Tax
UPDATE: Governor DeWine signed H.B. 95, the Beginning Farmer bill, on April 18, 2022. The effective date for the new law is July 18, 2022. The Governor signed the Statutory Lease Termination bill, H.B. 397, on April 21, and its effective date is July 19, 2022.
Bills establishing new legal requirements for landowners who want to terminate a verbal or uncertain farm lease and income tax credits for sales of assets to beginning farmers now await Governor DeWine’s response after passing in the Ohio legislature this week. Predictions are that the Governor will sign both measures.
Statutory termination requirements for farm leases – H.B. 397
Ohio joins nine other states in the Midwest with its enactment of a statutory requirement for terminating a crop lease that doesn’t address termination. The legislation sponsored by Rep. Brian Stewart (R-Ashville) and Rep. Darrell Kick (R-Loudonville) aims to address uncertainty in farmland leases, providing protections for tenant operators from late terminations by landowners. It will change how landowners conduct their farmland leasing arrangements, and will hopefull encourage written farmland leases that clearly address how to terminate the leasing arrangement.
The bill states that in either a written or verbal farmland leasing situation where the agreement between the parties does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate the lease must do so in writing by September 1. The termination would be effective either upon completion of harvest or December 31, whichever is earlier. Note that the bill applies only to leases that involve planting, growing, and harvesting of crops and does not apply to leases for pasture, timber, buildings, or equipment and does not apply to the tenant in a leasing agreement. A lease that addresses how and when termination of the leasing arrangement may occur would also be unaffected by the new provisions.
The beginning farmer bill – H.B. 95
A long time in the making, H.B. 95 is the result of a bi-partisan effort by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville). It authorizes two types of tax credits for “certified beginning farmer” situations. The bill caps the tax credits at $10 million, and sunsets credits at the end of the sixth calendar year after they become effective.
The first tax credit is a nonrefundable income tax credit for an individual or business that sells or rents CAUV qualifying farmland, livestock, facilities, buildings or machinery to a “certified beginning farmer.” A late amendment in the Senate Ways and Means Committee reduced that credit to 3.99% of the sale price or gross rental income. The bill requires a sale credit to be claimed in the year of the sale but spreads the credit amount for rental and share-rent arrangements over the first three years of the rental agreement. It also allows a carry-forward of excess credit up to 7 years. Note that equipment dealers and businesses that sell agricultural assets for profit are not eligible for the tax credit, and that an individual or business must apply to the Ohio Department of Agriculture for tax credit approval.
The second tax credit is a nonrefundable income tax credit for a “certified beginning farmer” for the cost of attending a financial management program. The program must be certified by the Ohio Department of Agriculture, who must develop standards for program certification in consultation with Ohio State and Central State. The farmer may carry the tax credit forward for up to three succeeding tax years.
Who is a certified beginning farmer? The intent of the bill is to encourage asset transition to beginning farmers, and it establishes eligibility criteria for an individual to become “certified” as a beginning farmer by the Ohio Department of Agriculture. One point of discussion for the bill was whether the beginning farmer credit would be available for family transfers. Note that the eligibility requirements address this issue by requiring that there cannot be a business relationship between the beginning farmer and the owner of the asset.
An individual can become certified as a beginning farmer if he or she:
- Intends to farm or has been farming for less than ten years in Ohio.
- Is not a partner, member, shareholder, or trustee with the owner of the agricultural assets the individual will rent or purchase.
- Has a household net worth under $800,000 in 2021 or as adjusted for inflation in future years.
- Provides the majority of day-to-day labor and management of the farm.
- Has adequate knowledge or farming experience in the type of farming involved.
- Submits projected earnings statements and demonstrates a profit potential.
- Demonstrates that farming will be a significant source of income.
- Participates in a financial management program approved by the Department of Agriculture.
- Meets any other requirements the Ohio Department of Agriculture establishes through rulemaking.
We’ll provide further details about these new laws as they become effective. Information on the statutory termination bill, H.B. 397, is here and information about the beginning farmer bill, H.B. 95, is here. Note that provisions affecting other unrelated areas of law were added to both bills in the approval process.
Tags: farm lease, verbal farm leases, lease termination, HB 397, beginning farmers, tax credits, HB 95
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It’s time to round up a sampling of legal questions we’ve received the past month or so. The questions effectively illustrate the breadth of “agricultural law,” and we’re happy to help Ohioans understand its many parts. Here’s a look at the inquiries that have come our way,
I’m considering a carbon credit agreement. What should I look for? Several types of carbon credit agreements are now available to Ohio farmers, and they differ from one another so it’s good to review them closely and with the assistance of an attorney and an agronomist. For starters, take time to understand the terminology, make sure you can meet the initial eligibility criteria, review payment and penalty terms, know what types of practices are acceptable, determine “additionality” requirements for creating completing new carbon reductions, know the required length of participation and how long the carbon reductions must remain in place, understand how carbon reductions will be verified and certified, be aware of data ownership rights, and review legal remedy provisions. That’s a lot! Read more about each of these recommendations in our blog post on “Considering Carbon Farming?”
I want to replace an old line fence. Can I remove trees along the fence when I build the new fence? No, unless they are completely on your side of the boundary line. Both you and your neighbor co-own the boundary trees, so you’ll need the neighbor’s permission to remove them. You could be liable to the neighbor for the value of the trees if you remove them without the neighbor’s approval, and Ohio law allows triple that value if you remove them against the neighbor’s wishes or recklessly harm the trees in the process of building the fence. You can, however, trim back the neighbor’s tree branches to the property line as long as you don’t harm the tree. Also, Ohio’s line fence law in ORC 971.08 allows you to access up to 10 feet of the neighbor’s property to build the fence, although you can be liable if you damage the property in doing so.
I want to sell grow annuals and sell the cut flowers. Do I need a nursery license? No. Ohio’s nursery dealer license requirement applies to those who sell or distribute “nursery stock,” which the law defines as any “hardy” tree, shrub, plant, bulb, cutting, graft, or bud, excluding turf grass. A “hardy” plant is one that is capable of surviving winter temperatures. Note that the definition of nursery stock also includes some non-hardy plants sold out of the state. Because annual flowers and cuttings from those flowers don’t fall into the definition of “nursery stock,” a seller need not obtain the nursery dealer license.
Must I collect sales tax on cut flowers that I sell? Yes. In agriculture, we’re accustomed to many items being exempt from Ohio’s sales tax. That’s not the case when selling flowers and plants directly to customers, which is a retail sale that is subject to the sales tax. The seller must obtain a vendor’s license from the Ohio Department of Taxation, then collect and submit the taxes regularly. Read more about vendor’s licenses and sales taxes in our law bulletin at this link.
I’m an absentee landowner who rents my farmland to a tenant operator. Should I have liability insurance on the land? Yes. A general liability policy with a farm insurer should be affordable and worth the liability risk reduction. But a few other steps can further minimize risk. Require your tenant operator to have liability insurance that adequately covers the tenant’s operations, and include indemnification provisions in your farm lease that shift liability to the tenant during the lease period. Also consider requiring your tenant or hiring someone to do routine property inspections, monitor trespass issues, and ensure that the property is in a safe condition.
