Ending Agricultural Use Assessment Abuse

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Category: Public, Tax Law, Wisconsin Law & Legal System
6 Comments »

Agriculture is one of Wisconsin’s most important industries, and various state laws are intended to protect existing farms from urban encroachment. For example, Wisconsin, like many other states, assesses agricultural property for property tax purposes based on its use value rather than its market value. Assessing farmland by its use value protects existing farmers from forced sale of their land when urban encroachment raises the market value of the farmland.

Existing farmers are not the only ones benefiting, however, from agricultural use assessments. Both local and national media outlets identified a growing problem: agricultural use assessment abuse. [See here ; here ; and here.] Wealthy developers and property owners put their property to agricultural uses so that the property benefits from a use value assessment instead of a market value assessment. The use assessment often results in considerable tax savings. Most coverage of the issue criticizes the practice, but either describes the practice as a loophole or implies that local government units are powerless to do anything about it.

Most coverage fails to recognize, however, that local communities can put a stop to much of the abuse. Many new agricultural uses implemented simply for the tax benefit violate existing local zoning ordinances. The Wisconsin Department of Revenue says that tax assessors must assess agricultural land by its use value even if the agricultural use violates local zoning ordinances.

The Wisconsin Department of Revenue also says that local communities can stop the abuse by enforcing zoning ordinances. There are various reasons why communities choose not to pursue enforcement. Communities may fear that an enforcement action could bankrupt a developer which would then prevent the completion of a stalled project. Local leaders may not want the political risk involved in taking on wealthy developers or residents. Regardless of the reason for avoiding enforcement, communities are not powerless to reduce agricultural use assessment abuse.

Agricultural use assessment abuse is not a victimless transgression. Illegal agricultural use assessments harm other property owners by either shifting the tax burden to other property owners or forcing local governments to reduce services. During these difficult economic times, local governments must make many difficult choices. Local governments should not, however, allow illegally obtained tax breaks.

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6 Responses to “Ending Agricultural Use Assessment Abuse”

  1. Douglas, another great article… Keep up good work.. Thanks.

  2. Nice article! The fundamental problem with this abuse is that it is done mostly by very rich people. Clearly, they do not need any monetary help but they get it anyway. This reminds me of that “pumpkin farmer” with land in downtown Madison. It’s a cheat on the public and needs to be stopped.

  3. Elizabeth Tobolt Says:

    Ag-use assessments do, however, benefit many farmers and as a farming state, we need to take efforts to protect our farmers. The fact that a land owner does not farm the land him/herself does not necessarily mean that a real-life farmer is not reaping the benefits of that tax relief. From my experience, the land owner gives a reduced rent to the tenant-farmer in return for the lower taxes. Admittedly, there could be more safeguards in place. For instance, requiring more verification of a true agricultural use by the local assessor, or a narrowing of the definition of an actual agricultural use may help limit abuse. An argument can also be made that the property has switched uses when subdivision roads have been installed over lands in a subdivision and therefore, the land no longer qualifies for the Ag-Use assessment. So, we can look to how this tax benefit may be terminated for abusers, but we must remain diligent in its assured delivery to those Wisconsin farmers who legitimately need it.

  4. I would stipulate that use of agricultural assessment by the evil ric – er, I mean developers is probably not consistent with the original purpose of the law. That said, before we come down too hard on developers, bear in mind that holding costs are a large factor – sometimes the primary factor – dictating the market value of a given piece of property. If an investor is considering buying a piece of property, and if he is confident he will get the tax benefit of ag-use assessment when the deal closes, he is able to pay more, possibly a lot more, for the property than if he is taxed based on a future commercial or residential use.

    I would suggest, therefore, that some of the biggest beneficiaries of ag-use assessment by developers are sellers who are able to command significantly higher values for their property than they otherwise could absent ag-use assessment. I would also suggest that, in my experience, many such sellers are farmers or family members of former farmers whose primary asset is land and who were lucky enough to get in the way of progress.

    Ironically, if you buy my theory, a crackdown on ag use assessment by developers would significantly harm the very people ag use assessment is designed help – farmers – by devaluing the most valuable asset they have: land able to be put to a higher and better use. The proper way to frame the debate, therefore, might be to view it as a choice between allowing dollars to flow to sellers (in the form of increased sale prices for vacant land) or government(in the form of increased tax revenue).

  5. Douglas Hoffer Says:

    Paul – your theory is based on an incorrect assumption. Agricultural use assessment abuse does not involve existing farms violating new ordinances.

    Existing uses are generally grandfathered as legal non-conforming uses when zoning ordinances are changed. An existing agricultural use can continue legally even after a zoning ordinance is changed. Consequently, if an existing legal farm is sold to a developer, that developer can legally enjoy the agricultural use assessment.

    The problem is when developers or other property owners commence new agricultural uses in violation of existing zoning ordinances. For example, when land zoned for residential use is put to a new agricultural use, no farmer/seller benefits in this situation, and a tax break is received by violating the law.

    The question here is not whether non-farmers should enjoy legal agricultural use assessments – I believe they should. The question is whether anyone should enjoy an illegally obtained tax break – I believe they should not.

    Elizabeth – you correctly point out that agriculture is a vital industry that creates tremendous wealth and jobs in Wisconsin. Consequently, I believe Wisconsin’s agricultural use assessment laws, Right to Farm laws, and various other laws designed to protect the industry are very important.

    Many other states have implemented the safeguards you discuss. Such safeguards often include higher oversight costs, and reasonable arguments can be made regarding the costs and benefits of various approaches. Wisconsin’s approach involves allowing local communities to enforce their zoning ordinances.

  6. Thanks for the thoughtful reply, Doug.

    I understand existing farms are grandfathered in under ag use assessment. I also understand that new ag uses in some cases do not comport with the letter of municipal law. I don’t agree, though, that farmer/sellers don’t benefit from the practice, technically non-conforming though it may be.

    As I said in my previous post, the terms of many land purchases – indeed a buyer’s willingness to buy property at all – are driven in large part by the cost to hold the property until it can be developed. Ag use assessment significantly reduces holding costs, thereby significantly increasing developers’ ability to buy property and significantly increasing the price developers can pay to purchase land. Those are very direct and very significant positive impacts on farmers/sellers, in my opinion.

    Consider also the fact that municipalities subsidize development in lots of ways, including TIFs (and renegotiation of the terms thereof, in many recent instances) and direct development of infrastructure. Turning a blind eye to technically non-conforming ag use could be view as just another way municipalities stimulate growth.

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