Farm Real Estate Tax – A Big Deal
I thought writing about farm real estate taxes would be fairly straightforward, but when I did some digging, I found that for me at least, it can be complicated. I looked for resources that might possibly simplify one’s understanding of this subject and found an article written in 2012 by Carolyn Orr that provided some general insights.
Carolyn, writing specifically about states in the Midwest, began her article by articulating the realities surrounding real estate tax. She had this to say:
It is the single largest source of revenue raised by local governments (two-thirds of the total), and the single largest tax paid by farmers (44 percent of the total). The property tax is the lifeblood of rural schools and other critical public services, but can also be a burden on agricultural producers: Across the United States, the equivalent of one-fifth of the gross sales produced by farmland is paid in property taxes each year. …State legislators are ultimately responsible for finding the balance that works, an agricultural taxation formula that sustains both rural communities and their farmers.
We all know that without farms there would be no food, and so one way to keep land in ag production is a sensible property tax system. All land is taxed based on fair use or market value, however each state gives varying types of preferential treatment for farmland. This special treatment began in the 1960s in response to the exceptionally large conversion of tens of millions of acres of rural land to non-agricultural uses.
Most states use one of two ways to provide more favorable taxation for farmland: a classified-use system or use-value assessments. Under the classified-use system, different tax rates and exemptions are applied to distinct types of property (for example, Nebraska farmland is assessed at market value, but only 75% of that value is taxed). The majority of states in the Midwest use some version of use-value assessment: evaluate the property based on the income a farmer can be expected to earn, rather than the land’s market value. In general, the formula used to figure use-value assessment (UVA) is this: UVA=net income/interest rate + property taxes. Michigan allows landowners to enroll in the Michigan Farmland and Open Space Program, and 60% of the counties in Minnesota participate in the state’s Green Acres program which allows eligible property to be taxed at its agricultural value rather than its full market value. Ohio now has a similar program where applications can be submitted for CAUV (Current Agricultural Use Value).
So if you’re trying to control your real estate tax expense in an effort to increase farm income, what actions can you take? It’s clear that you must first understand the taxation processes of your state, and it’s important to make sure your property is taxed accordingly. There are also resources that you can use that will guide you through an appeals process should you decide to dispute your assessment. Here’s one from Minnesota:
-Terry Olson, Titan Outlet Store Team