Overtime, capital gains, fuel standards keep farm advocates busy
For the Basin Business Journal | April 5, 2021 1:00 AM
OLYMPIA — A trio of bills that passed out of the originating house of the Washington State Legislature in early March are proving to be concerns for those involved in farming across the state.
According to Bre Elsey, the associate director of government relations with the Washington Farm Bureau, measures concerning overtime pay for agricultural workers, tighter fuel standards for the state, and a proposed 7% capital gains tax are the organization’s focus during this spring’s legislative session.
SB 5172, originally co-sponsored by Rep. Mark Schoesler, R-Ritzville, was introduced this session in response to a state Supreme Court ruling in November 2020 that struck down the state’s exemption of dairy farm workers from overtime pay rules.
While the bill as passed now phases in overtime pay for farmworkers beginning in 2022, Elsey said the most important thing it does is gives farmers “safe harbor” and prevents any retroactive overtime pay claims.
“No farmer would be able to recover from that type of damage award.” Elsey said. “If this bill passes, it will prevent millions (of dollars) in additional litigation.”
Prior to the court’s ruling in Jose Martinez-Cuevas v. DeRuyter Bros. Dairy on Nov. 4, 2020, farm workers involved in cultivating, raising, harvesting and packing field crops, fruit and livestock (including oysters) were exempt from the state’s wage rules, which limit the workweek to 40 hours before overtime pay of time-and-a-half kicks in.
While the original ruling is very narrow in scope and applied only to dairy farm workers, some observers believed language in the majority opinion left open the possibility of eventually extending the same principle to other farm workers and to retroactive overtime pay for the three years prior to the ruling.
The bill, which is now being considered by the State House of Representatives after passing the Senate, will phase in overtime pay for all farmworkers after 55 hours in 2022, 48 hours in 2023, and 40 hours in 2024.
Schoesler said the Senate, in passing the bill, did not consider the other things many farmers provide their employees, such as homes, utilities and sometimes even vehicles to drive.
“If we have to pay overtime like the rest of employers, there should be a recognition of the unique benefits, and let’s factor that in,” he said.
Elsey said while farm work doesn’t fit into “a 9-5 employment box,” it seems clear from Washington court rulings, events in other states where agricultural workers are no longer exempt, and attempts by the administration of President Joe Biden to remove federal overtime exemptions for farm workers, farmers are going to have to accept the end of the ag exemption at some point.
“There isn’t a future where this isn’t coming at us in some way,” she said. “This bill addresses this on our terms and gives us a path where we have control.”
Which is why Elsey said the bill, which passed the senate with little overt support from farm interests, may be the best Washington state ag will get — a sentiment Schoesler seemed resigned to agree with.
“The original was simple and fixed,” said co-sponsor Schoesler. “The bill that passed will phase in overtime, and I didn’t support that, but perhaps it is inevitable.”
This spring, the senate also passed SB 5096, which would impose a 7% tax on all long-term capital gains above $250,000. According to the senate report on the bill, real estate, family businesses, livestock (if 50% or more of annual income derives from their sale), retirement assets, such as 401(k) and tax-sheltered annuities, and controlling interest in “an entity that sold property subject to real estate excise tax,” such as a limited liability corporation, are all exempt from paying the proposed tax.
Washington Farm Bureau Federation Director of Government Relations Tom Davis said while individuals are exempt from the tax, corporations are not, and many farmers create family-owned LLCs to shield their farmland from liability as well as to get more favorable tax treatment.
“Family members who own an LLC would be subject to capital gains when farmland is sold,” Davis wrote in an email to the Basin Business Journal. “This creates a tremendous burden on farms of all sizes since many of them have formed LLCs.”
While bill supporters claim the capital gains tax is legally an excise tax in Washington, Elsey said the Farm Bureau is confident the Internal Revenue Service’s definition of capital gains as income will prevail, and the state courts will strike the measure down as unconstitutional should it pass.
“Ten times the voters of the state of Washington have said no to an income tax, yet here it is,” added Rep. Tom Dent, R-Moses Lake. “The IRS has said that taxing capital gains is income, therefore an income tax.”
While the Washington State Constitution does not explicitly prohibit taxing income, Article VII, Section 1 of the constitution — the section that covers revenue and taxation — refers specifically to property and real estate, and not income. A section of the Revised Code of Washington also prohibits cities and counties from levying income taxes.
Because of this, courts have consistently ruled income taxes are illegal in this state, and voters have repeatedly rejected efforts to impose them.
“What part of no don’t you understand?” Schoesler said. “After 10 times, wouldn’t you think they would get it?”
Finally, Elsey said a measure that recently passed the Senate, SB 1091, which sets targets to reduce the amount of carbon and greenhouse gases produced by the burning of motor fuel, could add upwards of 60 cents to the cost of a gallon of gasoline.
“It’s non-revenue generating, and none of this is used to fix roads or transportation,” she said. “There is no quantifiable benefit.”
The bill seeks to reduce state carbon dioxide emissions by creating a clean fuels program and mandating reductions in the carbon content of motor fuel to 10% below 2017 levels in 2028 and 20% by 2035. The clean fuels program must be in place by 2023, and would mandate refiners in Washington or selling fuel in the Washington market meet the new emissions and fuel blend guidelines.
“It would change how refiners formulate fuel,” Elsey said.
Fuel for aircraft, diesel locomotives and military vehicles are permanently exempt from the low-carbon standards, while “dyed fuel used in vehicles not designed to transport person or property” and “for agricultural purposes” will be exempt from the standards until 2028, according to the Senate report on the measure.
Elsey said added to a proposed new fuel tax — at 49.4 cents per gallon on gasoline and diesel, the state already has the fifth gas tax and sixth highest diesel tax in the country — would be catastrophic for low-income and rural residents of the state.
“I can’t imagine what this will do to their incomes,” she said.
All three measures now go on to the state’s House of Representatives for consideration, and must be passed by April 11 to become law.
Elsey noted this year’s virtual legislative session is making it tougher for organizations like the Farm Bureau to work for the interests of its members and tougher for legislators do get the information they need from a variety of sources to make decisions.
“It limits the communication, and we don’t bump into a senator in the hallways,” she said.
“They are making some of the biggest decisions a legislature will make, and they’re doing that in a silo. And I think everybody in Washington should be worried about that,” Elsey said.
Charles H. Featherstone can be reached at firstname.lastname@example.org.