Recent Blog Posts
For many family farms, Long-Term Care (LTC) costs are the biggest threat to the future viability of the farm. Nursing homes can cost well over $100,000 annually and about 20% of people who require LTC will need it for five years or more. While there are no easy solutions to the LTC issue, there are strategies that can be implemented to lessen the risk of LTC on the family farming operation.
On February 20, the OSU Agricultural and Resource Law Program, PA Farm Link and the National Agricultural Law Center will be offering a webinar to discuss LTC issues for farms and the strategies available to them. Topics that will be covered include:
- Costs for LTC
- LTC statistics
- Practical insights from an experience Care Manager who has helped families determine their LTC needs
- Developing a LTC risk assessment and applying it to your specific situation
- Strategies to reduce the risk of LTC costs
- Reviewing the LTC risk calculator application
The webinar will be held from 7:00 – 9:00 (EST). The webinar is free but registration is required. For more information and registration, go to https://farmoffice.osu.edu/long_term_care .
Tags: long-term care webinar
Comments: 0
Happy 2024! We hope your new calendar year has gotten off to a delightful start. As we close out the first of twelve months, we bring you another edition of the Ag Law Harvest. In this blog post, we delve into the intricate world of employment contracts and noncompete agreements, classifying workers as independent contractors or employees, Ag-Gag laws, and agricultural policy.
Ohio Man Violates Employer’s Noncompete Agreement.
Kevin Ciptak (“Ciptak”), an Ohio landscaping employee, is facing legal trouble for allegedly breaching his employment contract with Yagour Group LLC, operating as Perfection Landscapes (“Perfection”). The contract included a noncompete agreement, which Ciptak is accused of violating by running his own landscaping business on the side while working for Perfection. Perfection eventually discovered the extent of Ciptak’s side business, leading to Perfection filing a lawsuit.
During the trial, Ciptak testified that Perfection was “too busy” to take on the jobs he completed. Additionally, Ciptak stated that the profits from his side jobs amounted to over $60,000. Perfection countered that they would have been able to perform the work and, because of the obvious breach of the noncompete agreement, Perfection lost out on the potential profits. The trial court ruled in favor of Perfection, ordering Ciptak to pay the $60,000 in profits along with attorney's fees and expenses, exceeding $80,000. Ciptak appealed, arguing that, according to Ohio law, Perfection could only recover its own lost profits, not Ciptak's gains from the breach. He also claimed that Perfection was not harmed as they were "too busy," and Perfection failed to provide evidence of lost profits.
The Eighth District Court of Appeals ultimately found in favor of Perfection. The court reasoned that “[t]his case came down to a credibility determination.” The court held there was no dispute that Ciptak had violated the noncompete agreement. What was in dispute was whether Perfection could have and would have performed the work. The Eighth District held that the trial court’s finding that Perfection could have performed the work was not unreasonable. The Eighth District noted that although Ciptak claimed that Perfection was “too busy” to do any of those jobs, Ciptak “provided no other evidence to support this assertion.” The Eighth District ruled that the evidence presented at trial showed that Perfection would have realized approximately the same amount of profit on those jobs as Ciptak did and, therefore, Perfection was damaged as a result of Ciptak’s breach of the noncompete agreement.
New Independent Contractor Rule Announced by Department of Labor.
The U.S. Department of Labor (“DOL”) has published a final rule to help employers better understand when a worker qualifies as an employee and when they may be considered an independent contractor. The new rule gets rid of and replaces the 2021 rule. As announced by the DOL, the new rule “restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.” Thus, the new rule returns to a “totality of the circumstances” approach and analyzes the following six factors: (1) any opportunity for profit or loss a worker might have; (2) the financial stake and nature of any resources a worker has invested in the work; (3) the degree of permanence of the work relationship; (4) the degree of control an employer has over the person’s work; (5) whether the work the person does is essential to the employer’s business; and (6) the worker’s skill and initiative. The new rule goes into effect on March 11, 2024.
Federal Appeals Court Reverses Injunctions on Iowa “Ag-Gag Laws.”
On January 8, 2024, the U.S. Court of Appeals for the Eighth Circuit issued two opinions reversing injunctions against two Iowa “ag-gag laws”. At trial, the two laws were found to have violated the First Amendment of the United States Constitution. In its first opinion, the Eighth Circuit Court of Appeals analyzed Iowa’s “Agricultural Production Facility Trespass” law which makes it illegal to use deceptive practices to obtain access or employment in an “agricultural production facility, with the intent to cause physical or economic harm or other injury to the agricultural production facility’s operations . . .” The Eighth Circuit found that the intent element contained within the Iowa law prevents it from violating the First Amendment. The court reasoned that the Iowa law “is not a viewpoint-based restriction on speech, but rather a permissible restriction on intentionally false speech undertaken to accomplish a legally cognizable harm.”
