November 2011

Happy Thanksgiving 2011 to you and yours, Equine Law Blog readers!

As those fortunate enough to own horses, we all have a lot to be thankful for.

On this Thanksgiving Day, please enjoy this article from America’s Horse Daily, where others share how they are thankful for their horses and the special people in their lives.  

Safe travels and blessings to you!

Currently, anyone in Texas can say they are “ag exempt”, sign a form, and buy agricultural products tax free. But this is about to change. As of January 1, 2012, the Texas Comptroller will require all farmers and ranchers to obtain an Agricultural Sales Tax Exemption Registration Number in order to buy tax-free farm and ranch supplies. This new measure was signed into law during the 2011 Legislative Session via House Bill 268, and will be included in Chapter 151, Subchapter E of the Texas Tax Code.

When I was home in Ellis County last weekend, I heard several farmers grumbling about this new requirement and the added “red tape” being imposed on farmers. But is it such a bad thing? Texas Farm Bureau doesn’t think so.

Texas Farm Bureau discussed the new law and posted information for farmers on its blog, Texas Ag Talks. According to the Texas Farm Bureau blog post, the new “registration number” will be good for the overall agricultural industry, because abuses under the current system were so rampant that the agricultural sales tax exemption itself was at risk. 

I’m not sure what the State’s intent was in enacting this new law, but I don’t think its affects will be good for many horse businesses. I predict that many Texas horse business owners that have been buying ag supplies tax free in the past will not be able to successfully apply for a registration number in 2012 (at least if they are honest on the application). A link to the application for the new registration number can be found here

On the very first page of the application, the State boldly warns horse racing, boarding, and training businesses that they do NOT qualify for an ag exemption registration number. Under the list of “principal types of exempt activities” on page 2, the only activity on the list that involves horses states, “I raise and sell horses, mules, donkeys, burros and/or ponies.” The application and other applicable authority suggests that “raising and selling horses” must be your principal activity or your “normal course of business” in order to qualify for the sales tax exemption. The States’s intent with respect to mixed operations such as boarding operations who also breed and sell horses is not altogether clear.  The Comptroller has answered some FAQs about horse businesses that give a little insight on how various circumstances will be treated.  The Horses FAQ page published by the Texas Comptroller can be found here.

Boarding facilities and horse trainers who check the “raise and sell horses” box when they do not engage in said activities do so at their own risk. Page 3 of the application includes a signed statement by the applicant that acknowledges all of the penalties (criminal and otherwise) that may arise from the misuse of the tax exemption ID. I don’t have any data that suggests how strictly these forms are enforced.

But one thing is clear, the State of Texas will have the name, federal tax ID, Texas taxpayer ID, legal entity filing number (if any), mailing address, physical location, and Texas drivers license number for all horse businesses who buy tax exempt products from January 1, 2012 onward. I would think these things would make it much easier for the State to investigate and discipline someone if the State deemed purchases to be to frequent, too large in amount, or otherwise suspicious.  

As under prior law, the sale or lease of horses will still be exempt from sales tax in Texas and a registration number is not required for horse sales or lease transactions.  Further, the purchase of horse feed, grain and hay will remain tax free for everyone in Texas (with or without a registration number or exemption certificate). 

To access a quick reference chart published by the Texas Comptroller that outlines items that do and do not qualify for sales tax exemption for agricultural production, click here.

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Last night’s “All Things Equine” event, held at the National Cowgirl Museum and Hall of Fame in Fort Worth, was a great success. Approximately 60 attendees from across the North Texas and beyond were in attendance. Guests were greeted by the women of the TCU Womens Equestrian Team, who handed out awesome LL Bean-style totes loaded with goodies and materials. 

Pat Riley, Executive Director of the Cowgirl Museum, was in attendance at the event and graciously opened the entire museum and gift shop to attendees after normal business hours.

The evening commenced with an elegant cocktail hour, catered by Reata, put on by hosts US Trust and Marsh.  Afterwards, the panel of experts held their equine business and risk management forum in the Cowgirl Museum’s theater, which was equipped with an excellent PA system manned by Cowgirl Museum staff. 

