Recent Blog Posts

The road to building a 175 MW 1,200 acre solar development project in Greene County just became a bit longer for Vesper Energy, the company behind the project.  On September 6, the Ohio Supreme Court dismissed the company’s appeal of a ruling by the Ohio Power Siting Board (OPSB) that denied a certificate of approval for the project.  The Supreme Court dismissed the case for “lack of jurisdiction.”

The Ohio Power Siting Board denied the Kingwood Solar application last December on grounds that the project would not serve the “public interest, convenience, and necessity” due to general opposition from the community, and especially the clear opposition of the Greene County commissioners and the three townships where the project would locate.  As permitted by Ohio law, Kingwood Solar and several other parties to the case requested a rehearing on the OPSB’s decision. 

The OPSB granted the rehearing request on Feb. 7 “for the purpose of affording more time to consider the issues raised.”  However, Kingwood Solar appealed the board’s decision, stating that the OPSB failed to issue its decision on the rehearing request within the thirty days required by Ohio Revised Code 4903.10.  Kingwood Solar raised ten arguments against the OPSB’s denial of the project, asking the Ohio Supreme Court to declare that denial to be “unlawful or unreasonable.”

The OPSB asked the Court to dismiss the Kingwood appeal, arguing that until the OPSB issued a decision on the rehearing, the Court did not have jurisdiction to hear the case.  The Supreme Court granted the OPSB’s motion to dismiss.  The Court did not issue a full opinion in support of its decision to dismiss the case, but referred to a 1988 Ohio Supreme Court opinion holding that the Supreme Court does not have jurisdiction over a case while a rehearing request is pending with the OPSB,

What does the dismissal mean for Kingwood Solar?  Vesper Energy must now wait for the OPSB to make a decision on the rehearing requests.  The OPSB could affirm its earlier decision to deny the permit or could reverse that decision.  Currently, the OPSB has not scheduled a new hearing for the application.

Follow the Kingwood Solar application on the OPSB website.

With just over a week left until echoes of “Hang on Sloopy” and chants of “O-H” and “I-O” can be heard from Buckeye faithful across the nation, we thought we would provide you with some light reading to hold you over until that long awaited 3:30 kick off. In this edition of our Ag Law Harvest, we focus on three recent Ohio Supreme Court cases that could potentially impact business owners, Northern Ohio landowners, and Ohio taxpayers. 

Assault and Battery: Is it Covered Under an Insurance Policy?
A victim of a stabbing at an Ohio adult care facility is unable to collect judgment from the facility’s insurance company after a recent decision by the Ohio Supreme Court. The victim was living at the facility when another resident stabbed him. The perpetrator was later indicted on criminal charges but found not guilty by reason of insanity. 

The victim then filed a civil lawsuit against the perpetrator and the facility to recover for damages resulting from the stabbing injuries. The victim ultimately dropped his lawsuit against the perpetrator and entered into a settlement agreement with the facility. As part of the settlement agreement, the victim agreed not to pursue the judgment against the facility, and instead, sought to collect his judgment from the facility’s insurance company.   

At the time of the stabbing, the adult care facility had a commercial general liability policy. When the victim sought judgment from the facility’s insurance company, the insurance company refused to provide coverage. The insurance company explained that the insurance policy contained a provision that specifically excluded coverage for any bodily injury resulting from an assault or battery. The specific provision at issue stated: 

“1. This insurance does not apply to ‘bodily injury,’ * * * arising out of or resulting from: (a) any actual, threatened or alleged assault or battery; * * *.”

The victim argued that because the perpetrator was found to be not guilty by reason of insanity in the criminal trial, the exclusion provision was nullified because the perpetrator lacked the subjective intent to commit any assault or battery. 

The Ohio Supreme Court disagreed. The Court explained that the plain language of the exclusion provision of the insurance policy at issue is clear – there is no intent requirement included in the exclusion language. Therefore, the Court held that coverage did not exist for the willful assault on the victim. The Court sympathized with the victim but ultimately could not interpret the insurance policy language to include a subjective intent requirement where none existed. 

This case demonstrates the importance of reading and understanding your business insurance policy. Insurance policies are, at the core, contracts between two parties and the language contained within the policy will usually govern that contractual relationship. What you assume is covered under your policy may not necessarily be the case. Furthermore, not all insurance policies are the same. We have seen Ohio cases where an insurance policy does require the presence of some subjective intent in order for an assault and battery exclusion to apply. Speak with your insurance agent and/or attorney to make sure you understand when and where coverage exists, knowing this can be critical to protecting you, your farm, and/or your business. 

