Ohio Legislators Pass Beginning Farmer Tax Credit and Farm Lease Termination Bills – Ohio Ag Net

By Peggy Kirk Hall, Director of Agricultural Law, Ohio State University Agricultural and Resource Law Program

Bills establishing new legal requirements for landowners who wish to terminate a verbal or uncertain farm lease and income tax credits for the sale of assets to beginning farmers now await Governor DeWine’s response after his passed by the Ohio Legislature. The predictions are that the governor will sign off on both measures.

Legal requirements for termination of agricultural leases – HB 397

Ohio joins nine other Midwestern states with its enactment of a legal requirement to terminate a harvest lease that does not address termination. Legislation sponsored by Rep. Brian Stewart (R-Ashville) and Rep. Darrell Kick (R-Loudonville) aims to address uncertainty in farmland leases, offering protections to tenant operators from late termination.

The bill provides that in a written or verbal farmland lease situation where the agreement between the parties does not provide for a termination date or method of giving notice of termination, a landlord who wishes to terminate the lease must do so in writing no later than September 1. Termination would be effective either at the end of harvest or December 31, whichever comes first. Note that the bill only applies to leases that involve the planting, growing and harvesting of crops and does not apply to leases for pasture, timber, buildings or equipment and does not apply not to the tenant in a rental agreement.

Beginner Farmer’s Bill – HB 95

Long in the works, HB 95 is the result of a bipartisan effort by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville). It authorizes two types of tax credits for “certified beginner farmer” situations. The bill caps tax credits at $10 million and sunset credits at the end of the sixth calendar year after they come into effect.

The first tax credit is a non-refundable tax credit for an individual or business who sells or leases CAUV-eligible farmland, livestock, facilities, buildings or machinery to a “certified beginning farmer”. “.

A late amendment from the Senate Ways and Means Committee reduced this credit to 3.99% of the sale price or gross rental income. The bill requires that a sales credit be claimed in the year of the sale, but spreads the credit amount for rental and rent-sharing arrangements over the first three years of the rental agreement. It also allows excess credit carryover for up to 7 years. Note that equipment dealers and businesses that sell farm assets for profit are not eligible for the tax credit and an individual or business must seek approval for the tax credit from the Department of Agriculture. ‘Ohio Agriculture.

The second tax credit is a non-refundable “Certified Beginner Farmer” tax credit for the cost of participating in a financial management program. The program must be certified by the Ohio Department of Agriculture, which must develop program certification standards in consultation with the State of Ohio and Central State. The farmer can carry forward the tax credit for up to three successive tax years.

What is a Certified Beginner Farmer? The intention of the bill is to encourage the transition of assets to beginning farmers, and it establishes eligibility criteria for an individual to become “certified” as a beginning farmer by the Department of Agriculture. from Ohio. A talking point for the bill was whether beginning farmer credit would be available for family transfers. Note that the eligibility requirements answer this question by requiring that there cannot be a business relationship between the beginning farmer and the asset owner.

A person can become certified as a beginning farmer if they:

• Intends to cultivate or has cultivated for less than 10 years in Ohio.

• Is not a partner, member, shareholder or trustee of the owner of the agricultural assets that the person is going to lease or buy.

• Has a household net worth of less than $800,000 in 2021 or adjusted for inflation in future years.

• Provides the majority of the day-to-day work and management of the farm.

• Has adequate agricultural knowledge or experience in the type of agriculture concerned.

• Submits projected income statements and demonstrates profit potential.

• Demonstrates that agriculture will be an important source of income.

• Participates in a financial management program approved by the Department of

Agriculture.

• Meets all other requirements established by the Ohio Department of Agriculture through rulemaking.

We will provide more details on these new laws as they come into force. Information on the Statutory Termination Bill, HB 397, is here and information on the Beginning Farmer Bill, HB 95, is here. Note that provisions affecting other unrelated areas of law were added to both bills during the approval process.