Recent Blog Posts
Direct food marketing in Ohio is hot. The latest USDA survey identified 7,107 Ohio farms with direct food sales--third highest in the nation. That might be why our program receives more legal inquiries about food sales than any other area of law. And that is also why we’re hosting a three-part webinar series on “Starting a Food Business,” providing an introduction to what a producer needs to know about selling home-based and farm-raised foods directly to consumers and retailers.
The free webinar series will be from 7—9 p.m. on January 24, February 28, and March 28 in 2023, with these different topics each night:
- January 24: Start-Up Basics. What do you want to sell? We’ll review initial considerations for selling your food product. We’ll cover food safety, licensing, legal, and economic considerations for starting up a food business.
- February 28: Selling Home-Based Foods. Learn about food product development, Ohio’s Cottage Food and Home Bakery laws, and requirements for selling canned foods.
- March 28: Selling Meat and Poultry. A look at the economics, processing options, and labeling and licensing requirements for selling meat and poultry.
Our teaching team for the webinar series includes:
- Nicole Arnold, Asst. Professor and Food Safety Field Specialist for OSU Extension. Nicole supports food handlers, consumers, and educators with food safety education and risk communication efforts.
- Peggy Kirk Hall, Assoc. Professor and Agricultural Law Field Specialist for OSU Extension. Peggy directs OSU Extension’s Agricultural & Resource Law Program and regularly teaches and writes on food laws.
- Emily Marrison, OSU Extension Educator in Family and Consumer Sciences. Emily’s food science background provides expertise and insight on food safety, product development, and selling home-based foods.
- Garth Ruff, Beef Cattle Field Specialist for OSU Extension. Garth has a background in animal science and specializes in livestock production and marketing, farm management, and meat science.
The webinar series is free, but registration is necessary. Find details and the registration link at go.osu.edu/foodbusiness.
Long-term care costs are a threat to family farms. In fact, we predict that long-term care costs are the biggest financial threat to farm families, even more so than federal estate taxes. That’s because long-term care can affect every farm--and when cash or insurance runs out, farm assets may have to be sold to pay for long-term care. With an increasing elderly population and rising health care costs, the financial pressure of long-term care on family farm succession will probably grow in future years.
What can farm families do to protect farm assets from the risk of long-term care? Our latest publication by attorney Robert Moore, Long-Term Care and the Farm, addresses this question. The publication begins with an important first step: understanding long-term care risk. What is the chance that a farmer will require long-term care, what kind of care is most common, and what how much will it cost? Robert presents data and statistics that help us predict the expected type, length, and costs of long-term care services a farmer might require.
Once we assess long-term care risk, the next important question is how to pay for long-term care while keeping farm assets secure. Robert explains how Medicare and Medicaid programs can apply to long-term care costs. He then presents several legal strategies to mitigate long-term care risk and protect farm assets. The guide wraps up with a process a farm family can follow to assess long-term care risk for their individual situation.
It's possible to keep family farmland and the family farm businesses safe from the risk of long-term care. If long-term care is a concern for your farm family, be sure to read this important new publication and talk with an agricultural attorney about protection strategies. The publication is available at no cost through our funding partnership with the National Agricultural Law Center and the USDA National Agricultural Library. Read Long-Term Care and the Farm here.
Sometimes, a business owner may find themselves in a position where they want to move from one business endeavor to another. For example, the owner of XYZ Car Repair LLC decides to discontinue the car business and begin farming. The owner would like to use their existing LLC to operate the new farming operation. Is this possible?
The answer is yes. The same LLC (or any business entity) can be used to operate different businesses. Using the example above, the owner could simply use XYZ Car Repair LLC for their farming operation. While operating a farm under the name of a car repair business may be a bit odd, it is possible. Fortunately, the name of an entity can be changed.
An entity name can be changed by amending its Articles of Organization. For an LLC, a Certificate of Amendment (Form 611) is filed with the Ohio Secretary of State requesting to change the name of the LLC. If the new name is available and not in use by another entity, the request will be granted. The name-change process involves filing a simple form online and paying a $50 fee. A similar method is used to change the name of other entity types.
