Monday, February 19, 2007

Farm Property Taxes: Higher, But Still Low

The Palladium-Item reports that Indiana farmers may see their property taxes go up in 2008 due to a new calculation by the Department of Local Government Finance:
The base value of an acre of agricultural land will be $1,140 in 2007 for taxes payable in 2008, up from $880 an acre for the last two years.
This snooze-inducing news is worth dwelling on for a moment because while it sounds bad for farmers, it reflects the workings of a special property tax break that is designed to keep Indiana farmers in business-- and gives anyone interested in property tax reform a window into a little-understood part of the property tax system.

Like virtually every other state, Indiana offers a "use value" tax break for farmers: agricultural land is valued based on the use farmers are putting it to, rather than based on the (almost certainly higher) market value of the land. This is important because in areas where suburban sprawl is creating pressure for new development of farmland, farmers could make a lot of money by selling out. The flip side of this opportunity is that if farmers in these areas were paying property taxes based on what their land was actually worth, they'd have to sell out-- they'd have no choice.

But "use value" means taking a hard look at how productive farmland is and what farmers are getting for their product. And so when farmers are better off, the statewide "use value" goes up. That's exactly what is happening in Indiana right now:
"The new assessed value reflects the changes in the market from 1999 to 2004," DLGF Commissioner Melissa K. Henson said. "Interest rates dropped more than 1 percent, corn and soybean yields increased and prices for both corn and soybeans increased during the six-year period."
So the latest hike in farm assessments reflects the proper workings of a tax break for farmers, not an unprincipled tax grab.

The always-informative Larry DeBoer has more on this issue in his Capital Comments column for January.

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