AP: Loopholes Give Big Land Tax Breaks

[Judi Lynn]

Saturday, April 3, 2004

AP: Loopholes Give Big Land Tax Breaks


By ALLEN G. BREED and MARTHA MENDOZA
Associated Press Writers

Millions of dollars in property tax breaks intended to preserve farmland are going instead to companies that bulldoze farms to build housing subdivisions, malls and industrial parks, an Associated Press investigation has found.

It's happening from coast to coast, costing local governments badly needed revenue or forcing them to increase the taxes of other property owners. The breaks can be enormous. Without them, land owners would typically pay two to 400 times more in property taxes.
(snip)

But loopholes in the laws are producing unintended, though perfectly legal, consequences.

Here's what's happening: A developer buys land with the intention of building on it. During the years when he readies the property for construction - preparing architectural plans, acquiring financing and permits, even building roads and laying water pipe - he runs some cows or cuts some hay. Then he claims the tax break. Because of the loopholes, often even a pretense of farming can be enough to qualify.
(snip/...)

http://www.telegram.com/apps/pbcs.dll/article?AID=/20040403/APA/404030681&cachetime=5

[Sulldogg]

1. Are you in favor

of eliminating the tax breaks on farmers? If so, say hello to industrial farming, since no one else will be able to survive.

[kiahzero]

2. You could just write the laws better, so that these loopholes

don't exist. Or you could demagogue the issue. You know, either way.

[Judi Lynn]

3. The article discusses the ABUSE of the tax breaks

by developers.

Usually, the tax break ends only after construction of buildings begins; sometimes, it doesn't even stop then.

Some examples:

- In Iowa, real estate developer Knapp Properties Inc. owns 239 acres near the Des Moines Airport. The land, close by a Wingate Hotel and a Federal Reserve check-processing plant, is subdivided for commercial development and is for sale at a total price of $7 million. But because Knapp allows local farmers to plant corn and soybeans on it, the company paid $14,345 in property taxes last year instead of $320,514.

- In Denver, Delmer Zweygardt is building a subdivision called Deer Creek Farms. As the houses started going up, he grazed a few cows on the edge of the property. City officials pointed out that zoning laws don't allow cows in a subdivision, but the state Board of Assessment ruled that the presence of cows was enough to qualify Zweygardt for the tax break anyway. This reduced his total tax bill on 48 house lots from $22,000 a year to $60 until the subdivision was nearly completed in 2002, leaving no room for cows.

- In Mobile County, Ala., Delaney's Inc., has planted pine seedlings on 54 acres left over after building a Hampton Inn, a Marriott Courtyard, a Lowe's and a Wal-Mart. This "tree farm" has been subdivided and laced with paved streets in preparation for development, and local officials insist the land is not suitable for growing timber. But the developer's lawyer pointed out that the law doesn't require Delaney's to be a good farmer - just a farmer. The result: a 2003 tax bill of $152 instead of $64,230.
(snip/...)

[terisel]

4. Tax Break on % of total income derived from farming

If the tax break was on the percent of total income derived from farming, wouldn't that protect the real farmer? and keep the rest of us from subsidizing big business?

[ezee]

5. IF the tax break

was to expire when a permit for ANY improvement to the land, which did not sustain farming, was issued,regardless of ownership,wouldn't that close the loop hole?

[mulethree]

10. How

We've got plenty of industrial farming already, and they seem to get
the same tax breaks as the Family Farmer. How could you legally lower the tax on farmland and not give a tax break to the big corporate farm companies? How about getting rid of the tax breaks and then putting through some similar relief through a Small Business agency?

It would be good to find a way before some world trade group gets all farm tax breaks stopped as subsidization and unfair competition.

Better, address the overall question of Monopoly of Large Business. Yes they prevent one business from owning too much of a market or else force concessions on them - e.g. Microsoft. But It just means that businesses consolidate to the point where there are a handful of large businesses in a market. There may still be some competition going on, but there are still strong barriers for new businesses to get into that market unless they are themselves a huge existing business looking to diversify.

[pfitz59]

6. Multi-million $$$ estates in California......

Owners plant oranges or avocados or raise a few cows. Viola! Estate now becomes farm! They pay less taxes than you and I! Add on the Prop 13 criminal exclusion and you'll see why CA is in such dire straits! I bet the Gropinator himself owns a "farm" or two!

[Robb]

8. Happens in Colorado too...

on these really, really huge pieces of private land (like Ralph Lauren's gajillion-acre plot). Stick some cows on, or better still allow BLM access for someone else's cows, and all of a sudden you get a massive tax break. Really adds up when you're talking about 10,000 acres or more.

[mulethree]

11. Does it work with tree's?

I know some huge tracts of forest owned by Paper companies. Do you suppose tree's can be considered a "commercial crop"? Or are they using some other loophole?