My neighbor and I both own up to the shoreline on either side of a small lake--do I have the right to use the whole lake? It depends on where the property lines lay and whether the lake is connected to other waters. If the lake is completely surrounded by private property and not connected to other “navigable” waters, such as a stream that feeds into it, the lake is most likely a private water body. Both of you could limit access to your side of the property line as it runs through the lake. You also have the legal right to make a “reasonable use” of the water in the lake from your land, referred to as “riparian rights.” You could withdraw it to water your livestock, for example; but you cannot “unreasonably” interfere with your neighbor’s right to reasonably use the water. The law changes if the lake is part of a “navigable” waterway. It is then a “water of the state” that is subject to the public right of navigation. Others could float on and otherwise navigate the water, and you could navigate over to your neighbor’s side. Public users would not have the riparian rights that would allow them to withdraw and use the water, however, and would be trespassing if they go onto the private land along the shore.
If I start an agritourism activity on my farm, will I lose my CAUV status? No, not if your activities fit within the legal definition of “agritourism.” Ohio law states in ORC 5713.30(A)(5) that “agritourism” activities do not disqualify a parcel from Ohio’s Current Agricultural Use Valuation (CAUV) program. “Agritourism,” according to the definition in ORC 901.80, is any agriculturally related educational, entertainment, historical, cultural, or recreational activity on a “farm” that allows or invites members of the general public to observe, participate in, or enjoy that activity. The definition of a “farm” is the same as the CAUV eligibility—a parcel devoted to commercial agricultural production that is either 10 acres or more or, if under 10 acres, grosses $2500 annually from agricultural production. This means that land that is enrolled in the CAUV program qualifies as a “farm” and can add agritourism activities without becoming ineligible for CAUV.
Send your questions to aglaw@osu.edu and we’ll do our best to provide an answer. Also be sure to check out our law bulletins and the Ag Law Library on https://farmoffice.osu.edu, which explain many of Ohio’s vast assortment of agricultural laws.
Tags: carbon agreements, line fence law, trees, cut flowers, sales tax, Insurance, riparian rights, water rights, agritourism, cauv
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Did you know that the loudest land animal is the howler monkey? The howler monkey can produce sounds that reach 140 decibels. For reference, that is about as loud as a jet engine at take-off, which can rupture your eardrums.
Like the howler monkey, we are here to make some noise about recent agricultural and resource law updates from across the country. This edition of the Ag Law Harvest brings you court cases dealing with zoning ordinances, food labeling issues, and even the criminal prosecution of a dairy farm. We then look at a couple states proposing, or disposing, of legislation related to agriculture.
A zoning ordinance has Michigan landowners hogtied. The Michigan Supreme Court recently ruled that Michigan’s 6-year statute of limitations does not prevent a township from suing a landowner for alleged ongoing zoning violations, even if the start of landowner’s alleged wrongdoing occurred outside the statute of limitations period.
Harvey and Ruth Ann Haney (“Defendants”) own property in a Michigan township that is zoned for commercial use. Defendants began raising hogs on their property in 2006. Defendants started with one hog and allegedly grew their herd to about 20 hogs in 2016. In 2016, Fraser Township (“Plaintiff”) filed suit against Defendants seeking a permanent injunction to enforce its zoning ordinance and to prevent Defendants from raising hogs and other animals that would violate the zoning ordinance on their commercially zoned property. Defendants filed a motion to dismiss and argued that Plaintiff’s claims were barred because of Michigan’s 6-year statute of limitations. A statute of limitations is a law that prevents certain lawsuits from being filed against individuals after a certain amount of time has passed. In Ohio, for example, if someone were to be injured in a car accident, they would only have 2 years to bring a personal injury claim against the person who caused the accident. That’s because Ohio has passed a law that mandates most personal injury claims to be brought within 2 years of the date of injury.
In the Michigan case, Defendants argued that because their first alleged wrongdoing occurred in 2006, Plaintiff could not file their lawsuit against the Defendants in 2016. A trial court disagreed with Defendants and denied their motion to dismiss. Defendants took the motion up to the Michigan Court of Appeals, and the Court of Appeals found that Plaintiff’s claim was barred because of the 6-year statute of limitations. Plaintiff appealed to the Michigan Supreme Court, which overturned the Court of Appeals’ decision and held that Plaintiff’s claim was not barred. The Michigan Supreme Court reasoned that the presence of the hogs constitutes the alleged unlawful conduct of the Defendants, and that unlawful conduct occurred in 2006 and has occurred almost every day thereafter. The court concluded that because Defendants unlawful conduct was ongoing after 2006, Plaintiff’s claims were not barred by the statute of limitations. The case now goes back to the trial court to be tried on the merits of Plaintiff’s claims against Defendants.
Where there’s smoke, there’s fire. Family Dollar Stores, Inc. (“Family Dollar”) has found itself in a bit of nutty situation. Plaintiff, Heather Rudy, has filed a class action lawsuit against Family Dollar, alleging that Family Dollar has misled her and other consumers by marketing its Eatz brand Smoked Almonds as “smoked.” Plaintiff asserts that Family Dollar is being deceptive because its Smoked Almonds are not smoked over an open fire, but instead flavored with a natural smoke flavoring. Plaintiff’s claims against Family Dollar include violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”); breaches of express warranty and implied warranty of merchantability; violation of the Magnuson-Moss Warranty Act; negligent misrepresentation; fraud; and unjust enrichment.
Family Dollar filed an early motion to dismiss, arguing that Plaintiff has not stated a claim for which relief can be granted. A federal district court in Illinois dismissed some of Plaintiff’s claims but ruled that some claims against Family Dollar should be allowed to continue. Plaintiff’s claims for breaches of warranty, violation of the Magnuson-Moss Warranty Act, negligent misrepresentation, and fraud were all dismissed by the court. The court did decide that Plaintiff’s claims under ICFA unjust enrichment should stay. The court reasoned that Plaintiff’s interpretation that Family Dollar’s almonds would be smoked over an open fire are not unreasonable. Moreover, the court recognized that nothing on the front label of Family Dollar’s Smoked Almonds would suggest, to consumers, that the term “smoked” refers to a flavoring rather than the process by which the almonds are produced. The court even pointed out that competitors’ products contain the word “flavored” on the front of similar “smoked” products. Therefore, the court concluded that Plaintiff’s interpretation of Family Dollar’s Smoked Almonds was not irrational and her claims for violating the ICFA should continue into the discovery phase of litigation, and possibly to trial.
Undercover investigation leads to criminal prosecution of Pennsylvania dairy farm. A Pennsylvania Court of Appeals (“Court of Appeals”) recently decided on Animal Outlook’s (“AO”) appeal from a Pennsylvania trial court’s order dismissing AO’s petition to review the decision of the Franklin County District Attorney’s Office (“DA”) to not prosecute a Pennsylvania dairy farm (the “Dairy Farm”) for animal cruelty and neglect. An undercover agent for AO held employment at the Dairy Farm and captured video of the condition and treatment of animals on the farm, which AO claims constitutes criminal activity under Pennsylvania’s animal cruelty laws.
