Most people stand to gain as the U.S. economy slowly returns to pre-recession levels, with one notable exception—farmers. Because the formula used to determine property taxes on agricultural properties depends in part on past performance, including crop yield, soil conditions and market prices, current property tax bills don’t always reflect the current market.
In Ohio, for example, many farmers will see their property tax bills double, reports the Columbus Dispatch. Big price swings for corn, wheat and soybeans are partly to blame. For example, despite the rise in property taxes this year, corn prices are 50 percent lower than last year, the report notes. But because property values for Ohio farmers under current use rules for agricultural valuation are calculated based on a rolling, seven-year average, current commodity prices have little impact.
Thus, farmers sometimes get hammered when the market is poor as long as it was strong over the seven-year period as a whole. On the other hand, they may get windfalls when the current market is strong, but was weak for much of the seven years. In other words, the current low commodity prices may lower property tax rates years down the line. But that is little solace for those facing huge tax bills today.
As such, many Ohioans are challenging the seven-year formula used to calculate property values. The majority of appeals dealing with current use valuation at the Ohio Board of Tax Appeals are not specific challenges to that property’s value, but to the underlying formula, reports the Dispatch. People want a formula that more accurately reflects current market conditions.
Ohio is not the only state dealing with such issues—Montana farmers will also see “considerably higher” agricultural property values this year, according to the Great Falls Tribune. While the market value of residential property in “Big Sky Country” will fall by approximately 4.6 percent, the value of agricultural land will increase by an estimated 17 percent. The prime driver of this increase is strong commodity prices during the reappraisal period, according to Mike Kadas, Director of the Montana Department of Revenue.
The Tribune notes as an example that the price of spring wheat increased 39 percent over Montana’s six-year reappraisal period. Thus, Montana’s situation represents the same problem as Ohio—strong growth over much of the six-year period, coupled with poor growth at the end of that period leaving farmers with property values being calculated based on those strong numbers while only being able to generate revenue based on the current, weak prices.
While the situation likely balances out over the long term, many feel that a system where property values and tax bills more closely resemble current farming realities would make more sense.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Is it unfair to calculate a farmer’s current tax bill based on crop prices over the prior seven years? Or does it all even out in the end?
Sign up for a free trialof the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
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