[Mr.Green93]

7. Big Land

Big Land? Is that like Big Oil?

[havocmom]

9. For developers it is win-win

They rent a cow or five to 'graze' while they sit on the land they have speculated on. They let the cows graze while all the hoops are jumped through. Sometimes this involves getting certain pliant people in public office to make the zoning changes desired. Then the building starts.

What was once farm land with maybe one family per several hundreds or thousands of acres now becomes high density housing. That means instead of 2.3 (or whatever the average is now) kids attending school, you have thousands, meaning costs for school just went up a bunch. You have thousands of people flushing toilets and suddenly the sewage treatment plant needs to be bigger and better. You have thousands more people driving in that area now, so the roads are a nightmare and need to be remade and that also means buying land to make them bigger.

So, the developer was using the rent-a-cow ruse to make sure he got the same low tax rate as the family farmer, then he builds housing (usually scrimping on costs as much as possible) sells the houses, pockets the $$ and leaves the municipal entity with huge costs in infrastructure improvements and additions. The average homeowner foots the tax bill for this all. The builder rewards the pliable politician/toady/whore with higher office and keeps the cycle going.

You know, they used to be called Land Speculators. There used to be some risks involved with investments in land. Now, there seems to be some sort of unspoken promise that 'Land Speculators' have a constitutional right to a guarantee of high profits. Anything/any local ordinance/any person or groups of persons getting in their way is sued into submission. There is no speculation involved at all now and at least they had the decency to call themselves land developers. Yep, it's a sure thing and only the little guys end up paying for it.

Where in the Constitution is there 'the right to guaranteed outrageous profits on every single venture one undertakes'? Do you get those sorts of guarantees in your endeavors?

[sandnsea]

12. Bush's house in Texas

They are using open space tax breaks on that development as well.

[JPZenger]

13. All a matter of back taxes and penalties

If a landowner is required to pay all of the back taxes and substantial penalties if the land is developed, then the law is fair. In Pennsylvania, you must pay back 7 years back taxes plus a substantial penalty. The article notes in other states that they do not require any back taxes and/or very little penalty. If those states are so stupid in how they write their laws, then they deserve to get ripped off.

[mrbill]

14. texas property tax laws for a $1000 alex..............

The Texas ag/timber use idea is fairly simple and could be a good system with a little work on the abuse problem. Without an ag provision every family farm in the state would go out of business in six months.

For the property tax rolls, land in Texas is supposed to be listed at market value. An acre of farmland in far north central texas can range from $1,200 to $20,000 depending on how close the subdivision is coming. In my little county the combined property tax for the county, school district(s), hospital, junior college, etc is about $3.00 per $100 of assessed value.

If the acre of farm land had a market value of $2000, that would be $60 in property taxes. Now here's the tricky part, how much does the farmer make per acre? Nothing if the weather doesn't cooperate, but let's say he is growing soft wheat and grows 50 bushels on the acre, 50 @ 3.60 per = $180. Then take off the expenses, seed and fertilizer, $40, fuel, $20, property taxes at market value, $60, that's already $120, leaving $60 for the tractor and combine payment, land costs etc. The farmer would be losing money fast unless wheat went to $10 a bushel.

The current Texas system allows an ag/timber value if the land is used in a manner consistant with the agriculture intesity of the area. Exemptions include farming, cows and other animals, hay, trees, wildlife and a lot more. The same acre of farmland that would have a market value of $2000 would have a ag value of $120 and at $3.00/$100 a tax of $3.60. This leaves the farmer a little room to work with.

My top three Texas favorite ag uses:

1) Ross Perot and his longhorns at Alliance airport and his buffalos on that old Hunt property on 114 where the $400,000 homes are popping up. Ross or Ross junior made out like a bandit. On land potentially worth $40,000 an acre he turned some livestock loose and got an ag use value of $100 per acre. $1200 per acre in taxes or $3 in taxes? The Tarrant County Appraisial District might have finally cracked down on the longhorns at Alliance.

2) The local Chevrolet dealer who has a guy come out once a year to cut hay on 8 acres of prime property hidden behind the dealership. 8 acres @ 10000 = $80000 x .3.00/$100 = $2400 in taxes at market value or 8 acres @ 60.00 = $480 x 3.00/$100 = $14.40 in ag use taxes. A big savings.

3) The Chimp's Ranch in McClellen County. Not quite keeping up with agricultural intensity of the area. Somebody needs to rent a herd of cows or get the pigs back. The 1504 acres are on the tax rolls with a market value of $800 per acre, the ag use value is around $100 an acre.

Final note, there is a provision in the Texas property tax code, that sez if a property changes from an ag to another usage, the last five years of taxes at the market value are due.

[Judi Lynn]

15. Excellent info. Terrific post. Thanks a lot. n/t

[Nile]

16. The towns still win in the end.

When they start collecting property taxes on the finished development.