AO compiled a report containing evidence and expert reports documenting the Dairy Farm’s alleged animal cruelty and neglect. AO submitted its report to the Pennsylvania State Police (“PSP”) in 2019. The PSP conducted its own investigation which lasted for over a year, and in March 2020, issued a press release indicating that the DA would not prosecute the Dairy Farm.
In response, AO drafted private criminal complaints against the Dairy Farm and submitted those to the local Magisterial District Judge. The local Magisterial Judge disapproved all of AO’s complaints and concluded that the complaints “lacked merit.” AO then filed a petition in a Pennsylvania trial court to review the Magisterial Judge’s decision. The trial court dismissed AO’s petition and concluded that the DA correctly determined “that there was not enough evidence, based upon the law, to initiate prosecution against any of the Defendants alleged in the private criminal complaints.” AO appealed the trial court’s decision to the Court of Appeals which ended up reversing the trial court’s decision.
The Court of Appeals concluded that the trial court failed to view the presented evidence through a lens that is favorable to moving forward with prosecution and the trial court failed to consider all reasonable inferences that could be made on the evidence. The Court of Appeals observed that the trial court made credibility determinations of the evidence by favoring the evidence gathered by PSP over the evidence presented by AO. The Court of Appeals noted that a trial court’s duty is to determine “whether there was evidence proffered to satisfy each element of an offense, not to make credibility determinations and conduct fact-finding.” Additionally, the Court of Appeals found that the trial court did not do a complete review of all the evidence and favored the evidenced obtained by PSP over the evidence presented by AO. The Court of Appeals determined that had the trial court reviewed all the evidence, it would have found that AO provided sufficient evidence to establish prima facie cases of neglect and animal cruelty, which would have provided the legal basis for the DA’s office to prosecute the claims.
Lastly, the DA argued that no legal basis for prosecution exists because the Dairy Farm is protected by the normal agricultural operations exemption to Pennsylvania’s animal cruelty laws. However, the Court of Appeals found that the conduct of the Dairy Farm, as alleged, would fall outside the normal agricultural operations exemption because AO’s report demonstrates that the Dairy Farm’s practices were not the dairy industry norm.
Ultimately the Court of Appeals found that AO’s private criminal complaints did have merit and that the DA had enough evidence and a legal basis to prosecute AO's claims. The Court of Appeals remanded the trial court’s decision and ordered that the DA to go ahead and prosecute the Dairy Farm on its alleged animal cruelty violations.
Wyoming fails to pass legislation limiting what can be considered agricultural land. The Wyoming House of Representatives struck down a recent piece of legislation looking to increase the threshold requirement to allow landowners the ability to classify their land as agricultural, have their land appraised at an agricultural value, and receive the lower tax rate for agricultural land. Current Wyoming law classifies land as agricultural if: (1) the land is currently being used for an agricultural purpose; (2) the land is not part of a patted subdivision; and (3) the owner of the land derived annual gross revenue of $500 or more from the marketing of agricultural products, or if the land is leased, the lessee derived annual gross revenues of $1,000 or more from the marketing of agricultural products.
Wyoming House Bill 23 sought to increase the threshold amount of gross revenues derived from the marketing of agricultural products to $5,000 for all producers. The Wyoming Farm Bureau Federation and Wyoming Stock Growers associations supported the bill. Proponents of the bill argued that the intent of agricultural land appraisals is to support commercial agriculture, not wealthy landowners taking advantage of Wyoming’s tax laws. Opponents of the bill argued that House Bill 23 hurt small agricultural landowners and that the benefits of the bill did not outweigh the harms. House Bill 23 died with a vote of 34-25, failing to reach the 2/3 approval for bills to advance.
Oregon introduces legislation relating to overtime for agricultural workers. Oregon House Bill 4002 proposes to require agricultural employers to pay all agricultural employees an overtime wage for time worked over 40-hours in a workweek. House Bill 4002 does propose a gradual phase-in of the overtime pay requirements for agricultural employees. For the years 2023 and 2024, agricultural employees would be entitled to overtime pay for any time worked over 55 hours in a workweek. For 2025 and 2026, the overtime pay requirement kicks in after 48 hours. Then in 2027, and beyond, agricultural employers would be required to pay an overtime pay rate to employees that work more than 40 hours in a workweek.
Tags: Animals, Animal Cruelty, Agriculture, Agricultural Labor, Labor and Employment, overtime, tax, Agricultural Land, Land Value, Criminal Law, Food Labeling, Zoning, Statute of Limitations
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Did you know there is a bird with talons larger than grizzly bear claws? The Harpy Eagle’s back talons can reach lengths of 5 inches, which is larger than a grizzly bear’s claws which reach lengths of around 4 inches. Thankfully, the Harpy Eagle is not usually found in the United States, they are traditionally found in the rainforests of Central and South America.
The variety and extent of the animal kingdom can be a good analogy when we talk about the scope and variability of agricultural and resource law. “Ag law” isn’t in and of itself a core area of law, at least not an area of law taught in most law schools across the country. Those core areas of law are traditionally contracts, constitutional, tort, property, and a few others. But ag law includes most, if not all, of the core legal subjects. This includes property law, tax law, tort law, international law, intellectual property law, environmental law, contracts, business, labor and employment, and others. This week’s edition of the Ag Law Harvest shows you how diverse ag law really is. We review some legislation moving in parts of the country that deal with tax law, property law, and administrative law. We also review Federal regulations and court cases that address food law, trademark law, and antitrust law.
Florida introduces legislation to protect farmers’ preferential tax benefits amid agritourism boom. Florida’s legislature is hard at work to ensure the success of Florida’s agriculture and agritourism industries. Recently, Florida’s legislature introduced Senate Bill 1186 and House Bill 717. The purpose of both bills is to promote Florida’s agritourism industry and protect farmers when it comes to land classification, taxation, and regulation. Both pieces of legislation look to:
- Eliminate duplicate regulatory authority over agritourism by preventing local government from enacting regulations that prohibit, restrict, or otherwise limit an agritourism activity from taking place on land classified as agricultural land.
- Prevent land from being classified “non-agricultural” simply because an agritourism activity takes places on the land, so long as the agritourism activity is taking place on a bona fide farm.
- Implement a hybrid property taxation scheme which allows the buildings and other structures used for agritourism activities to be assessed at just value and added to the agriculturally assessed value of the land.
Both bills are currently making their way through their respective chamber’s committees and should be voted on soon.
Michigan looking to pass legislation to reduce fines for family farmers that do not report accidental workplace deaths to the state. The Michigan Senate recently passed a substitute for House Bill 4031, which is focused on reducing the fine incurred by family farms for not reporting the death of a family member within eight hours. Under current Michigan law, a family farm must report any fatality to the Michigan Occupational Safety and Health Administration within eight hours or face a fine of at least $5,000, which is exactly what happened to the Eisenmann family in 2019. The Eisenmann family ran a family farm and was fined $12,000 after Keith Eisenmann fell to his death while repairing a barn roof. The bill seeks to reduce the fine for families that are grieving the unexpected loss of a loved one. Although a family farm will still be required to report the accidental work-related death of a loved one within eight hours, if a family fails to do so, the substitute bill drastically reduces the penalty. The original bill passed Michigan’s House of Representatives late last year, but the substitute bill passed by the Michigan Senate clarifies the definition of family farm. The substitute bill now goes back to the House of Representatives for approval.
