Articles Client Alerts / 07.05.2015

Grain Storage Bins as Property Tax-Exempt

Introduction

Across Ohio, county auditors improperly classify Portable Grain Bins installed by the agricultural industry as incorporated into real estate, and therefore taxable for property tax valuation.

In a case of first-impression, the Ohio Supreme Court upheld the Board of Tax Appeals in declaring that a “grain storage bin” is a “business fixture,” and therefore not part of the real estate valuation.

Therefore, farmers and agricultural businesses should not pay property tax on their farm equipment including Grain Storage Bins.

Factual Background

Among the county auditor’s duties is the appraisal of real estate for valuation, against which the county levies Property Taxes.  Typically the auditor will include any improvement incorporated into the real estate.

Farm operations typically include barns, permanent silos, elevators, and grain storage bins.  The county auditor may not distinguish among these different facilities, as all are relatively “permanent” and add value to the tax duplicate, increasing the property tax base.

Yet agriculture is a business, no different than any manufacturing concern that installs heavy equipment in unique business facilities.  Those manufacturing facilities are exempt from property tax, because the land cannot be sold for the higher value to an ordinary buyer not in the same business.

The Metamora Elevator Company owns and operates eight acres of land containing silos, storage bins, tanks, and buildings used to process and to store grain.

Metamora filed complaints with the Fulton County Board of Revision, alleging that its “grain storage bins” on the premises should be classified as personal property not subject to property taxes.  This would reduce the “land” value subject to annual property taxes by over $500,000.00.

In other factual examples, similar agricultural businesses depreciate such grain storage bins as personal property.

Typical Grain Storage Bins are modular, corrugated units bolted to a concrete foundation, which can be dissembled and moved.  In contrast, silos are considered permanent and constitute realty.

On appeal to the Ohio Board of Tax Appeals determined that the storage bins were temporary structures and therefore personal property, exempt from property taxes which apply only to real property.

The Ohio Supreme Court declared the Grain Storage Bins to be “business fixtures” without the need to determine whether they also constitute personal property.

Legal Analysis

In determining whether a land owner’s real estate should increase in value for property tax purposes, the county auditor must look to the definitions in law.  R.C. 5701.02 defines real property:

As used in Title LVII of the Revised Code:

(A) ‘Real property,’ ‘realty,’ and ‘land’ include land itself . . . with all things contained therein, and, unless otherwise specified in this section or 5701.03 of the Revised Code, all buildings, structures, improvements, and fixtures of whatever kind on the land…

A practical test is whether the land owner might sell the property for a higher value as a result of the improvement.  Starting with bare land, building a new home on it would result in an increase in valuation for property tax purposes.

In contrast, the Ohio legislature does not treat “personal property” that happens to be located on the real estate as adding to the value.  A simple example is whether the “improvement” is not permanently affixed but can be removed.  This is often referred to as “the Jolly Green Giant” test: if the building is picked upside down and shaken, anything not affixed is not real estate for purposes of valuation.

Another example is whether the “improvement” is related only to a business, and would be of no value to an ordinary purchaser of the land unless in the same business.  In a typical building, water plumbing pipes add value to the building.  But in a beer brewery, the process piping through which the beer runs is a business fixture, and does not count toward raising the value of the real estate.

Applying these considerations to a Grain Storage Bin, even the concrete pad beneath the Portable Grain Bin and elevator equipment is considered a “business fixture” even though it cannot be moved.  If sold to an ordinary buyer, the new owner may consider the unusable concrete pad even to detract from the value of the land.

In 1992, the Ohio General Assembly amended the definition of “personal property” to include “business fixtures.” The test is whether the equipment “primarily benefits” the business or the realty. R.C. 5701.03 defines personal property:

As used in Title LVII of the Revised Code:

(A) “Personal property” includes every tangible thing that is the subject of ownership . . . including a business fixture, and that does not constitute real property as defined in section 5701.02 of the Revised Code.

(B) “Business fixture” means an item of tangible personal property that has become permanently attached or affixed to the land or to a building, structure, or improvement, and that primarily benefits the business conducted by the occupant on the premises and not the realty. ‘Business fixture’ includes, but is not limited to, machinery, equipment, signs, storage bins and tanks, whether above or below ground, ****

Consistently, Ohio sales tax law treats Grain Storage Bins as personal property.  When an agricultural business purchases a Portable Grain Bin, the owner/purchaser must pay (and the seller/contractor must collect and remit,) Ohio sales tax, because R.C. 5739.01(B)(5)(b) expressly declares the Portable Grain Bin to be personal property, not incorporated into the real estate, and therefore constitutes a taxable sale.  Thus, Ohio law expressly defines a Portable Grain Bin as personal property for purposes of sales tax in construction:

Ohio Administrative Code 5703-9-14:

(C) The sale and installation of the following items is never a construction contract and such transactions are to be treated as the sale and installation of tangible personal property for sales tax purposes:

* * *

(3) Portable grain bins as defined in division (B)(5)(b) of section 5739.01 of the Revised Code;

R.C. 5739.01(B)(5)(b) is conclusive of legislative intent:

“Portable grain bin” means a structure that is used or to be used by a person engaged in farming or agriculture to shelter the person’s grain and that is designed to be disassembled without significant damage to its component parts.

Therefore, state law requires that an agricultural business pay sales tax on installation of Portable Grain Bins at the time of purchase.  It is unfair first to charge Sales Tax to an agricultural business such as Metamora, treating the assembly of a Portable Grain Bin as personal property, then turn around and charge Property Tax as though the same facility is a permanent improvement to the real estate.  Accordingly, Portable Grain Bins taxed as personal property for sales tax should not be taxed a second time as real property.

Court Decision

The Ohio Supreme Court upheld the Ohio Board of Tax Appeals, declaring that an agricultural Grain Storage Bin should be classified as a “business fixture” not subject to real estate tax.  Given the value of such large facilities, the reduction in property tax to an agricultural owner can be significant.

The Supreme Court streamlined consideration of whether the item is a “business fixture” without having to consider whether it is “real property.”  The Court found that the legislature declared storage bins to be business fixtures, and that will suffice to exempt them from property taxes.

Conclusion

The Supreme Court decision removes any doubt that Grain Storage Bins are considered “business fixtures” and exempt from property taxes.  This should result in significant savings across the agricultural industry in Ohio.

With this court precedent, farmers and agricultural businesses now can file a complaint with the county board of revision, asking that the valuation of their land be reduced by the value of any grain storage bin.