgiveness provisions in our next Farm Office Live webinar.
House passes another COVID-19 relief bill. All predictions are that the bill will go nowhere in the Senate, but that didn’t stop the House from passing a $3 trillion COVID-19 relief package on May 15. The “HEROES Act” includes a number of provisions for agriculture, including an additional $16.5 billion in direct payments to producers of commodities, specialty crops and livestock, as well as funds for local agriculture markets, livestock depopulation losses, meat processing plants, expanded CRP, dairy production, other supply chain disruptions, and biofuel producers (discussed below). Read the bill here.
Proposed bipartisan bill designed to open cash market for cattle. Last week, Republican Senator Chuck Grassley and Democratic Senator Jon Tester introduced a bill that “would require large-scale meatpackers to increase the proportion of negotiable transactions that are cash, or ‘spot,’ to 50 percent of their total cattle purchases.” The senators hope this change would bring up formula prices and allow livestock producers to better negotiate prices and increase their profits. In addition, the sponsors claim ithe bill would provide more certainty to a sector hard hit by coronavirus. Livestock groups aren’t all in agreement about the proposal. You can read the bill here, Senator Grassley’s press release here and Senator Tester’s news release here.
New Senate and House bills want to reform the U.S. food system. Representative Ro Khanna from California has introduced the House companion bill to the Senate's Farm System Reform Act first introduced by Senator Cory Booker in January. The proposal intends to address underlying problems in the food system. The bill places an immediate moratorium on the creation or expansion of large concentrated animal feeding operations and requires such operations to cease by January 1, 2040. The proposal also claims to strengthen the Packers and Stockyards Act and requires country of origin labeling on beef, pork, and dairy products. The bill would also create new protections for livestock growers contracted by large meat companies, provide money for farmers to transition away from operating animal feeding facilities, strengthen the term “Product of the United States” to mean “derived from 1 or more animals exclusively born, raised, and slaughtered” in the U.S., and, similar to the Grassley/Tester bill above, require an increased percentage of meatpacker purchases to be “spot” transactions.
Lawmakers ask Trump to reimburse livestock producers through FEMA. In another move that seeks to help livestock producers affected by the pandemic, a bipartisan group of U.S. Representatives sent a letter to Donald Trump imploring him to issue national guidance to allow expenses of livestock depopulation and disposal to be reimbursed under FEMA's Public Assistance Program Category B. The lawmakers reason that FEMA has "been a valued Federal partner in responding to animal losses due to natural disasters," and that the COVID-19 epidemic should be treated "no differently." You can read the letter here.
More battling over biofuels. Attorneys General from Wyoming, Utah, Louisiana, Oklahoma, Texas, Arkansas and West Virginia have sent a request to EPA Administrator Andrew Wheeler to waive the Renewable Fuel Standard (RFS) because of COVID-19 impacts on the fuel economy. The letter states that reducing the national quantity of renewable fuel required would alleviate the regulatory cost of purchasing tradable credits for refiners, who use the credits to comply with biofuel-blending targets. Meanwhile, 70 mayors from across the U.S. wrote a letter urging the opposite, and criticizing any decisions not to uphold the RFS due to the impact that decision would have on local economies, farmers, workers, and families who depend on the biofuels industry. The House is also weighing in on the issue. In its recently passed HEROES Act, the House proposes a 45 cents per gallon direct payment to biofuel producers for fuels produced between Jan 1 and May 1, 2020 and a similar payment for those forced out of production during that time.
New USDA rule for genetically engineered crops. A final rule concerning genetically engineered organisms is set to be published this week. In the rule, USDA amends biotechnology regulations under the Plant Protection Act. Importantly, the new rule would exempt plants from regulation by the Animal and Plant Health Inspection Service (APHIS) if the plants are genetically engineered but the same outcome could have occurred using conventional breeding. For instance, gene deletions and simple genetic transfers from one compatible plant relative to another would be exempted. If new varieties of plants use a plant-trait mechanism of action combination that has been analyzed by APHIS, such plants would be exempt. You can read a draft of the final rule here.
