Pinpointing Policy: Ag Land Taxation When Use Changes

Land has always held a special and unique position. It can’t be manufactured, but it is a factor in the production of everything either directly or indirectly. There’s only a finite supply of land and it can’t be moved. Agricultural land in many ways is even more special. Farming and ranching are extremely competitive enterprises, full of multiple types of risk that can and often do negatively affect profitability, and yet farming and ranching are essential for feeding our nation and the world. Despite a finite supply of land, the amount devoted to agriculture is declining. Whether it be the result of urban sprawl, city folks moving to the country, energy production siting, or some other non-ag use, the amount of land available for farming decreases each year. For example, according to the USDA, the total land used for farming in the U.S. decreased from 896.6 million acres in 2020 to 895.3 million in 2021.

The Issue

Land no longer used for agricultural purposes yet still taxed on its potential agricultural income/productivity is an issue. A prime example is hunting enterprises purchasing ag land and no longer allowing grazing or farming on the land. No hard data could be found for the number of acres that fit this example, but anecdotally many members have seen it happening in their counties.

This is an issue that has been discussed by two Kansas Farm Bureau (KFB) ag advisory committees over the past couple of years and likely at many county Farm Bureau board meetings. The KFB Wheat Advisory Committee discussed this at its in-person meeting this past January, leading them to request an educational webinar for all Farm Bureau members in Kansas, which was held on June 20. To view a recording of the webinar and supporting materials, go to www.kfb.org/advocacy and follow the Past Webinar Recordings link. The first half of the webinar deals with foreign ownership of land in Kansas and the second half deals with agricultural land classification and taxation.

As mentioned earlier, agricultural land is special, and the Kansas constitution recognizes this by setting apart Ag Land as the only subclass of real property that is taxed “upon the basis of its agricultural income or agricultural productivity[1],” often referred to as use value appraisal. All other subclasses of real property are taxed at their market value. The goal of this is to better insulate agricultural landowners from market influences outside of agriculture, which could push property taxes on agricultural land to levels unaffordable for those who wish to farm the land. KFB policy AT-2, Property Classification and Use Value Appraisal supports use value appraisal, stating, “We further support agricultural classification solely on the basis of use, regardless of ownership, supplemental uses, or potential future value.” 

So . . .   What uses are considered “agricultural?”

In Kansas Statutes, Chapter 79–Taxation, Article 14–Property Valuation, Equalizing Assessment, Appraisers and Assessment of Property, K.S.A. 79-1476, Kansas law provides a relatively broad definition. In general, “For the purpose of the foregoing provisions of this section, the phrase "land devoted to agricultural use" shall mean and include land, regardless of whether it is located in the unincorporated area of the county or within the corporate limits of a city, that is devoted to the production of plants, animals or horticultural products, including, but not limited to: Forages; grains and feed crops; dairy animals and dairy products; poultry and poultry products; beef cattle, sheep, swine and horses; bees and apiary products; trees and forest products; fruits, nuts and berries; vegetables; and nursery, floral, ornamental and greenhouse products.”

Clearly, members do not want to dictate who landowners can sell their land to, or what landowners can do with their land. KFB Policy GOV-16, Private Property Rights states, “We vigorously support landowners' rights.” And while this typically applies to protection from liability for agricultural activities, or from the imposition of moratoriums on the development of crop or livestock production facilities, it likely must also apply to what and how landowners ultimately manage their property. Recently, members have been outspoken that land no longer used for agricultural production should be taxed at its market value and not its use value. Policy AT-3, State and Local Governmental Budgeting, Spending and Taxation states, “We support the creation of a fair, just, and equitable tax system that is not detrimental to production agriculture and protects classification of land where agricultural products are produced and sold.”

It should be noted that the difference in property taxes for land using “use value,” versus “market value” can be significant. In the June 20 webinar, Zoe Gehr, State of Kansas Ag Use Value Coordinator, shared a simple grassland example for Riley County. Applying use value formulas including calculating expected Landlord Net Rental Income and dividing by the capitalization rate, the result was a per-acre property tax of $3.45. Applying market value as if the land was classified as “Other Land” ($3,500/acre with a 30 percent assessment rate) resulted in a per-acre property tax of $117.25.

Solutions

Farm Bureau policy changes, if needed, will be determined by members, but in many respects our existing policy and Kansas law already support taxing land with “no agricultural uses,” based on its market value.

As pointed out in the June 20 webinar, one of the duties of each county and/or district appraiser according to K.S.A 79-1412a, is to supervise the listing and appraisal of all real estate, which includes deciding what subclass (Residential, Ag Land, Vacant Lots, Not-for Profit, Public Utility, Commercial/Industrial, or Other) each property unit appropriately falls under. And there have been instances in Kansas in which a county appraiser reclassified land from one use to another to the detriment of members with a bonified agricultural use, with the goal of raising property tax income for the county.

The challenge for appraisers is that even if some tiny fraction (i.e., one acre) of a land unit is used for agricultural uses (grazing, haying, farming, timber), the entire unit can continue to be classified as agricultural land. In fact, KFB has fought on a member’s behalf where a county appraiser has reclassified streambanks or small areas of “wasteland” resulting in significant property tax increases even though the underlying farming or ranching enterprise had not been altered. 

Appraisers, though, do have the authority (it was pointed out in the webinar) to split the original unit into separate “hunting/non ag,” and “ag” units. But this too could potentially be thwarted if the landowner simply cut a few trees and sold the wood, or swathed and baled a few acres on the “hunting side.” It doesn’t have to be a lot of agricultural activity, just enough. 

KFB policy AT-2, Property Classification and Use Value Appraisal, could be interpreted as supporting the classification of land that is both farmed and hunted on as “agricultural land,” stating, “We further support agricultural classification solely on the basis of use, regardless of ownership, supplemental uses, or potential future value.” And in fact, many Farm Bureau members in Kansas supplement their farm income with income from hunting or other agritourism activities. Additionally, KFB policy CNR-4, Hunting and Fishing Regulations states, “A sufficient number of permits should be made available to resident and non-resident hunters to ensure Kansas landowners can provide hunting opportunities to all hunters. Regulations for deer hunting should be structured to encourage deer hunting as an agritourism industry and should not limit the ability of landowners to actively participate in the management of the deer herd and enhancement of the hunting industry.”

The difficult part for KFB members will be to avoid creating policies that negatively impact farmer members. For example, much of Kansas has been in a two-year drought, pastures have been grazed hard and cattle have been liquidated and culled. We don’t want a zealous county appraiser reclassifying a member’s pasture who simply followed best management practices and rested the pasture for a year (thus no grazing) but did allow hunting.

To be involved in the policy process for Kansas Farm Bureau, visit www.kfb.org/advocacy