Ohio Sales Tax Exemption for Ohio Farms

This past month an email question was posed to the Ohio Ag Manager Team about the Ohio Sales & Use Tax Exemption for agricultural producers.
The farmer’s question was when he purchased a truck for use as a farm truck, why was he charged Ohio sales tax? This is a great question as there is often confusion on what agricultural purchases are or are not exempt from Ohio Sales Tax. The quick answer to the producer’s question is while the truck will be used exclusively as a farm vehicle it is NOT exempt from Ohio Sales tax. The purpose of this article is to help clarify the Ohio Sales Tax Exemption for Ohio Farmers.

The sales and use tax is Ohio’s second-largest source of revenue. The Ohio sales and use tax dates back to 1934, when the Ohio General Assembly enacted its first tax (at 3%). The state sales and use tax rate has been 5.5 percent since July 1, 2005. Current law gives counties the option of levying a sales tax of up to 1 percent for county general revenue, plus an additional tax of up to 0.5 percent for county general revenue or several specific purposes outlined in the Ohio Revised Code. The Ohio Department of Taxation web site at www.tax.ohio.gov has information about this tax .

Click here for a paper written by the Ohio Department of Taxation on the Sales and Use Tax.

Farmers have long enjoyed Ohio Sales tax exemption for many, but not all, items used for production of agricultural commodities.  Below are some of the common questions asked by producers and how they are answered on the Ohio Department of Taxation’s web site.

As a farmer, may I claim exemption on my purchases and how?

“Farmers are entitled to claim exemption on the purchase of items of tangible personal property used directly in the production of a product for sale . This would include, but is not limited to: seeds, fertilizers, insecticides, pesticides, field tiles, tractors, plows, combines, and specially designed motor vehicles with PTO applicator units that travel from farm to farm to apply chemicals and fertilizers. This would not include: almost all motor vehicles licensed to operate on the highway [passenger cars; pick-up trucks; larger trucks and trailers that are primarily used to haul people, animals, raw materials (seeds, fertilizers, insecticides and pesticides) to the farm and finished goods (corn, wheat, soy beans, cattle, hogs, etc.) from the farm to market], lawn mowers, weed eaters, items used to maintain set-a-side fields, chain saws, all purposes vehicles that are primarily used for recreation, and home garden equipment. To claim exemption, a properly completed exemption certificate must be given to your supplier.”

What are some other Agricultural Related Items exempt from Ohio Sales Tax?

A complete list of items that are exempt from Ohio Sales Tax can be found at:

http://tax.ohio.gov/faqs/Sales/sales.stm#38 .

Some of the exemptions that are applicable to farm businesses include:

  • Magazine subscriptions.
  • Sales of property for use directly in agricultural production.
  • Property used in the preparation of eggs for sale.
  • Sale and installation of agricultural land tile.
  • Sale and construction of portable grain bins to farmers.
  • Building and construction materials sold to construction contractors or persons engaged in the business of horticulture or producing livestock for incorporation into a horticulture or livestock structure.

How will I know if a sale is exempt from tax?

“Sales tax must be charged on all retail sales unless the purchaser provides a properly completed exemption certificate stating the statutory reason for claiming exemption. The vendor must retain the certificate as proof of nontaxable sales. Exemption certificates are prescribed by the Tax Commissioner and can be obtained from a local printer or office supply store. Sample forms are also available on the Ohio Department of Taxation website.”

“Exemption certificates are not needed when the item sold is never taxable, such as prescription drugs and food sold for off-premises consumption. Certificates are not needed when the purchaser is clearly identified on the invoice as an entity that is always exempt, such as the federal government, the State of Ohio, or any local government of this state.”

“The State of Ohio does not issue a sales tax exemption number. A vendor’s license number is NOT a sales tax exemption number. To claim exemption, you must provide a properly completed exemption certificate to your supplier.”

Exemption Certificates
The following forms have been provided by the Ohio Department of Taxation for use by Ohio consumers when making exempt purchases.


Unit Exemption Certificate .  This exemption certificate is used to claim exemption or exception on a single purchase.

Blanket Exemption Certificate .  This certificate is used to make a continuing claim of exemption or exception on purchases from the same vendor or seller.

More information about the Ohio Sales Tax Exemption for Agricultural Producers can be found on the Ohio Department of Taxation web site located at: www.tax.ohio.gov .