Trump’s new WOTUS rule attacked from both sides of the spectrum. A few weeks ago, we wrote about the Trump Administration’s new “waters of the United States” or WOTUS rule. Well, it didn’t take too long for those who oppose the rule to make their voices heard. The New Mexico Cattle Growers Association (NMCGA) sued the administration, claiming that the new rule is still too strict and leaves cattle ranchers questioning whether waters on their land will be regulated. In their complaint, NMCGA argues that the new definition violates the Constitution, the Clean Water Act, and Supreme Court precedent. On the other side, the Natural Resources Defense Council (NRDC), along with other conservation groups, sued the administration, but argued that the new rule does not do enough to protect water and defines “WOTUS” too narrowly. Here we go again—will WOTUS ever truly be settled?
The Farm Office is Open! Join us for analysis of these and other legal and economic issues facing farmers in the Farm Office Team’s next session of “Farm Office Live” on Thursday, May 28 at 9:00 a.m. Go to this link to register in advance or to watch past recordings.
Agritourism has experienced significant growth in recent years, offering farm operators new revenue streams. Hopefully, the recent pandemic won't hinder the growth of agritourism entrepreneurship. Beyond COVID-19, however, there are other legal issues agritourism operators often face, and those issues can result in litigation. We sought to identify how frequently agritourism litigation is occurring across the U.S., and what types of legal issues end up in litigation. Our newest report for the National Agricultural Law Center, Recent Agritourism Litigation in the United States, shares the results of our research.
We categorized the agritourism lawsuits into two major categories: land use and personal injury. To our surprise, we identified more land use cases than personal injury cases. Two potential explanations for this outcome are that many states across the country now have agritourism immunity laws that limit legal liability for personal injuries on agritourism operations and that personal injury cases are likely to involve insurance policies and settlements rather than litigation. Land use cases, on the other hand, are more prevalent and center on regulatory issues such as zoning compliance and nuisance laws.
Most clear from our research is the need for state and local governments to carefully understand and define the meaning of “agritourism,” for both personal injury and land use reasons. The definition becomes quite important when determining whether immunity provisions protect an activity from liability for personal injuries. The definition is also integral to assessing whether or how an agritourism activity is subject to land use laws. Perhaps the most important result of our research is the confirmed realization that before proceeding with any “agritourism” activity, a farmer or rancher should take care to assess how state and local laws define that activity so as to reduce the risk of ending up in litigation.
The USDA’s National Agriculture Library funded our research, which we conducted in partnership with the National Agricultural Law Center. Readers may access the report here.
Tags: agritourism liability; agritourism; agritourism zoning; agritourism nuisance; agritourism immunity
Farmers aren’t traditionally eligible for unemployment benefits, but that won’t be the case when Ohio’s newest unemployment program opens. We've been keeping an eye out for the opening of the Pandemic Unemployment Assistance (PUA) program, which will provide unemployment benefits to persons affected by COVID-19. The program is targeted to persons who are not eligible for regular unemployment benefits, such as self-employed and 1099 filers. PUA is yet another economic assistance program generated by the Coronavirus Aid, Relief and Economic Security (CARES) Act recently passed by Congress.
PUA will provide regular unemployment benefit amounts to qualifying individuals, plus an additional $600 per week for the period of March 29 to July 25, 2020. Qualification doesn’t include a minimum income requirement, but a person must not be eligible for Ohio’s regular unemployment benefits and must not be currently receiving vacation, sick or other paid leave. The applicant must also be unable to work due to one of the following situations:
- The applicant has been diagnosed with COVID-19 or has symptoms and is seeking medical diagnosis;
- A member of the applicant’s household has been diagnosed with COVID-19;
- The applicant is providing care for a family or household member who has been diagnosed with COVID-19;
- The applicant cannot work due to caring for a child whose school or other facility has closed due to COVID-19;
- The applicant has become the primary support for a household because the head of the household has died due to COVID-19;
- The applicant has quit his or her job, was laid off, or could not begin a new job as a direct result of COVID-19;
- The applicant’s place of employment is closed because of COVID-19.
