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The poison hemlock popping up across Ohio and the questions we’re receiving in the Farm Office both signal that the high season for “noxious weeds” has begun. Ohio has several statutes and regulations intended to curtail the spread of the invasive and potentially harmful weeds we refer to as noxious weeds.  The most common question we’re hearing is this:  if there is a weed problem spreading onto or around my property, what can I do about it? 

There are several answers to this question, and the first is to have a civil discussion with the landowner or agency responsible for the property, alerting them to the problem.  Sometimes that party simply doesn’t know about the weeds or doesn’t know how to remedy the problem.  If the neighborly discussion strategy fails, then the legal answer to the question depends upon two factors:  1) whether the weed is one named in the law or on the “noxious weeds” list, and 2) the location of the weed.

1. Does the law apply to the weed?

There are two ways Ohio noxious weeds law would apply to a weed situation. One way is if the law specifically refers to the weed.  For example, one law specifically names wild parsnip, wild carrot, oxeye daisy, and wild mustard. The second way is if the law refers generally to noxious weeds, which applies to weeds named on Ohio’s noxious weeds list.  The Ohio Department of Agriculture has the responsibility of identifying and maintaining a list of noxious weeds—that list is in Ohio Administrative Code 901:5-37-01 and includes the following:

• Shatter cane (Sorghum bicolor)
• Russian thistle (Salsola Kali var. tenuifolia)
• Johnsongrass (Sorghum halepense L. (Pers.))
• Wild parsnip (Pastinaca sativa)
• Grapevines: when growing in groups of one hundred or more and not pruned, sprayed, cultivated, or otherwise maintained for two consecutive years.
• Canada thistle (Cirsium arvense L. (Scop.))
• Poison hemlock (Conium maculatum)
• Cressleaf groundsel (Senecio glabellus)
• Musk thistle (Carduus nutans)
• Purple loosestrife (Lythrum salicaria)
• Mile-A-Minute Weed (Polygonum perfoliatum)
• Giant Hogweed (Heracleum mantegazzianum)
• Apple of Peru (Nicandra physalodes)
• Marestail (Conyza canadensis)
• Kochia (Bassia scoparia)
• Palmer amaranth (Amaranthus palmeri)
• Kudzu (Pueraria montana var. lobata)
• Japanese knotweed (Polygonum cuspidatum)
• Yellow Groove Bamboo (Phyllostachys aureasculata), when the plant has spread from its original premise of planting and is not being maintained.
• Field bindweed (Convolvulus arvensis)
• Heart-podded hoary cress (Lepidium draba sub. draba)
• Hairy whitetop or ballcress (Lepidium appelianum)
• Perennial sowthistle (Sonchus arvensis)
• Russian knapweed (Acroptilon repens)
• Leafy spurge (Euphorbia esula)
• Hedge bindweed (Calystegia sepium)
• Serrated tussock (Nassella trichotoma)
• Columbus grass (Sorghum x almum)
• Musk thistle (Carduus nutans)
• Forage Kochia (Bassia prostrata)
• Water Hemp (Amaranthus tuberculatus)

2.  What is the location of the weed?

There are several different noxious weeds laws, and which one applies depends on the location of the weed.  Here are the three most common locations we receive questions about:

• If a noxious weed is in the fence row on land outside of a municipality, Ohio’s line fence law addresses noxious weeds in ORC 971.33—971.35.  The law states that a landowner or occupant may give notice to an adjacent landowner or tenant to clear “brush, briers, thistles, or other noxious weeds” within four feet of the line fence on the owner or tenant’s side of the fence.  If the adjacent owner or tenant fails to do so within 10 days, the landowner or occupant may provide notice to the board of township trustees and the trustees must view the premises and determine if there is just cause for the clearing.  If there is, the trustees must “cause the weeds to be cut, by letting the work to the lowest bidder, or by entering into a private contract.”  The county auditor must assess the costs on the landowner’s property taxes.
• If noxious weeds, wild parsnip, wild carrot, oxeye daisy, wild mustard, or other harmful weeds are on private land beyond the fence row, a person may send written information to the township trustees of the weeds and where they exist.  The trustees must then notify the owner or about the existence of the weeds. The owner must either destroy the weeds or show the township trustees why there is no need for doing so.  If the owner does not take one of these actions within five days of the trustee’s notice, the township trustees “shall cause the weeds to be cut or destroyed and may employ the necessary labor, materials, and equipment to perform the task.” The county auditor must assess the costs on the landowner’s property taxes.
• If noxious weeds are along a public roadway, Ohio law requires counties, townships and municipalities to cut or destroy the noxious weeds every year between June 1 and 20, August 1 and 20, and if necessary, September 1 and 20, or whenever it’s necessary to destroy the vegetation to prevent or eliminate a safety hazard.  ORC 5579.04 and 5579.08. 

There are other laws that help us deal with the noxious weeds high season, and we review each of those in our law bulletin, Ohio’s Noxious Weeds Laws, in the Property Law Library on farmoffice.osu.edu.

