Recent Blog Posts

By: Peggy Kirk Hall, Tuesday, March 31st, 2015

Ohio’s Senate and House of Representatives have agreed upon a final bill intended to control algae production in Lake Erie and its western basin.  Senate Bill 1, as amended by the House, passed both chambers on March 25 and now awaits Governor Kasich’s signature. 

The law will regulate manure and fertilizer applications in the western basin of Lake Erie, require monitoring of phosphorous for certain publicly owned treatment works, regulate the placement of dredged materials in Lake Erie and its tributaries, change how the Healthy Lake Erie Fund may be used and establish agency coordination and research on harmful algae management and response.

In regards to fertilizer and manure applications, the legislation includes two new amendments that were not part of the original bills passed earlier by the Senate and House:

  • Certification requirements for persons using manure from CAFFs.  To utilize manure from a concentrated animal feeding facility that is regulated under ODA’s Division of Livestock Environmental Permitting, a person must hold either a Certified Livestock Manager license or certification under Ohio’s new fertilizer applicator certification program.  The provision pertains only if applying the manure for agricultural production on more than 50 acres.  This language closes the proclaimed “loophole” that allowed persons to receive and apply manure from a livestock facility without being subject to the same regulations as the facility.   ORC 903.40.
  • Exemptions for small and medium operations.  Small and medium agricultural operations may apply for a temporary exemption from the law’s restrictions on fertilizer and manure applications.  The chief of the division of soil and water resources may grant an exemption of up to one year for a medium agricultural operation and up to two years for a small operation, if the operation is working toward compliance.  An exempted operation may request technical assistance to reach compliance, and will not be subject to civil penalties for violations.  The law defines small and medium agricultural operations in the same way as the Livestock Environmental Permitting program, based on the number of livestock according to species.  ORC 1511(D). 

Other changes to the final bill include a removal of a five-year sunset provision and attempts to address lead contamination.  The final bill contains the following provisions:

Fertilizer application restrictions in the western basin

For applications of fertilizer in the western basin, a person may not apply fertilizer, defined as nitrogen or phosphorous, under these conditions:

(1) On snow-covered or frozen soil, or

(2) When the top two inches of soil are saturated from precipitation, or

(3) In a granular form when the local weather forecast for the application area contains greater than a 50% chance of precipitation exceeding one inch in a twelve-hour period,

unless the fertilizer is injected into the ground, incorporated within 24 hours of surface application or applied onto a growing crop.

Small and medium operations may apply for a temporary exemption from the restrictions, as explained above.  The ODA will have authority to investigate complaints of potential violations and to assess penalties for violations, which may not exceed $10,000 for each violation.  

Manure application restrictions in the western basin

A person may not surface apply manure in the western basin under any of the following circumstances:

(1) On snow-covered or frozen soil;

(2) When the top two inches of soil are saturated from precipitation;

(3) When the local weather forecast for the application area contains greater than a 50% chance of precipitation exceeding one-half inch in a 24 hour period.

unless the manure is injected into the ground, incorporated within 24 hours of surface application, applied onto a growing crop, or if in the event of an emergency, the chief of the division of soil and water resources or the chief's designee provides written consent and the manure application is made in accordance with procedures established in the United States department of agriculture natural resources conservation service practice standard code 590 prepared for this state.

Small and medium operations may apply for a temporary exemption from the restrictions, as explained above.  The ODA will have authority to investigate complaints of potential violations and to assess penalties for violations, which may not exceed $10,000 for each violation.  

Applications of sewage sludge

In issuing sewage sludge management permits, the director of Ohio EPA may not allow the placement of sludge on frozen ground.

Agency responsibilities for harmful algal management and response

  • The law appoints the director of the Ohio EPA or his/her designee to serve as the coordinator of harmful algae management and response.
  • Requires the Director of Environmental Protection to consult with specified state and local officials and representatives to develop actions that protect against cyanobacteria in the western basin and public water supplies and that manage wastewater to limit nutrient loading into the western basin.
  • Requires the Director to develop and implement protocols and actions regarding monitoring and management of cyanobacteria and other agents that may result in harmful algal production.

Healthy Lake Erie Fund

The fund shall now be used in support of conservation measures in the western basin as determined by the director of ODNR; for funding assistance for soil testing, winter cover crops, edge of field testing, tributary monitoring and animal waste abatement; and for any additional efforts to reduce nutrient runoff as the director may decide. The director must give priority to recommendations that encourage farmers to adopt agricultural production guidelines commonly known as 4R nutrient stewardship

Phosphorous monitoring for publicly owned treatment works

  • Requires certain publicly owned treatment work to begin monthly monitoring of total and dissolved phosphorous by December 1, 2016.
  • Requires a publicly owned treatment works that is not subject to a specified phosphorous effluent limit on the bill's effective date to complete and submit an optimization study that evaluates its ability to reduce phosphorous to that limit.

Dredged material in Lake Erie and tributaries

  • Beginning on July 1, 2020, prohibits deposits of dredged material from harbor or navigation maintenance activities in Ohio’s portion of Lake Erie and direct tributaries of the lake unless authorized by the Director of Ohio EPA.
  • Allows the Ohio EPA Director to authorize a deposit of dredged material for confined disposal facilities; beneficial use; beach nourishment; placement in the littoral drift; habitat restoration and projects involving amounts of dredged material of less than 10,000 cubic yards.
  • Requires the Ohio EPA Director to endeavor to work with the U.S. Army Corps of Engineers on long-term planning for the disposition of dredged materials.