Fuel Storage Containment Required

There are recently revised regulations which require containment if you have more than 1,320 gallons of above ground fuel storage.

The following regulations which require containment or diversionary structures if you have more than 1,320 gallons of above ground fuel storage are not new. The original regulations became effective in 1974 and were revised in 2002, 2006 and 2009. The last revision recently became effective January 14, 2010. One nice aspect of the latest revision is that it contains a form to be filled out to create the self certified plan needed by some farmers.

Farmers with as few as three above ground 550 gallon gasoline and/or diesel fuel storage tanks may be subject to these regulations. This is the case because total above ground storage capacity for oil or oil products of 1,320 gallons or more, or below ground storage capacity of 42,000 gallons or more is subject to the U.S. Environmental Protection Agency (EPA) Spill Prevention Control and Countermeasure (SPCC) regulation (40 CFR Part 112).

These SPCC regulations require plans, procedures and equipment to contain discharges of oil or petroleum products (heating oil, crude oil, mineral oil, gasoline, diesel fuel, animal fats, vegetable oils and synthetic oils) if such discharge could reasonably be expected to reach a waterway or sanitary/storm sewer inlet. To calculate if the 1,320 gallon storage capacity threshold is met, total capacity of tanks or containers (excluding those less than 55 gallon drums) must be considered. Neither the amount of actual gallons in storage or the portion of storage commonly used makes any difference as to if these regulations apply. The operating or shell capacity of the storage container is counted towards total facility oil storage capacity. The amount of total storage is what is considered.

Those facilities subject to the regulations must provide adequate secondary containment and/or diversionary structures for oil or petroleum product storage and transfer areas to contain any releases and show their ability to implement a written plan of action in case of a release from the primary storage (tank). Adequate containment is generally expected to be able to hold the volume of the largest tank or container in the area plus sufficient freeboard for precipitation, by impervious dikes, berms or retaining walls, etc.

Many farmers will be able to self-certify the needed plan instead of retaining the services of a certifying professional engineer (PE). This self-certified plan can contain streamlined facility security requirements and fewer tank integrity inspections. These less stringent requirements apply to facilities with less than 10,000 gallons of aggregate above ground storage capacity that meet the reportable discharge history criterion for the last three years of operation (no discharges of 1,000 gallons or more in one instance or no two discharges of more than 42 gallons in the last twelve months).

However, if farmers want to use alternative methods for diking or secondary containment, or if secondary containment is deemed impractical, then a PE will need to review and certify the amended aspects of the plan.

Plans should not be submitted to U.S. EPA or Ohio EPA. The plan requirement can be satisfied by filling out the form as indicated in the text below. The plan should be accessible and readily available to be used by employees and farm management in the case of a release from the primary tank. Personnel in the oil-handling areas need to be trained in spill prevention, tank management, procedures and spill response at least.

Any release beyond the secondary containment of 1,000 gallons or more, or two releases of more than 42 gallons each within a 12-month period must be reported with specific information by calling 1 (800) 424-8802. The Coast Guard will answer, take information and refer appropriately. If the spill quantity is less than originally thought, especially if below the above thresholds, the owner may wish to call back and revise the report. If a large release occurs and/or is reported by someone else, a report and a copy of the plan will likely be required to be sent to U.S. EPA Region 5 and the appropriate Ohio EPA district office.

A fact sheet with this and more information is available at

http://www.epa.ohio.gov/portals/41/sb/publications/spcc.pdf .

Also, at the U.S. EPA’s web site at http://www.epa.gov/oilspill/ there is a link to the federal register with the final adopted regulations which include a form to be filled out for the self certified plan.

Clicking on

http://www.regulations.gov/search/Regs/contentStreamer?objectId=0900006480a56ca3&disposition=attachment&contentType=pdf

will result in a PDF document which is 48 pages of federal register, pages 58784 through 58832. The first 27 pages are the regulations which are summarized above. Owners will have to sign off that they are familiar with these pages when they create their plan. The last 21 pages, page 58811 and after, are a form to be filled out which creates the plan. Not all of these pages are needed, but when filled out appropriately this will suffice as the self certified plan needed by some farmers.