In its second opinion, the Eighth Circuit reviewed an Iowa law that penalized anyone who “while trespassing, ‘knowingly places or uses a camera or electronic surveillance device that transmits or records images or data while the device is on the trespassed property[.]’” The court found that the Iowa law did not violate the First Amendment because “the [law’s] restrictions on the use of a camera only apply to situations when there has first been an unlawful trespass, the [law] does not burden substantially more speech than is necessary to further the State’s legitimate interests.” The court noted that Iowa has a strong interest in protecting property rights by “penalizing that subset of trespassers who – by using a camera while trespassing – cause further injury to privacy and property rights.”
Both cases have been remanded to the trial courts for further proceedings consistent with the forgoing opinions.
USDA Announces New Remote Beef Grading Program.
Earlier this month, the U.S. Department of Agriculture (“USDA”) announced a new pilot program to “allow more cattle producers and meat processors to access better markets through the [USDA’s] official beef quality grading and certification.” The “Remote Grading Pilot for Beef” looks to expand on the USDA’s approach to increase competition in agricultural markets for small- and mid-size farmers and ranchers. The pilot program hopes to cut expenses that otherwise deter small, independent meat processors from having a highly trained USDA grader visit their facility.
Under the pilot program, trained plant employees capture specific images of the live animal and the beef carcass. These images are then sent to a USDA grader that will inspect the images and accompanying plant records and product data, who then assigns the USDA Quality Grade and applicable carcass certification programs. The “Remote Grading Pilot for Beef” is only available to domestic beef slaughter facilities operating under federal inspection and producing product that meets USDA grading program eligibility criteria. More information can be found at https://www.ams.usda.gov/services/remote-beef-grading.
USDA Accepting Applications for Value-Added Producer Grants Program.
On January 17, 2024, the U.S. Department of Agriculture (“USDA”) announced that it is “accepting applications for grants to help agricultural producers maximize the value of their products and venture into new and better markets.” These grants are available through the Value-Added Producer Grants Program. Independent producers, agricultural producer groups, farmer or rancher cooperatives, and majority-controlled producer-based business ventures are all eligible for the grants. The USDA may award up to $75,000 for planning activities or up to $250,000 for working capital expenses related to producing and marketing a value-added agricultural product. For more information, visit the USDA’s website or contact your local USDA Rural Development office.
Tags: Noncompete Agreements, Employment Contracts, labor, Independent Contractor, Employee, Grants, USDA, Department of Labor, Beef
Comments: 0
Written by David L. Marrison, Professor & Field Specialist in Farm Management, OSU Extension
“I guess it comes down to a simple choice, really. Get busy living or get busy dying.” This famous line was quoted by Andy Dufresne, played by Tim Robbins, in the iconic movie titled “The Shawshank Redemption” released in 1994.
As we each traverse through our lives, we all are presented with moments that make us pause and reflect on how precious the time is we have been given here on earth. Every time I watch The Shawshank Redemption, I pause and think of the deeper message in this line: that life can be spent going through the motions and waiting around for something to happen or you can make something happen.
As we look at developing a plan for transitioning the farm to the next generation, are we waiting around for something to happen? Or will we work to make something happen? As farmers, we have to contend with and solve the day-to-day problems which arise on the farm. And there is never a shortage of problems that arise. Because of this, the time for deeper planning functions such as farm transition planning is often pushed down the to-do list. So, what will be the trigger to make something happen with regards to your succession plan?
What will be your trigger?
One of the hypothetical questions we pose in farm succession workshops is, “What knowledge would you need to pass on if you knew you had only two months to live?” This exact scenario happened to our family in 2010 when my father was diagnosed with pancreatic cancer just as we entered into Spring planting season on our dairy farm in northeast Ohio.
My father valiantly battled this disease but passed away seven weeks later. Our family learned a lot and had to scramble to manage the farm in the midst of his illness. I am grateful for the short time we had with my dad to make preparations. But it was not long enough to learn everything we needed to know to run the farm without him.
I challenge you to think how your farm and family would react to the loss of the principal operator. What knowledge and skills need to be transferred to the next generation so they can be successful without you? What can you do today to make something happen?
Who Will Manage the Farm in the Future?
As you develop your succession or transition plan, there are a myriad of decisions to be made. These decisions include identifying the next leader/manager of the farm, how to be fair to off-farm heirs without jeopardizing the future of the on-farm heirs, how to distribute assets through the estate plan, how and when the senior generation will retire, and how the business will deal with unexpected issues such as divorce, disability or paying for nursing home expenses. I would contend that the most crucial planning functions are to identify the next manager of the farm and then strategically plan how to develop them to lead the farm in the future.