If a name of an entity is changed, the IRS needs to be informed of the name change. If the entity has not yet filed a tax return, a letter must be sent to the IRS informing it of the name change. If the entity has already filed a tax return, the name change can be identified on the tax return. Also, the bank that holds the entity’s bank account must be informed of the name change as well as all vendors.
In addition to changing the name, the purpose of the LLC may also need to be changed. When an LLC is registered with the Ohio Secretary of State, a purpose may be included with the articles. The purpose is sometimes used to limit the scope of the activities of the LLC. If no purpose is identified, the LLC can engage in any lawful purpose. Using the example above, assume the owners of the LLC included a purpose of “car repair and related business activity” for the LLC’s purpose. Before the LLC is used for farming, the LLC’s purpose should be changed to “farming” or “any lawful” purpose. The purpose identified on the articles of organization should match the actual operations of the LLC. The purpose is found by searching the entity on the Ohio Secretary of State website.
There may be circumstances where it may be just as easy, or easier, to set up a new LLC rather than using the same LLC for a different purpose. A new LLC can be registered with the Ohio Secretary of State for $99. A new tax ID number can be obtained online for no cost. It may be more convenient to establish a new entity rather than explaining to your bank and vendors that you have the same LLC with a different name.
To summarize the above discussion, it is possible to use an entity for a new business endeavor. However, you may want to change the name and/or the purpose of the LLC, both of which can be done by filing an amendment to the Articles of Organization. It is also worthwhile to explore establishing a new LLC for the new business as it may be easier than changing names and purpose.
Farmland can be a family's most important asset, recognized for both its heritage and financial value. Here's some proof: over 1,900 "Century Farms" in Ohio have been in the same family for over 100 years. And 130 of those farms have been in the same family for over two centuries -- testaments to the importance of farmland to Ohio families.
But there are threats that can cause farmland to leave a family despite its value to family members. Long-term care costs, divorce, debt, co- ownership rights, poor estate planning -- these are situations that can put family farmland at risk. The good news is that legal strategies can counter these threats.
In our new publication, Keeping Farmland in the Family, we offer five legal tools that can help keep farmland in a family:
- Agricultural or conservation easement
- Right of First Refusal
- Long-term lease
- Limited Liability Company
These legal tools offer a range of protection for family farmland, allowing a family to use a highly restrictive strategy that protects land for many generations or a less restrictive approach that secures land only for a generation or two. Examples provided throughout the publication can help farm families see how different scenarios play out. The guide does not intend to substitute for individual legal advice, but offers a family a starting point for discussion and decisionmaking with an agricultural attorney.
According to the last Census of Agriculture, about 87% of farms in Ohio are sole proprietorships. This means that the vast majority of farms have no formal business structure. However, we often hear of the need to have a business entity for liability protection, taxes or for a variety of other reasons. So, how do you know if you need a business entity.
Like most legal answers, it depends. LLCs and corporations can help with liability protection. These entities prevent the owners from having personal liability for the acts of the entity or anyone acting on behalf of the entity. For example, if an employee of an LLC causes an accident driving equipment on a roadway, the owners of the LLC will not usually be personally liable. The assets in the LLC are at risk but not the other assets outside of the LLC.
While LLCs do provide liability protection, they are no substitute for liability insurance. The most important liability risk management strategy should always be a good liability insurance policy. LLCs and corporations are good backup plans if the insurance policy does not cover the liability in some way. Therefore, business entities can help with liability protection, but they are not a necessity like insurance. Generally, the more owners and employees a business has, the more liability protection benefit an LLC or corporation will provide.
Business entities are often more valuable as a succession planning tool than they are for liability protection. For example, land that is or will be owned by multiple family members is subject to the risks of partition. Partition is the process where a co-owner of land forces the land to be sold as a way of “cashing out” their ownership in the land. Land held in business entities is not subject to partition. Those who own land with other people should strongly consider an LLC or other entity to protect against partition.