Farm Succession Workshops to be held Across Ohio this Month

To help farm families plan for the future, OSU Extension will be hosting a
Transferring Your Family Business to the Next Generation workshops across Ohio in March.  These workshops will help answer the questions that often arise when planning for the future: Who will manage the business in the future? How much money will I need to make it through retirement? How do I treat each offspring fairly when it comes to dividing up our farm? How will I know if my kids are ready to take over the farm? What are the legal hoops that need to be jumped through to pass the farm on without hurting the financial standing of the farm? How can we plan so the farm will be profitable for multiple generations? Is there enough equity in the farm that I can retire without selling out?  These workshops will help you develop a plan for the future, discover ways to increase family communication, make plans for retirement, and learn strategies for transferring management skills and the farm’s assets from one generation to the next.

Programs will be held in Ashtabula, Erie, Muskingum, Tuscarawas, Clermont or Defiance counties.  If you are interested in attending one of these workshops, please contact the host county extension office to receive registration information.

Workshop Locations

Erie County-   March 11, 2010 (one-day session)

Call 419-668-8219 for more details.

Defiance County –  March 15 & 18, 2010

Call 419-782-4771 for more details.

Muskingum County –  March 16 and 23, 2010

Call 740-454-0144 for more details.

Ashtabula County-  March 22 & 29, 2010

Call 440-576-9008 for more details.

Tuscarawas County-  March 23 & 24, 2010

Call 330-339-2337 for more details.

Clermont County-  March 25 & 26, 2010

Call 513-732-7070 for more details.

Farm Families are urged to contact the host locations as soon as possible as the registration deadlines for ach of these programs is nearing.

SURE Payment Eligibility

Sign-up for the 2008 SURE program began in January of 2010. Producers will want to sign-up at their county FSA office if they qualify for SURE. If a producer farms in multiple counties, visits to each county may be necessary to complete the application according to the FSA website. As of now, no sign-up deadline has been announced. Watch for further information on the www.fsa.usda.gov website.

There are several questions that need to be answered to determine if a farm is eligible for Supplemental Revenue Assurance Program (SURE) payment based on the 2008 crop losses. The SURE program was designed to assist farmers with a loss providing they have purchased crop insurance. The SURE Guarantee is set at 115% of the insurance level purchased for insurable crops plus 120% of crops covered with NAP not to exceed 90% of the farms total expected revenue. The SURE payment will be 60% of the difference between the SURE Guarantee and the actual crop revenue from the farm operation (see graph below). If you had all you crops insured in 2008, you have met the eligibility requirement and probably will qualify for a SURE payment. Payments are limited to $100,000 per entity, although most entities will receive less than the maximum payment.

As with most programs there is a list of exceptions. One of the exceptions is that non-significant crops did not need to be insured. A non-significant crop is a crop that produces less than 5% of the total farm revenue. For instance, if a farmer had a small wheat field where the value of the crop was $4,000 and the total expected farm revenue was $100,000, the wheat would not have needed to be insured. Under this example the wheat is 4% of the expected farm revenue which is less than the 5% threshold.

For crops where NAP insurance is the only option, crops would not need to be insured if the $250 administrative fee is greater than 10% of the crop value. For example, if a farmer had a small vineyard and sold $2,000 of grapes annually the administrative fee is greater than $200 (10% of $2,000). She would not need to buy NAP to be eligible for SURE, but may still want the insurance coverage to protect income.

Another exception is for new and beginning farmers. New and beginning farmers are defined as farmers with less than 10 years of experience. For farmers in this classification, the requirement for crop insurance is waived altogether and they would be eligible for a SURE payment regardless if they had crop insurance. There are also some exceptions for people falling into the classification of socially disadvantaged and limited resource farmers. Producers are encouraged to check with their local Farm Services Agency staff to see if they qualify in one of these classifications.

It appears that SURE is following the same pattern that ACRE followed last summer in the aspect that USDA is refining the rules as the sign-up period progresses. My goal in writing this article is to increase awareness of the SURE sign-up and alert farmers that they may be eligible for payments, even if they did not have all of their crops insured. Producers need to watch for the SURE sign-up deadline announcement and make an appointment with their local FSA staff to discuss SURE eligibility and potential payments for their farm operation.

Average Crop Revenue Election for 2010

Last summer farmers had the choice of electing the Average Crop revenue Election (ACRE) or remaining in the Direct and Counter Cyclical Program (DCP). I have written earlier on the status of the 2009 decision (January 2010 Issue or Ohio Ag Manager) and the current price forecasts for the 2009 crop, although slightly different, does not change the payment outcomes I predicted. Farmers not currently enrolled in ACRE have until June 1, 2010 to decide if ACRE or DCP might be the better decision for this crop year.