Bioengineered food standard now in effect. January 1st marked the first day of compliance for the Bioengineered Food Disclosure Standard (the “Standard”). The Standard requires food manufacturers, importers, and certain retailers to disclose to consumers that foods are or may be bioengineered. The Standard defines bioengineered foods as “those that contain detectable genetic material that has been modified through certain lab techniques and cannot be created through conventional breeding or found in nature.” The Agricultural Marketing Service has created a list of bioengineered foods to identify the crops or foods that are available in a bioengineered form. For more information on the Bioengineered Food Disclosure Statement visit https://www.ams.usda.gov/rules-regulations/be.
A bite into the cheesier side of trademark law. Last month, a federal court in Virginia decided on a dispute between European and American cheesemakers. The dispute arose over whether the term “Gruyere” should only be used to identify cheeses produced in the Gruyère region of France and Switzerland or whether the term can be used generically to describe a type of cheese, regardless of where the cheese is produced. The Plaintiffs, two European business groups, filed an application with the United States Patent Trademark Office (“USPTO”) to register “Gruyere” as a certification mark under 15 U.S.C. § 1127 which would only allow cheesemakers to use the term “Gruyere” if the cheese came from the Gruyère region. The U.S. Dairy Export Council and others (“Defendants”) filed an opposition to Plaintiffs’ application with the Trademark Trials and Appeals Board (“TTAB”). The TTAB found the term “Gruyere” to be generic term used to describe a type of cheese, not a cheese’s origin. Plaintiffs’ then filed suit in a federal court in Virginia. The federal court held that the “Gruyere” term had become a generic term to describe a type of cheese and failed to find the term worthy of trademark protection. The court reasoned that although the term “Gruyere” may have once been understood to indicate where a cheese came from, over time “Gruyere” became a generic term to describe a type of cheese. The court noted the term “Gruyere” has become generic overtime because: (1) U.S. regulations allow the use of the term “Gruyere” regardless of where the cheese is produced, (2) there is widespread sale and import of Gruyere cheese that is produced outside the Gruyère region, and (3) “Gruyere” is commonly used in dictionaries, media communications, and cheese industry events to describe a type of cheese without regards to where the cheese is produced. Plaintiffs have since appealed to the Fourth Circuit Court of Appeals, which means we still have a gooey situation on our hands.
USDA and Department of Justice announce commitment to protect farmers against unfair anticompetitive practices. The U.S. Department of Agriculture (“USDA”) and the U.S. Department of Justice (“DOJ”) each announced their shared commitment to enforcing federal competition laws that are aimed at protecting farmers, ranchers, and other agricultural producers from unfair, anticompetitive practices. In continuing their commitment to enforcing such laws, the agencies released a statement of principles and commitments which include:
- Farmers, ranchers, and other producers and growers deserve the benefits of free and fair competition. The DOJ and USDA are therefore prioritizing matters impacting competition in agriculture.
- The agencies will develop an accessible, confidential process for agricultural producers to submit complaints about potential violations of the antitrust laws and the Packers and Stockyards Act.
- Increased cooperation between the agencies to enforce the laws that protect agricultural producers and to identify areas where Congress can help modernize rules and regulations.
As we have seen over the past few months, the federal government is keen on preventing the consolidation of the agricultural industry in order promote fair and equal competition. The announced commitments and principles demonstrate the government’s continued dedication to cracking down on unfair practices.
Tags: agritourism, Workplace Safety, Bioengineered Foods, Food Labeling, Antitrust, Trademark law
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As promised, here is the next and final installment of “An Agricultural Employer’s 2021 Tax Obligations: A Series” discussing an agricultural employer’s requirements and obligations under Ohio law. This installment of the series provides an overview of Ohio employment taxes and additional employer obligations for Ohio’s agricultural employers. This series covers an employer’s Ohio tax obligations and requirements that arise simply because a business has employees. This series does not cover the business income or personal income tax reporting obligations of agricultural employers.
We first discuss Ohio’s income and school district taxes and then we focus on Ohio’s unemployment insurance tax and Ohio’s workers’ compensation requirement for all employers. The information contained within this series is not meant to be legal and/or tax advice, it is for educational purposes only. Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help ensure compliance with Ohio tax law.
Ohio Employer Withholding Tax.
Ohio Employer Withholding Tax. Generally, employers are required to withhold Ohio income tax and school district tax from employees’ wages. However, under Ohio law, Agricultural employers are not required to withhold Ohio taxes from wages paid to employees, so long as the employees fall under the definition of agricultural labor in 26 U.S.C. § 3121(g). “Agricultural labor” includes all services performed:
- on a farm, in the employ of any person, in connection with the cultivating, raising, and/or harvesting of any agricultural or horticultural commodity; or
- in the employ of the owner or other operator of a farm, in connection with the operation, management, conservation, or maintenance of such farm and its tools and equipment.
Can Ohio’s Agricultural Employers Agree to Willingly Withhold Ohio’s Taxes? In short, the answer is yes. An agricultural employee must still pay Ohio income tax and their local school district tax on all income earned throughout the year. If an employee does not have their Ohio taxes withheld from their pay, they may be required to make quarterly estimated tax payments to the state. Because of this, an employee may request their employer to withhold their Ohio taxes from each paycheck. An agricultural employer is under no obligation to withhold Ohio taxes, but some do.
Ohio Withholding Exemption Certificate. It is important that each employer, even an agricultural employer, have its employees complete an Employee’s Withholding Exemption Certificate (Ohio IT 4). For agricultural employers that are not going to withhold Ohio’s taxes, it must have each employee check the box next to “I am exempt from Ohio withholding under R.C. 5747.06(A)(1) through (6)” under Section III of Form IT 4. If no Ohio IT 4 is completed, then an employer must withhold the Ohio’s taxes from an employee’s wages.
Ohio requires an employer to keep Ohio IT 4 in its records for at least four years and must make it available to the Ohio Department of Taxation upon request.
Registering as an Ohio Withholding Agent. Employers that are required (or choose) to withhold Ohio’s taxes from employees’ wages must register with the Ohio Department of Taxation. This can be done one of three ways.
- By internet. Registration can be completed online through the Ohio Business Gateway.
- By phone. Call 1-888-405-4089, listen for the message, and then press 2 to connect with an agent.
- By mail or fax. Complete Application for Registration as an Ohio Withholding Agent (Ohio IT 1) and mail it to the address provided on the form or fax it to the Ohio Department of Taxation at (614) 387-2165.
How Much Ohio Income Tax Should an Employer Withhold? To determine how much Ohio income tax to withhold, visit the Ohio Department of Taxation’s Employer Withholding Tables website.
