Month: March 2013

Using APVs, ATVs and Four-Wheelers on Roadways for Farm Work

Peggy Kirk Hall, Asst. Professor, OSU Extension Agricultural & Resource Law

Spring planting season brings increased agricultural traffic on Ohio’s rural roads, including the use of All-Purpose Vehicles (APVs), All-Terrain Vehicles (ATVs),  Gators, Mules and other four-wheeled utility vehicles.   Laws on these vehicles have changed in recent years and there is still confusion over the new provisions.  Farmers who plan to use an APV, ATV or utility vehicle on the roadway for farm work  should take a few minutes to review the applicable laws and ensure compliance.    Consider these provisions of Ohio law:

  • Licensing and registration.  A license is not required for a ”utility vehicle,” which is a self-propelled vehicle with a bed designed for transporting materials, such as  a Gator or Mule.  A 2009 law required registration for APVs and ATVs, defined as ”self-propelled vehicles designed primarily for cross-country travel”–but the law exempted  APVs and ATVs used for farming.  As long as used primarily for agricultural purposes and the owner qualifies for current agricultural use valuation (CAUV), the APV or ATV does not require registration or a license.  If stopped by law enforcement for failure to display registration, the farmer should explain that the vehicle is being used for agricultural purposes and the vehicle owner qualifies for CAUV.
  • Operating on roadways.   The local jurisdiction has authority over the operation of a utility vehicle, APV or ATV on or near roadways.  A farmer may operate one of these vehicles on a roadway and to travel from one farm field to another if the county sheriff (or township police, if applicable) allows it.  This requires the farmer to know whether the county or township allows APVs on the road.  We checked with several county sheriff offices and learned that each allows farm-use APVs and utility vehicles on the roadways as long as operated safely.  Ohio law provides guidance on safe operation for APVs in addition to ordinary traffic rules–the vehicle may not interfere with the movement of vehicular traffic approaching from any direction and the operator must yield the right-of-way to any approaching traffic that presents an immediate hazard.   If the local jurisdiction does not allow APRVs on the road or the farmer is operating the vehicle in an unsafe manner, the farmer could receive a traffic citation.
  • Operating on berms or in rights-of-way.    A farmer may drive an APV or utility vehicle on the berm or shoulder of a roadway if the terrain permits such operation to be undertaken safely and without entering a traffic lane.   If the farmer cannot operate on the berm without entering a traffic lane, the farmer should operate entirely on the roadway.
  • Child operators.  A child who does not hold a driver’s license may not operate an APV or utility vehicle on a roadway or on any portion of the right-of-way.  A child under the age of 16 may operate an APV on the family’s farm, and may also operate on another’s farm or private property if accompanied by a person who is at least 18 and holds a driver’s license.
  • Other rules of operation.    Ohio law has several prohibitions regarding APV and utility vehicles.  A person may not operate the APV or utility vehicle on a limited access highway or its right-of-way,  on another’s private property without permission, on land or waters controlled by the state except where permitted, on the tracks or right-of-way of an operating railroad, while transporting a firearm, bow, or other implement for hunting that is not unloaded and securely encased or for the purpose of chasing, pursuing, capturing, or killing an animal or wildfowl or during the time from sunset to sunrise, unless displaying lighted lights as required by4519.20 of the Revised Code.
  • Slow-moving vehicle emblems.    Farmers should be aware that there is confusion over whether an APV or utility vehicle must display a Slow-Moving Vehicle (SMV) emblem.  Ohio law requires display of an SMV emblem on any farm machinery designed for operation at 25 miles per hour or less and defines “farm machinery” as all machines and tools used in the production, harvesting and care of farm products, including farm trailers, agricultural tractors, threshing machinery, hay-baling machinery, corn shellers, hammermills, and machinery used in the production of horticultural, agricultural, and vegetable products.  But Ohio law also prohibits the use of an SMV emblem on any other vehicle.  Is an APV or utility vehicle a piece of “farm machinery” that requires an SMV, or a vehicle that should not display an SMV?  Because there is not a clear answer to this question, farmers should check with local law enforcement for its interpretation of the law.  While asking local law enforcement whether it allows farm-use APVs or utility vehicles on the roadways, also ask whether the vehicle must display an SMV sign.  Several of the law enforcement officers with whom we spoke stated that their county wanted farmers to display an SMV, but others may view that as a prohibited use of the SMV emblem.
  • Mud and manure.   Ohio law prohibits the placement of any earth,  mud, manure or other injurious materials on a public highway.  Farmers should take care to clean up the road if the APV or utility vehicle leaves mud, manure or other debris on the roadway.  Violation of the law may result in criminal misdemeanor charges as well as civil liability for accidents or injuries resulting from the road debris.