Implementation review

The final version of the legislation requires a review three years after the law’s effective date by the appropriate House and Senate committees, who must assess the results of implementing the new measures and issue a report of their findings and recommendations for revisions of repeal to the Governor.

Transfer of Agricultural Pollution Abatement Program

The law declares that the legislature intends to enact legislation to transfer the Ohio Agricultural Pollution Abatement Program from ODNR to ODA by July 1, 2015. 

The bill is now awaiting action by Governor Kasich.  The final version of the legislation and accompanying documents are available here.

By: Peggy Kirk Hall, Thursday, March 12th, 2015

Senate and House bills on algae control differ

On March 10, the Ohio House of Representatives passed H.B. 61, a proposal to address Ohio’s toxic algae issues.   Last month, the Ohio Senate approved a bill on the same issue, but with several points of difference.  The two must now reconcile these differences and agree upon a plan for reducing the occurrence of toxic algae in Lake Erie, which they have stated they will soon accomplish.  The House already began its hearings on the Senate bill on March 11.

Here's a summary of the similarities and variations between the two proposals.

Prohibitions of surface applications.  Both bills prohibit the surface application of manure and fertilizer, defined as nitrogen or phosphorous, in the western Lake Erie basin on frozen ground, saturated soil, and when the local weather forecast for the application area contains greater than a 50% chance of precipitation exceeding one inch in a 12-hour period.  The Senate version also prohibits the application of granular fertilizer with regard to weather conditions, and the House bill also prohibits reckless violation of EPA rules regarding the surface application of sewage sludge.

Exemptions from prohibitions.  Both bills exempt a person from the above prohibitions for manure and fertilizer applications that are injected into the ground or applied on a growing crop.   Each also contains an exemption for fertilizer that is incorporated into the soil within a certain time period; the House allows a 24-hour time period while the Senate allows 48 hours for incorporation of the fertilizer.

Exclusion from enforcement.    The House bill allows a potential violator of the manure prohibitions to request assistance from ODNR, SWCD or other qualified persons on the development of technically feasible and economically reasonable measures that would cease or prevent violations; requires ODNR to assist with the request and set a schedule for implementing the measures; and prevents ODNR from enforcing violations if a person has made such a request, is receiving assistance or is implementing the measures.  The Senate bill does not include these or similar exclusions from enforcement.

Enforcement of violations.  If a person violates the prohibition against manure applications, the Senate authorizes ODNR to assess a civil penalty as determined by rulemaking and after allowing opportunity for a hearing.  The House takes a "corrective action" approach, allowing ODNR to notify a violator and propose corrective actions within a specified time period, then to inspect for continued violations after the specified time period and determine whether violations are still occurring and a civil penalty should be assessed, with an opportunity for a hearing.

Review and sunset.   The House bill requires a joint legislative committee review of the results of the prohibitions against fertilizer and manure applications and a report to the Governor of their findings and recommendations on whether to repeal or revise the prohibitions.  The Senate version requires a joint review and report to the Governor after four years, but states that the prohibitions on fertilizer and manure applications will sunset after five years unless the committees jointly recommend continuing the prohibitions.

Agency coordinator.  The Senate bill requires the EPA director to serve as the coordinator of harmful algae management and response and to develop plans, protocols and coordinated efforts to address harmful algae.  The House proposal does not contain this or a similar provision.

Studies.   In the Senate bill, the EPA is authorized to conduct studies of nutrient loading from point and nonpoint sources in the Lake Erie and Ohio River basins.  The House bill does not contain this or a similar provision.

Healthy Lake Erie Fund.  The House would not change the existing Healthy Lake Erie Fund, but the Senate proposes eliminating most current uses of the fund and revising it to allow the fund to be used for financial assistance with winter cover crops, edge of field testing, tributary monitoring and animal waste management and conservation measures in the western Lake Erie basin and for reduction of nutrient runoff as determined by ODNR’s Director.

Phosphorous monitoring.   Both bills require certain publicly owned treatment works (POTWs) to conduct monthly monitoring of total and dissolved phosphorous by the end of 2016 and other POTWs to complete a study of their ability to reduce phosphorous, but the House bill would also require the Ohio EPA to modify NPDES permits to include these requirements. 

Dredging.  Both bills prohibit the deposit of dredged materials beginning July 1, 2020; the Senate applies the prohibition to Ohio’s entire portion of Lake Erie and its direct tributaries, while the House would limit the prohibition to the Maumee River basin.

Lead contamination.  The House does not address lead contamination, but the Senate version prohibits the use in public water systems or water consumption facilities of certain plumbing supplies and materials that are not lead free and prohibits other actions related to lead pipes and fittings. 

Emergency.  The Senate version declares an emergency, allowing the legislation to be effective immediately upon passage, while the House bill does not declare an emergency.

To review H.B. 61, visit this link.  The Senate's bill, S.B. 1, is availble at this link

By: Peggy Kirk Hall, Sunday, February 22nd, 2015

After much anticipation, the Federal Aviation Administration (FAA) has published proposed regulations that would govern the operation of drones used for agricultural and other activities.  The proposal would allow farmers and ranchers to operate drones, referred to in the rule as “unmanned aircraft” and “unmanned aircraft systems” (UAS), subject to requirements intended to address public safety and national security concerns.  

