New Laws Threaten To Limit Foreign Ownership Of Land Across The Nation

New Laws Threaten To Limit Foreign Ownership Of Land Across The Nation

Time Stamp: November 2, 2023 6:30 AM
Source Node: 2362677

The United States has long seen itself as an open-for-investment free-market bastion. But concerns about national security–and some political grandstanding– could close the doors to foreign buyers, particularly when it comes to farmland.

By Kelly Phillips Erb, Forbes Staff

The action last week by Arkansas Attorney General Tim Griffin affected a mere 160 acres of agricultural land in a state with 14 million acres devoted to farms. But it was an opening shot in a battle that states across the U.S. have been suiting up for recently.

Griffin ordered Northrup King Seed Co. to sell those acres in Craighead County within two years while slapping it with a $280,000 penalty for failing to timely disclose its foreign ownership. Northrup, he noted, is a subsidiary of Syngenta Seeds, LLC, which is ultimately owned by China National Chemical Co., a state-owned enterprise.

The land ownership, Griffin, alleges, violates Act 636, signed by Republican Governor Sarah Huckabee Sanders in April, that bars a “prohibited” foreign-party-controlled business from acquiring or holding public or private land in the state directly or through affiliated parties. Prohibited includes companies connected to a country subject to the federal International Traffic in Arms Regulations (ITAR)—like China. Sanders herself staged a full court press conference to announce the enforcement action. “We simply cannot trust those who pledge allegiance to a hostile foreign power,” she said.

“Our people in Arkansas are Americans led by Americans who care deeply about serving Arkansas farmers,” Saswato Das, the Chief Communications Officer for Syngenta GroupDas responded in a lengthy statement emailed to Forbes. “This action hurts Arkansas farmers more than anyone else.’’

According to Syngenta, it owns approximately 1,500 acres of agricultural land in the U.S., (about the size of four average Iowa farms), which it uses for research, development and production to meet the needs of American farmers and to fulfill regulations that require it to test products it sells in the U.S. domestically on U.S. soil. Only 200 of those acres have been purchased since Syngenta, originally a Swiss company, came under Chinese control in 2017. The Arkansas acreage has been owned since 1988. “No one from China has ever directed any Syngenta executive to buy, lease, or otherwise engage in land acquisition in the United States,” Das states.

Despite Sanders’ unusually fiery rhetoric, Arkansas’ law isn’t an outlier. Two dozen states now prohibit or restrict foreign ownership and investments in certain types of real property and another dozen are considering bills that would do so.

Considering all the recent political hubbub, foreign ownership of U.S. land is small and China is just a bit player. Still, foreign ownership is growing and at an accelerated pace.

As of December 31, 2021 (the last date for which data is currently available), foreign persons reported holding an interest in over 40 million acres, or 3.1%, of all privately held U.S. agricultural land, up from 37.6 million acres and 2.9% in 2020. On average, foreign holdings of U.S. agricultural land grew by just .8 million acres per year from 2009 through 2015. However, since 2015, they’ve increased nearly three times faster—at an average clip of 2.2 million acres annually. That’s all according to the U.S. Department of Agriculture, which is required to monitor ownership under the Agricultural Foreign Investment Disclosure Act of 1978, or AFIDA. Under the same law, foreign persons who acquire or transfer an interest in agricultural land must report the transactions within 90 days. Some states also have land reporting requirements.

China? Its investors own just 383,935 acres, representing less than 1% of foreign-held acres. Notably, those from countries we consider our friends–Canada, the Netherlands, Italy, the United Kingdom, and Germany–are the biggest foreign holders.

While there’s no federal law that currently restricts foreign persons, entities, or governments from acquiring or holding farmland, and most recent action has been in the states, some in Congress are also taking up the issue. This year, Texas Republican Congressman Ronny Jackson re-introduced the Foreign Adversary Risk Management Act—called the FARM Act—which would designate the agriculture supply chain as critical infrastructure and limit the ability of foreign persons to obtain significant U.S. farmland. The measure currently sits in committee.

Meanwhile, in the Senate, a bipartisan measure from Senators Michael Bennet (D-CO), James Lankford (R-Okla.), Jim Risch (R-Idaho), and Thom Tillis (R-N.C.) would subject certain land purchases by foreign entities to additional review, though not an outright ban. Predictably, it has a similarly clever name: the SOIL (Security and Oversight of International Landholdings) Act. That measure too is sitting in committee.

Even without new legislation, the federal government is already moving to further limit foreign land ownership when national security is possibly at stake. That was the explanation delivered by the Committee on Foreign Investment in the United States (CFIUS) when it proposed rules earlier this year related to real estate ownership near military bases. The rules would add eight military installations in North Dakota, South Dakota, California, Iowa, and Texas to the current list and revise the meaning of “military installation.”

CFIUS has the authority to review, renegotiate, enforce, and impose conditions to transactions, including real estate acquisitions, that could impact U.S. national security. That also includes investments and acquisitions of infrastructure, such as transportation, telecommunication, public health, and energy. Lawmakers have sought to expand CFIUS’ authority as foreign investors from some countries—like China—buy up land.