Ohio Supreme Court Approves Northern Ohio Wind Farm. 
Residents of Huron and Erie Counties along with Black Swamp Bird Conservatory (the “Plaintiffs”) recently lost their battle in court to prevent the construction of a new wind farm in Northern Ohio. The Plaintiffs argued that the Ohio Power Siting Board (the “Board”) failed to satisfy Ohio law before granting the new wind farm its certificate of environmental compatibility and public need. Specifically, the Plaintiffs assert that the wind farm could “disrupt the area’s water supply, create excessive noise and ‘shadow flicker’ for residents near the wind farm, and kill bald eagles and migrating birds.” 

The Ohio Supreme Court found otherwise. The Court concluded that the Plaintiffs failed to establish that the Board’s granting of the certificate was unlawful or unreasonable. As approved, the new wind farm will consist of up to 71 turbines and cover 32,000 acres of leased land. To read more about the Ohio Supreme Court’s decision visit: In re Application of Firelands Winds, L.L.C.

Ohio Supreme Court Sets New Precedent on Interpreting Ohio Tax Law.
In Ohio, most retail sales are subject to sales tax unless a certain exemption applies. Ohio law does have a sales tax exemption for equipment used directly in the production of oil and gas. A fracking business recently challenged a decision by Ohio’s Tax Commissioner and Board of Tax Appeals that levied the sales tax on certain equipment purchased by the business. The fracking equipment at issue included: a data van, blenders, sand kings, t-belts, hydration units, and chemical-additive units.

The Tax Commissioner concluded that the fracking equipment was not used directly in the extraction of oil and gas, only indirectly, and therefore, did not qualify for the tax exemption. The Ohio Supreme Court felt differently. 

The Court found that all the equipment, except the data van, is used in unison to expose the oil and gas. Because the equipment is used to expose the oil and gas – a necessary part of fracking – the Court had little difficulty concluding that the equipment is being used directly in the production of oil and gas. 

In addition to the equipment’s direct use in the production of oil and gas, the Court also recognized that the fracking equipment may also have a storage or delivery function/purpose. However, the Court reasoned that a piece of equipment’s function must be viewed through the “primary purpose” lens. For example, the Court held that although the blender equipment in this case performs a holding function, the primary use of the blender is to mix “the critical ingredients in the fracking recipe seconds before the mixture is inserted into the well.” Therefore, the Court found that the blender’s holding function did not disqualify it from Ohio’s sales tax exemption. 

Additionally, in this case, the Court also issued an opinion on how Ohio courts should interpret tax law moving forward. Normally, courts use the ever-important legal principal of stare decisis to help it decide on new cases. Stare decisis is the principal that courts and judges should honor the decisions, rulings, and opinions from prior cases when ruling on new cases. Here, the Court took its opportunity to acknowledge that in the past the Court interpreted tax exemptions against the taxpayer, favoring tax collection. But the Court made clear that from here on out, the Court “will apply the same rules of construction to tax statutes that [it applies] to all other statutes” without a slant toward one side or the other. The Court concluded that its task “is not to make tax policy but to provide a fair reading of what the legislature has enacted: one that is based on the plain language of the [law].” 

To read the Ohio Supreme Court’s decision visit: Stingray Pressure Pumping, L.L.C. v. Harris

New legislation was recently introduced in the US Senate potentially affecting USDA-FSA program payment limitations.  The Farm Program Integrity Act, co-sponsored by Senator Grassley from Iowa and Senator Brown from Ohio, seeks to limit FSA payment limitations to partnerships.  If passed, the new law could have significant impacts on many larger farms.

Most FSA programs include payment limitations which limit the number and amount of payments any individual and some type of business entities may receive.  See the table below for programs and their respective payment limitations.  The limitations mean that no person, corporation or LLC may receive more than the designated limitation for the corresponding program in a single year.  However, there is a notable exception to the payment limitation rule – general partnerships. Currently, a general partnership may have as many payment limitations as it does eligible partners.  The Farm Program Integrity Act would limit general partnerships to just two payment limitations.

Let’s look at some examples using the ARC program ($125,000 payment limitation):

Farmer is a sole proprietor and is enrolled in ARC.  Farmer is eligible for one payment limitations may not receive more than $125,000 in ARC payments in any year.

Farmer is married and Spouse owns 50% of the farm assets.  Both Farmer and Spouse are likely eligible for a payment limitation and could receive up to $250,000 in ARC payments each year.

Ohio Grain Farms LLC is a farm operation with 4 owners, all of whom are actively engaged in the farming operation.  Because this entity is an LLC, it is only eligible for one payment limitation.  The LLC cannot receive more than $125,000 in ARC payments in any year.

Ohio Grain Farms Partnership is a general partnership with 4 equal partners, all of whom are actively engaged in the farming operation.  The partnership is currently eligible for four payment limitations and could receive up to $500,000 of ARC payments in any year.  The Farm Program Integrity Act would limit the partnership to two payment limitations or $250,000.

As the examples show, the number of payment limitations can have a significant impact on farm income.