How Much School District Tax Should an Employer Withhold? School districts impose a tax using one of two methods: traditional or earned income. School district tax rates and a district’s method of taxation can be found on the Ohio Department of Taxation’s "Employer Withholding: Table of Contents" website.
For traditional tax base school districts, an employer must use the same wage base and number of exemptions they use when calculating the employee’s Ohio income tax rate. For earned income tax base school districts, an employer must withhold at a flat rate equal to the school district’s tax rate with no reduction or adjustment for personal exemptions.
An employee’s school district is determined by the address of the employee’s residence. School districts and the corresponding four-digit codes can be found at https://www.tax.ohio.gov/finder or by contacting the applicable county auditor.
Electronic Filing Requirement. Employers are required to file and pay Ohio income and school district withholding taxes electronically. The easiest way to do this is through the Ohio Business Gateway.
Filing Frequency and Payment of Ohio’s Employer Withholding Tax. An employer’s filing frequency is determined by the combined amount of Ohio and school district income taxes that were withheld or required to be withheld during the look-back period. Ohio’s look-back period is the 12-month period ending June 30th of the preceding calendar year. An employer’s filing frequency is re-evaluated every year.
Ohio’s Income Tax Filing Frequency:
Quarterly. Ohio employers that withheld $2,000 or less in Ohio taxes will be required to file and pay taxes every calendar quarter. Ohio’s form IT 501 and payment are due by the last day of the month following each calendar quarter.
Monthly. Ohio employers that withheld more than $2,000 but less than $84,000 in Ohio taxes will be required to file and pay taxes every month. Form IT 501 and payment are due within 15 days after the end of each month.
Partial-weekly. Ohio employers that withheld $84,000 or more in Ohio taxes are required to make payment of withheld taxes within three banking days from the end of each “partial-weekly period.” There is no form that is required to be filed each time tax payments are filed. There are two “partial-weekly periods” in which an employer can be categorized. An employer’s partial weekly period depends on the day it issues payroll.
Partial-weekly Period 1: An employer is in period 1 if it issues payroll on Saturday, Sunday, Monday, or Tuesday.
Partial-weekly Period 2: An employer is in period 2 if it issues payroll on Wednesday, Thursday, or Friday.
Remember, payment is due within three banking days from the end of each period. So, if an employer issues payroll on Wednesday, it must submit payment of Ohio taxes within three banking days starting on Friday.
School District Tax Filing Frequency. School district tax filing frequency is the same as an employer’s Ohio income tax filing frequency except for employers that qualify as partial-weekly filers. Partial-weekly employers are required to file school district tax on a monthly basis. Every time an employer files and remits the school district tax they must complete “Payment of School District Income Tax Withheld” (Ohio SD 101), which can be found on the Ohio Business Gateway.
Quarterly and Annual Forms. An employer’s filing obligations do not end by filing the above forms each time it remits payment of Ohio’s taxes. The following are additional forms that must be completed by an employer either on a quarterly or yearly basis. Not every form listed below needs to be completed by every employer. Certain forms correspond with an employer’s filing frequency classification. These forms can be found on the Ohio Business Gateway.
Quarterly/Monthly Filers. Employers that qualify to file and pay Ohio income taxe on a quarterly or monthly basis must file an “Annual Reconciliation of Income Tax Withheld” (Ohio IT 941). Ohio IT 941 is typically due no later than January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022). The total tax withheld on Ohio IT 941 must equal the amount reported on Ohio IT 3 (discussed below).
Partial-weekly Filers. Employers that must pay Ohio taxes on a partial-weekly basis must file a “Quarterly Reconciliation of Income Tax Withheld” (Ohio IT 942) by the last day of each month following a calendar quarter for the 1st, 2nd, and 3rd Quarters. A different Ohio IT 942 form titled “4th Quarter/Annual Reconciliation of Income Tax Withheld” is to be filed by partial-weekly employers by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022). Partial-weekly employers do not submit Ohio IT 941.
“Transmittal of W-2 and 1099-R Statements” (Ohio IT 3). All employers must submit Ohio IT 3, which can be done electronically on the Ohio Business Gateway. Ohio IT 3 requires an employer to report and upload employee W-2s/1099-Rs. The amount of Ohio taxes withheld and paid by an employer must match the information contained within the W-2s and 1099-Rs. Ohio IT 3 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).
“Annual Reconciliation of School District Income Tax Withheld” (Ohio SD 141). Employers must also submit Ohio SD 141, which can be done electronically on the Ohio Business Gateway. Ohio SD 141 compares the amount of school district tax withheld and paid by an employer and the information contained within the W-2s and 1099-Rs uploaded when an employer files Ohio IT 3 (see above). The amount of school district tax withheld and paid should match the information contained within the W-2s and 1099-Rs submitted by an employer. Ohio SD 141 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).
Ohio Unemployment Insurance Tax.
When are Agricultural Employers required to pay Ohio’s Unemployment Insurance? Agricultural employers must pay the Ohio Unemployment insurance tax if it:
- Paid cash wages of $20,000 or more in a calendar to agricultural employees in the current calendar year or the preceding calendar year; or
- Had at least 10 agricultural employees for some portion of a day in 20 different weeks in the current year or the preceding year
Other Ways Employers can Become Liable for Ohio’s Unemployment Insurance Tax. An employer can also be required to pay the Ohio Unemployment Insurance tax if it:
- Is subject to the Federal Unemployment Tax Act (“FUTA”) in either the current calendar year or preceding calendar year.
- Acquires a business that was subject to Ohio’s unemployment insurance tax.
- Elects to cover its employees voluntarily.
Employer Must Report Its Own Liability. Employers are required to report liability by filing “Report to Determine Liability” (JFS 20100) to the Ohio Department of Job and Family Services (the “ODJFS”), which can be done online at https://thesource.jfs.ohio.gov. The ODJFS will determine an employer’s liability based on the information provided in JFS 20100. If an employer is deemed to be liable for Ohio Unemployment Insurance, the ODJFS will issue a 10-digit employer account number.
Employer Reporting. Liable employers are required to file quarterly reports to the ODJFS. Agricultural employers that must pay into the Ohio unemployment insurance fund must file the “Employer’s Wage Detail Report” and the “Quarterly Summary Report.” Employers who had no workers or paid no wages during a quarter are still required to file the above-mentioned reports. Employers with fewer than 200 employees should file their quarterly reports by using the Ohio Business Gateway or ODJFS’s “The SOURCE Online” The reports must be filed no later than the last day of the month following the end of a calendar quarter.
Employer Contributions. Like FUTA, only the employer is responsible for Ohio’s unemployment insurance tax. Payments made into the Unemployment Insurance Trust Fund are called “contributions.” Contribution rates are determined by an employer’s “experience rating” which is a measure of how much an employer has paid in unemployment taxes and has been charged in benefits. For more information about contribution rates, visit https://jfs.ohio.gov/ouio/uctax/rates.stm.
