Posts By Date
Peggy Kirk Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program
The Ohio Senate concurred with the House of Representatives yesterday to enact changes to Ohio's Agricultural Commodity Handler's law, commonly known as the Grain Indemnity Fund. According to the bill sponsors, the changes will better protect Ohio farmers from grain elevator insolvency by raising the fund cap from $10 to $15 million and increasing the minimum fund balance trigger for the per bushel fee assessment from $8 to $10 million.
The Ohio Legislature originally created the Grain Indemnity Fund in 1983 to reimburse farmers when a grain handler becomes insolvent. The law requires licensing of all grain handlers, who pay a 1/2 cent per bushel fee on grain handled to maintain a minimum balance in the indemnity fund. In the case of a grain handler's financial failure, a farmer is reimbursed 100% for open storage grain in the elevator and 100% of the first $10,000 of a loss for future contracts, delayed price and basis transactions, with 80% reimbursement beyond the first $10,000 of loss. The legislature raised the indemnity fund's required minimum balance to $10 million in 2005.
Ohio Department of Agriculture handles the fund, which paid out $4.1 million to farmers in grain insolvency cases in 2011 and its highest payout of $2.5 million for one elevator in 2004. The fund currently is around $8.2 million, but bill sponsors believe that payouts similar to those of the past could nearly bankrupt the fund under today’s grain prices. Changes to the fund cap and the assessment trigger should prevent depletion of the fund, according to bill sponsor Senator Cliff Hite.
The legislation also changes grain lien priority rules, revises licensing requirements for commodity handlers and increases discretion for the ODA Director to determine the validity of claims. The following summarizes these and other provisions in the legislation:
- Increases the Grain Indemnity Fund's minimum balance from $8 to $10 million and its maximum balance from $10 to $15 million. ODA cannot assess the per bushel assessment on handlers outside of the minimum and maximum balances.
- Gives priority to the automatic lien established and held by ODA in the event of a commodity handler’s failure or insolvency. The lien will now have priority over all competing lien claims asserted against the commodity.
- Requires a commodity handler whose license is revoked to immediately notify all parties storing agricultural commodities in the handler's warehouse and all holders of receipts issued by the handler.
- Directs the ODA Director to determine the validity of claims against the fund with the recommendation of the Commodity Advisory Commission rather than the approval of the Commission.
- Revises the type of financial statements that must be submitted to the Director by an applicant for an agricultural commodity handler's license or renewal. The financial statements must consist of all financial statements and footnotes required by generally accepted accounting principles as promulgated by the Financial Accounting Standards Board together with an independent accountant's report on the statements.
- Establishes the total net worth requirements for a handler's license applicant as 15 cents per bushel handled in the previous year and raises the minimum net worth requirement to $50,000.
- Removes barley, oats, rye, grain sorghum, sunflower and speltz from the list of agricultural commodities addressed by the law.
Revisions to the law will be effective on October 11, 2013. View the agricultural commodity handler's legislation here.
Larry Gearhardt, Asst. Professor, OSU Extension
Much of Ohio’s forestland has been plagued by, first, the emerald ash borer, and more recently, the Asian longhorn beetle. Can you deduct the loss on your tax form when a major portion of your forest land is destroyed by these insects? You can if the timber or forest land is held to produce income. If the timber is held merely for personal use, the loss is not deductible. A tax deduction is available to owners who hold timber or forest land to produce income, as opposed to personal use.
Casualty Versus Non-Casualty Loss
Where to deduct a loss on your tax forms depends upon whether the loss is a casualty loss or a non-casualty loss. A “casualty” is defined as the damage, destruction, or loss of property from an identifiable event that is sudden, unexpected, and unusual. Disease, insect infestation, drought, or combinations of factors seldom qualify as a casualty because these types of damage tend to be gradual or progressive rather than sudden. However, Revenue Ruling 79-174 provides that a massive southern pine beetle infestation that killed residential shade trees in 5 to 10 days did qualify as a casualty. Whether or not it is a casualty depends upon the facts of the situation.
A “non-casualty” loss is defined as the damage, destruction beyond use, or loss of property from an identifiable event. Like a casualty, the precipitating event for a non-casualty loss must be unusual and unexpected, but unlike a casualty, it does not have to be sudden. For example, insect attacks have resulted in deductible non-casualty losses of timber according to Revenue Ruling 87-59.