The first step is to identify who the next leader or leaders of the farm will be. The next generation could be an immediate family member (son, daughter, grandchild) or extended family member (brother, sister, niece, nephew). With that said, the next leader does not have to be from your family as some farms have transitioned successfully to a non-blood friend or neighbor. The key is to choose a successor who will be the best caretaker of the farm and the land they will be entrusted with.
As you review potential managers and heirs to your farm, it is important to talk with them about their vision for the future and how it aligns with the current farming operation. What are their goals and aspirations for the farm? What concerns do they have about the future of the farm?
Complete a skills assessment with each potential heir/manager to examine their current strengths and which areas they will need to receive training in order for them to be a better leader for the farm in the future. Talk with them to learn more about what they would be most concerned or scared about if they had to take over the farm today. Are there additional responsibilities they would like to assume and what is their expectation for an appropriate time for management control to be transferred?
The new manager should have experience with how other farms are operated. Having the future manager work on another farm prior to returning to the home farm is a valuable experience. Mentor relationships should also be developed for the new manager to have a trusted team to help them grow.
Putting the Transition into Motion
The transition can be accomplished gradually by turning over more responsibility and authority to the successor. In fact, this process may (and should) take 5-10 years. It is important to develop a timeline for transferring ownership, management responsibilities, and knowledge from one generation to the next.
As the senior generation transitions their role and responsibilities to the next generation, thought should be given to the overall labor hours which will be available. In some cases, the responsibilities of two members of the senior generation will be transitioned to a single successor. Think of husband/wife combination transitioning to one of their children. This could cause a labor shortage. Could some tasks be outsourced to independent contractors (like accountants)? Can some production practices be accomplished through custom hire arrangements (silage harvest or cattle breeding)?
The biggest task in the transition plan is making sure the next generation has a firm foundation of knowledge to manage the operation in the future. This will look different for each farm and for the type of manager that is needed.
Owner-Operator. If the next manager is going to be an owner-operator, then training will need to include how to manage all aspects of the farm. These include production skills to raise livestock and/or crop enterprises and marketing skills to effectively market each commodity produced. The owner-operator will also need financial skills to manage the operation’s finances and taxes and human resource skills to manage employees. Additionally, they will need to know how to maintain facilities, tools, and equipment as well as how to manage risk through crop, livestock, and farm insurance.
Owner-Landlord. To the contrary, if the next manager will be more of an owner-landlord, they will need to be trained less on the day-to-day production activities and more on how to manage the farm asset. Some skills which are necessary for landlords include tenant and farm rental management, farm finance and tax management, farm insurance decision making, and facilities and other farm assets maintenance.
Strategies recommended for farm businesses to utilize in the transition process are:
- Every person who is part of the business (family member and employees) should have a written job description which includes job duties, responsibilities, and expectations.
- Create an organization chart of all employees and how each employee relates to one another.
- Develop a timeline for the successor to work through each job description on the farm. It is good to start the new family member as an employee and not the top manager.
- Provide meaningful opportunities for decision-making as well as accepting responsibility for the future manager.
- Develop a plan on how the future manager can increase their equity in the farm business through gifting, purchasing or inheritance.
- Develop a timeline for retirement and managerial transfer from senior generation to the succeeding generation.
- Utilize family business meetings to discuss the transfer and changing roles within the business.
Some experts advise that the current manager take a number of planned absences before retiring to provide an opportunity for the successor to see what it is like to manage the business alone. This will also allow the current manager to see that the farm does not fall apart without them. So how do you know if the next generation is ready? There are two other approaches which you can use to help prepare the next generation to lead without you:
Opossum Approach. Just as an opossum plays dead, so too should the principal operator. Take an unannounced week away from the farm during one of the busiest times of the year for your farm and allow the junior generation to take over with no communication from the senior generation. I know this sounds crazy but how else will you know what knowledge and skills need to be transferred? It is a lot easier to come back after a short vacation and be able to answer the questions your son or daughter has. You won’t have this opportunity when you pass away.
365-Day Challenge. Outside of using the opossum approach, it should be the goal of the senior generation to transfer at least one knowledge point or skill to the next generation each day. So, by the end of the year, your heirs will have 365 new tools in their management toolbox. If you do this over the next five to ten years, you can teach your heirs an incredible amount.
Take Advantage of OSU Extension Workshops
Attend one of our “Planning for the Future of Your Farm” workshops this Winter to learn about the communication and legal strategies that provide solutions for dealing with farm transition needs and decision making. A webinar version and several in-person options for the workshop are being offered.
Webinar version. You and your family members can attend the workshop individually and online from the comfort of your homes. The four-part webinar series will be February 5, 12, 19, and 26, 2024, from 6:30 to 8:30 p.m. via Zoom. Pre-registration is required so that a packet of program materials can be mailed in advance to participating families. Electronic copies of the course materials will also be available to all participants. The registration fee is $75 per farm family. Register by February 2, 2024 to receive course materials in time. Register on this page.