Producers shipping certain types of cattle and bison across state lines might have to use electronic identification (EID or RFID) tags if a final rule developed by USDA’s Animal and Plant Health Inspection Service (APHIS) becomes effective. Federal funding is available to help producers obtain the EID tags.  But efforts are underway to stop the EID rule from taking effect.  As we’ve seen in the past, disagreements continue over animal traceability and EID mandates. Here’s an update on the current events surrounding the EID issue.

The APHIS final rule.  The final rule announced by APHIS on April 26, 2024 will amend the animal traceability rule enacted in 2013.  That rule requires “official identification” on certain cattle and bison moved in interstate shipment for the purpose of animal disease traceability. Under the rule, “visual” ear tags are a form of official identification, in addition to certain pre-approved brands and tattoos and group lots.

The new final rule, originally proposed in 2022, will expand the requirements for ear tags used as official identification.  For animals tagged after the rule’s effective date, the ear tags “must be readable both visually and electronically (EID).” The EID rule will continue to apply only to these types of cattle and bison when shipped across state lines:

• Sexually intact cattle and bison 18 months of age or older;
• Dairy cattle;
• Cattle and bison of any age used for rodeo or recreation events, shows, or exhibitions.

Effective date of the rule.  The EID requirement is not yet effective. The final rule will take effect 180-days after the rule was published in the Federal Register.  USDA published the final rule on May 9, 2024, making the effective date November 5, 2024.

Funding for EID tags.  Before APHIS finalized the rule, Congress approved funding to help producers voluntarily obtain EID tags, which cost around $3 each.  The Consolidated Appropriations Act passed in March of 2024 allocated $15 million for EID.  Ohio producers should contact the State Veterinarian’s office at the Ohio Department of Agriculture for information about the availability of free EID tags that comply with the official identification requirements.

EID bill in Congress.  A bill introduced on May 8 by Sen. Mike Rounds (R-SD) would counteract the APHIS final rule. The one-paragraph bill simply states:  “The Secretary of Agriculture shall not implement any rule or regulation requiring the mandatory use of electronic identification eartags on cattle or bison.”

Why the debate over EID?  Animal traceability has long been a controversial issue for the livestock industry.  APHIS and Sen. Rounds capture the two sides of the controversy well with their recent statements summarizing their efforts.  APHIS explains that “the most significant benefits will be enhanced ability to limit disease outbreak impact in the U.S., as well as maintaining foreign markets.”  On the other hand, Sen. Rounds states that “USDA’s proposed RFID mandate is federal government overreach, plain and simple. .. If farmers and ranchers want to use electronic tags, they can do so voluntarily.”

What’s next?  Given the slow pace of legislative activity in Congress, it’s unlikely that Sen. Rounds’ proposal will affect the November 5 effective date of the EID final rule.  Several associations have threatened to bring legal action against the rule, however, so it’s likely we’ll see litigation and other legal challenges.  As seems always to be the case with animal traceability, we still don’t yet know what the future holds.

One of the primary challenges for a retiring farmer is the large tax burden that retirement may cause.  Throughout their farming careers, farmers do a good job of managing income taxes, in part, by delaying sales and prepaying expenses.  This strategy works well while the farm is operating but can cause significant tax liability upon retirement.  The combination of a large increase in revenue from the sale of assets and little or no expenses to offset the revenue can cause a retiring farmer to be pushed into high tax brackets.  It is not unusual for 40% or more of the sale proceeds from a retirement sale to go to taxes.  One strategy to reduce income tax liability at retirement is a Charitable Remainder Trust (CRT).  A CRT can be an effective way of managing income taxes at retirement, but it is not for everyone. 

A CRT is a charitable trust because at least some of the assets in the CRT must eventually pass to a qualified U.S. charitable organization such as a church or 501(c)(3) corporation.  This charitable nature of the CRT is central to the CRT strategy.  As a charitable trust, the CRT may sell assets without paying tax on the sale.  So, instead of the retiring farmer selling assets in their own name, they donate the assets to the CRT and then the CRT sells the assets.  The retiring farmer then receives an income stream from the CRT.  After a period of time, the income stream stops and the remaining trust assets are contributed to the named charity.  The following are the steps of the CRT strategy:

1. Assemble a team of advisors and develop a CRT strategy.
2. Donor establishes a CRT.  The trust document declares the income beneficiaries and the charitable beneficiaries. 
3. Donor determines the assets to be contributed to the CRT.
4. Donor contributes assets into the CRT, typically grain, machinery and/or livestock.
5. The CRT sells the assets but does not pay tax.
6. The Trustee of the CRT uses the sale proceeds to establish an annuity.  The annuity must be designed to provide at least 10% of the sale proceeds to the charity.
7. The annuity pays out to the Donor over a number of years.  The Donor pays income tax on the annuity distributions.
8. When the trust is terminated, the charity is paid the remaining assets.

CRTs are best used in situations where the retiring farmer does not have a successor and must sell all operating assets.  CRTs should generally not be used when the farming operation is to be passed along to the next generation.  A CRT can be an excellent strategy to help a retiring farmer reduce income tax liability and provide a charitable donation but it is not for everyone.  Be sure to consult with your team of advisors before deciding upon or implementing a CRT.

