Larry DeBoer
Professor of
Agricultural Economics
Purdue University

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Soil Productivity Factors and Farmland Property Taxes

The assessed values of farmland for property taxes have been rising. Mostly this is due to increases in the "base rate" per acre of farmland. But now, another element of the assessment calculation, the "soil productivity factors," might rise as well.

The assessed value of farmland starts with the base rate, a dollar value per acre for the whole state. The base rate will be $1,630 for taxes in 2013. That's up from $1,500 for 2012 taxes, and up from $880 for 2007 taxes. The base rate is rising because of high corn and soybean prices, and low interest rates.

The base rate is the same for all Indiana farmland. But some acreage is more valuable; some is less valuable. According to the 2011 Purdue Farmland Value Survey, in June 2011, the highest valued land in Indiana was in the west central region, with an average value for top land of $7,443 per acre. The lowest valued land in Indiana was in the Southeast region, with poor land averaging $2,895 per acre.

The soil productivity factors introduce variation into farmland assessments. The factors measure productivity based on corn yields by soil type. Each acre of farmland in Indiana has been assigned a soil type, and the soil types have been assigned productivity factors. According to the Department of Local Government Finance 2011 assessment guidelines, these factors are based on properties of the soil, such as moisture-holding capacity, organic matter content and other properties that affect corn yields.

For years, the soil factors have varied from 0.5 to 1.28. For 2013 taxes, the base rate times the soil factor would vary from $815 per acre (0.5 x $1,630) to $2,086 per acre (1.28 x $1,630).

Indiana is undertaking a statewide reassessment for taxes in 2013. As part of this effort, the DLGF requested new soil productivity factors from the U.S. Department of Agriculture's Natural Resources Conservation Service. The range for the new factors is 0.5 to 1.66, so for 2013, taxes for the top soil would be valued at $2,706 per acre (1.66 x $1,630).

Average soil factors for 69 counties can be calculated with data provided by the Indiana Legislative Services Agency. Statewide, the average old soil factor is 0.96, while the average new soil factor is 1.20.  That's an increase of about 25 percent. The LSA has estimated that the introduction of the new soil factors in pay-2013 would increase farmland property taxes by 18.5 percent in addition to the increase from the rise in the base rate.

In March, the Indiana General Assembly passed Senate Bill 19. Section 9 of this bill postpones the use of the new soil factors from taxes in 2013 to taxes in 2014. The governor signed the bill, so it's now Public Law 112. The effect of the new soil factors likely will be studied by one of the legislature's committees before the numbers are used.

What will be studied? One topic will be the increase in the average soil factors. If the base rate is meant to be the average assessed value of an acre of Indiana farmland, then the soil factors must average about one. The old factors appear to average a little less than one, so a small increase could be justified. The new factors average more than one, so the average assessed value of an acre would be greater than the base rate.

Corn yields per acre have increased over the years. The higher soil factors may reflect this rise. But rising yields also increase the base rate, so the rise in soil factors may double-count the yield increase.

If agriculture pays more of the tax levy, other taxpayers pay less. Higher total-assessed values mean that any amount of tax revenue can be raised with lower property tax rates. Farmland is a small share of assessed value statewide, so the impact on other taxpayers is small. The LSA estimates that average homeowner tax bills would fall 1.2 percent with the new soil factors. The effect on nonagricultural tax bills in rural areas would be bigger, because farmland is a bigger part of total assessed value in rural areas.

Issues of farmland assessment matter to agriculture. They matter to other property taxpayers, too.




Writer: Larry DeBoer
Editor: Olivia Maddox