The guarantee price for 2010 will be the two year average U.S. cash price from the marketing years for the 2008 and 2009 crops. Using the 2008 actual prices plus the USDA estimated price (from February 9, 2010) for the 2009 crops, the 2010 ACRE price guarantee can be calculated as shown in the following table. As prices continue to change during the marketing year the 2010 ACRE price guarantee will also change. In the last column of the table below, the 2009 ACRE price guarantee is listed. The difference between the two years is the loss of the higher 2007 average U.S market prices and the addition of the lower 2009 prices.

Commodity Unit

Marketing Year 2008 Average Price 2009

Average Price

estimated

Guarantee Price

2010

estimated

Guarantee Price

2009

Corn Sep 1 – Aug 31 $4.06 $3.70 $3.88 $4.13
Soybeans Sep 1 – Aug 31 $9.97 $9.45 $9.71 $10.04
All Wheat Jun 1 – May 31 $6.78 $4.85 $5.82 $6.63

Since ACRE is a revenue protection program, price is only half of the equation in determining the 2010 ACRE revenue guarantee. The second half of the equation is the five year Olympic average yield for each crop respectively. In the table below, the new five year Olympic average for 2010 is calculated for each crop. Even thought the final numbers for the 2009 crop might vary slightly from the estimates, it is not important. The 2009 yields will remain the high yield and will not be used to calculate the Olympic average since the highest and lowest yields are not included.

2005 2006 2007 2008 2009 Olympic

Average

Corn 143 159 150 135 166 151
Soybeans 45 46.5 47 36 48 46.2
Wheat 70.6 67.8 58.4 67.9 71 68.8

The estimated 2010 Ohio ACRE revenue guarantee is calculated by multiplying the Ohio Olympic average yield times the U.S. average cash price times the 90% coverage level provided by ACRE. There was also a provision in the 2008 Farm Bill that established a limit on how much the revenue guarantee could change once the program started. This 10% cup and cap based off of the 2009 revenue guarantee sets a floor and ceiling for the 2010 revenue guarantee. However, under the current estimates the 2010 revenue guarantee still falls within the revenue guarantee range although the wheat revenue guarantee is close to the lower limit.

Ohio Olympic Average Planted Yield 2005-09 US Average Cash Price 2008-09 Coverage Level Ohio ACRE Revenue Guarantee 2010 10% Cup/Cap 2009 Revenue Guarantee and 2009 Guarantee
Corn 151 bu/acre $3.88 90% $527/acre $502 – $614
$558
Beans 46.2 bu/acre $9.71 90% $404/acre $374 – $458
$416
Wheat 68.8 bu/acre $5.82 90% $360/acre $354 – 432
$393

Providing crop prices continue as expected for the remainder of the 2009 crop year, the following table provides some insight into whether or not enrolling in ACRE in 2010 would be a good decision. If the Ohio crop yields in 2010 are equal to the 5 year Olympic average, the 2010 average U.S. market price (from 9/1/2010 through 8/31/2011) would need to be below $3.49 before an ACRE payment would be made. However, if crop yield are better the price would need to be lower before a payment is made and the opposite it rue if yield are lower. Under this example if the Ohio average yield and U.S. average market price would trigger a payment, individual farm revenue would also need to be below the farm’s 2010 revenue guarantee before any payment would be received.

U.S. average cash price to equal revenue guarantee; 5% decreased yields U.S. average cash price to equal revenue guarantee; average yields U.S. average cash price to equal revenue guarantee; 5% increased yields
Corn 143.5 bu $3.67 151.0 bu $3.49 158.6 bu $3.32
Soybeans 43.9 bu $9.20 46.2 bu $8.74 48.5 bu $8.33
Wheat 65.4 bu $5.50 68.8 bu $5.23 72.2 bu $4.99

ACRE was designed to provide assistance to farmers when crop revenue is low. The gamble is do I take a set payment amount in the DCP program (since there is a low probability that any counter cyclical or loan deficiency payments will be made) or take a lower payment to protect potential revenue shortfalls in the event of low yields and/or prices. Remember, even if you decide to sign up for ACRE, it is not a substitute for crop insurance since it depends on low state revenue to trigger. ACRE will not cover localized crop failures in the same fashion that crop insurance does.