Business entities can be tax management tools as well. For example, a sole proprietorship can only file taxes as a sole proprietor on a Schedule F or Schedule C. That same sole proprietorship can convert to an S-Corp which often reduces self-employment tax liability. Farm and business owners who seek the best fringe benefits such as health insurance and retirement benefits may want to be taxed as a C-Corp. As these examples illustrate, business entities can provide tax management options that sole proprietorships do not.
Business entities do have several disadvantages. One is the cost of establishing the entity. The cost depends on the number of owners, the assets that will be put into the LLC and the terms of the governing document. Establishing an entity can cost several thousand dollars or more in legal fees. Another disadvantage is managing the entity. Each entity will need its own bank account, accounting, and tax return. If an entity is not properly managed, it may not provide the expected liability protection or tax structure.
Liability management, succession planning and tax management are just a few of the many factors that should be considered when deciding if a business entity is worthwhile. The best course of action is to meet with your attorney and accountant to assess the benefit that a business entity may have for your farm or business. If the benefits outweigh the disadvantages, then you should strongly consider establishing a business entity. If benefits do not outweigh the disadvantages, you may not need an entity and that is OK. Many successful businesses are sole proprietorships and yours can be as well.
It’s a common problem in Ohio: a dispute between two neighbors over connecting to a subsurface drainage tile system that crosses property lines. Can one neighbor cut off the other neighbor's access to a tile? Can one go onto the other’s property to maintain the tile? If one replaces their system, can they still connect to the other’s tile? Answers to neighbor drainage questions can be, like subsurface water, a little murky. But a recent appeals court decision on a Licking County drainage dispute provides a few clear answers.
The drainage system at issue. Landowner Foor’s clay subsurface drainage system had been on his farm for over fifty years. Foor’s system connected to a larger drainage tile that ran across neighbor Helfrich’s property and eventually emptied into a pond on Helfrich's land. Foor and his predecessors had uused and maintained the line on Helfrich’s property prior to Helfrich’s ownership.
The dispute. Foor planned to replace his old system and also offered to replace the tile he connected to on neighbor Helfrich’s property. Helfrich refused the replacement. During installation of Foor’s tile, Helfrich dug up the tile area near the boundary and filled the hole with rocks and refuse, after which water welled up and flowed over the properties rather than through the tile on Helfrich’s property. Foor installed a standpipe on his side of the boundary. Helrich filed a complaint against Foor, claiming that Foor’s drainage was excessive and harmful. Foor responded by asking the court to establish his rights to a drainage easement and irrevocable license to use the property where the tile ran across Helfrich’s property. A jury ruled in favor of Foor, awarding him $30,000 in damages and both an easement and irrevocable license where the tile ran across Helfrich’s property.
The appeal. The Fifth District Court of Appeals affirmed two conclusions on the drainage rights of the two neighbors:
- First, the court held that Foor’s replacement of the pre-existing subsurface drainage system was not an "alteration" of the flow of surface water that would trigger Ohio’s “reasonable use” rule for drainage. The reasonable use rule allows a legal claim when an alteration of surface water flow causes an unreasonable interference with someone’s property. Because the newly installed tile did not increase the amount of water draining from Foor’s property and maintained the same amount of drainage that had occurred for over fifty years, the court concluded there was no “alteration” of surface water flow. Without an alteration, the reasonable use rule did not apply and Helfrich did not have a claim against Foor based on the reasonable use rule.
- Second, the court refused to overturn the jury’s award of a drainage easement and irrevocable license across Helfrich’s land to Foor. Helfrich argued there was not sufficient evidence for the jury’s verdict but the court disagreed. The jury determined that an “easement by estoppel” existed when Helfrich purchased the property, based on evidence that the easement was apparent and not hidden to Helfrich when he purchased the property; that Foor and his predecessors relied on the drainage access and had previously repaired the tile on the neighboring property; and that the prior owners of the Helfrich property had gone along with Foor’s maintenance and use of the drainage tile on their land. Likewise, the court held there was sufficient evidence to support the jury’s conclusion that the previous owners of the Helfrich property had granted the prior owners of the Foor property a “license” or right to enter their property and maintain the tile. The jury determined that substantial investment by Foor and his predecessors suggested that the license was intended to be permanent, and the appeals court found that sufficient evidence also existed to support that conclusion.