Contributions are due no later than the last day of the month following the end of a calendar quarter. To determine how much tax is due each quarter, an employer multiplies its unemployment tax rate by the amount of taxable wages paid during the quarter. Contributions must be made each quarter until the “taxable wage base” for each employee has been met. The taxable wage base for 2022 is $9,000. This means that an employer is only required to pay its unemployment insurance tax rate on the first $9,000 dollars earned by each employee. If an employer is unable to make a contribution, the unpaid balance will bear an annual interest rate of 14%, compounded monthly.
Ohio Workers’ Compensation
While not technically a “tax,” every employer in the state of Ohio, with one or more employees, must have workers’ compensation coverage. This includes agricultural employers. There are, however, certain businesses that do not have to carry workers compensation coverage. These businesses include:
- Sole proprietors with no employees
- Partnerships with no employees
- Family farm corporations with no employees
- Limited liability company acting as a sole proprietorship with no employees
- Limited liability company acting as a partnership with no employees
As you can see, the common attribute shared by the exempt businesses listed above is the fact that those businesses have no employees. What this means is that if anyone, other than an owner, is performing services for a business and being paid for those services, then the business is required to carry workers’ compensation coverage. So, for example, if a couple owns and operates a small family farm corporation and only the couple performs the work on the farm, then workers’ compensation coverage is not required.
Elective Workers’ Compensation Coverage. For those employers that are not required to carry workers’ compensation coverage, they may still elect to do so. Oftentimes, businesses elect to carry workers’ compensation insurance to prevent the devastating side effects of a serious injury sustained by an owner. Using the example of the family farm corporation from above, if the couple decides not to carry workers’ compensation coverage and one of them is injured while farming, their health insurance company may deny their claim because the injury was work-related. Generally, on-the-job injuries must be covered through workers’ compensation, not an individual’s health insurance. So, the couple could begin to amass a large sum in medical bills due to the lack of insurance coverage, possibly bankrupting the farm corporation.
Applying for Workers’ Compensation Coverage. Employers required to carry workers’ compensation coverage must apply for coverage by submitting the “Application for Coverage (U-3)” to Ohio’s Bureau of Workers’ Compensation (“BWC”) which can be found at https://www.bwc.ohio.gov/employercoverage. Employers electing to obtain coverage can apply by submitting the “Application for or Request to Cancel Elective Coverage (U-3S)” which can be found by visiting https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/employer-forms/application-for-request-cancel-elective-coverage.
Workers’ Compensation Premiums. The BWC calculates an employer’s premium based on several factors, including total payroll, type of work performed by employees, and an employer’s workplace injury record.
Premium Payments. Installment payments of an employer’s premium is based upon a schedule chosen by the employer. The BWC will send an invoice to each employer for premium/installment payments. Payments can be made through an e-account on the Ohio Bureau of Workers’ Compensation website.
Alternative Premium Rate Plans. It's no secret that workers' compensation insurance can be a costly expense for an employer. However, the BWC does have alternative premium rate plans for employers looking to reduce the cost of workers' compensation insurance. These alternative rate plans allow employers that operate similar businesses to join together to potentially achieve a lower premium rate than they could obtain as individual employers. For more information on alternative premium rate plans visit https://www.bwc.ohio.gov/downloads/blankpdf/altrate.pdf.
Conclusion. This series was split into two posts because of the massive amount of information presented. However, the broad overview of this series was very surface level. There are many exemptions, exceptions, alternate requirements, or additional requirements based on an employer’s unique circumstances that we did not cover for the sake of brevity. That is why is it important to speak with an attorney or other tax professional so that they can help you navigate federal and state tax laws to make sure you are fulfilling your obligations as an employer and to address any questions or concerns that you may have.
References and Resources:
Ohio Administrative Code Chapter 4123, Bureau of Workers’ Compensation, https://codes.ohio.gov/ohio-administrative-code/4123
Ohio Bureau of Workers’ Compensation, BWC Basics for Employers, https://www.bwc.ohio.gov/downloads/blankpdf/BWCBASICS.pdf
Ohio Bureau of Workers’ Compensation, Workers’ Compensation Overview, https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/workers-compensation-overview
Ohio Department of Job and Family Services, Employer’s Guide to Ohio Unemployment Insurance,http://www.odjfs.state.oh.us/forms/num/JFS08201/pdf/
Ohio Department of Job and Family Services, Unemployment Insurance: Employer Resource Hub, https://unemploymenthelp.ohio.gov/employer/
Ohio Department of Job and Family Services, UI Tax for New Employers, https://jfs.ohio.gov/ouio/uctax/UITaxForNewEmployers.stm
Ohio Department of Taxation, 2022 Ohio Employer and School District Withholding Tax Filing Guidelines,https://tax.ohio.gov/static/employer_withholding/2021%20filing%20guidelines%20updates_rev%2012-22-21.pdf
Ohio Department of Taxation, Estimated Payments, https://tax.ohio.gov/wps/portal/gov/tax/individual/resources/estimated-payments
Ohio Revised Code Chapter 4141, Unemployment Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4141
Ohio Revised Code Chapter 4123, Workers’ Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4123
Ohio Revised Code Chapter 5747, Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5747
Ohio Revised Code Chapter 5748, School District Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5748
Tags: Ohio Employment Taxes, Labor and Employment, taxes, Ohio Workers' Compensation, Ohio Unemployment Insurance, Agricultural Labor
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As we settle into 2022 and regroup after a busy holiday season, one of things an agricultural employer should be thinking about is taxes, more specifically, have they met their obligations when it comes to federal and state employment taxes. In this two-part series, we discuss the federal and state taxes that an employer is required to withhold from employees’ wages and the tax obligations that an agricultural employer is solely responsible for. This series covers the taxes and obligations an employer has because of the wages paid to employees. This series does not cover the business income or personal income tax reporting obligations of agricultural employers.
The first part of this series focuses on federal taxes and an employer’s obligations when it comes to social security, Medicare, federal income, and federal unemployment taxes. We also discuss when to pay the taxes and how to pay them. The information contained within this series is not meant to be legal and/or tax advice. Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help them ensure they are compliant with their obligations under federal tax law.
Social Security and Medicare Taxes. Generally speaking, an employer must withhold social security and Medicare taxes from the wages it pays its employees. However, there are special rules for agricultural employers. The $150 Test or the $2,500 Test will help determine if an agricultural employees’ wages are subject to social security and Medicare taxes along with federal income tax withholding requirements.
All cash wages that an employer pays to an employee during the year for farmwork is subject to social security, Medicare, and federal income tax withholding requirements if either of the following tests are met:
- The $150 Test. An employer pays cash wages to an employee of $150 or more in a year for farmwork.
- This includes all cash wages paid on a time, piecework, or other basis.
- The $2,500 Test. The total that an employer paid for farmwork (cash and non-cash wages) to all employees is $2,500 or more during the year.
Annual cash wages of less than $150 paid to a seasonal farmworker are not subject to social security and Medicare taxes, or federal income tax withholding, even if an employer pays all farmworkers $2,500 or more. However, these wages do count towards the $2,500 Test to determine whether other farmworkers’ wages are subject to social security and Medicare taxes.