Under the proposed small UAS rule, operators must comply with a certification process, register and maintain aircraft, and follow limitations on aircraft operation. Of the proposed limitations, agricultural operators might have concerns about a “visual line-of-sight” rule requiring that operators have visual contact with aircraft, a flight ceiling of 500 feet above ground level and prohibitions against night flights.  Additionally, the proposal fails to address privacy issues and the potential use of drones for surveillance activities on another person’s property.

The following provisions are the major components of the proposed rule, which would apply to unmanned aircraft weighing less than 55 pounds that are used for non-hobby and non-recreational purposes:

Operator Certification and Reporting

Certification.  An operator of a UAS must have an “unmanned aircraft operator certificate with a small UAS rating,” which requires:

  • Meeting eligibility requirements:  the applicant is at least 17 years old, speaks English, has no state or federal drug offenses, has no physical or mental condition to prevent safe UAS operation, and the applicant’s identity is verified by the FAA.
  • Passing an initial aeronautical knowledge test at an FAA-approved knowledge testing center, which covers: (1) applicable regulations relating to small UAS rating privileges, limitations, and flight operation; (2) airspace classification and operating requirements, obstacle clearance requirements, and flight restrictions affecting small UAS operation; (3) official sources of weather and effects of weather on small UAS performance; (4) small UAS loading and performance; (5) emergency procedures; (6) crew resource management; (7) radio communication procedures; (8) determining the performance of small UAS; (9) physiological effects of drugs and alcohol; (10) aeronautical decision-making and judgment; and (11) airport operations.
  • Passing a recurrent aeronautical knowledge test every 24 months.

Reporting. An operator must report an accident to the FAA within 10 days of any operation that results in injury or property damage.

Aircraft Requirements

  • Aircraft registration.   A small unmanned aircraft must be registered with the FAA.
  • Markings.   A small unmanned aircraft must display nationality and registration markings.
  • Aircraft condition.  An operator must maintain a small unmanned aircraft in a condition for safe operation.

Operation Requirements

Pre-flight requirements.  Before a flight, an operator must conduct a pre-flight inspection and assessment that includes:

  • Inspection of the links between the unmanned aircraft and its control station.
  • Verification of sufficient power to operate the aircraft at least 5 minutes beyond the intended operational time period.
  • Assessment of the operating environment, including local weather conditions, local airspace and flight restrictions, locations of persons and property on the ground and other ground hazards.
  • A briefing to all persons involved in the aircraft operation that addresses operating conditions, emergency procedures, contingency procedures, roles and responsibilities and potential hazards.

Visual line of sight requirement.  An operator must maintain a “visual line-of-sight” with the unmanned aircraft, using only human vision that is unaided by any device other than glasses or contact lenses.

Use of visual observer.   An operator may use “visual observers” to assist with the visual line-of-sight requirement.

  • An operator and visual observer must maintain constant communication, which may be made through communication-assisted devices.
  • The aircraft must still remain close enough to the operator for the operator to be capable of maintaining the visual line-of-sight.

Operating limitations.  An operator must not operate an unmanned aircraft:

  • More than 500 feet above ground level.
  • More than 100 mph.
  • After daylight, which is the time between official sunrise and sunset.
  • When there is not minimum weather visibility of 3 miles from the aircraft’s control station.
  • No closer than 500 feet below and 2,000 feet horizontally away from any clouds.
  • Over any persons not directly involved in the operation and not under a covered structure that would protect them from a falling UAS.
  • From a moving aircraft or vehicle, unless the moving vehicle is on water.
  • Within Class A airspace; or within Class B, C, or D airspace or certain Class E airspace designated for an airport, without prior authorization from the appropriate Air Traffic Control facility.
  • Carelessly or recklessly, including by allowing an object to be dropped from the aircraft in a way that would endanger life or property.

“Micro” UAS

In the proposed rule, the FAA also presents the possibility of including regulations in the final rule for “micro-UAS,” or unmanned aircraft weighing no more than 4.4 pounds that are composed of  “frangible” materials that yield on impact and present minimal safety hazards.  The micro-UAS category would require operators to self-certify their familiarity with the aeronautical knowledge testing areas; would limit operation to:  1,500 feet within the visual line-of-sight of the operator, no more than 400 feet above ground, only in Class G (uncontrolled) airspace and at least 5 miles from an airport; and would allow flight over people not involved in the operation.  The agency invites comments on whether to include a micro-UAS category in the final rule.

What’s not in the Proposed Rule?

Privacy concerns.  Many in the agricultural community worry about the potential use of drones for surveillance activities that violate a property owner’s privacy.  The FAA states that privacy concerns about unmanned aircraft operations are beyond the scope of this rulemaking and that “state law and other legal protections for individual privacy may provide recourse for a person whose privacy may be affected through another person’s use of a UAS.” 

The agency also notes the recent Presidential Memorandum issued by President Obama, Promoting Economic Competitiveness While Safeguarding Privacy, Civil Rights, and Civil Liberties in Domestic Use of Unmanned Aircraft Systems (February 15, 2015), which requires the FAA to participate in a multi-stakeholder engagement process led by the National Telecommunications and Information Administration to develop a framework for privacy, accountability, and transparency issues concerning the commercial and private use of UAS in the NAS.   The memorandum also requires agencies to “ensure that policies are in place to prohibit the collection, use, retention, or dissemination of data in any manner that would violate the First Amendment or in any manner that would discriminate against persons based upon their ethnicity, race, gender, national origin, religion, sexual orientation, or gender identity, in violation of law.”  Read the Presidential Memorandum here.