FINPACK: OSU Extension Offers Farm Financial Analysis

In today’s capital intensive agriculture, every farm business needs a balance sheet that is updated annually at the very least. A balance sheet is often required by a lender to show the net worth, liquidity and leverage position of the farm business. However, as farm businesses develop and analyze their balance sheets over time, the information on assets, debt structure and net worth changes can provide valuable insight into business strengths and weaknesses. FINPACK agricultural software, developed and supported by the Center for Farm Financial Management at the University of Minnesota , has set the standard for agricultural balance sheets.

The future is often dictated by the past. Before making decisions that will affect the future of a farm business, the past year’s profitability should be calculated and compared to previous performance and industry benchmarks. The FINPACK, profitability analysis program is called FINAN which provides a complete accrual analysis, of the whole farm as well as individual enterprises which include income statements, cash flow reconciliation, the “Sweet 16” farm financial standards ratio analysis, and production analysis. Financial threats and opportunities can be identified with a FINAN financial analysis.

How do you know if a major change in the business is financially feasible? The FINLRB, or Financial Long Range Budgeting software program, will help farm businesses answer the “what if we do this?” question and will help you evaluate the financial implications of business changes before the money is actually committed. Strategically positioning a farm business is critical in today’s rapidly changing agriculture environment. The FINLRB program is an excellent tool that helps you evaluate the changes you need to consider to remain successful.

OSU Extension Educators can bring FINPACK to your farm. Get started for the first-time or use FINPACK again. OSU Extension and FINPACK have been assisting farm businesses for nearly three decades. Contact your local OSU Extension office.

Interstate Influence on Labor Management

The advisory message is that employers of immigrant/migrant labor would be wise to stay attentive to state and local developments in immigration-related law.

At the national level , there is policy on E-Verify, the 287(g) Program, the possible use of a fingerprint database developed by ICE to identify undocumented immigrants detained by local authorities, and the potential Leafy Green Marketing Agreement requiring “Best Practices” yet to be drafted. And don’t forget the fluctuating H2A scene and unresolved Comprehensive Immigration Reform.

There is also an interstate consideration. Lack of definitive immigration solutions has left states to define their own measures and policies. The questions is, What is happening in other states that may affect my state, my operations? In 2006, the National Conference of State Legislatures (NCSL) reported that thirty-two states had enacted a total of eighty-four immigration-related laws, and the trend continues to this day:

State laws related to immigration have increased dramatically in recent years.

In 2005, 300 bills were introduced; 38 laws were enacted and 6 vetoed.

In 2006, activity doubled: 570 bills were introduced; 84 laws were enacted; and 6 vetoed.

In 2007, activity tripled: 1,562 bills were introduced; 240 laws were enacted; and 12 vetoed.

In 2008, 1305 bills were considered; 206 were enacted; 3 were vetoed.

As for 2009, an NCSL report dated July17, 2009 noted:

In the first half of 2009, state legislation related to immigration topped last year’s totals. So far this year, more than 1400 bills have been considered in all 50 states.

(This report can be viewed at: www.ncsl.org/documents/immig/ImmigrationReport2009.pdf )

Some 2010 state efforts which may influence ag producers may be from an adjacent state, the region or from the other side of the country, but they could develop into precedent or a model for legislation in your state…so they bear watching.

IDAHO

A bill would ban anyone without proven legal status from receiving any state or local benefit; outlaw administering the written portion of the Idaho driver’s license test in any language other than English;…and deny recognition of out-of-state driver’s licenses to those without legal immigration status.

Three new bills are being proposed by legislators to punish employers who knowingly hire illegal immigrants with fines and suspension of licenses.

NEW YORK

Senate legislators continue to consider a bill that would grant farm workers mandatory overtime, days off to rest, and other rights and privileges. Opponents say it will drive up costs and labor regulation.

ALABAMA

Alabama legislators are considering six bills before that would penalize employers not verifying documentation of legal immigrant status. Some bills may apply statewide while others apply only to certain counties. Use of the E-Verify system would be required and employers would face possible loss of business licenses for multiple violations and non-compliance.

OHIO

Senate Bill 35 would mandate that the Ohio Attorney General pursue a memorandum of agreement with Immigrations and Customs Enforcement to deputize Ohio law enforcement officers as immigration enforcement officers, the 287(g) program

Senate Bill 150 would allow county commissioners to direct a sheriff to take custody of persons who are being detained for deportation or who are charged with criminal violations of immigration law and to authorize state and local employees and county sheriffs to render assistance to federal immigration officials in the investigation and enforcement of federal immigration law.