Taking on Food Safety: Ohio’s New Produce Marketing Agreement

Fruit and Vegetable Producers Should Consider New Voluntary Approach to Food Safety Certification

Fruit and vegetable producers of all sizes now have the option of participating in a voluntary food safety certification program in Ohio.   The Ohio Produce Marketing Agreement (OPMA) offers producers food safety standards and an opportunity to attain food safety certification through third party inspections.   Born from growing concerns about fruit and vegetable contamination outbreaks, the OPMA takes an aggressive yet voluntary approach to addressing food safety risk. 

The OPMA is the first “agricultural marketing agreement” developed under a new law in Ohio.   The agricultural marketing agreement law allows agricultural commodities to create voluntary marketing programs to expand or improve the market for their commodity.   Marketing programs may promote the sale and use of products, develop new uses and markets for products; improve methods of distributing products to consumers or standardize the quality of products for specific uses.  To create a voluntary marketing program, the commodity group must obtain the approval of both the Ohio Department of Agriculture and producers within the commodity group.  A summary of the agricultural marketing agreement law is available here.    

The voluntary advisory board that governs OPMA is preparing the program for final approval, which should occur within the next few months.  Producers may begin participating in the program now, however.

OPMA offers producers three levels or “tiers” of food safety certification based on types and scale of produce sales.  All tiers require membership in OPMA, annual training and demonstration of the core food safety standards via an inspection.  The core standards address  water quality, inputs and composting, traceback and good handling practices.   A farm that completes the certification process may market itself as an OPMA certified farm and use the OPMA logo for marketing purposes.   

While OPMA will certainly provide marketing advantages, fruit and vegetable producers should consider the  program’s legal benefits.  Adopting the recommended research-based food safety standards, participating in regular training and passing an OPMA inspection will reduce the risk of a food safety incident and resulting liability.  Given recent outbreaks resulting in sickness and deaths from produce consumption, food safety is a serious issue for produce farmers.  OPMA certification gives producers an opportunity to minimize exposure to food safety liability.

Another benefit for producers is the voluntary, self-regulating nature of the program.  High participation in OPMA indicates commodity willingness to address food safety practices and ensure safe food products.  A sound voluntary program with high participation rates may negate the need for regulatory action or meet requirements of the still-evolving federal Food Safety Modernization Act.   

For more information the Ohio Produce Marketing Agreement, visit www.opma.us.

Farm Management Webinars Announced

OSU Extension is pleased to announce a series of farm management webinars to be held in the upcoming two months. These webinars are designed to deliver current educational information for farmers, landowners, and other interested participants.  There is no pre-registration required for these webinars. Just log on from the comfort of your home or business! Attend all or any of the meetings by logging on to: http://carmenconnect.osu.edu/ohioagmanager.  The following is a description of the upcoming webinars.

Financial & Tax Implications of Oil & Gas Leases – Wednesday, March 13, 2013, 7:00 p.m. – 9:00 p.m.

David Marrison, Associate Professor & OSU Extension Educator, will be the featured speaker for this webinar. Don’t get caught blindsided by the taxes which will be due from signing an oil & gas lease. Learn how the IRS handles oil & gas payments. Learn which payments are subject to ordinary income taxes versus capital gain; about the percentage depletion deduction; and how signing a lease may affect your CAUV status. Learn what questions to ask and receive financial planning tips for managing the potential income from these wells.