Concern about foreign ownership of land, and particularly farmland, has been around for decades. In fact, it was the driving force behind the 1980 Foreign Investment in Real Property Tax Act (FIRPTA), which uses taxes to put some brakes on foreign purchases.

Under U.S. tax law, non-U.S. persons are typically taxed on certain kinds of U.S. sourced income—such as compensation from a U.S. company—but not capital gains. Before FIRPTA, foreign taxpayers could avoid paying capital gains tax when they sold real estate, which gave them a perceived unfair tax advantage over U.S. taxpayers.

FIRPTA added section 897 to the tax code, which makes disposition of an interest in U.S. real property subject to tax. And, to ensure that Uncle Sam gets paid, in 2015 Congress required U.S. buyers to withhold a percentage—typically 15%—of the property sales price they pay foreign sellers and remit those funds to the IRS. If that turns out to be more tax than the foreign seller owes, the seller can file a tax return and request a refund.

Additional foreign reporting requirements have followed suit. In 2018, the Foreign Investment Risk Review Modernization Act of 2018, or FIRRMA, was signed into law. It is intended to “strengthen and modernize” how CFIUS reviews the effects of foreign investment transactions on our national security. FIRRMA broadened the authority for the agency to, among other things, review certain real estate transactions in close proximity to a military installation or U.S. government facility or property with national security sensitivities, as well as any non-controlling investment in U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive personal data on U.S. citizens. In 2020, Treasury issued final rules related to FIRRMA, including reporting requirements and carve outs for Australia, Canada, and the United Kingdom—unlike related rules, FIRRMA didn’t initially target specific countries, instead relying on broadened jurisdiction. The carve outs mean that qualifying investors from those countries aren’t subject to certain rules and restrictions.

Despite all the recent action, no states ban foreign ownership of all land. But two dozen do forbid some foreign ownership of farmland. (Those states are Alabama, Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Utah, Virginia, and Wisconsin.)

Remarkably, 10 of those laws are new this year, according to Micah Brown, a lawyer and point person on foreign ownership issues at The National Agricultural Law Center, a unit of the University of Arkansas System Division of Agriculture.

Politicians in other states, including Arizona and California, are pushing their own measures. Earlier this year, the Texas Senate passed a bill that would limit foreign ownership of land by citizens or entities from China, Iran, North Korea, and Russia, including restrictions on purchasing agricultural land, standing timber, and oil and gas rights. The measure, which died in the Texas House, was viewed as a direct response to the purchase of 130,000 acres of land near Laughlin Air Force Base in Val Verde County, Texas. A Chinese-owned company bought the land, stirring suspicion. Forbes previously covered the sale in 2021, noting that the company is owned by a Xinjiang-based real estate billionaire, Sun Guangxin, who is estimated to have spent more than $100 million buying land in the Lone Star State.

Florida’s law, signed by Gov. Ron DeSantis in May, gives another taste of how much of the recent activity is aimed at China. The law, which took effect on July 1, 2023, prohibits people who are not U.S. citizens or permanent residents and whose “domicile” is in China, Cuba, Venezuela, Syria, Iran, Russia, or North Korea from purchasing certain agricultural land and other land within ten miles of restricted areas, including military bases and infrastructure like airports and wastewater treatment plants. The law imposes criminal penalties on any person or real estate company that knowingly sells real estate in the Sunshine State to anyone impacted by the ban. Tellingly, the harshest penalty, a potential felony, applies only to those involved in transactions with a Chinese connection. The penalty for transactions involving the other covered countries is a misdemeanor.

The law does not require Chinese persons or investors (including partnerships or other entities) with existing ties to Florida real estate to divest themselves of the properties, but they will be required to register those interests with the state by January 2024 unless a de minimis exception applies—that exception covers interests of less than 5% in a publicly traded U.S. company that owns Florida land.

In May, Chinese citizens living and working in Florida sued the state in the U.S. District Court of Northern Florida, claiming that the new law is unconstitutional and creates disproportionate punishments based on race, ethnicity, alienage, and national origin. The plaintiffs unsuccessfully sought an injunction to prevent the new law from being enforced. But they aren’t done yet. Ashley Gorski, senior staff attorney with the American Civil Liberties Union, which is among those representing the plaintiffs, says the law is “wreaking havoc on the lives of plaintiffs and countless other immigrants in Florida who seek to buy a home. This discriminatory law is unfair, unjustified, and unconstitutional, and we look forward to making our case to the court of appeals.”

As of now, reports Brown, the Florida lawsuit is the only pending challenge to a foreign ownership law, and Arkansas is the only state with a pending enforcement action against a prohibited foreign investor. But don’t expect that to be the case for long. “Keep in mind that many of these newly enacted foreign ownership laws just recently went into effect over the last couple of months or weeks,’’ Brown says.

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