In-person workshops. Our local Extension Educators are hosting in-person workshops at five regional locations across Ohio. Registration costs vary by location due to local sponsorships.
- February 2, 2024 - Tiffin, Ohio - Register through this link.
- April 4, 2024 - Lebanon, Ohio - Register through this link.
More information about our Planning for the Future of Your Farm workshops is available at: go.osu.edu/farmsuccession.
Final Thoughts
So, are you ready “to make something happen” to transition your farm to the next generation? Farm managers are encouraged to think about how the next generation can be prepared to lead the farm in the future. And as Andy Dufresne stated in The Shawshank Redemption, “remember, hope is a good thing, maybe the best of things, and no good thing ever dies.” Good luck as you plan for the future of your farm!
Tags: farm transition, Estate Planning, transition planning, succession planning, death, planning for the future of your farm
Comments: 0
Recent collisions involving cattle on Ohio roadways raise the question of who is liable when a farm animal causes a roadway accident? Ohio’s “animals at large law” helps answer that question. It’s an old law that establishes a legal duty for owners and keepers of farm animals to contain their animals. The law states that an owner or keeper shall not permit their animals to run at large “in the public road, highway, street, lane, or alley, or upon unenclosed land.” But as with many laws, the answer to the question of “who’s liable” under the law is “it depends.” Here’s how the law works.
The law applies to both owners and “keepers.” The animals at large law places responsibility on both the owners and the “keepers” of the animals. The reference to “keepers” can expand the duty to someone other than the animal owner. Ohio courts have interpreted the “keeper” language to include a person “who has physical care or charge” of the animal or has “some degree of management, possession, care, custody or control” over the animal. Whether someone is a “keeper” is a fact specific determination made on a case-by-case basis.
Animals that must be contained. Several years ago, Ohio legislators added poultry to the list of animals an owner must prevent from running at large. The full list of animals an owner or keeper must contain now includes horses, mules, cattle, bison, sheep, goats, swine, llamas, alpacas, and poultry.
The law creates both civil and criminal liability. There are two potential outcomes to violating the animals at large law. The first is civil liability for “negligently permitting” animals to run at large. The owner or keeper who does so is responsible for all damages resulting from injury, death, or loss to a person or property caused by the animal. The second is criminal liability. An owner or keeper who “recklessly” permits the animals to run at large can be charged with a fourth degree misdemeanor.
An owner’s negligent conduct creates civil liability. An owner can be liable for “negligently permitting” animals to run at large, but what does “negligently permitting” mean? Courts have answered this question by stating that the law requires “negligent conduct” by the owner or keeper and that failing to exercise “ordinary care” to contain animals would be negligent conduct. As an example, a court determined that an owner who leaned a gate against a barn opening without fastening the gate to the barn or to any fence posts did not exercise ordinary care to contain his cattle. But the law allows an owner to rebut the presumption that the animals were out because of the owner's negligent conduct. An owner can offer proof of “ordinary care” taken to contain the animal, such as maintaining fences, locking gates, or checking animals regularly. If the owner had exercised reasonable care and the animals escaped for other reasons, such as being spooked by a storm or a gate left open by someone else, the owner might not be liable for the animals running at large. Whether the owner or keeper “negligently permitted” the escape would be a fact specific determination, made on a case-by-case basis.
Reckless conduct can result in criminal charges. In the example above, the court determined that the owner who merely leaned a gate up against the barn opening behaved “recklessly.” Legally, recklessness is acting with complete disregard to the consequences. Reckless behavior can lead to a criminal charge against the animal owner, with a maximum jail sentence of 30 days and a fine of up to $250.
Reducing liability risk under the animals at large law
- Regular management practices. In the court cases that apply Ohio’s animals at large law, the owner or keeper’s management practices are critically important to a liability determination. Animal owners and keepers can reduce liability risk by following routine management practices and documenting those practices, which include:
- Regularly checking and maintaining fences.
- Locking gates.
- Inspecting and maintaining stalls and similar enclosures.
- Checking and counting animals regularly, and immediately after a storm or similar event.
- Installing cameras.
- Training employees to follow management practices.
- The fence matters. It's also important to build a sufficient fence. OSU Extension offers helpful resources on fencing in this video on fencing systems by Educator Ted Wiseman and this article on common fencing mistake posted by the OSU Sheep Team. Be aware that another Ohio law requires a new boundary line fence for livestock to be a certain type of fence. Ohio’s “partition fence law” requires a new boundary line fence for containing livestock to be:
“a woven wire fence, either standard or high tensile, with one or two strands of barbed wire located not less than forty-eight inches from the ground or a nonelectric high tensile fence of at least seven strands and that is constructed in accordance with the United States natural resources conservation service conservation practice standard for fences, code 382.” If adjacent owners agree in writing, a new line fence to contain livestock can also be a barbed wire, electric, or live fence.