How does this affect future drainage disputes between neighbors? The Fifth District decision provides useful precedent for the difficult questions neighbor drainage disputes raise. The case supports the argument that a landowner has a legal right to maintain a subsurface drainage system that crosses property lines. As long as there is not an “alteration” of surface water flow and history shows prior use, reliance, and maintenance of the connecting tile line on a neighbor’s property, a landowner can be in a strong legal position for continued use and maintenance of the tile. Will other appellate courts agree with the Fifth District’s analysis, or will Helfrich ask the Ohio Supreme Court to review the decision? Answers to those questions, like subsurface water, are a little murky.
Read the Fifth Appellate District's decision in Helfrich v. Foor Family Investments.
According to the Ohio Secretary of State, over 170,000 applications were made for new businesses in 2020. This means that every year, thousands of people are faced with the decision of how to structure their new business endeavor. Business entity selection is an important decision because it affects taxes, liability, and management.
In Ohio, the vast majority of farms are sole proprietorships. This is likely due to the ease of starting and managing a sole proprietorship. With a sole proprietorship, the business and the owner are one and the same, there is not distinct, separate entity. For those new business owners who do want a separate entity, the Limited Liability Company (LLC) is usually the entity of choice. The LLC combines the best attributes of a partnership and corporation. LLCs are a relatively new entity, only gaining popularity in the last 20 years. There are many partnerships and corporations still operating that were set up before LLCs were an available option.
The following are a few, general observations regarding new business structures:
- Sole proprietorships are the easiest businesses to start but provide no liability protection and can only have one owner
- LLCs have largely made partnerships obsolete. An LLC can have the same management and tax structure of a partnership but provide liability protection for all the owners
- LLCs are more popular than corporations due to the flexible nature of LLCs. Corporations generally must have a structure of shareholders, directors and officers. LLCs can be structured in almost any way that suits the owners
- LLCs can be taxed as a partnership or corporation
Below is a table that provides various characteristics of each type of entity. Review the table to determine which entity might be best for a new business endeavor. Also, be sure to consult with an attorney and tax professional to be sure the new business structure suits the needs and goals of the owner(s) and has the most favorable tax structure.
A landowner challenging the taking of land for a bikeway has lost in an appeal to the Ohio Supreme Court. The decision by the state’s highest court doesn’t address whether Mill Creek MetroParks may take the land for the bike trail, but instead gives the Mahoning County Common Pleas Court the go ahead to continue the eminent domain proceeding.
The landowner’s argument. Mill Creek MetroParks filed a case in 2019 to appropriate land from Edward Schlegel, who would not voluntarily consent to selling some of his land for the park district’s bike trail extension. Schlegel sought to have the case dismissed when the Ohio General Assembly included a provision in the state’s budget bill in 2021 intended to address landowner opposition to the Mill Creek MetroParks bike trail. The new provision prevents any park district in a county of between 220,000 and 240,000 people from using eminent domain for a “recreational trail” until July 1, 2026. Mahoning County falls within the population range.
Schlegel asked the Mahoning Court of Common Pleas to dismiss the Park District’s eminent domain proceeding against him based on the new law. But Common Pleas Court Judge Sweeney denied Schlegel’s request, stating that the new law did not apply because the legislature passed the law after the Park District filed Schlegal’s case. Schlegal then asked the Ohio Supreme Court for a “writ of prohibition” that would prevent Judge Sweeney from continuing with the eminent domain case.
The Supreme Court’s reasoning. In seeking a writ of prohibition, Schlegal had to demonstrate that the common pleas court exceeded its authority and that he had no remedy at law other than a writ of prohibition. The problem with Schlegel’s request, according to the Supreme Court, is that he did have an alternative and adequate remedy: an appeal. When the Mahoning County court issues a decision in the eminent domain proceeding, Schlegal has a right to appeal the decision. At that time, he could challenge the judge’s decision not to dismiss the case due to the new law.