For a detailed discussion of CRTs, including advantages and disadvantages, see the new publication Charitable Remainder Trusts as a Retirement Strategy for Farmers available on farmoffice.osu.edu.

Retirement means different things to different farmers.  For some, retirement is the slow, gradual process of turning over the farming operation to the next generation. For others, retirement may be the immediate sale of operating assets when there is not an heir to take over the farming operation.  Regardless of the type of retirement, operating assets will often be transferred.  This article will discuss the different strategies to transfer operating assets and the implications of each strategy.

Strategy #1.  Gifting

The gifting of assets is the simplest transfer strategy.  Gifting works best when the assets are being transferred to a family member and no income is needed from the assets.  While gifting may seem like the obvious best solution if transferring to a family member, there are significant negative tax implications to gifting that should be considered.

Advantages

• Simple
• Ownership is transferred relieving owner of liability and responsibility for repairs and maintenance
• Helps next generation

Disadvantages

• No income to owner
• Loss of stepped-up tax basis

Strategy #2. Outright Sale

When income is needed from operating assets, a sale may be the best transfer strategy.  Because many operating assets are untitled, a sale can be completed rather easily.  The buyer provides the funds and the sale is completed.  An outright sale is considered to be a sale that involves all assets being transferred simultaneously with a payment for the entire sale.

Advantages

• Creates income
• Relieves owner of liability and maintenance responsibilities

Disadvantages

• Tax liability is usually significant due to little or no tax basis and depreciation recapture
• Will use resources of next generation of farmer

Strategy #3.  Gradual Sale

Instead of an outright sale, assets can be sold gradually, over time.  Usually in this strategy, a few items are sold each year until transfer is complete.  The sales can happen somewhat uniformly each year or be adjusted as the seller needs income and/or the buyer has available resources to purchase.

Advantages

• May help keep seller in lower income tax brackets by spreading out income
• Relatively simple

Disadvantages

• Owner must wait to receive income for all assets
• Owner retains some ownership and thus retains some liability and responsibility for maintenance

Strategy #4. Installment Sale

An installment sale involves the sale of the assets with payment being made over a number of years.  This strategy may seem attractive as a way to sell assets and spread income over time.  However, an installment sale is often the worst strategy when selling operating assets because the IRS requires all depreciation recapture taxes to be paid in the first year of the installment sale.  Be sure to discuss an installment sale with your tax advisor before implementing this strategy.

Advantages

• Transfers ownership immediately to eliminate liability and maintenance
• After the taxes are paid in year 1, little or no taxes may be owed on the remaining payments

Disadvantages

• All depreciation recapture tax is due in the first year of the installment sale
• Risk of buyer not making payments

Strategy #5. Lease with Purchase Option

A lease allows payments to be spread over the term of the lease with taxes due upon receipt of each payment, rather than all due up front.  The person leasing the machinery can then be given the option to purchase the machinery upon the expiration of the lease.  For the retiring farmer who needs income from their machinery, this is a strategy worth exploring.

Advantages

• Spreads income and tax liability over the term of the lease
• May help cash flow for buyer and lease payments are a deductible expense

Disadvantages

• Ownership is retained so remain liable for the asset
• The “Buyer” does not own the asset so cannot use as collateral
• It can be complicated to determine lease rates when machinery is traded, replaced or sold

Strategy #6. Integrating a Business Entity into the Transfer Plan

Using a business entity, such as a limited liability company (LLC) , for the transfer of operating assets can have multiple benefits.  An LLC can reduce liability exposure, simplify the transfer process, and reduce tax liability.  Anyone transferring operating assets should consider incorporating an LLC into the process.

Advantages

• Will provide liability protection for the owner of the assets
• Sale of entity ownership is usually considered a capital gain which is taxed at lower rates

Disadvantages

• Can cost up to several thousand dollars to set up
• Business entity requires management such as accounting, bank accounts and tax returns

Strategy #7.  Charitable Remainder Trust

A Charitable Remainder Trust (CRT) can be an excellent strategy for the retiring farmer to sell operating assets without immediate tax liability, receive a long-term flow of income and make a charitable contribution.  The strategy involves establishing a charitable trust, transferring operating assets to the trust, then selling the assets through the trust.  Due to the charitable nature of the CRT, no tax is due upon the sale of the assets.  The CRT then establishes an annuity for the retiring farmer which generates annual income.  At the termination of the CRT, the remaining principal in the CRT is donated to the charitable beneficiary.  The CRT strategy is the most complicated strategy and will require the most legal and accounting fees.

For a detailed discussion of the CRT strategy, see the Charitable Remainder Trusts as a Retirement Strategy for Farmers bulletin available at farmoffice.osu.edu.

Conclusion

There are several strategies that can be implemented to transfer operating assets at retirement.  There is no perfect strategy, each one has advantages and disadvantages.  A thorough analysis of the implications to income, taxes, liability and cash flow of each strategy should be performed before deciding on the preferred strategy.  Working with knowledgeable tax and legal counsel can help with the decision-making process and reduce the chances of unwanted or unexpected outcomes.

For more information on these strategies, see the Strategies for Transferring Farm Operating Assets bulletin available at farmoffice.osu.edu.