- Insurance and business entities. Insurance is necessary risk management tool for farm animal owners and keepers. It’s important to review all animals and animal activities with an insurance provider and ensure adequate liability coverage. In some situations, using a separate business entity like a Limited Liability Company might be helpful for liability purposes. Animal owners and keepers should consult with insurance and legal advisors to determine individual insurance and legal needs.
Ohio’s animals at large law is in Ohio Revised Code Chapter 951. Ohio’s partition fence law is in Ohio Revised Code Chapter 971.
Tags: animals at large, line fence, partition fence, fence law
Comments: 0
Managing the inherent risks of a farm is a top priority for most farm managers. The challenge for those managers is how best to manage the risks. We often are encouraged to invest in liability insurance or establish a business entity such as an LLC. The question becomes: is one better than the other and do we need both?
For most legal questions, the answer is “it depends on the situation.” However, regarding farm insurance, the answer is a definite “yes, you need good liability insurance.” Farm liability insurance is the best, most cost-effective liability management strategy for a farming operation. Insurance should always be the primary risk management tool with a business entity being the backup plan. Before spending time and money on setting up a business entity, make sure the farm’s liability insurance policy has adequate coverage limits and protects all the farm’s activities and assets.
There is no precise answer as to how much liability insurance a farm should carry. For farms with higher risk exposure like customer visitors or trucks and large machinery frequenting roadways, the coverage limit should be higher. Smaller farms with less liability exposure may need a smaller coverage limit. Every farm should probably have at least $1 million in liability coverage. A coverage limit of $3 million to $5 million is probably better for farms with moderate liability exposure. Farms with high liability exposure for visitors or trucks/equipment may want $5 million or more in coverage. With liability insurance, more is better although the premium costs must be considered. Liability insurance is relatively low-cost compared to the protection it provides. The best solution is to talk to the insurance agent to determine the best coverage limits for the specific farming operation.
When discussing the liability insurance policy with the insurance agent, it is vital to make sure the agent is aware of all activities and assets on the farm. If the agent does not know about it, the activity or asset might not be covered. For example, farmers who lease their land for hunting may not be covered by a typical farm policy for injuries to hunters. To address issues like this, a checklist of unique farm activities and assets has been developed and is available here. Each activity and asset that applies to the farming operation should be checked and the completed list provided to the insurance agent. The agent can them make sure that all activities and assets are covered.
For a more thorough discussion on farm insurance, see the Farm Insurance: Covering Your Assets Bulletin available at farmoffice.osu.edu.
After ensuring an adequate liability insurance policy is in place, focus can then turn to a business entity. Whether a business entity is needed in addition to the insurance depends on the situation. Generally, a business entity will help provide backup liability protection if the business has any of the following:
- Multiple owners;
- Employees;
- Many visitors;
- External liability exposure such as food safety or product liability.
If none of the above factors apply to a farming operation, a business entity might have limited value for liability protection. The reason is if a liability issue occurs, the owner of the business will have caused it. The business owner will likely be personally liable regardless of what type of business entity they may have.
Consider the following examples:
Example 1. Farmer is a sole proprietor with no employees. He only occasionally receives help from family members. If a liability incident happens with machinery on the roadway, Farmer will likely to have caused it. Farmer will be personally liable. Even if Farmer had an LLC, Farmer would still be personally liable because they caused the liability incident. Farmer’s best liability protection is liability insurance.
Example 2. Farmer adds a full-time employee to help on the farming operation and continues to operate as a sole proprietor. If employee has a liability incident while driving equipment, Farmer will probably be fully liable for employee’s actions. Under Ohio law, an employer is liable for an employee’s actions during the course of work. Again, Farmer’s only protection is insurance.
Example 3. Farmer establishes an LLC for his farming operation when they hire the employee. Now, the LLC is the employer, not Farmer. When the employee has an incident driving the machinery, the LLC is liable for the employee, not Farmer. All of Farmer’s assets outside of the LLC are safe because Farmer is not personally liable. The LLC may be liable and the assets in the LLC are still at risk, but the LLC contains the employee’s liability to only the LLC.
As these examples show, the utility of a business entity to provide liability protection depends on the situation. In some cases, the business entity will provide little protection while in other cases, the entity will provide significant protection. The best course of action is to consult with an attorney to determine the best strategy for a particular situation.
The type of entity used also affects the protection provided. A general partnership provides no liability protection and a limited partnership provides some, but not complete, liability protection. An LLC or corporation are the best entities to use for liability protection. For a detailed discussion on business entities and liability protection, see the Using Business Entities to Manage Farm Liability Risk Bulletin available at farmoffice.osu.edu.
