WOOSTER, Ohio — The “death tax” has never been a friend of farmers and small business owners. And as their land and equipment values have dramatically increased over the years, so has their frustration with this tax.
Current law assigns a 6 percent tax to estates of residents with a net taxable value of $338,333 or more, up to a $500,000 estate. And a seven percent rate to estates above $500,000.
On a recent round table discussion held at state Rep. Bob Peterson’s farm in Fayette County, the representative told farmers and small business owners that just two of his tractors, at today’s prices, could put him over the taxable value, in addition to the rest of his equipment and land.
The tax burden alone can be overwhelming when a farmer or small business owner wants to pass the property on to the next generation. Because farmers often are “asset rich and cash poor,” they end up having to part with some acreage or equipment just to cover the taxes.
No more
For those reasons, the state legislature and Ohio Gov. John Kasich passed legislation the end of June to eliminate the tax, beginning in 2013.
“It was sure a welcome announcement,” said state Agriculture Director James Zehringer, who joined Kasich and other state officials for the round table. “There are many, many situations where you have two or three grandkids or sons or daughters who inherit the farm and they’re looking at a huge tax burden.”
Fayette County grain farmer Dick Davidson said the two-tractor analogy is very true, and unfortunate, because he and other farmers already pay taxes on their property all their lives.
“You pay taxes your entire life for a farm, and then at your death your children have to pay taxes and in some cases the assets have grown to a lot of value,” he said. “I want to keep it as a business; I don’t want it liquidated to pay taxes.”
Michael Vallery, a Madison County grain and beef farmer, said elimination of the estate tax means he can transfer his farm “without (the next owner) having to sell all or part of the farm just to pay the taxes.”
Business approach
Vallery and Davidson both said they appreciate the business-friendly approach they’re seeing in Ohio, and say ending the estate tax will be good for small businesses in general.
“We’re a small business and small businesses really need to be strengthened and let grow,” Davidson said.
He’s interested in learning more about a small business investment credit Kasich announced, and whether as a farm owner, he might also be eligible.
State Rep. Bill Hayes, R-Pataskala, said the tax elimination is “quite a victory for those who think that the estate tax is something that is not very fair.”
Hayes also is an attorney who advises property owners on transitions. Some attorneys have expressed concern that land owners may be less inclined to seek legal advice with their property, now that the tax is gone.
But Hayes said property owners will and should continue to seek advice, because there are so many other factors involved with a transition.
“There’s a lot of reasons to go and get estate planning advice,” he said.
Revenue loss
The biggest setback to eliminating the tax is the loss of revenue to state and local coffers.
According to most recent Ohio Department of Taxation data, the estate tax grossed $333.8 million in 2009, and $317 million in 2008. Of those funds, 20 percent went to the state, and the remaining 80 percent was the local share.
Zehringer said those entities will have to look at other options. He said the governor has given local municipalities options for consolidation and shared services, and is giving a closer look at unfunded mandates. He and Hayes both said its not wise to plan a budget based on income from someone’s death.
“You’ve got to remember, you usually don’t plan a budget on people dying,” Zehringer said.
About 100 people attended the event, including other farmers and small business owners. An estimated 25-30 4-H and FFA students also attended, and shared some of what they’re doing in preparation for the Fayette County Fair, which runs July 18-24.