Deduction of a Non-Casualty Loss
A non-casualty loss is a business deduction. With one exception, owners who hold their timber as an investment, as opposed to managing timber as a business, cannot deduct a non-casualty loss. The exception is unusual and unexpected drought.
To calculate the amount of a non-casualty loss, the owner must first calculate the basis of the timber lost as you would for a sale. You then divide the adjusted basis in the affected block of timber by the basis of the total volume of timber in the block, updated to immediately before the loss. The result is multiplied by the volume of timber lost.
As an example, assume that the fair market value of the timber lost was $9,000. The basis of the timber lost was $3,500. If you held the timber as part of a trade or business, you could deduct $3,500 allowable basis in the timber lost on IRS Form 4797. Start on IRS Form 4797, Part II, for timber held one year or less, or Part I for timber held more than one year. The loss will be netted with other gains and losses from the disposal of other business property. If you are holding the timber as an investment, you cannot deduct a non-casualty loss unless it was from drought.
In contrast with casualty losses, which are deducted first from ordinary income, non-casualty losses are first deducted from capital gains. This treatment of non-casualty loss is a disadvantage, since capital gains receive more favorable tax treatment.
A loss frequently gives rise to related expenses, such as the cost of a cruise or appraisal to determine the extent of the loss, that cannot be included as part of the loss. Such expenses are often deductible, but where you take the deduction differs according to the type of loss.
If you hold your timber or forest land as part of a trade or business, these expenses are deducted on IRS Form 1040, Schedule C, or Schedule F if you qualify as a farmer. If you hold your timber or forest land as an investment, an owner can deduct expenses related to a non-casualty loss to the extent that they qualify as “ordinary and necessary” expenses, even if you cannot deduct the loss itself. However, an owner holding timber as an investment will report expenses on IRS Form 1040, Schedule A, in the “Miscellaneous deductions” section. This deduction will be subject to the 2% of adjusted gross income floor.
What If There Is a Gain?
If timber or forest land is damaged or destroyed and the owner receives payment in the form of a damage claim, salvage proceeds, insurance recovery, or other compensation, the transaction is called an involuntary conversion or involuntary exchange. If the payment that the owner receives is greater than the basis of the timber lost, there will be a gain rather than a deductible loss. Unless the owner elects to defer the gain by replacing the property within specified time limits, the gain must be reported.
For more information, see the USDA Forest Landowners' Guide to the Federal Income Tax here.
Catharine Daniels, Attorney, OSUE Agricultural & Resource Law Program
The court's decision was not exactly what a group of farmers, seed sellers, and agricultural organizations was hoping for, but they are nevertheless claiming partial victory against Monsanto in a recent lawsuit centered on genetically modified seed. On June 10, 2013, the United States Court of Appeals denied the group's request for a judgment against Monsanto but at the same time declared that Monsanto would be judicially bound to its promise not to pursue future patent infringement suits against the growers, seed sellers or organizations for "inadvertently using or selling 'trace amounts' of genetically modified seeds."
Several farmers and organizations who grow, use, or sell conventional and organic seeds ("Seed Growers") filed a federal lawsuit against Monsanto in March of 2011. Ohioans in the group include the Ohio Ecological Food and Farm Association. The Seed Growers asked the court to declare some of Monsanto’s patents “invalid, unenforceable, and not infringed.” The Seed Growers claimed they had to forgo planting certain crops and had to take “costly precautions” to avoid contamination by Monsanto's genetically modified "Roundup Ready" seeds. Pointing to Monsanto's history of aggressive patent infringement litigation, the Seed Growers feared they would be sued by Monsanto despite their efforts to prevent unintended contamination. The Seed Growers also alleged adverse health effects and long term environmental impacts from the genetically modified seed. The federal court dismissed the case after determining that no traceable injury existed that the court could address, since none of the Seed Growers had actually been sued by Monsanto.
The Seed Growers appealed the decision to the Court of Appeals for the Federal Circuit. The court of appeals agreed that there was not a current traceable injury to the Seed Growers. But the appeals court also concluded that there was no risk of harm to the Seed Growers because Monsanto had “unequivocally disclaimed any intent to sue appellant growers, seed sellers, or organizations for inadvertently using or selling “trace amounts” of genetically modified seeds.” Even though Monsanto had denied the Seed Growers' request to enter into a written covenant not to sue, the appeals court held that Monsanto's promise to the Seed Growers throughout the lawsuit had the same effect as a written, signed agreement not to bring suit.