To summarize, let’s go back to the original question: do you need liability insurance, a business entity or both? There is no doubt every farm should have liability insurance. Working closely with the insurance agent to ensure that all activities and assets are covered is a goal that every farm should have. Business entities can provide a good backup plan but, in some situations, may only provide limited protection. So, it depends on the situation as to whether a business entity is needed. Consulting with an attorney is the best way to determine if a business entity is a good choice.
Join us for our monthly Farm Office Live webinar to hear timely updates on farm management and legal issues affecting Ohio agriculture. The webinar is this Friday, January 19 from 10--11:30 a.m. Here's our January line-up of topics:
-
Production and Accounting Goals - Bruce Clevenger, Farm Management Field Specialist
-
Farm Financial Business Analysis Program Update - Clint Schroeder, Program Manager
-
Grain Marketing Update - Seungki Lee, Asst. Professor, OSU Dept. of Agricultural, Environmental & Development Economics
-
The new Ohio Farm Resolution Services Program - Peggy Hall, Director, OSU Agricultural & Resource Law Program
-
Solar Development in Ohio Update - Peggy Hall and Eric Romich, Energy Education Field Specialist
Register for this Friday's and future Farm Office Live webinars through this link. Can't make it this Friday? We record all of our Farm Office Live webinars, and the recordings are available on the Farm Office website.
On January 1, 2024, The Corporate Transparency Act (CTA) took effect with the primary purpose of combatting money laundering, illicit financial transactions, and financial terrorism. The CTA established the Financial Crimes Enforcement Network (FinCEN) in the U.S. Department of Treasury to oversee a national registry of information on owners of entities that are exempt from conventional disclosure regulations. The CTA requires many businesses formed or operating in the United States to report information about their “beneficial owners” to FinCEN. This new law will affect many farms and small businesses.
Any entity that is required to be registered with the Ohio Secretary of State will be considered a Reporting Company and subject to the CTA. Generally, this means LLCs, corporations and limited partnerships, common entities for farms, are all subject to the CTA. There are some types of businesses that are exempt from the CTA, such as banks and accounting firms, but farms are not exempt.
The CTA primarily targets small businesses. Therefore, an exemption is provided for large operating companies. Companies that meet the following conditions are exempt from the CTA reporting requirements:
- employs more than 20 fulltime employees in the United States
- has an operating presence at a physical office within the United States; and
- Filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5M in gross receipts or sales.
Every Reporting Company must provide FinCEN with information for each and every beneficial owner of the business. A beneficial owner is any owner that exercises substantial control or owns at least 25 percent of the business. The information required for each beneficial owner is as follows:
- Full legal name.
- Date of birth.
- Complete current address.
- Unique identifying number and issuing jurisdiction from one of the following, along with its image:
- U.S. passport.
- State driver’s license.
- Identification document issues by a state, local government or tribe.
Each Reporting Company must submit an initial filing but also must update the filing if there is any change to the required information about the business or beneficial owners. For example, if a beneficial owner has a change of address or obtains a new driver’s license, the Reporting Company must update the report with FinCEN. Both the initial report and updates are filed though the FinCEN website portal at www.fincen.gov/boi.
So, what does this all mean for farm businesses? The CTA and beneficial owner reporting requirements may seem like an intrusion of privacy. It is, in fact, an intrusion of privacy, but Congress has determined that the intrusion is necessary to protect against money laundering, illicit financial transactions, and financial terrorism. Right or wrong, the CTA is now law and farm businesses must follow it to avoid penalties.
The process of reporting should not be overly difficult using the FinCEN online portal. But the reporting will take time, especially for entities with many owners. While the entity should already have each owner’s name, address, and ownership percentage, collecting an image of each owner’s identification document could be time consuming. All businesses required to report under the CTA should develop a plan to file the initial report, monitor reportable changes, and file updated reports. Attorneys, accountants, lenders, and other professionals working with farms should also help remind their clients of the need for the initial reporting and future, updated reports. The CTA reporting is a significant change in business entity management and it may take the entire business team to ensure compliance.
For more information and a detailed discussion of the CTA, see The Corporate Transparency Act: Reporting Requirements law bulletin available at farmoffice.osu.edu.
Are your farm business assets adequately protected against risk? Our webinar on farm insurance, an excellent tool for protecting your assets, can help you answer that question. Join us for Covering Your Assets: Understanding the Basics of Farm Insurance on January 11, 2024 from 7-9 p.m. Sponsored by OSU's Agricultural & Resource Law Program and the National Agricultural Law Center, the webinar aims to help you ensure that your insurance best protects you and your farm business.
Topics we'll cover in the webinar include:
- Who should be insured?
- How much coverage do you need?
- Updating asset inventories
- Contractual duties of carriers
- Are casual employees covered?