External loads and towing operations.   The FAA declined to propose new regulations for small unmanned aircraft with towing and external load capabilities. Instead, the agency invites comments, with supporting documentation, on whether external load and towing UAS operations should be permitted and whether their use should require airworthiness certification, higher levels of airman certification or additional operational limitations.

What’s Next?

The FAA will accept public comments on the proposed small UAS rule until April 24, 2015.   Issuing a final rule could take at least another year after the comment period closes.  In the interim, FAA encourages operators to visit http://knowbeforeyoufly.org/ to understand current regulations for the use of small UAS, which remain in place until the FAA issues its final rule.

The proposed small UAS rule is available in the Federal Register online here.  To submit comments for the rule, Docket No. FAA–2015–0150, visit www.regulations.gov.

Posted In: Crop Issues, Property, Uncategorized
Tags: UAVs, UAS, drones, FAA
Comments: 0
By: Peggy Kirk Hall, Thursday, February 19th, 2015

Legislation intended to reduce the occurrence of harmful algae blooms in Ohio passed the Ohio Senate on February 18 after a fast track through the Senate Agriculture Committee.  The enacted version of Senate Bill 1 varies somewhat from the original bill introduced on February 2 by Senators Randy Gardner and Bob Peterson, but maintains a primary goal of prohibiting certain types of fertilizer and manure applications in Ohio's western basin in winter and rainfail weather conditions along with addressing other potential contributors to the algae problem. 

Revised from the original SB 1 were proposals to transfer the Ohio Agricultural Pollution Abatement Program to the Ohio Department of Agriculture, create a new Office of Harmful Algal Blooms and prohibit all open lake disposal of dredge material in Lake Erie and its tributaries.   The committee also tabled several attempts to amend the bill before sending it to the full Senate.  Those proposals included extending the bill's fertilizer and manure application prohibitions to the entire Lake Erie watershed, establishing a daily fine for violators of $333, removing the five year sunset, changing certification requirements for anyone using manure from a facility regulated by Ohio's Livestock Environmental Permitting Program and requiring standards for testing water for microcystin. 

The legislation passed by the Senate includes the following provisions:

Application of fertilizer and manure

  • Prohibits the surface application of fertilizer or manure in the western basin of Lake Erie on frozen or snow-covered soil or when the top two inches of soil are saturated from precipitation.
  • Prohibits the application of fertilizer in the western basin in granular form when the local weather forecast for the application area contains greater than a 50% chance of precipitation exceeding one inch in a 12-hour period.
  • Prohibits the application of manure in the western basin when the local weather forecast contains greater than a 50% chance of precipitation exceeding one-half inch in a 24-hour period.
  • Provides exceptions from the prohibition for applications of fertilizer or manure that are injected into the ground, incorporated within 24 hours of surface application or applied onto a growing crop.
  • Provides an exception from the prohibition for applications of manure made in the event of an emergency with written consent of the chief of the division of soil and water resources and in accordance with procedures established in the USDA natural resources conservation service practice standard code 590.
  • Clarifies that the prohibition on fertilizer or manure applications does not apply to or affect any restrictions for facilities permitted under Ohio’s concentrated animal feeding facilities law.
  • Defines “fertilizer” as nitrogen or phosphorous.
  • Defines the “western basin” as the St. Mary’s, Auglaize, Blanchard, Sandusky, Cedar Portage, Lower Maumee, Upper Maumee, Tiffin, St. Joseph, Ottawa and River Raisin watersheds.
  • Grants investigation and enforcement authority for potential violations to the Director of Agriculture for fertilizer applications and the Chief of the Division of Soil and Water Resources for manure applications and allows each agency to establish by rule the civil penalty amounts for violations.
  • Requires a “sunsetting” of the above prohibition in five years, but requires the agriculture committees of the Ohio House and Senate to jointly review the effectiveness of the prohibitions, determine whether to prevent the sunset and to submit a report of findings to the Governor of Ohio.

Ohio Agricultural Pollution Abatement Program

  • Declares that it is the intent of the General Assembly that legislation transferring the administration and enforcement of the Agricultural Pollution Abatement Program from the Department of Natural Resources to the Department of Agriculture shall be enacted not later than July 1, 2015.

Harmful Algae Management

  • Appoints the Director of the Ohio Environmental Protection Agency or his/her designee as the coordinator of harmful algae management and response.
  • Requires the Director of Environmental Protection to consult with specified state and local officials and representatives to develop actions that protect against cyanobacteria in the western basin and public water supplies and that manage wastewater to limit nutrient loading into the western basin.
  • Requires the Director to develop and implement protocols and actions regarding monitoring and management of cyanobacteria and other agents that may result in harmful algal production.

Nutrient loading to Ohio watersheds

  • Authorizes the Director of Environmental Protection to study, calculate and evaluate nutrient loading to Ohio watersheds from point and nonpoint sources and to determine the most environmentally beneficial and cost-effective mechanisms to reduce nutrient loading.
  • Requires the Director or the Director's designee to report and update the study's results to coincide with the release of the Ohio Integrated Water Quality Monitoring and Assessment Report.