Navigating the ACRE/DCP Decision in 2013 – Monday, March 18, 2013, 7:00 p.m. – 8:30 p.m.

Chris Bruynis, Assistant Professor & Extension Educator will be the featured speaker. With the passage of the 2012 American Taxpayer Relief Act, Congress extended many provisions of the 2008 Farm Bill. Farmers now can elect to enroll into the traditional Direct and Counter Cyclical Payment (DCP) Program, the Average Crop Revenue Election (ACRE) program, or neither program. Participants will learn the mechanics and restrictions of the programs as well as some strategies to decide which program may be the best election for their farm business.

Getting Your Financial Affairs in Order – Wednesday, March 27, 2013, 7:00 p.m. – p.m.9:00 pm

David Marrison, Associate Professor and Chris Bruynis, Assistant Professor will be the featured speakers for this webinar. Participants will learn how to get a grasp on their financial situation by learning how to develop a year-end balance sheet.  In addition to developing a balance sheet portfolio, this program will help participants develop a letter of instructions to their heirs regarding their financial matters. Learn how to consolidate all of your financial and personal information (real property, savings & investment accounts, legal documents) in one easy document.  This will help you get a better handle on your finances and allow you to get a jump start on your estate plan. Take time in 2013 to organize your financial matters for your peace of mind.  This program will save you hundreds of dollars as you plan and develop your succession, retirement, and estate plans. Get your affairs in order so you can concentrate on your family, career, and bucket list!

Return to Drainage: Calculating the Payback Period – Tuesday April 9, 2013, 7:00 p.m. – 8:30 pm

Bruce Clevenger, Assistant Professor & Extension Educator and Eric Richer, Extension Educator will be the featured speakers. Participants will learn how farmland drainage enhances crop production yields from 40+ years of Ohio State University field research.  Learn how improved field drainage has yield, soil quality and water quality advantages compared to poor field drainage.  Farmers and landowners can mutually benefit from a properly designed drainage system.  Learn how to estimate the cost of subsurface (tile) drainage and estimate a drainage payback period for your farmland.  Do today’s crop prices make drainage a good investment?  Can a drainage system be designed to address water quality concerns?  This program will help answer your questions on returns to drainage.

Financial & Tax Implications of Oil & Gas Leases (repeat) – Friday, April 12, 2013, 9:30 to 11:30 a.m.

David Marrison, Associate Professor & OSU Extension Educator, will be the featured speaker for this webinar. Don’t get caught blindsided by the taxes which will be due from signing an oil & gas lease. Learn how the IRS handles oil & gas payments. Learn which payments are subject to ordinary income taxes versus capital gain; about the percentage depletion deduction; and how signing a lease may affect your CAUV status. Learn what questions to ask and receive financial planning tips for managing the potential income from these wells.

For additional information about these programs contact the respective presenter.

David Marrison: marrison.2@osu.edu  or 440-576-9008

Chris Bruynis: bruynis.1@osu.edu or 740-702-3200

Bruce Clevenger: clevenger.10@osu.edu or 419-782-4771

Eric Richer: richer.5@osu.edu or 419-337-9210

 

Protecting Interests in a Verbal Farm Lease Situation

A written lease is a valuable tool to use in a farm lease situation, but many farm lease arrangements never progress beyond a conversation and a handshake.    A written lease brings certainty to the farming arrangement by laying out important terms such as lease duration, notice of termination, payment provisions and conservation practices. Verbal farm leases are risky; problems can arise with legal enforceability and disputes over rights and obligations.  For those dealing with a verbal lease agreement, here are a few strategies for protecting interests in the verbal farm lease situation.