- Business entities and insurance
- The claims process
- Appealing a claim determination
- Working with your agent
Webinar speakers are the authors of our publication on farm insurance, Covering Your Assets, and include:
- Robert Moore, Attorney, OSU Agricultural & Resource Law Program.
- Jeff Lewis, Attorney, OSU Agricultural & Resource Law Program, also previously an insurance defense attorney.
- Samantha Capaldo, Staff Attorney, National Agricultural Law Center, also previously an insurance agent.
The webinar is free, but registration is necessary! Register at https://farmoffice.osu.edu/farminsurance.
Ohio's Beginning Farmer Tax Credit Program aims to help level the playing field for beginning farmers in Ohio. It does so by providing income tax benefits for both a beginning farmer and someone who transfers farm assets to the beginning farmer. The new program first became available for the 2023 tax year, and sunsets on January 1, 2028, or when total income tax credits granted amount to $10 million. Participating in the program requires good planning, so now is the optimal time for existing and beginning farmers to consider how best to utilize the program while program funds are still available.
Our law bulletin, Ohio's Beginning Farmer Tax Credit Program, can help guide planning efforts. The bulletin explains how the program works and outlines the process for qualifying for the program's income tax credits. That process includes:
1. Meeting eligibility requirements to become certified by the Ohio Department of Agriculture (ODA) as a "qualified beginning farmer." The first step, then, is to determine whether an individual can meet the eligibility requirements, which are:
- A resident of Ohio.
- Seeking entry to or has entered farming within the last 10 years.
- Farming or intending to farm in Ohio.
- Has a total net worth of less than $800,000 in 2021, including spouse and dependent assets, as adjusted for inflation each year.
- Provides the majority of the daily physical labor and management for the farm.
- Has adequate farming experience or knowledge in the type of farming the individual is conducting.
- Submits projected earnings statements and demonstrates profit potential.
- Demonstrates farming will be a significant source of income for the individual.
- Is not a partner, member, shareholder, or trustee of the assets the individual is seeking to purchase or rent.
- Completes an ODA-approved financial management course.
2. Completing training and applying to ODA for certification as a "qualified beginning farmer." One component of attaining the program's eligibility requirements is completing a financial management course, which an individual who meets all other program requirements must do before applying to ODA to become certified. OSU Extension offers two of the 12 ODA-approved financial management programs an individual can complete to meet the training requirement.
- After completing an eligible financial management course, the individual must submit an application to ODA's Office of Farmland Preservation to be approved as a qualified beginning farmer. The application requires submitting information and documentation showing that the individual meets the eligibility requirements.
- If ODA approves the application, the individual will receive a state income tax credit certificate for the amount paid for completing the financial management course. The qualified beginning farmer can use the tax credit on the current year's tax return and can carry it forward for three succeeding tax years.
- A list of eligible financial management courses and the application to become a qualified beginning farmer are on the ODA website at https://agri.ohio.gov/programs/farmland-preservation-office/Beginning-Farmer-Tax-Credit-Program.
3. Transfer of agricultural assets to a qualified beginning farmer. The program also creates a financial incentive for owners who sell or rent agricultural assets to an individual who has been certified as a qualified beginning farmer, as long as the beginning farmer is not a partner, member, shareholder, or trustee with the owner of the agricultural assets. The asset owner will receive an Ohio income tax credit equal to 3.99% of the asset sale price or gross rental income received during a calendar year for a cash or share rental lease, and can carry the credit forward for up to seven years.
- "Agricultural assets" include land in agricultural production (10 or more or if under 10 acres, earning $2500 in average annual gross income from agriculture), livestock, facilities and buildings, and machinery (but not if the owner of machinery is an equipment dealer).
- A sale of assets must occur in the same calendar year the owner applies for the tax credit.
- In the case of a rental of assets, the credit can be claimed over the first three years of the lease.
4. Application for a tax credit by the asset owner. To receive the 3.99% income tax credit, the asset owner must submit a Beginning Farmer Tax Credit Asset Transfer Form application to ODA. The asset owner must submit a copy of the qualified beginning farmer's certification certificate with the application, which is available on the ODA website at https://agri.ohio.gov/programs/farmland-preservation-office/Beginning-Farmer-Tax-Credit-Program. If ODA approves the application, the Ohio Department of Taxation will issue a tax credit certificate to the asset owner.
It is important for both the beginning farmer and the agricultural asset owner to understand the process for qualifying for the income tax credits the new program offers. Timing is critical, as the beginning farmer must complete the training and become certified as a qualified beginning farmer before a transfer of agicultural assets occurs. It's also important for existing asset owners to coordinate program participation with estate and transition plans. Now is the time to consult with professional advisors and begin planning for program participation for the 2024 tax year.