According to a news release from Senator Grassley’s office, the legislation is meant to “rein in abuse of the farm payment system and ensure taxpayer support is targeted to those actively engaged in farming”.  The same news release states that just 10 percent of farm operations receive 70 percent of all yearly farm payment subsidies.  Senator Brown is quoted as saying “For years we’ve seen big farms get bigger while small and mid-sized family farmers in Ohio get squeezed. Too often, farm program payments have gone to producers who do not need the support, or to people who aren’t even involved in farming. With this commonsense bill we can ensure assistance is directed toward working Ohio farmers.”

The entire press release can be viewed here.  We will continue to monitor this proposed legislation as well as other state and federal legislation initiatives.

On July 26, 2023, Representatives Jimmy Panetta of California and Mike Kelly of Pennsylvania introduced legislation related to farm estate taxes.  The proposed bill seeks to increase the limit on the deduction that can be taken by farmers under Section 2032A of the Internal Revenue Code (IRC).  The 2032A provision in the IRC allows farmers to value their land at agricultural value, rather than fair market value.  However, the current law limits the deduction to $1.16 million.  This relatively small deduction can limit the usefulness of 2032A for some farm estates.

Consider the following example:

Farmer’s estate includes 500 acres with a fair market value of $5,000,000.  The agricultural value, allowed by 2032A, is $4,500/acre or $2,250,000.  The difference between the fair market value and the agricultural value is $2,725,000.  So, by using 2032A valuation, the land value can be reduced by $2,725,000.  However, 2032A limits the deduction to $1,160,000.  Therefore, Farmer’s estate can actually use less than ½ the reduction in land value.

The newly introduced legislation would increase the 2032A deduction limit to the federal estate tax exemption, currently $12,900,000.  Applying the proposed legislation to the above scenario, Farmer’s estate would be able to deduct the entire $2,725,000. 

The farm value of farmland is determined by a formula included in the IRC.  The value is the net cash rent of comparable land less real estate taxes divided by the Farm Credit System Bank interest rate, which is 4.57% for a 2022 Ohio estate.  Let’s assume the fair market cash rent for a farm is $220/acre less $50/acre for taxes.  Dividing by the interest rate, we get a value of $3,720/acre.  The 2032A rate (farm value) is usually 1/3 to ½ of the fair market value.

If we use the $3,720 as the farm value and $10,000/acre for fair market value, 2032A reduces the value of the farmland by $6,280/acre.  Dividing the per acre savings into the 2032A limit of $1,160,000 results in 185 acres.  So, a reasonable estimate is that the 2032A limit only allows farmers to apply the 2032A special valuation to about 185 acres (assuming $220 rent and $10,000 FMV).  Conversely, if the 2032A limit is increased to $12,900,000, the farm value could be used on over 2,000 acres.  Increasing the 2032A exemption limit to $12,900,000 could save as much as $4,696,000 in estate taxes for some farm estate.

It is important to note that 2032A is only needed by farmers whose estate value will exceed the federal estate tax limit.  For example, a farmer that died today with a net worth of $12,900,000 or less would owe no estate tax and thus would not need to take the 2032A deduction.  According to the USDA, of the approximately 31,000 principal farm operators who died in 2020, only 50 (0.16%) owed estate taxes.  With the current high estate tax exemption, less than 1% of farmers owe federal estate taxes and thus the 2032A limit is not an issue for the vast majority of farmers.

Unfortunately, this could change soon. In 2026, the federal estate tax exemption is scheduled to be reduced to around $7,500,000.  We will not know the exact number until 2026 because of adjustment for inflation, but it will be somewhere around ½ of what it is now.  Congress can extend the current, higher exemption or make it permanent, but no one seems to know the likelihood of that happening at this point.  If the federal estate tax exemption does come back down in 2026, and with the increases in land prices the last few years, 2032A may become needed by many more farm estates.

Let’s take a look at how 2032A would play out in 2026. Consider the following scenario:

Farmer dies in 2026 and the federal estate tax exemption is $7,500,000.  His net worth is $10,000,000 with $7,000,000 in farmland.  The estate is $2,500,000 over the estate tax exemption limit which would result in $1,000,000 in estate taxes.  If the 2032A exemption remains at $1,160,000, we can further reduce the estate by that amount, leaving $1,340,000 over and $536,000 of tax liability.  If the newly proposed 2032A legislation is passed, the Farmer’s estate will be able to deduct at least $2,500,000 using 2032A, leaving Farmer’s estate with $0 tax liability.

As the scenarios and discussion shows, increasing the 2032A exemption limit will help farm estates, especially if the estate tax exemption is reduced in 2026.  The proposed legislation has been introduced in the prior two Congresses and both times did not make it out of the House Ways and Means Committee.  We will keep you updated on the status of this legislation and if it begins to make its way through Congress.