Put the verbal lease in writing.  The first recommendation is no surprise; attorneys have long encouraged farmers to use written farmland leases rather than relying on verbal agreements.  But many landowners and tenants are uncomfortable using a written lease, for a variety of reasons.  Consider the following concerns and recommendations for addressing them:

  • “We’ve always operated on a verbal agreement and a handshake.”  Transitioning from a long-time verbal agreement to a written lease can be awkward and uncomfortable, and the landowner or tenant farmer who wishes to make the change may be uncertain about how to introduce the change.  To address an awkward transition, consider using a third party to “intervene” and facilitate the process of converting to a written agreement.  Have a farm manager, attorney or accountant explain the reasons for moving to a written agreement and begin the process of discussing lease terms.  Provide the other party with ample time to respond and to consider its own concerns and suggested lease terms. 
  • “We don’t want everyone to know the terms of our lease.”  Landowners and tenants often express concern that a written farm lease must be recorded in the county recorder’s office, thus revealing private terms such as the price paid for the lease.  In this case, the parties may utilize a provision under Ohio law referred to as the “memorandum of lease.”  Ohio Revised Code section 5301.251 allows the parties to record a shortened form of the farmland lease.  The only provisions the parties must include in a recorded memorandum of lease are the names and addresses of the landowner and tenant, the date of executing the agreement, a description of the leased property, the starting date and duration of the lease and any rights of renewal or extension.   With the recorded memorandum of lease, there is public notice that the lease exists but key terms remain confidential between the landowner and tenant.  The parties can include a term in the written lease verifying their agreement to execute and record a memorandum of lease rather than recording the entire lease.
  • “A written lease is overwhelming or too much detail.”  It is true that farmland leases can be lengthy and detailed, although attorneys usually have sound reasons for drafting detailed leases.   Note that the parties can make a gradual transition.  Even a simple lease or a checklist can bring certainty to the relationship by outlining key obligations or providing resolutions if problems arise in the future.  Additionally, there are many good resources that simplify and explain farm lease provisions, and a few good “model” leases for reference.  For helpful resources, visit the website http://aglease101.org .

Pay attention to lease payments and possession.  If the parties can’t convert a verbal lease to a written lease, be aware that one problem with a verbal lease is that it’s not clear when the lease agreement actually begins.  In the event of a dispute, Ohio courts often look to factors such as possession and lease payments to determine the term of the lease.  Two indicators that a farm lease agreement is in place are possession of the property by the tenant coupled with acquiescence by the landowner, or a lease payment made by the tenant and accepted by the landowner.  Both parties should be mindful of these important actions and should maintain records to document these occurrences.

Address financial fairness.  Determining the payment amount for a farm lease is a challenging task, particularly when the farm economy is in flux.  Disagreement over the lease price can quickly end a verbal farm lease relationship.   Thorough research and equitable approaches can maintain the lease relationship by ensuring a financial arrangement that is responsive to the market and fair to both parties.   OSU’s Farm Management website at http://aede.osu.edu/programs-and-research/osu-farm-management contains data on farmland values and cash rental rates.  Consider a flexible cash lease to accommodate economic changes; information on flexible cash leases is also available through OSU’s Farm Management website and at http://www.aglease101.org.    

Maintain records of the lease relationship.  Good records that document the leasing history can help establish a “course of dealing” between the parties.  While a written farm lease is preferable, a record of how the parties managed the lease or handled issues in the past can be a useful point of reference for ensuring consistency in the relationship.  If there is litigation over the lease, a court might rely on proof of the parties’ course of dealing to help resolve an issue.  Both parties should maintain thorough records of payments, agreements, farm management practices, soil sampling, nutrient applications, improvements and any other facts or data that establish the details of the leasing relationship.

Maintain communication.   Don’t underestimate the power of good communication between the leasing parties.  A landowner can provide a tenant with valuable certainty by keeping the tenant informed on potential changes with land ownership or financial management.  Tenants can keep a landowner apprised of the condition of the farm property by providing reports on a regular basis, especially in the case of an absentee landowner or a crop share lease.  A report that includes pictures and a brief summary of improvements made,  management practices adopted or crop share calculations may go a long way toward ensuring a solid leasing relationship.