Learn more about the Beginning Farmer Tax Credit Program in our law bulletin, available in the tax law library on https://farmoffice.osu.edu/our-library/tax-law and by visiting the ODA's website at https://agri.ohio.gov/programs/farmland-preservation-office/Beginning-Farmer-Tax-Credit-Program.
Tags: beginning farmer, tax credit, Income Tax, HB 95
Comments: 0
Written by Ellen Essman, J.D., OSU CFAES Government Relations
Just like there won’t be snow flurries on Christmas this year, there was not a flurry of activity at the Statehouse over the last few months. That being said, we will be carefully following several ag-related bills that progressed in committees but have not yet been passed by the full body, as the calendar turns to 2024. Here’s a summary of the bills we’re watching.
H.B. 162—Agriculture Designations. H.B. 162 was introduced by Representatives Roy Klopfenstein (R-Haviland) and Darrell Kick (R-Loudonville) on May 5, 2023, and was passed by the House in October, and had its first hearing in the Senate Agriculture and Natural Resources Committee on December 5. The bill would designate the following days and weeks to honor Ohio Agriculture:
- March 21 of each year as “Agriculture day;”
- The week beginning on the Saturday before the last Saturday of each February through the last Saturday in February as “FFA Week;”
- October 12 of each year as “Farmer’s Day;” and
- The week ending with the second Saturday of March as “4-H Week.”
H.B. 347—Farming Equipment Taxes. This bill was introduced by Representative Don Jones (R-Freeport) and referred to the House Ways and Means Committee in early December. The bill would change the way farmers claim a tax exemption on certain purchases.
Currently, when an Ohioan engaged in farming, agriculture, horticulture, or floriculture is buying a product for “agricultural use,” they must provide the seller with an exemption certificate. This certificate comes from the Ohio Department of Taxation and relieves the seller of the obligation to collect the sales tax on behalf of the state. However, the Department of Taxation can later determine that the purchase does not qualify for exemption, and then the farmer would be expected to pay the tax.
H.B. 347 would slightly alter this current way of doing things when it comes to the purchase of certain vehicles and trailers. Under the bill, the purchaser could receive an agricultural use exemption for taxes on these vehicles if the purchaser shows the seller copies of the purchaser’s Schedule F—the federal income tax profit of loss from farming form—for three most recent preceding years. Alternatively, a farmer could obtain a certificate from the Department of Taxation verifying that they have filed a Schedule F for three years in lieu of providing the forms directly to the seller. Notably, the bill states that “no other documentation or explanation shall be required by the vendor or the tax commissioner” to prove that the purchase qualifies for the agricultural use exemption.
The following vehicles and trailers would be included under the bill:
- Trailers, excluding watercraft trailers;
- Utility vehicles, (vehicles with a bed, principally for the purpose of transporting material or cargo in connection with construction, agricultural, forestry, grounds maintenance, land and garden, materials handling, or similar activities);
- All-purpose vehicles, (vehicles designed primarily for cross-country travel on land and water, or on multiple types of terrain, but excluding golf carts);
- Compact tractors (garden tractors, small utility tractors, and riding mowers).
H.B. 364—Agriculture (seed sharing). House Bill 364 was introduced in the House by representatives Dave Dobos (R-Columbus) and Roy Klopfenstein (R-Haviland) on December 14. The bill would allow the Ohio Prairie Association to distribute milkweed seeds non-commercially to its members, with the intent of promoting habitats for pollinators like monarch butterflies.
The bill would legally define “non-commercial seed sharing” as the distribution or transfer of ownership of seeds with no compensation or remuneration. Also included in the definition are a list of situations that are not considered “non-commercial seed sharing,” including when:
- The seeds are given as compensation of work or services rendered;
- The seeds are collected outside of Ohio;
- The seeds are patented, treated, or contain noxious weed species or invasive plants.
H.B. 364 also includes a definition of “seed library,” which it defines as a non-profit, governmental, or cooperative organization or association to which both of the following apply:
- It is established for the purpose of facilitating the donation, exchange, preservation, and dissemination of seeds among the seed library’s members or the general public.
- The use, exchange, transfer, or possession of seeds acquired by or from the non-profit governmental, or cooperative organization or association are obtained free of charge.
The bill would further exempt non-commercial seed sharing for the purposes of pollinator conservation, creating and conserving native habitats, and operation of a seed library from labeling, advertising, handling, and sales restrictions under Ohio law.
To further the goal of promoting pollinators and habitats, H.B. 364 would make changes to the requirements for maintaining toll roads, railroads, or electric railways. Current law requires managers of such thoroughfares to destroy a number of noxious weeds along the roadway or in right of ways. The bill would no longer require the destruction of Russian thistle, Canadian thistle, common thistle, wild lettuce, wild mustard, wild parsnip, ragweed, milkweed, or ironweed.
Tags: Ohio legislation, sales tax, seed laws, equipment, trailers, pollinators
Comments: 0