Farmland tax hikes hit farmers hard, expert says
Some Hoosier farmland owners were stunned by the increases in property taxes due to new assessment rules, according to a Purdue University specialist on state and local public policy.
"The average farmland owner will see a 112 percent increase in the value of farmland and a 25 percent hike in property tax on farmland," said Larry DeBoer, professor of agricultural economics. "The 1996 assessment said that farmland was valued at $495 per acre. Today, the current base rate per acre is $1,050."
In 1998 the Indiana Supreme Court said that the rules for assessing property were unconstitutional. The court required that new rules be based on "objectively verifiable data" with "meaningful reference to property wealth."
For most property this means assessing land based on market value, the predicted selling price. However, the court said "assessment based upon value in use is a reasonable measure of property wealth." This means that farmland can be valued based on its agricultural productivity, not its development potential.
Today farmland is assessed based on its use value. To determine use value, until this year, government officials took the $495 base rate and multiplied it by the soil productivity factor, which is 0.5 to 1.28 depending on soil type. DeBoer said that soil better suited for growing corn gets a higher factor.
There are additional factors, such as flooding or trees, which can decrease land productivity. Land that floods every other year has its assessment reduced by 50 percent, for example.
"This is called use value because the only thing that counts is productivity," DeBoer said. "Farmland in rural Warren County or downtown Indianapolis is evaluated the same way, even if it could be sold for tens of thousands of dollars for development. So, this is a tax break for farmers whose land borders residential or business development."
Government officials say that a base rate of $1,050 is constitutional. However, this number is still lower than the average market value of farmland, which is more than $2,000 an acre, DeBoer said.
Of course, farmland is not all of farm property. In many places, farm buildings, equipment and inventories should experience tax reductions that will at least partially offset the land tax hikes.
DeBoer said that this new tax assessment essentially rearranges tax burden. According to DeBoer, there are tax hikes for most owners of farmland, homes built before 1960 and rental homes. There are tax decreases for most owners of homes built after 1960, industrial property, commercial property and utility property.
Producers with large increases in farmland taxes will see their incomes reduced, DeBoer said, and some eventually could be forced to sell out.