Small and large family run farms are getting creative in how they are choosing to increase revenue outside of the traditional sale of farm crops. With competition and commodity prices out of their control, they are turning to other means that include retail farm stands and agri-entertainment options such as hayrides, corn mazes and petting farms. When you chose to diversify an agriculture or faming business, it is important to operate each business segment under the correct entity that allows liability to be limited, provides opportunity for tax credits and creates better business practices.
When diversifying here are a few different areas for consideration and reasons why it’s important to maintain separate entities:
The first entity is the one that owns the farms real estate. Separating the land from the farm operations has many benefits including the potential for different ownership in the land vs operations, liability protection and more options in succession planning for families Workforce housing would should also be owned by a separate entity. It is not unusual to have multiple real estate holding entities for various purposes and holding different pieces of land.
The daily operations of the business should be performed under a separate entity. This entity is responsible for the farming or nursery operations. By separating the operating entity from its real estate, it would be eligible for farm credits, sales tax exemptions and other labor laws specific to farming and agriculture.
Finally, if you are operating a retail or consumer segment in your business (farm stands for example), it is wise to separate that out into its own entity as well. Many farms and nursery operations are shifting from just growing produce and plants to putting up a farm stand that sells their own produce, other food products, pies and other non-food items such as hats and t-shirts. They also are adding agri-entertainment that includes playsets, live music, corn mazes, pumpkin picking and more. This change means that the operation is now subject to sales tax and different labor laws.
It’s important to talk to your advisor about diversification and entity structure for your agriculture/farming business in order to take advantage of New York and Federal tax opportunities, farm land and operations succession planning and to limit your tax and legal liability.