Phosphorous monitoring for publicly owned treatment works

  • Requires certain publicly owned treatment work to begin monthly monitoring of total and dissolved phosphorous by December 1, 2016.
  • Requires a publicly owned treatment works that is not subject to a specified phosphorous effluent limit on the bill's effective date to complete and submit an optimization study that evaluates its ability to reduce phosphorous to that limit.

Dredged material in Lake Erie and tributaries

  • Beginning on July 1, 2020, prohibits deposits of dredged material from harbor or navigation maintenance activities in Ohio’s portion of Lake Erie and direct tributaries of the lake unless authorized by the Director of Ohio EPA.
  • Allows the Ohio EPA Director to authorize a deposit of dredged material for confined disposal facilities; beneficial use; beach nourishment; placement in the littoral drift; habitat restoration and projects involving amounts of dredged material of less than 10,000 cubic yards.
  • Requires the Ohio EPA Director to endeavor to work with the U.S. Army Corps of Engineers on long-term planning for the disposition of dredged materials.

Lead contamination

  • Revises the definition of "lead free" and prohibits using or selling certain plumbing supplies and materials that are not lead free for public water systems or in a facility providing water for human consumption, with stated exceptions.

Emergency declaratation

  • The bill declares an emergency and would be effective immediately.

Visit this link to review SB 1.  The Ohio House of Representatives is currently considering its proposal to address algal blooms, with action expected on the proposal in the next few weeks.

By: Caty Daniels, Thursday, February 05th, 2015

Author: LARRY R. GEARHARDT, OSU EXTENSION FIELD SPECIALIST IN TAXATION

Generally, a taxpayer that buys business or income-producing property (not held for sale) with a useful life of more than one year cannot deduct its full cost as an expense for that year. However, the Internal Revenue Code (Code) allows an annual deduction of a portion of the cost of the property. This deduction may be a deduction for depreciation, amortization or depletion.

For most tangible property, a depreciation deduction is provided under the Modified Accelerated Cost Recovery System (MACRS). IRS form 4562 is used to claim the deduction for depreciation.

SECTION 179 EXPENSE DEDUCTION AND ACCELERATED FIRST YEAR DEPRECIATION (AFYD)

There are two exceptions to the aforementioned rule. The first exception is the section 179 expense deduction and the other exception is the Accelerated First Year Depreciation (AFYD). Many taxpayers are eligible to deduct (in lieu of depreciation) the cost of most tangible personal property used in the active conduct of a trade or business pursuant to section 179 of the Code. The taxpayer can elect on Form 4562 to expense the cost of “eligible 179 property” in the year that the property was placed in service. “Eligible property” that qualifies for section 179 includes: machinery and equipment; property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment; livestock, including horses, cattle, hogs, sheep, goats, mink and other fur-bearing animals; grain bins; single-purpose agricultural or horticultural structures; and agricultural fences and drainage tile. This deduction can be used for both new and used property.

In addition to, or in combination with, the section 179 expense deduction, taxpayers were allowed to deduct 50% of the cost of “qualified property” in the year that the property was placed in service as accelerated depreciation. “Qualified property” is tangible personal property that qualifies to be depreciated under the MACRS depreciation method with a recovery period of twenty years or less. This deduction can only be used when purchasing new property and the taxpayer must be the original user of the property.

RECENT HISTORY OF SECTION 179 AND AFYD

In 2013, the section 179 expense deduction was $500,000 per item, with a threshold of $2,000,000 before the deduction was limited. The AFYD limitation was 50% of the cost of the eligible property. However, these two deductions expired at the end of 2013 along with 53 other tax credits, deductions, and tax benefits. Beginning in 2014, the section 179 expense deduction dropped to $25,000 and the AFYD was eliminated entirely.

Prior to the end of 2013, a tax extender bill was introduced in Congress to extend the expired tax deductions, including the section 179 expense deduction at $500,000 and AFYD at 50%. The tax extender bill did not pass prior to the end of 2013 due to the inaction of Congress. So beginning in 2014, the section 179 expense deduction was $25,000 and there was no AFYD.

Congress debated the tax extender bill throughout most of 2014. Reports from Washington DC indicated that the tax extender bill would pass, but when? Finally, in December, Congress passed the tax extender bill which returned the section 179 expense deduction to $500,000 and AFYD to 50%. President Obama signed the bill on December 19, 2014. It is important to note that the bill extended the beneficial tax provisions only through 2014. Beginning in 2015, the section 179 expense deduction reverted back to $25,000 and AFYD was eliminated.

FARMERS IN A QUANDARY

Congress’ inaction regarding the tax extender bill in 2013, and continuing through most of 2014, put farmers in a quandary. The farmers had to decide whether or not to make capital expenditures in 2014 and rely on the tax extender bill being passed, or not to make the purchases. As a result of this quandary, some farmers resorted to creative purchase arrangements where they called the purchase a “lease.” Others entered into agreements where the purchase agreement contained an option to “lease” or “purchase,” thereby allowing them the opportunity to take advantage of the section 179 expense deduction if the tax extender bill was passed. However, in many instances, the “lease” would not pass IRS scrutiny. The so-called lease was really a conditional sales agreement which would have received different tax treatment which was less beneficial. With the passage of the tax extender bill in December of 2014, the issue was resolved so the legitimacy of the leases never came into question.