How Can the Court Enforce Monsanto's “Promises”?
Monsanto's promise not to sue the Seed Growers came through verbal representations made in the course of the federal court proceedings. How can the court hold Monsanto to such a promise? To do so, the appeals court relied on the unique legal doctrine of "judicial estoppel," which states that under certain circumstances, a party who makes a declaration in a legal proceeding will be bound to that statement and may not contradict the declaration in a future legal proceeding. The appeals court examined three factors that warrant a court's use of judicial estoppel:
- The party’s later position is clearly inconsistent with its prior position.
- The party successfully persuaded a court to accept its prior position.
- The party would derive an unfair advantage or impose an unfair detriment on the opposing party if the court didn't step in to enforce the promise.
According to the court, all three of these situations would exist if Monsanto later sued the parties for patent infringement, which requires the application of judicial estoppel to bind Monsanto to its promise.
But the Promise is Limited
Monsanto's promise was not to sue "inadvertent users or sellers of seeds that are inadvertently contaminated with up to one percent of seeds carrying Monsanto's patented traits." But what about growers who inadvertently use or sell seed containing greater than trace amounts; i.e. greater than one percent? Despite the appeals court's effort to clarify whether or not Monsanto would assert its patent rights in those situations, Monsanto would not state its position on the issue. Monsanto did make it clear that their view of an inadvertent infringement is quite narrow, stating that an "inadvertent infringer" would not include “those growers whose crops become accidentally contaminated, and who do not treat their fields with Roundup, but who, knowing of the contamination, harvest and replant or sell the seeds.” Thus in situations where growers inadvertently use or sell seed containing greater than trace amounts of Monsanto's seed, it is possible that Monsanto could bypass judicial estoppel and pursue a patent infringement case.
So Was this Really a Victory for the Organic Seed Growers?
While the Seed Growers did not obtain the declaratory judgments they sought against Monsanto, they did receive some protection from future litigation in the form of judicial estoppel. Because the appeals court concluded that the Seed Growers were not at risk of being sued by Monsanto, the court was able to avoid delving into the deeper issues of whether or not Monsanto's patents are valid, whether avoiding contamination is a burden to conventional farmers and whether Monsanto's seed poses health and environmental harms. The Seed Growers have expressed interest in requesting a review of the decision by the U.S. Supreme Court. Even if the case does not make its way to the Supreme Court, it surely isn't the last lawsuit we'll see that challenges genetically modified seed technology.
View Organic Seed Growers et al v. Monsanto here.
Tags: Monsanto, Organic Seed Growers and Trade Association v. Monsanto
Peggy Hall and Catharine Daniels, OSUE Agricultural & Resource Law Program
It's hay and straw season in Ohio, which creates both a high need to employ youth on the farm and the challenging task of understanding farm youth labor laws.
For example, imagine Farmer X is getting ready to cut hay and has hired Youth Y to help, who is 14 years old. What exactly can Youth Y help with? Can he drive the tractor? Can he ride on the tractor? Does it make a difference whether Youth Y is the son, daughter or grandchild of Farmer X? Are there implications for allowing Youth X to perform farm work that he or she shouldn’t perform?
These questions are important to consider before hiring minors to work on your farm this summer. In a series of blog posts, we will discuss various aspects of federal and state regulations applying to minors working on farms. First up in this post is the issue of what type of work the law allows you to assign to youth workers on the farm.
The relationship of the minor you are hiring is important because the law treats your own children and grandchildren differently than non-related children working on your farm. If the minor you hire is your own child or grandchild, the law allows you to have the child do any type of job, including agricultural jobs considered "hazardous" under state and federal labor laws. Step children, adopted children, foster children and other children for whom you are the guardian are also exempt from the hazardous jobs regulation.
For other children, age matters
For other youth who are not your own child or grandchild, the type of work you may assign the child depends upon his or her age. "Other children" includes strangers, students, neighborhood children, friends, nieces, nephews and any other relatives. Only the older youth may perform "hazardous" farm work, as follows:
- 16 and 17 year olds – May perform any type of farm job including agricultural jobs considered hazardous.
- 14 and 15 year olds – May not perform any job listed as hazardous unless the child holds a 4-H or vocational agriculture certificate of completion for tractor operation or machine operation and the employer keeps a copy of the certificate on file with the minor employee's record.
