Preserving farmland may have unforeseen consequences for taxpayers
WNPA Olympia News Service — OLYMPIA — A proposed change to a law aimed at preserving farmland and open space could result in higher taxes for some Washington property owners.
House Bill 2306 would expand a tax classification on land actively used for agriculture, timber production or undeveloped open space. While property tax is generally assessed on the market value of a parcel, the state’s Open Space Taxation Act allows land to be taxed at a lower rate based on its current use, such as farming.
Under the current law, if a farming operation is 20 acres or more, the parcels must be contiguous in order to be eligible for the lower tax classification.
The bill proposes to take out the “contiguous” stipulation, opening up this tax classification to farms that have multiple parcels that total 20 acres or more but aren’t necessarily touching each other.
“It’s the preservation of farmland... that is my ultimate goal,” Rep. Kristine Lytton, D-Anacortes, the bill’s primary sponsor, said at a Jan. 21 hearing before the House Finance Committee.
Allen Rozema, executive director of Skagitonians to Preserve Farmland, says the bill could help preserve farmland and open space that is not currently eligible for the lower tax rate.
“This is an innovative and unique approach to keeping agriculture viable in Washington state,” he said. “This approach and similar approaches need to continue to be pursued by the Legislature. It helps to elevate the preservation of farming to the same level as our state’s other critical resources.”
Farming is an essential part of Washington’s economy. The Washington Department of Agriculture valued Washington’s agricultural production in 2012 at $9.89 billion, exceeding 2011 figures by 6 percent and setting a new record.
Lytton said the bill is aimed at preserving farms with small, non-contiguous parcels.
In Washington, the average farm size has decreased by about 12.5 percent from 2003 to 2012, but the number of farms has increased by about 7 percent in the same time period, says a report from the United States Department of Agriculture. The number of small farms is still increasing, Rozema said.
It’s hard to know how much of a tax shift could result from allowing more parcels to qualify for the lower tax rate, as there’s no estimate of exactly how much land could be eligible, says Yakima County Assessor Dave Cook.
Some county assessors are concerned that extending the current-use tax rate to more land could mean higher tax bills for other property owners.
Each county collects a specific amount of property-tax revenue, with the total amount spread across all taxable properties.
When some properties are assessed at a lower rate, the other properties in the taxing district must make up the difference. Depending on how much property is eligible to be assessed at the lower agricultural rate, the increase in property taxes paid by others in the district could be significant.
Cook says the legislation could result in a $70 million loss of assessed property value in Yakima County because more farmland would be assessed at its current use rather than market value.
Property owners with a decrease in assessed property value will likely pay less in taxes, a difference that would have to be made up by other taxpayers in the county.
"The tax-shift implications are significant when you go on a statewide basis," Cook said.
Before the finance committee voted on a proposed substitute bill on Feb. 6, Rep. Terry Nealey, R-Dayton, suggested that the Legislature conduct a study to assess the impact of such a change and the possible tax shift.
Additionally, some assessors say eligibility for this current-use tax classification could be interpreted so broadly under the bill that it may encompass land not used for farming at all, such as packing facilities that are part of a larger farming operation.
The bill not only addresses the size of farming parcels, but also other scenarios common to farming operations.
In one particular case, for example, a farmer may grow grain to feed livestock that they sell. The land used to grow the feed is not directly generating income if the grain is not being sold. Therefore, under current state law, that parcel of land used to grow the feed would not qualify for the tax reduction. But, this bill would change that.
The substitute bill, which was adopted by the finance committee on Feb. 6 by a vote of 10 to 3, further clarifies specific language in the original bill. It states that individual parcels that have been combined to qualify for this tax classification do not have to individually generate income as long as the whole farming operation does.
The substitute bill further outlines that if a parcel of at least 5 acres is leased to a farmer and that farmer has other land that qualifies for the lower tax rate, the leased land would also be eligible.
An application process would still be required for land to be considered for the current-use tax classification.