Since the $500,000 section 179 expense deduction and the AFYD expired at the end of 2014, farmers are put in the same quandary in 2015 that they had in 2014. Should farmers make that capital expenditure in 2015 and count on Congress extending section 179 at $500,000 and continue AFYD? Does a lease of equipment, rather than a purchase, receive favorable tax treatment?

 A lease is a viable alternative as long as the lease is a legitimate lease. This document examines the requirements of a true lease for tax purposes and the factors that turn the lease into a conditional sales agreement.

TAX TREATMENT OF A LEASE

If you pay to use property that you do not own in business, the payments are “lease payments.” These lease payments paid for property used in business are deductible business expenses. On a Schedule F tax form, the payments would be deducted on line 24a.

A “lessor” is the person who owns the property and allows another to use the property in exchange for payments. A “lessee” is the person using the property and making payments in exchange for the use of the property.

Before trying to understand the tax advantages of leasing, it is important to understand the different types of leases. For IRS purposes, equipment leases generally fall into two categories, each with a different type of purchase option:

  1. Non Tax-Oriented Leases: Legal ownership resides with the lessor, however, because the lessor is not considered to be at risk at the end of the lease, the lessee receives the tax benefits of ownership. In other words, the lease acts merely as security for a sale.
  2. Tax-Oriented True Leases: Lessor maintains ownership of the equipment and there is a fair market value purchase option for lessee at the end of the lease.

When leases are structured as true leases, the lessee may claim the entire lease payment as a deductible business expense.

CONDITIONAL SALES AGREEMENT

If an agreement is found to be a conditional sales agreement, payments made pursuant to the agreement are non-deductible purchase payments. An agreement is treated as a conditional sales agreement if it provides that you will acquire title to, or equity in, the equipment upon completing a certain number or amount of payments. Being the “owner” of the equipment is a prerequisite to taking the section 179 expense deduction and depreciation. An “owner” is the person that has the benefits and burdens of ownership and not necessarily the owner of legal title. Therefore, if the purchaser is not considered the “owner,” a conditional sales agreement may be the worst of two worlds – no business expense deduction for the payments and no depreciation deduction.

DISTINGUISHING A LEASE FROM A CONDITIONAL SALES AGREEMENT

The intent of the parties controls whether an agreement is a lease or a conditional sales agreement. How do the parties view the transaction? While the intent of the parties is important, for tax purposes the intent of the parties may be inferred from certain objective factors.

A conditional sales agreement (and not a lease) exists if any of the following are found:

  1. The agreement applies part of each payment toward an equity interest.
  2. The agreement provides for the transfer of title after payment of a stated amount.
  3. The amount of the payment to use the property for a short time is a large amount of the amount paid to obtain title to the property.
  4. The payments exceed the current fair rental value of the property (based upon comparisons with other similar properties).
  5. There is an option to buy the property at a nominal price as compared to the property’s value at the time the option can be exercised.
  6. There is an option to buy the property at a nominal price as compared with the total amount required to be paid under the agreement.
  7. The agreement designates a part of the payments as interest, or in some way makes part of the payments easily recognizable as interest.

CONCLUSION

For lease payments to be deductible as a business expense, the lease agreement must be a Tax-Oriented True Lease. If there are any factors present that show that the payments are intended to be creating equity in the equipment, the agreement will be deemed to be a conditional sales agreement. The payments pursuant to a conditional sales agreement are not deductible business expenses and the equipment is not depreciable unless the purchaser is considered the owner.

The importance of this issue depends on when Congress addresses the section 179 expense deduction and AFYD. If Congress’ inaction in 2013 and 2014 is any indication, farmers may very well find themselves in the same position of not knowing whether or not to make capital expenditures in 2015. The best possible scenario would be for Congress to permanently establish section 179 at $500,000 and AFYD at 50% to provide farmers with the certainty that they need to make wise business decisions. However, this is unlikely to happen. If a lease is a viable alternative for the farmer, make sure that it is a Tax-Oriented True Lease.

 

Resources: 2015 RIA Federal Tax Handbook, (Thomson-Reuters Checkpoint), sec. 1900, 1941

                   2014 IRS Publication 225, Farmers Tax Guide, p. 22

                   2014 IRS Publication 535, Business Expenses, p. 9

Posted In: Tax
Tags: Section 179
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By: Peggy Kirk Hall, Wednesday, January 28th, 2015

A federal court has dismissed a lawsuit claiming that the Ohio Department of Agriculture (ODA) is improperly issuing National Pollutant Discharge Elimination System (NPDES) permits for concentrated animal feeding operations without authorization by the U.S. EPA.   Two residents of northwest Ohio filed the suit last summer against the ODA, the Ohio EPA and the U.S. EPA.  In a tenuous argument, they alleged that the Ohio EPA illegally delegated its authority over NPDES permits by allowing ODA to issue a manure management plan as a condition for obtaining an NPDES permit from the Ohio EPA, and by allowing ODA to “determine, collect and analyze” data required for an NPDES permit.  The plaintiffs had also requested a preliminary injunction against ODA, which the court denied last December.