Social Security Tax Rate. The social security tax is 6.2% for both the employee and the employer on the first $142,800 paid to each employee in 2021. This means that an employer must withhold 6.2% of the employee’s wages for social security and the employer must match the 6.2%.
Medicare Tax Rate. The Medicare tax rate is 1.45% for each employee, on all wages earned. An employer must withhold Medicare taxes from an employee’s wages and pay a matching amount.
Federal Income Tax Withholding. An agricultural employer must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes (i.e. is the $150 Test or $2,500 Test met?). The amount of federal income tax withheld is determined by the gross wages paid to an employee (before any taxes are taken out).
To know how much federal income tax to withhold from an employee’s wages, an employer should have a Form W-4 (“W-4) on file for each employee. The Internal Revenue Service (“IRS”) redesigned Form W-4 for 2020 and beyond. The new W-4 no longer asks employees to report the number of withholding allowances they are claiming. The IRS encourages employees to file an updated W-4, but it is not a requirement to help determine the employee’s federal income tax withholding.
How much does an employer withhold for federal income tax? The best answer a lawyer can give to this question is, it depends. Luckily, the IRS has provided a tool to help employers determine the amount of federal income tax to withhold from an employee’s wages. The Income Tax Withholding Assistant for Employers allows employers to enter an employee’s W-4 information to calculate the amount of federal income tax to withhold. Note: The Income Tax Withholding Assistant will not be available after 2022. The IRS suggests using the Income Tax Withholding Assistant to become familiar with how to use the worksheets and tables in Publication 15-T to be able to calculate the amount of federal income tax to withhold after 2022.
What if my employee claims he or she is exempt from federal income tax withholding? An employee may claim an exemption from federal income tax withholding because they had no federal income tax liability last year and they expect to have no income tax liability this year. However, the employee’s wages are still subject to social security and Medicare taxes.
To claim the exemption, an employee must indicate the exemption on their W-4. The exemption is not permanent and is only for that year. To continue to be exempt, an employee must provide their employer a new W-4 by February 15. If an employee does not provide a new W-4 by February 15, the employer is required to start withholding federal income tax as if the employee had checked the Single or Married filing separate box on their W-4. If an employee provides a new W-4 after the February 15 deadline, an employer may apply the exemption to future wages but should not refund any taxes withheld while the exempt status was not in place.
Notice to Employees About Earned Income Credit (“EIC”). An employer must notify employees who have had no federal income tax withheld that they may be eligible for a tax refund because of the EIC. One easy way an employer can meet this requirement is by having the EIC notice on the back of the Form W-2 issued to all employees.
Depositing Social Security, Medicare, and Federal Income Taxes. Employment taxes must be deposited by electronic fund transfer (“EFT”). Normally, an EFT is made to the federal government using the Electronic Federal Tax Payment System (“EFTPS”). EFTPS is a free service provided by the Department of Treasury. For more information on EFTPS visit EFTPS.gov or call 800-555-4477. If an employer does not want to use EFTPS, it can arrange for its tax professional, financial institution, payroll service, or other trusted third party to make electronic payments on its behalf.
When to Deposit Social Security, Medicare, and Federal Income Taxes. An agricultural employer’s deposit schedule is determined from the total tax liability reported on Form 943, line 13, for the lookback period. The lookback period is the second calendar year preceding the current calendar year. Since we are in 2022, the lookback period will be 2020. This means that an employer’s status as either a “monthly schedule depositor” or “semiweekly schedule depositor” will be determined by the amount on Form 943, line 13 from 2020.
The terms “monthly schedule depositor” or “semiweekly schedule depositor” are not based on how often an employer pays its employees or how often it will be required to make tax deposits. The terms simply identify which set of rules an employer must follow. As discussed above the deposit schedule an employer must follow is determined by the total tax liability reported on Form 943, line 13. For 2022, an employer is a:
- Monthly schedule depositor if it reported $50,000 or less in 2020.
- Semiweekly schedule depositor if it reported more than $50,000 in 2020.
Monthly Deposit Schedule. If an employer is a monthly schedule depositor, it must deposit employment taxes on wages paid during a calendar month by the 15th day of the following month. If an employer does not pay any wages in a calendar month, it has no deposit requirement for the following month.
Semiweekly Deposit Schedule. If payday falls on a Wednesday, Thursday, or Friday, then an employer must deposit taxes by the following Wednesday. If payday falls on a Saturday, Sunday, Monday, or Tuesday, then an employer must deposit taxes by the following Friday. This is a very simplified explanation and assumes an employer has one payday for all employees. If an employer has multiple paydays for different employees, it should speak with an attorney or other tax professional to help determine when taxes should be deposited.
Federal Unemployment Tax Act (“FUTA”). FUTA, in conjunction with state unemployment systems, provides unemployment compensation to workers who have lost their jobs. Most employers pay both federal and state unemployment taxes. Additionally, only the employer is responsible for the FUTA tax, nothing is withheld from an employee’s wages for FUTA.
Agricultural Employers and FUTA. An agricultural employer is required to file Form 940 and pay FUTA tax if it:
- Paid cash wages of $20,000 or more to farmworkers in any calendar quarter in 2021 or 2022, or
- Employed 10 or more farmworkers during at least some part of the day (whether or not at the same time) during any 20 or more different weeks in 2021 or 20 or more different weeks in 2022.
When determining whether an employer meets either test above, employers must count the wages paid to H-2A workers, even though the wages paid to H-2A workers are not subject to FUTA.
Form 940 Due Date. Form 940 is due by January 31. If an employer made deposits on time and in full, they may file Form 940 by February 10.
FUTA Tax Rate. The FUTA tax rate is 6% for 2021. The tax applies to the first $7,000 an employer pays to each employee. There is a tax credit that may be applied against the FUTA tax rate for any amounts paid into state unemployment funds. The maximum credit is 5.4%. An employer is entitled to the maximum credit if it paid state unemployment taxes in full, on time, and on all the same wages that are subject to FUTA. Visit the instructions for filing Form 940 for further FUTA tax credit guidance.
Depositing FUTA Tax. FUTA taxes are deposited by EFT and are generally deposited on a quarterly basis. To calculate an employer’s FUTA tax, it should multiple the amount of wages paid to employees by .6% during the quarter. This percentage may have to be adjusted depending on an employer’s entitlement to the FUTA tax credit for state unemployment contributions. When an employee’s wages reach $7,000 for the calendar year, an employer does not have to figure any additional FUTA tax for that employee.
Conclusion. The above information is a very general overview of an employer’s tax obligations when it comes to its employees. As you can see, federal tax law can be daunting. We barely scratched the surface when it comes to specific exemptions or additional obligations for an agricultural employer. For example, agricultural employers may not always employ farmworkers or employees “engaged in agriculture.” The requirements and obligations of an employer that employs both farmworkers and non-farmworkers be may different than what is discussed above. Therefore, we cannot stress enough, the importance of speaking with an attorney or other tax professional so they can help you navigate federal tax law and your obligations as an employer.
Look out for our next and final installment of “An Agricultural Employer’s 2021 Tax Obligations: A Series” where we will be discussing an agricultural employer’s requirements and obligations under Ohio tax law.