Schlegel argued that the procedures for an eminent domain case prevented him from challenging the common pleas court’s refusal of his request to dismiss the case. An eminent domain proceeding has two parts: the first is a determination of whether the agency has the right to make an appropriation of property and if so, the second is to determine the amount of compensation due for the appropriation. Schlegel argued that because the new law became effective after the common pleas court determined the Park District had eminent domain authority, he lost his right to appeal that issue. Not so, according to the Supreme Court. Schlegel still has the right to appeal whether the park district may use eminent domain when the court issues its final judgment in the case regarding compensation. A writ of prohibition therefore is not warranted, the Court concluded.
What now? Schlegel’s eminent domain case will resume in the Mahoning County court. We can expect an appeal by Schlegel when the court determines the amount of compensation for the taking.
Another bike trail case is coming. In the meantime, the Ohio Supreme Court recently decided to review another case challenging the Mill Creek MetroParks bike trail. The Seventh District Court of Appeals issued a decision earlier this year in favor of a bike trail challenge by landowner Diane Less. The court held that the Park District lacked authority to use eminent domain against Less, basing its decision on the insufficiency of the resolutions the Park District passed when it decided to acquire land for the bike trail. Ohio law allows a park district to use eminent domain authority for two specific purposes: the conversion of forest reserves and the conservation of natural resources, and the appellate court determined that the Park District’s purpose for using eminent domain to extend the bike trail did not meet either of those purposes. The Park District appealed that decision and on September 14, the Ohio Supreme Court agreed to review the decision. The Court will likely hear the case in 2023.
Highlighting a continuing trend in opposition to solar energy development across the state, the Ohio Power Siting Board has for the first time denied the application of a large-scale solar energy project. After a string of 34 OPSB-approved projects since 2018, the Birch Solar 1 project became the board's first denial when the OPSB determined the project would not serve the public interest.
The proposed project. The Birch Solar application proposed a 300 MW facility in Allen and Auglaize counties with solar panels on 1,410 acres and a total project area of 2,345 acres. Of the total, 2,132 acres are currently in agricultural use. The project would also include 22.5 miles of gravel access roads, an operations and maintenance building, underground and aboveground electric collection lines, meteorological towers, weather stations, inverters and transformers, a collector substation, a point of interconnection switchyard, and a 345-kilovolt generation interconnection electric transmission line. A six-foot cedar post perimeter fence would secure the project, evergreen fencing would limit impacts to neighboring viewsheds, and solar panels would be setback a minimum of 300 feet from adjacent non-participating residences and roadways.
OPSB’s review. The OPSB had the duty of reviewing the project application to determine whether it satisfied the legal criteria in Ohio Revised Code 4906.10(A) for siting a major utility in Ohio. For a solar project, the criteria includes parts (A)(2) through (8):
- The nature of the probable environmental impact;
- That the facility represents the minimum adverse environmental impact, considering the state of available technology and the nature and economics of the various alternatives, and other pertinent considerations;
- That the facility is consistent with regional plans for expansion of the electric power grid of the electric systems serving this state and interconnected utility systems and that the facility will serve the interests of electric system economy and reliability;
- That the facility will comply with Chapters 3704., 3734., and 6111. of the Revised Code and all rules and standards adopted under those chapters and under section 4561.32 of the Revised Code;
- That the facility will serve the public interest, convenience, and necessity;
- What its impact will be on the viability as agricultural land of any land in an existing agricultural district established under Chapter 929. of the Revised Code that is located within the site and alternative site;
- That the facility incorporates maximum feasible water conservation practices as determined by the board, considering available technology and the nature and economics of the various alternatives.
The “public interest” factor and public opposition. OPSB focused most of its analysis of the Birch Solar application on part (A)(6), that the facility “will serve the public interest, convenience, and necessity.” The board explained that the question of whether an application serves the public interest “must be examined through a broad lens and in consideration of impacts, local and otherwise, from the Project.” The OPSB acknowledged that there can be potential public benefits to a proposed solar facility such as energy generation, economic benefits from employment and tax revenues, air quality and climate improvements, protecting landowner rights, and preserving agricultural land use. But the board stated that it must weigh a project’s benefits against its impacts, especially impacts to those living near it. To do so, the board reviewed the application, evidence, and comments on Birch Solar and identified a primary concern: uniform and consistent public opposition to the project.