Applications should open by mid-May on the Ohio Department of Job and Family Services website. Self-employed individuals will have to submit proof of employment, such as earnings statements that reflect profit and loss, payroll deposits, or a 2019 tax return. The unemployment benefits will be retroactive to the date of eligibility and will last for no more than 39 weeks, up to December 26, 2020. PUA may also provide an additional 13 weeks of benefits for those who’ve exhausted regular unemployment benefits. To learn more or apply for PUA, visit https://unemploymenthelp.ohio.gov/expandedeligibility/.
Written by Barry Ward, Leader, Production Business Management and Director, OSU Income Tax Schools
In our recent Farm Office Live webinars, we’ve discussed the paid sick leave provisions in the Families First Coronavirus Response Act. The new law recognizes that many employees have been forced by COVID-19 to stay home rather than report to work. In such cases, the law obligates employers to provide paid sick leave but also gives federal tax credits to employers for doing so. Here’s a summary of how the law works.
Emergency paid sick leave provision
Employers with less than 500 employees are required to provide paid sick leave to employees who are unable to work (or telework) if they have become ill with COVID-19, have similar symptoms, or must provide care to someone with COVID-19 issues. Employees who have to care for children due to school or day care closure are also eligible for partial paid sick leave. Employers are required to provide 100 percent of the usual pay rate to an employee if they have COVID-19 or the related symptoms, up to $511 per day. If they’re unable to work due to the need to care for an affected individual or to care for children due to school or daycare closure, the employee must be paid 2/3rds of their usual pay rate up, up to $200 per day.
The following chart summarizes the requirements.
Employee has COVID-19 related illness
Must provide two weeks (80 hours) of 100% sick-pay, capped at $511/day
Employee is caring for individual with COVID-19 related illness
Must provide two weeks (80 hours) of 2/3rds of sick-pay, capped at $200/day
Employee is caring for children because school or childcare is closed due to COVID-19
Must provide two weeks (80 hours) of 2/3rds of sick-pay, capped at $200/day
Expanded family leave provision
A second provision, the expanded family leave provision, requires employers to provide employees with up to 12 weeks of leave for COVID-19-related needs. This leave requirement applies to employees who are unable to work due to having to care for children whose school or daycare is closed or unavailable because of COVID-19. The first ten days of the expanded family leave are unpaid (a deductible of sorts), although the employee can use the “emergency paid sick leave provision” or accrued sick leave to cover these days if necessary. After the first ten days, the employee is eligible to receive 2/3rd of regular pay for the remaining ten weeks, capped at $200 per day.
Note that employers with fewer than 50 employees are eligible for an exemption where the viability of the business would be threatened. The exemption applies to the requirements to provide leave to care for a child whose school is closed or if child care is unavailable.
Employer tax credits to fully compensate for required leave
This new law provides corresponding refundable tax credits to equal all required leave provided by an employer whether the leave was required and provided under the emergency paid sick provision or the expanded family leave provision. The credits are refundable payroll tax credits, designed to immediately and fully reimburse employers, dollar-for-dollar, for the cost of providing the required leave to their employees.
To receive the credit, employers hold on to payroll withholding as offset. Payroll withholding that can be held as this tax credit includes withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. If this amount isn’t enough to provide the full tax credit due the employer, the employer will have to file a return with the IRS. More information on how to claim these credits is available at: https://www.irs.gov/newsroom/covid-19-related-tax-credits-how-to-claim-the-credits-faqs
Additional details are available on the U.S. Department of Labor’s “Families First Coronavirus Response Act: Employer Paid Leave Requirements” page, here: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave
Economic relief measures in the CARES Act have proven difficult for farms, first due to confusion over which and how farmers qualify and also by soaring demand and depleted funding. But the recently enacted Paycheck Protection Program and Health Care Enhancement Act (HR 266) should help. The legislation injects more funds into both the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans Program (EIDL) and clarifies that farmers can qualify for EIDL loans. The bill also came with a bonus: additional guidance from the USDA and SBA for farmers seeking to access the programs. Both programs are first-come, first-served, so farm businesses who haven’t applied for the funds should decide whether to do so right away.