References and Resources:
Internal Revenue Service, Publication 15 - (Circular E), Employer's Tax Guide, https://www.irs.gov/pub/irs-pdf/p15.pdf
Internal Revenue Service, Publication 15-A - Employer's Supplemental Tax Guide, https://www.irs.gov/pub/irs-pdf/p15a.pdf
Internal Revenue Service, Draft Publication 51- (Circular A), Agricultural Employer's Tax Guide, https://www.irs.gov/pub/irs-dft/p51--dft.pdf
Internal Revenue Service, Publication 225 - Farmer's Tax Guide, https://www.irs.gov/pub/irs-pdf/p225.pdf
Tags: Employment Taxes, Agricultural Labor, Labor and Employment, IRS, Medicare, Social Security, Unemployment Tax, Income Tax Withholding
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If you've ever claimed a sales tax exemption on a purchase of farm goods, you may have experienced some confusion over whether you or the good is eligible for the exemption. That's because Ohio's sales tax law is a bit tedious and complicated. The law has several agricultural exemptions, but it can be challenging to understand who can claim them and what types of goods and services are exempt. Those are the reasons for our newest law bulletin, Ohio's Agricultural Sales Tax Exemption Laws. We walk through the different sales tax exemptions that apply to agriculture, offer examples of goods that do and do not qualify for the exemptions, explain who can claim an exemption and how to claim it, and explain what happens when sales taxes are overpaid or not correctly paid. We also offer steps a farmer can take to obtain the full benefits of Ohio's agricultural sales tax exemptions. The bulletin is available in our law library and through this link.
Tags: tax, sales tax, agricultural exemption from sales tax, Ohio tax law
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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 2021 tax returns.
OSU Income Tax Schools are intermediate-level courses that focus on interpreting tax regulations and changes in tax law 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.
Attendees also receive a class workbook that alone is an extremely valuable reference as it offers over 600 pages of material including helpful tables and examples that will be valuable to practitioners. Summaries of the chapters in this year’s workbook can be viewed at this site:
https://farmoffice.osu.edu/tax/2021-tax-school-chapters
A sample chapter from a past workbook can be found at:
https://taxworkbook.com/about-the-tax-workbook/
This year, OSU Income Tax Schools will offer both in-person schools and an online virtual school presented over the course of four afternoons.
In-person schools:
November 1-2, Presidential Banquet Center, Kettering/Dayton
November 3-4, Ole Zim’s Wagon Shed, Gibsonburg/Fremont
November 17-18, Ashland University John C. Meyer Convocation Center, Ashland
November 22-23, Christopher Conference Center, Chillicothe
November 29-30, Zane State/Ohio University Zanesville Campus, Zanesville
December 2-3, Nationwide & Ohio Farm Bureau 4-H Center, OSU Campus, Columbus
December 6-7, Hartville Kitchen, Hartville
Virtual On-Line School presented via Zoom:
November 8, 12, 15 & 19, 12:30 – 4:45 p.m.
Register two weeks prior to the school date and receive the two-day tax school early-bird registration fee of $400. 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 $450.
Additionally, the 2022 RIA Federal Tax Handbook is available to purchase by participants for a discounted fee of $50 each. Registration information and the online registration portal can be found online at:
In addition to the tax schools, the program offers a separate, two-hour ethics webinar that will broadcast Wednesday, Dec. 15 at 1 p.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.
A webinar on Ag Tax Issues will be held Monday, Dec. 13 from 8:45 a.m. to 3:20 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 if registered at least two weeks prior to the webinar. After November 29, registration is $200. Register by mail or on-line at https://go.osu.edu/agissues2021.
Participants may contact Ward at 614-688-3959, ward.8@osu.edu or Julie Strawser 614-292-2433, strawser.35@osu.edu for more information.
"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.
Current Schedule:
| 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 strawser.35@osu.edu 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
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We learn early in law school that it’s an uphill battle when challenging agency actions in court, as the law typically grants agencies discretion to apply expertise and professional judgment when making decisions. A landowner in Clark County just learned this lesson. The landowner appealed the Ohio tax commissioner’s adoption of the 2016 Current Agricultural Use Valuation (CAUV) table, but the Ohio Supreme Court found no showing of an abuse of discretion by the agency.
The case arose from the CAUV valuation update in 2016 of William Johnson’s land in Clark County. In setting the CAUV values, the county auditor consulted the unit-value table adopted by the tax commissioner. The unit-value table lists soil types and ratings of each soil type along with per-acre values for each soil type. The tax commissioner annually adopts the table using a potential-income approach, as required by Ohio law, which determines typical net income from agricultural products for each type of soil, assuming typical management, yields, and cropping and land use patterns. A county auditor refers to the unit-value table when determining CAUV farmland values, applying the per-acre values from the table to the soil types on a parcel.
Johnson claimed that his CAUV value was too high because the 2016 unit-value table adopted by the tax commissioner did not list separate values for drained and undrained soils on his land. The table does list differing values for Adrian, Carlisle and Linwood soils—one value for drained soils and one value for undrained soils. However, the table lists just one value for all Crosby, Kokomo, and Patton soil types, the soils contained on the Johnson’s parcel. Johnson argued that the tax commissioner erred by adopting the unit-value table without establishing separate values for drained and undrained Crosby, Kokomo, and Patton soil types.
The Supreme Court explained that Johnson’s challenge required showing that the tax commissioner committed an “abuse of discretion” in adopting the unit-value table. Two important principles apply to the “abuse of discretion” standard, the first being that the court will not substitute its judgment for the agency’s judgment unless the agency acted with an unreasonable, arbitrary, or unconscionable attitude. The court also presumes that an agency’s decision is carried out in good faith and with sound judgment, unless there is proof to the contrary.
According to Johnson, the tax commissioner abused his discretion in several ways: by departing from the USDA’s taxonomy of soils, excluding data for land lacking artificial drainage, and not listing all soils with drained and undrained variations. The court found no abuse of discretion, however, and no evidence to support the Johnson’s claims. The court pointed out that the commissioner, as required by law, consulted with the “agricultural advisory committee” in preparing the table and referred to both Ohio State University’s Bulletin 685 and updates to the USDA taxonomy for guidance on soil types. Explaining that the CAUV potential-income approach required the commissioner to determine “typical” management practices, the court stated that the commissioner was justified in not establishing a separate value for the Johnson’s “atypical practice” of not installing artificial drainage for the specific soils on his property. Considering investments required for artificial drainage for some soil types but not for others doesn’t prove an abuse of discretion, the court stated.
The court’s conclusion reiterates the lesson on the difficulty of challenging an agency decision:
“To repeat: the differential treatment of soil types reflects the exercise of judgment by the commissioner, which we presume to be sound. . . The record does not disclose the rationale for every consideration underlying the unit-value table, but it was not the commissioner’s burden to demonstrate the reasonableness of the CAUV journal entry—it was Johnson’s burden to show an arbitrary or unconscionable attitude on the part of the commissioner. He has not done so.”
Read the Ohio Supreme Court’s decision in Johnson v. McClain here.
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