A written and comprehensive farm lease is a valuable tool for farmland owners and tenant farmers alike; those who still rely on verbal farm leases should carefully consider making a transition to a written lease.  Parties that continue to use a verbal farm lease face legal and financial risks, but can adopt some practices to help protect the verbal farm lease situation.  For resources and examples of written farm leases, see http://aglease101.org.

SEPARATING MINERAL INTERESTS FROM THE SURFACE MAY RESULT IN TWO REAL PROPERTY TAX BILLS

by Larry Gearhardt, OSU Income School Director

Some landowners in the oil and gas drilling area of Ohio may receive two real property tax bills for the same property. How can this happen? When the mineral interests are separated from the surface, the Ohio Revised Code (section 5713.04) requires the county auditor to list and value the land in separate entries, specifying the interest listed, and tax the parties owning the different interests. If the same person owns both the surface and the separated mineral interests, he may receive two property tax bills. This has surprised some landowners after the separation of the mineral interests.

WHY WOULD A LANDOWNER SEPARATE MINERAL INTERESTS BUT RETAIN OWNERSHIP?
Some landowners are taking the proactive step of separating the mineral interests from the surface for succession planning and tax management. It is not uncommon for a trust to be used. When we say that the landowner retains ownership of both the surface and mineral interests, we are also including the scenario where the mineral interests are separated and placed in a trust for the benefit of the surface owner. Each landowner has his own reason for doing this, but one reason is that it may provide flexibility when doing succession planning.

ONE LANDOWNER RECEIVING TWO PROPERTY TAX BILLS HAPPENS IN ONLY RARE CIRCUMSTANCES
The focus of this paper is on the very narrow circumstance where a landowner separates the mineral interests from the surface, by deed, and retains ownership of both interests, either personally or in trust, and the mineral interests are not yet developed.

Leasing mineral rights to another entity does not cause a separate tax bill. A lease is merely an equitable interest in property that allows another to explore for minerals and develop those minerals if found. The landowner normally receives a lease signing bonus and shares in the royalties from the well. OSU Extension Factsheets explain the income tax and Ohio CAT tax treatment of those proceeds.

If the mineral rights are separated from the surface by deed and sold to another person, there may be a new tax bill created, but the new tax bill is sent to the owner of the mineral interests. The landowner pays only the property taxes on the surface.

If the mineral interests are developed, the mineral interests are valued according to a formula that is based on production and is provided by the Ohio Department of Taxation

WHAT IS THE VALUE OF AN UNDEVELOPED MINERAL INTEREST?
Determining the value of a producing well for property tax purposes is clearer than determining the value of an undeveloped mineral interest. The Ohio Administrative Code (sec. 5703-2-11(I)) provides that oil and gas rights that have been separated shall be valued in accordance with an annual entry of the Ohio tax commissioner. This annual entry is based upon a uniform formula and is required to be used in all eighty-eight counties. The property value depends upon the production of the well. A sharp negotiator would make the developer responsible for this tax.

So how does the auditor value mineral interests that have been separated, but not yet developed into a producing well? Once again, we look to Ohio Administrative Code sec. 5703-25-11 (I). A literal reading of this Ohio Administrative Code section makes no distinction between oil and gas rights that have been developed and those that have not been developed. Instead, the auditor is directed to value oil and gas rights that have been separated according to the annual entry of the tax commissioner. The entry is based on production. Since there is no production, one can reasonably conclude that the value of separated, but yet undeveloped, mineral rights would be zero.

Notwithstanding the Ohio Administrative Code section, some county auditors have assigned values of $200, $300, or $400 per acre. The value assigned by the county auditor is based on the level of activity and amount of production in the area, as well as historical practices. County auditors are looking for some guidance in the future to clarify how to determine the value of a separated, but yet undeveloped mineral interest.

CONCLUSION
Tax management and succession planning are very important. Landowners should seek advice from a trained professional to prepare a plan that fits their needs. Part of the plan is to be aware that a separation of mineral rights, by deed, with retained ownership in the name of the surface owner may cause the landowner to receive two real property tax bills. The best recommendation at the present time is to check with your county auditor to see what the value of that undeveloped mineral interest will be.