Here’s how the new legislation affects agricultural businesses:
- Allocates another $310 billion for the PPP to provide payroll funding for eligible employers, which includes $60 billion in funding for smaller lending institutions working with PPP loan applicants.
- Doubles the EIDL program, adding another $10 billion to the SBA disaster loan program for eligible businesses.
- Clarifies that agricultural enterprises are eligible for EIDL loans.
Using the PPP: a few quick tips
The SBA will resume accepting applications for the PPP today. Information about the program is on SBA’s website, here. Generally, PPP gives loans of up to $10 million at 1% interest to keep employees employed, with a loan maturity of two years and generous forgiveness provisions.
Farm businesses, including cooperatives, with fewer than 500 employees or who fit within the definition of a “small business concern” may apply for a PPP loan through an approved lender. Lenders include local banks as well as agricultural lenders in the Farm Credit System. Farmers should talk first to the lenders with whom they ordinarily do business to see if the lenders are participating in the PPP. If not, SBA provides a lender locating tool here.
The PPP application is here. Employers may use the loan for payroll costs or owner compensation replacement, as well as for mortgage interest, rent, and utility payments and interest payment on other debts, but 75% of the expenditures must be for payroll costs. To determine the maximum loan amount, an employer must document and calculate aggregate payroll costs from the previous 12 months, from calendar year 2019, or from February to June of 2019 if a seasonal employer. The SBA provides assistance on how to calculate payroll costs, and finally addresses the requirements for self-employed farms who report income on Schedule F. Read the guidance here, and see question 3 if you’re reporting income on Schedule F.
Upon receiving a PPP loan, a lender will set up a separate account for the funds. Borrowers should carefully document loan expenditures. This is not only for compliance purposes, but also because the PPP loan program includes a forgiveness component that forgives an amount equal to the sum of eligible costs and payments made during the eight weeks following disbursement of loan funds. At least 75% of the amount forgiven has to be for payroll costs, and the amount may be reduced by reductions in total salary or wages. Borrowers will have to apply for forgiveness, and documentation of all expenditures will prove necessary to the forgiveness process. We’re awaiting additional guidance on the forgiveness provisions, so keep an eye out for more information on this important topic.
The EIDL program
Farm businesses and agricultural cooperatives with no more than 500 employees may also now apply for EIDL, which gives loans up to $2 million for businesses that suffer economic injuries due to COVID-19. Because the program ran out of funds, there is a backlog in EIDL applications and the SBA is not reopening the loan portal until it catches up with the backlog. If SBA does reopen the program, businesses apply directly through the SBA here.
Businesses may use an EIDL loan for fixed debt, payroll, accounts payable, and other operating expenses due to the pandemic, but can’t use the funds for the same purposes as the borrower’s PPP loan. The interest rate for EIDL is higher at 3.75% (2.75% for non-profits), but the term can be up to 30 years.
Important to note: EIDL also includes an “emergency advance” component that provides an employer up to $1,000 per employee or a maximum of $10,000 as a grant. A borrower doesn’t have to repay the advance, even if the borrower doesn’t ultimately qualify for a loan. But if the borrower also has a PPP loan, the PPP forgiveness is reduced by the $10,000 EIDL advance. The emergency advance can go towards paying sick leave, payroll, increased materials costs, rental or mortgage payments, or other obligations due to revenue losses, as long as the borrower hasn’t used PPP funds for those costs.
There's still more for farms to digest from the CARES Act. The Farm Office team is ready to help! Join us for "The Farm Office is Open" tonight at 8 p.m., when we'll discuss the CARES Act programs and other economic developments for agriculture. Register for the live webinar and access past webinar recordings here.