The two counties and four townships where Birch Solar would locate all opposed the project. Acting under new legal authority granted by Ohio’s legislature last year, Auglaize County has restricted large-scale solar development in all incorporated parts of the county and Allen County has established most of the county as restricted from solar development. The Birch Solar application is unaffected by the designations since it was in process and grandfathered in before the new law, but OPSB noted that had the new law been in place, the county restrictions would have prohibited the project.
OPSB also reviewed evidence submitted by Allen County officials stating that there would be 1,278 residences, four schools, and six churches within one mile of Birch Solar’s project area, and that the residents shared concerns about the project’s lack of dedicated local power; its impact on land use, property values, drinking water, groundwater, drainage, and roadways; its decommissioning plan; and negotiations on distributing “payment in lieu of taxes” revenue to local governments.
Of the hundreds of public comments submitted on the Birch Solar application, OPSB determined that approximately 80% of the comments were in opposition to the project and that opposition reasons were similar to those raised by the local governments. Birch Solar argued that it had agreed to 40 stipulated conditions that would address opposition concerns and had offered to make “good neighbor” payments of $10--$50,000 and property value adjustments to adjacent landowners. Even so, the OPSB concluded that Birch Solar would not serve the public interest, convenience, and necessity requirement because of “unanimous and consistent opposition to the Project by the government entities whose constituents are impacted by the Project.”
What’s next? The battle may not be over. Birch Solar has the right to request a rehearing and reconsideration of its application within 30 days of the OPSB decision. For now, the board’s denial of the project might invigorate opposition groups that have formed in areas where projects are proposed. But note that on the same day OPSB denied Birch Solar, it approved Pleasant Prairie Solar in Franklin County, a 250 MW facility with a 2,400 acre project area and Harvey Solar, a 350 MW project of 2,630 acres in Licking County. And 15 more projects totaling 3,266 MW are currently pending before the OPSB. Whether local opposition will prohibit any of those projects is an issue we’ll be watching.
Read more about the Birch Solar project in the OPSB case docket at https://opsb.ohio.gov/cases/20-1605-el-bgn.
Every few years, the IRS adjusts the annual gift tax exclusion. The IRS recently announced that the gift tax exclusion for 2023 will be increased to $17,000. This means that a taxpayer may gift up to $17,000 to an unlimited number of persons without having to pay gift taxes or reduce their estate tax exemption amount. Because the gift tax exclusion is available to all individuals, married couples can gift up to $34,000 annually.
For example, Mom and Dad want to gift money to Daughter. Mom and Dad can each gift $17,000 to Daughter for a total of $34,000. Daughter is married and Mom and Dad also gift a combined $34,000 to Daughter’s spouse. Daughter has three children, Mom and Dad can gift to each grandchild as well for a total of $102,000.
As the above example shows, it is possible to gift substantial amounts of wealth to others by gifting. Mom and Dad are able to gift $170,000 each year to their family using the gift tax exclusion. None of the gifts will be subject to gift taxes or reduce the estate tax exemption because the gifts are all less than the annual gift exclusion.
Gifts can be made in excess of the annual gift tax exclusion amount. Gifts exceeding the gift tax exclusion will either cause gift taxes to be owed or will cause the person gifting to have their estate tax exemption reduced by the amount of gift exceeding the annual exclusion. The lifetime estate tax exemption for 2023 will be $12.92 million, up almost one million dollars from 2022.
Consider the following example. In 2023, Dad gifts $1,017,000 to Daughter. The annual gift tax exclusion will cause $17,000 to be a free gift with no tax consequences. The remaining $1 million exceeds the annual gift tax exclusion and thus will reduce Dad’s lifetime estate tax exclusion by $1 million. Dad’s estate tax exclusion will be reduced from $12.92 million to $11.92 million.
Gifting can be an effective means of transferring wealth to other family members or friends. Before gifting, be sure to seek advice from tax advisor as to the advantages and disadvantages of gifting. For a thorough discussion of the implications of gifting, see the Gifting Assets Prior to Death bulletin available at farmoffice.osu.edu.