The lawsuit aims at the Ohio legislature's action in 2000 that transferred authority from the Ohio EPA to ODA for Ohio's state-based permitting program for concentrated animal feeding facilities.  The state permit program is separate from, and in addition to, the NPDES permit program administered under the federal Clean Water Act by the Ohio EPA.  Following the transfer of the state program to ODA, Ohio requested that the U.S. EPA approve a transfer of the NPDES permit authority for animal feeding operations from Ohio EPA to the ODA.  The U.S. EPA has not yet approved the transfer, and the NPDES program remains with the Ohio EPA.  If approved by the U.S. EPA, both the state and NPDES permit programs would be administered through ODA's Livestock Envrionmental Permitting program.  Until that time, ODA administers the Livestock Environmental Permitting program according to Ohio law, while the Ohio EPA oversees NPDES permits for animal feeding operations that are also subject to the Clean Water Act due to potential discharges into waters of the United States.

The plaintiffs claimed that ODA is improperly administering NPDES permits because of the manure management plans required for both the state and federal permit programs.   An applicant seeking both an Ohio and an NPDES permit can submit the same manure management plan to each agency.  The standards for both programs are the same, because ODA followed the EPA's federal requirements for manure management plans when it developed Ohio's manure management plan standards.   It is possible that a manure management plan approved by ODA could also be approved by the Ohio EPA in the NPDES permit program.  Plaintiffs argued that by allowing a manure management plan that had been approved for ODA's permit program to be used in the application for an NPDES permit, the Ohio EPA was delegating its authority to ODA to review and approve manure management plans for the NPDES program.

Not surprisingly, the U.S. District Court disagreed. "Even though a permit applicant may submit to the Ohio EPA a manure management plan which was developed to satisfy Ohio’s permit to operate requirements, the plan is still reviewed by the Ohio EPA and will only be allowed to be used in the discharge elimination permit application if the plan satisfies federal regulations and the Clean Water Act,"  stated Judge David Katz.

Judge Katz proceeded to grant the agencies' motion to dismiss the case.  "Plaintiffs’ assertion that the Ohio EPA improperly delegated its authority regarding concentrated feeding permits to the Ohio Department of Agriculture is completely devoid of merit. The facts simply do not show that Ohio’s EPA and Department of Agriculture have engaged in any conduct which violates a federal statute or regulation."

Read the decision in Askins v. Ohio Dept. of Agriculture here.

By: Peggy Kirk Hall, Monday, January 26th, 2015

House Committee Sets Out to Address Water Quality

The 131st session of the Ohio General Assembly is underway with a few changes to the structure and leadership of the committees that address agriculture.  In the House of Representatives, the previous Agriculture and Natural Resources Committee has been renamed as the Agriculture and Rural Development Committee.  Natural resource issues, previously handled with agriculture under the old committee structure, will now go to a newly formed Energy and Natural Resources Committee.  The committee modifications echo similar changes made last session in the Senate.

Brian Hill (R-Zanesville) will serve as the new chair of the House Agriculture and Rural Development Committee, with Tony Burkley (R-Payne) as vice chair and John Patterson (D-Jefferson) as the ranking minority member.  Other committee members are Terry Boose (R-Clarksville), Jim Buchy (R-Greenville), Jack Cera (D-Bellaire), Christina Hagan (R-Marlboro Township), Steve Kraus (R-Sandusky), Sarah LaTourette (R-Bainbridge Township), Michael O’Brien (D-Warren), Sean J. O’Brien (D-Bazetta), Bill Patmon (D-Cleveland), Debbie Phillips (D-Albany), Wes Retherford (R-Hamilton ), Jeff Rezabek (R-Clayton), Margaret Ann Ruhl (R-Mt. Vernon), Tim Schaffer (R-Lancaster), Michael Sheehy (D-Oregon), Andy Thompson (R-Marietta), A. Nino Vitale (R-Urbana) and Paul Zeltwanger (R-Mason).

The House Agriculture and Rural Development committee will kick off its work with a prominent issue:  water quality.  Speaker Cliff Rosenberger has stated that water quality will be a priority issue that the House "needs to address and address quickly."  Late last session, the House attemped to mitigate algal issues in Ohio lakes by passing legislation that would have affected applications of livestock manure and chemical fertilizers (HB 490).  The legislation failed to pass the Ohio Senate and expired on December 31, 2014 with the end of the legislative session.  This week, the House Agriculture and Rural Development Committee will revisit those issues when it meets off-site for a hearing at Cooper Farms in Van Wert to discuss water quality, nutrient management and agriculture.  Expert witnesses in agriculture and watershed management will present testimony and address questions from the committee.

mitigate toxic algal blooms in Lake Erie
"I think the water quality issue is something that is extremely important. I think it's something you'll probably see as a priority bill that we need to get done early on," he said in a recent interview. - See more at: http://www.gongwer-oh.com/programming/news.cfm?article_ID=840020204#stha...
"I think the water quality issue is something that is extremely important. I think it's something you'll probably see as a priority bill that we need to get done early on," he said in a recent interview. - See more at: http://www.gongwer-oh.com/programming/news.cfm?article_ID=840020204#stha...

On the Senate side of the new legislative session, the Senate Agriculture Committee will continue under the leadership of Cliff Hite (R-Findlay), with vice chair Joe Uecker ((R–Miami Township) and ranking minority leader Lou Gentile (D-Steubenville).  Other committee members are Bill Beagle (R–Tipp City), Dave Burke (R-Marysville), Capri S. Cafaro (D-Hubbard), Randy Gardner (R-Bowling Green), Gayle Manning (R-North Ridgeville), Bob Peterson (R-Sabina) and Michael J. Skindell (D-Lakewood).  The Senate Agriculture Committee does not currently have any hearings on its schedule.