- 12 and 13 year olds – May not perform any job listed as hazardous; may only perform non-hazardous jobs if with written consent for employment from a parent or guardian or if the child is working on a farm that also employs the child's parent or guardian.
- 11 year olds and younger – May not perform hazardous jobs. May only perform non-hazardous farm work if a parent or guardian gives written consent and if the child will be working on a farm where employees are exempt from minimum wage requirements. A farm is exempt from minimum wage if the farm had 500 or fewer man-days of agricultural labor in the preceding calendar year; a man-day is any day where a worker performs at least one hour of agricultural labor.
What jobs are "hazardous"?
Ohio has adopted the federal government's determination of "hazardous" activities for youth, which is based upon the risk of harm posed by an activity. Your own child or grandchild may perform hazardous tasks at any age, but other youth working on the farm must be at least 16 years of age to participate in these "hazardous" tasks:
- Operating a tractor with over 20 PTO horsepower, or connecting or disconnecting an implement or any of its parts to or from such tractor.
- Operating or assisting to operate (including starting, stopping, adjusting, feeding, or any other activity involving physical contact associated with the operation) any of the following machines: corn picker, cotton picker, grain combine, hay mower, forage harvester, hay baler, potato digger, mobile pea viner, feed grinder, crop dryer, forage blower, auger conveyor, unloading mechanism of a nongravity-type self-unloading wagon or trailer, power post-hole digger, power post driver or nonwalking type rotary tiller, trencher or earthmoving equipment, fork lift, potato combine or power-driven circular, band, or chain saw.
- Working on a farm in a yard, pen, or stall occupied by a bull, boar or stud horse maintained for breeding purposes, a sow with suckling pigs, or a cow with a newborn calf with umbilical cord present.
- Felling, bucking, skidding, loading, or unloading timber with a butt diameter of more than 6 inches.
- Working from a ladder or scaffold (painting, repairing, or building structures, pruning trees, picking fruit, etc.) at a height of over 20 feet.
- Driving a bus, truck or automobile when transporting passengers or riding on a tractor as a passenger or helper.
- Working inside a fruit, forage, or grain storage designed to retain an oxygen deficient or toxic atmosphere; an upright silo within 2 weeks after silage has been added or when a top unloading device is in operating position; a manure pit; or a horizontal silo while operating a tractor for packing purposes.
- Handling or applying (including cleaning or decontaminating equipment, disposal or return of empty containers, or serving as a flagman for aircraft applying) agricultural chemicals classified under the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 135 et seq.) as Category I of toxicity, identified by the word “poison” and the “skull and crossbones” on the label or Category II of toxicity, identified by the word “warning” on the label.
- Handling or using a blasting agent, including but not limited to dynamite, black powder, sensitized ammonium nitrate, blasting caps, and primer cord.
- Transporting, transferring or applying anhydrous ammonia.
Going back to our example of Farmer X and Youth Y, if Youth Y is Farmer X’s child or grandchild, then the child would be permitted to drive the tractor to cut the hay because the hazardous restrictions do not apply. However, if Youth Y is not Farmer’s X’s child or grandchild, then he would not be permitted to drive the tractor because it is considered a hazardous job that 14 year olds may not perform, unless Youth Y holds a 4-H or vocational agriculture certificate of completion for tractor operation.
What if I violate the "hazardous" jobs regulations?
Under Ohio law, you can be found guilty of a third degree misdemeanor for allowing a minor under the age of 16 to perform a hazardous job on your farm; penalties are up to a $500 fine and 60 days in jail for each violation. Additionally, if the child is injured while engaged in an illegal hazardous activity, you could be assessed with an increased workers' compensation premium.
How can I comply with the law? To ensure that you don't violate the labor regulations on hazardous jobs for youth, take a few precautions to protect both you and your child employee:
- Verify the child's age and keep records of your verification.
- Know the list of agricultural work that is considered hazardous.
- Remember that only your children or grandchildren are exempt from the hazardous jobs regulation; consider nieces, nephews, cousins and other relatives as "other children" who are subject to the hazardous jobs rules.
- Ensure that your child employees know which jobs they may do and which jobs they may not perform.
- Review safety practices with your youth employees.
- For 14 and 15 year olds who have completed a 4-H or vocational agriculture tractor or machinery operation certificate, maintain a copy of the certificate with the employee's records.