Developments in Ag Law and Ag Tax

Overview

In recent weeks, a number of important and interesting developments have occurred in the realm of agricultural law and taxation.  The subjects include various tax issues; oil and gas; state taxation issues; IRS information; and farm program payments.

Recent developments in ag law and tax – it’s the topic of today’s post.

Revised Form I-9

Form I-9 is an important document for ag employers hiring workers.  It verifies the identity and employment authorization of farm employees and protects the employer from penalties associated with improper hires.  A new version of the Form became available on August 1 and it’s this version that must be used starting November 1.   

All U.S. employers must ensure proper completion of Form I-9 for each individual hired, and whether the employment involves citizens or noncitizens. While agriculture is often treated differently under the law in many situations, that’s not the case when it comes to Form I-9.  There is no exception based on size of the farming operation or for family owned farming businesses.

The Form applies to employment situations.  It doesn’t apply when a farmer hires custom work or work to be done as an independent contractor.

A revised version of Form I-9 became available on August 1.  The Form has been condensed in some instances and it clarifies the difference between “noncitizen national” and “noncitizen authorized to work.”  Also, the revised Form can be filled out on tablets and mobile devices, and a checkbox has been added for employers to indicate when they have remotely examined Form I-9 documents.  Certain other revisions have been made and the Instructions for the Form have also been updated. 

Both employees and employers must complete the Form within three days of the hire.  Employers must retain the Form and make it available for inspection. 

You can access the new version here:  https://www.uscis.gov/sites/default/files/document/forms/i-9.pdf  The government’s summary of the revised Form is here:  https://www.uscis.gov/sites/default/files/document/fact-sheets/FormI9SummaryofChangesFactSheet.pdf

Florida Foreign Ownership Law in Effect – Injunction Denied

Ownership of U.S. land, specifically agricultural lands, by foreign persons or entities has been an issue that traces to the origins of the United States. Today, approximately fourteen states specifically forbid or limit nonresident aliens, foreign businesses and corporations, and foreign governments from acquiring or owning an interest in agricultural land within their state. Although these states have instituted restrictions, each state has taken its own approach. In other words, a uniform approach to restricting foreign ownership has not been established because state laws vary widely.

Currently, the following states restrict (in one fashion or another) foreign ownership of agricultural land.  about one-half of the states restrict agricultural land acquisition by aliens.  AL, AR, FL, HI, ID, IN, IA, KS, KY, LA, MN, MS, MO, MT, NE, ND, OH, OK, PA, SC, SD, TN, UT, VA, WI,   

The states with the most restrictive laws are IA, KY, MN, MO, NE, ND, OK, SD and WI.  The other 16 states have minor restrictions on foreign ownership of agricultural land. 

Recently, the issue of restricting foreign investment in and/or ownership of agricultural land has been raised in Alabama, Arizona, Arkansas, California, Florida, Indiana, Iowa, Mississippi, Missouri, Montana, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, and Wyoming. Each of these states have proposed, or planned to propose, legislation restricting foreign ownership and/or investment in agricultural land to varying degrees.  Several high-profile events have spurred this renewed interest including a Chinese-owned company acquiring over 130,000 acres near an Air Force base in Texas and a 300-acre purchase by another Chinese company near a different Air Force base in North Dakota.  Also, the slow “fly-over” of a Chinese spy balloon from Alaska to South Carolina, mysterious damages to many food processing facilities, pipelines and rail transportation have contributed to the growing interest in national security and restrictions on ownership of U.S. farm and ranchland by known adversaries.