By: Peggy Kirk Hall, Tuesday, January 13th, 2015

Ohio State University Extension will offer four Farmland Leasing Workshops throughout Ohio this February.

The three hour workshops will include topics of interest to both landowners and farm operators, such as factors affecting leasing options and rental rates, analyzing rent survey data and legal requirements and provisions for farm leases.  The speakers will help attendees consider how to use data in negotiations and to apply legal information to leasing practices.

Workshop presenters include Barry Ward, Assistant Professor, OSU Extension and Leader, Production Business Management and Peggy Hall, Assistant Professor, OSU Extension and Director of OSU's Agricultural & Resource Law Program.  

Topics included in the workshop are:

  • Factors affecting leasing options and rates
  • Evaluating cash rent survey data
  • Farmland leasing options:  fixed and flexible cash leases
  • Creating a legally enforceable lease
  • Legal provisions in farmland leases
  • Analyzing good and bad leasing practices

Dates and Locations of Farmland Leasing Workshops:

February 4, 2015, 9:00 am—12:00 pm
Fairfield County Ag Center, Lancaster  
Registration:  Call OSU Extension at 740-653-5419.  A program on the Farm Bill will follow the Farmland Leasing Workshop. $10 registration fee for both programs.
 
February 6, 2015, 1:00–4:00 pm
Kent State University Tuscarawas, New Philadelphia
Registration:  Call OSU Extension at 330-339-2337.  $15 registration fee.  

February 11, 6:00–9:00 pm
Paulding County Extension Office, Paulding
Registration:  Call OSU Extension at  419-399-8225.  $20 registration fee if registered by February 4.

February 20, 9:00 am—12:00 pm
Greene County Career Center,  Xenia
Registration:  Call OSU Extension at 937-372-9972, x114.  Call by February 16 for free registration.

Check the events calendar at http://aglaw.osu.edu for workshop details.
 

Posted In: Business and Financial, Crop Issues
Tags: farm leases
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By: Peggy Kirk Hall, Tuesday, January 06th, 2015

Attorney Bill Bridgforth will present OSU's next webinar on "The 2014 Farm Bill:  Guiding a Client through the New Law" on Friday, January 9 at 1 pm EST.  Bridgforth is a senior partner in the Arkansas law firm of Ramsay, Bridgforth, Robinson & Raley, LLP who represents agricultural producers around the United States.  He will explain the election decisions producers and landowners must make under the new Farm Bill and will provide examples of decision making impacts. 

There is no registration or fee required for the webinar, which is accessible at https://carmenconnect.osu.edu.  A recording of the webinar and a listing of additional webinars is available at aglaw.osu.edu.  

The Ohio Food, Agriculture & Environmental Law Webinar Series is an outreach project of OSU Extension's Agricultural & Resource Law Program.

By: Peggy Kirk Hall, Tuesday, November 25th, 2014

OSU’s Agricultural & Resource Law Program is pleased to announce its inaugural webinar, Big Data and UAVs:  Legal Issues for Agriculture, scheduled for Friday, December 12 at 1 pm.  This is the first webinar in the program’s new “Ohio Food, Agriculture and Environmental Law Webinar Series,” offering monthly legal webinars on issues of importance to Ohio agriculture. 

The webinar will feature John Dillard, an Associate Attorney with the law firm of Olsson Frank Weeda Terman Matz, PC in Washington, DC and a leading expert on legal issues with technology and agriculture.  With a background in agriculture and experience advising clients in the food and agricultural industries, Dillard will present a practical analysis of the legal issues raised by agriculture’s increasing use of large data sources and UAVs.   Dillard authors a blog, Ag in the Courtroom, on AgWeb.com and Legal Ease, a column in Farm Journal magazine.  He has appeared on national television and radio agricultural programs to discuss legal issues that affect agriculture.

Future webinars in the Ohio Food, Agriculture and Environmental Law Webinar Series will feature other national and state experts discussing legal issues of importance to Ohio agriculture.  Topics in the series thus far will include:

The 2014 Farm Bill: Guiding a Client through the New Law with Bill Bridgforth of Ramsay, Bridgforth, Robinson & Raley LLP, Pine Bluff, Arkansas on Friday, January 9, 2015 at 1 pm. 

Managing Pollutant Discharge Risk on Farms with Chris Walker and Jack Van Kley of Van Kley & Walker LLP, Dayton/Columbus, Ohio and Tom Mehnke of Mehnke Consulting LLC, Greenville, Ohio on Thursday, February 12, 2015 at 1 pm (tentative).

Introduction to Food Law:  What You Need to Know to Build a Food Law Practice with Jason Foscolo of Foscolo & Handel PLLC, Sag Harbor, New York on Thursday, March 12, 2015 at 1 pm.

Nursing Home Costs & Medicaid:  The One-Two Punch to the Family Farm with Craig Vandervoort of Sitterly & Vandervoort Ltd, Lancaster, Ohio on Friday, April 10, 2015 at 1 pm.

Rights and Remedies for Protecting Your Water Supply in Ohio with Joe Reidy of Frost Brown Todd LLC, Columbus, Ohio and Peggy Kirk Hall of OSU’s Agricultural & Resource Law Program on Thursday, May 14, 2015 (tentative).

For information on how to access the complimentary webinars and archived recordings, visit the “webinars” tab on http://aglaw.osu.edu.  

Posted In: Legal Education
Tags: big data, UAVs, drones, webinars
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