Here are some highlights from the presentation, in order of speaker appearance:

  • I (Alison Rowe) covered the main sources of business-related disputes involving horses and how to avoid them. The sources of equine litigation I spoke on included 1) transfer of title disputes; 2) fraud and negligence claims involving lameness issues discovered soon after a sales transaction; and 3) partnership / possessory disputes. Some take-aways from my portion include 1) especially for expensive horses, always insist on a thorough pre-purchase exam that includes radiographs of all limbs and a blood sample; 2) never provide a bill of sale or turn over possession of a horse until all pre-sale conditions have been met; 3) put all long-term agreements such as partnerships and training agreements in writing and include all important terms.
  • Gina Teresi of Chartis Insurance flew in all the way from Rochester, New York to discuss the risk transfer features of equine, farm and ranch insurance. Gina’s presentation centered on how important it is for equine and ranch owners to 1) discuss with their agent the specifics of how their horse operations work; and 2) choose an insurance agent who specializes in equine, farm and ranch insurance and has industry experience. Gina discussed ways in which these safeguards help owners ensure that all areas of risk are identified, considered, and covered “in black and white” in the insurance policy.
  • John L. Taylor of US Trust discussed the wide array of corporate fiduciary (trust) assistance that he and his colleagues use to protect the assets of affluent individuals who own horses and ranches. John, a native of rural West Texas, and his team do everything from finding, buying, selling and financing the ranch land, to finding tenants, managing crops or livestock, risk management, enhancing ROI on investments, and working with wealth strategists to make sure that horse and ranch owners’ estate plans are in line with their goals.
  • Logan Fiorentino, hunt seat head coach of the TCU Womens Equestrian Team, explained the process of how horses are donated to her program and answered audience questions concerning things such as eligibility and the scouting process.

After the panel concluded, there was an engaging Q&A session during which attendees posed questions to the speakers. 

The open bar stayed open after the event, and many attendees hung out for a while to chat, exchange business cards, and tour the museum. 

If you missed the event and have questions or would like contact information for the panelists, please let me know.  US Trust and Marsh are planning a similar event for next year, and I will be sure to post information about it when it becomes available.

Next Wednesday (November 9, 2011) the U.S. Supreme Court will hear oral arguments on a case where the main issue is States’ rights to impose their own regulations on federally-inspected slaughterhouses. The case is National Meat Association v. Harris (Docket No. 10-244). Though the case involves swine instead of horses, the Court’s decision might ultimately affect the horse slaughter debate currently being waged in Congress.

The issue before the Court is whether a state law in California requiring all slaughterhouses to “immediately euthanize” any nonambulatory animal on its premises is preempted by the Federal Meat Inspection Act (FMIA). The National Meat case deals with a California law governing slaughterhouses in that state that was passed in 2008, after the Humane Society of the United States released a video of so-called “downer cows” being pushed with a forklift, kicked, electrocuted, and dragged with chains at a slaughterhouse.

If the Court ultimately finds that California (and, presumably, all other states) can impose its own regulations on slaughterhouses to which the FMIA applies within their respective states, this might ultimately affect the current battle over horse slaughter being waged in the United States. An interesting question raised by this case, in my mind, is this:

What if one or more states were to enact laws that made illegal the so-called ‘evils’ of slaughter that opponents of horse processing find so unsavory? Would the opponents of horse slaughter be opposed to the humane processing of horses in those states?"

It’s an interesting question, and I’m torn. While I generally don’t like to see new red tape and new regulations unduly imposed on any industry, I tend to think that most issues such as this are best dealt with on the state level. If the Supreme Court finds that states can, in fact, impose their own laws on federally-inspected slaughterhouses, I am somewhat encouraged that this might ultimately provide vehicle whereby a “win-win” resolution of the horse slaughter battle may be reached.  If humane horse slaughter can be reintroduced in the United States, many horse industry groups believe that that this would have a positive economic impact on the overall horse industry.

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