The Florida provision limits landownership rights of certain noncitizens that are domiciled either in China or other countries that are a “foreign country of concern.”  Fla. Stat. §§692.201-.204.   The countries considered as a FCOC under the law include China; Russia; Iran; North Korea; Cuba; Venezuela’s Nicolás Maduro regime; and Syria. Four Chinese citizens living in Florida, along with a real estate brokerage firm, claimed that the law violated their equal protection rights because it restricts their ability to purchase real property due to their race. They also claimed that the law violated the Due Process Clause and the Supremacy Clause of the Constitution and the Fair Housing Act (FHA). Under the law, Chinese investors that are not U.S. citizens that hold or acquire and interest in real property in Florida on or after July 1, 2023, must report their interests to the state or be potentially fined $1,000 per day the report is late.  Chinese acquisitions after July 1, 2023, are subject to forfeiture to the state with such acquisitions constituting a third-degree felony.  The seller commits a first-degree misdemeanor for knowingly violating the law.

The plaintiffs sought an injunction against the implementation of the law before it went into effect on July 1, 2023.  However, the law went into effect on July 1, with the litigation pending.

On August 17, the court denied the plaintiffs’ motion for an injunction.   Shen v. Simpson, No. 4:23-cv-208-AW-HAF, 2023 U.S. Dist. LEXIS 152425 (N.D. Fla. Aug. 17, 2023).  The court determined that the Florida provision classified persons by alienage (status of an alien) rather than by race because it barred landownership by persons who are not lawful, permanent residents and who are domiciled in a “country of concern” while exempting noncitizens domiciled in countries that were not “countries of concern.”  Thus, the restriction was not race-based (it applied equally to anyone domiciled in China, for example, regardless of race) and was not subject to strict scrutiny analysis which would have required the State of Florida to prove that the law advanced a compelling state interest narrowly tailored to achieve that compelling interest.  Strict scrutiny, the court noted only applies to laws affecting lawful permanent aliens, and the Florida provision exempts nonresidents who are lawfully permitted to reside in the U.S.  Thus, the law was to be reviewed under the “rational basis” test.  See, e.g., Terrace v. Thompson, 263 U.S. 197 (1923).

The court held that the State of Florida did have a rational basis for enacting the ownership restrictions – public safety and to “insulate [the state’s] food supply and…make sure that foreign influences…will not pose a threat to it.”  This satisfied the rational basis test for purposes of the plaintiffs’ equal protection challenge and the FHA challenge (because the law didn’t discriminate based on race) and also meant that the court would not enjoin the law because the plaintiffs’ challenge on this basis was unlikely to succeed. 

The Florida law, the court concluded, also defined “critical military infrastructure” and “military installation” in detail which gave the plaintiffs sufficient notice that they couldn’t own ag land or acquire an interest in ag land within 10 miles of a military installation or “critical infrastructure facility,” or within five miles of a “military installation” by an individual Chinese investor.  Thus, the court determined that the plaintiffs’ due process claim would fail. 

The plaintiffs also made a Supremacy Clause challenge claiming that federal law trumped the Florida law because the Florida law conflicted with the manner in which land purchases were regulated at the federal level.  They claimed that federal law established a procedure to review certain foreign investments and acquisitions for purposes of determining a threat to national security.  The court disagreed, noting the “history of state regulation” of alien ownership” and that the Congress would have preempted state foreign ownership laws conflicted with the federal review procedure. 

USDA Payments Nontaxable?

Partisan legislation has been introduced into the U.S. House (no bill number yet) that would make numerous farm program benefits nontaxable.  Identical legislation was introduced into the Senate in late 2022.  The law, known as The Family Farmer and Rancher Tax Fairness Act of 2023, would make payments to “distressed” borrowers tax-free, as well as certain payments to “underserved” farmers in high poverty areas and payments to farmers that have allegedly been discriminated against by the USDA. Specifically, the payments covered by the bill are defined as any payment described in section 1066(e) of the American Rescue Plan Act of 2021 (as amended by section 22007 of Public Law 117–169) or section 22006 of Public Law 117–169.  It should be noted that none of the USDA program payments that the bill makes nontaxable are associated with the virus.  While the bill could end up being included in the Farm Bill (which will likely not be passed this year).  However, the bill makes little tax or economic sense (it would create perverse economic incentives) and will likely face stiff opposition. 

Conclusion

These are just a few recent developments in the world of ag law and tax.  More will be forthcoming in another post.