08 November 2010

Ag Exemptions Hurt CO Property Tax Collections

Dubious claims that property is agricultural and thus entitled to near total exemption from property taxes make a major dent in the Colorado property tax base.

For example, a 1.2-acre vacant commercial lot in Highlands Ranch worth $425,000 on the market is valued at $38 if a few cattle graze on it for less than three weeks every year.

The property taxes drop from an annual $11,739 to 95 cents, according to the task-force report.

The report shows the taxable value of 35 acres around a San Miguel County mansion drops from $1.7 million to $6,900 if sheep have the run of the grounds for two to four days a year.


Agricultural treatment for property that isn't really farm or ranch land increases property tax rates on other taxpayers whose land isn't classified that way. Since only local governments collect property taxes in Colorado, and classifying land as agricultural doesn't reduce local government costs, the people who abuse agricultural property tax classification are basicaly forcing their neighbors to pay their share of the local tax burden.

[F]ew questionable tax classifications are occurring in Colorado's top agriculture counties, including Weld, Yuma, Morgan and other Eastern Plains counties.

There are, however, hundreds of examples in Douglas County and in resort areas, including Pitkin and San Miguel counties, where land values are so high that agricultural tax designations can result in substantial savings.

If a request is granted for agricultural status on 168 vacant lots in the gated Golf Club at Ravenna in Douglas County where goats have been grazing, the value of that land for tax purposes would go from $29.2 million to $2,460, resulting in a $1.2 million tax decrease.

The task force also looked at the example of a 4.3-acre vacant parcel in the Columbine Valley golf community near Littleton that would be valued at a half-million dollars if the owner did not hire someone to cut and bale hay on the field behind a retail center and between two residences. The hay cutting has dropped the value enough that the tax bill is $6.85 a year rather than $16,056. . . .

[Pitkin County Assessor Tom] Isaac estimates that of 387 properties with agricultural exemptions in his county, not many more than a dozen are primarily farm and ranch operations. . . .

The crux of the[Land Assessment and Classification] task force's ideas follows what some other states do by taxing land under residences at residential value rather than at the agricultural value of surrounding acres. That would happen only when the residences are not integral to the farming operation.

Terry Fankhauser, executive vice president of the Colorado Cattlemen's Association, said his group will keep an open mind but is opposed to changes that undermine the general premise of the agricultural-classification laws that were created in the acknowledgment that farming and ranching are low-margin businesses. . . .

Douglas County Assessor Teri Cox said she doesn't think the task-force recommendations go far enough. She suggests changes should also include requirements for the duration of time agricultural use must occur to qualify for a reduced-tax designation and for the establishment of agricultural use as a primary purpose on land that gets the tax break.


The state constitutional provision allowing agricultural property to be taxed on production value rather than market value has few express limitations, but also clearly doesn't have to be interpreted as broadly as it has in the cases cited by the task force.

The full 157-page report lays out the case in greater detail.

The report was commissioned by HB 1293 in the 2010 legislative session sponsored by State Representatives Massey, Curry, Labuda, Pommer, Scanlan, Todd, Vigil, Hullinghorst, Merrifield, Middleton and State Senator Whitehead.

The reforms, if adopted, would modestly reduce the property taxes imposed on every other residential property owner in Colorado, because the Gallagher amendment fixes the relative contributions of residential and non-residential property to the statewide property tax base, and this would increase the size of the residential property tax base. The tax cut for other residential property taxpayers statewide would be roughly 8/10th of a percent to 2 percent.

In rural areas that aren't exurbs, the impact of reform would average less than $60 per year per agriculturally classified property with a residence on it. In resort areas, the reform would increase taxes on those properties by $538 to $6,468 dollars each, per year.

The size of the property tax base also affects the size of the state share of the P-12 education budget. Basically, local school districts are required to impose property taxes to pay for schools up to a certain point and the state makes up the difference. In districts where there is major tax evasion via agricultural classification of land that isn't really agricultural, reform would increase the amount of local property taxes collected, and therefore reduce the obligation of the state to top up local property tax collections. But, this effect would be modest, because the affected disticts are small and many already receive the minimum level of state P-12 education support per student.

1 comment:

Anonymous said...

The angst of cash strapped cities and counties beg the question of fairness or unfairness caused by the Gallagher amendment. Beyond fire suppression what burden does a vacant parcel place upon those service providers who tax it? Why then should it, as in the example cited, pay more than $11,000 in taxes when a like value residence would pay slightly more than $3000. The residence clearly places more burdens upon services, but currently pays less than a third of the taxes that would be required of a like valued vacant property. Small wonder that cities eschew acquiring residential properties and opt instead for commercial and industrial development even when there is a clear over supply of such properties. The very nature of urban growth and infill is driven not by any real planning paradigm, but rather the need of Cities to have as much 29% tax property as they can manage.

Bob