Why farmland taxes go up, while levies go down


by Chris Rogers

Trend likely to continue in 2014

It is a troubling phenomenon that area farmers are experiencing all too often. Property taxes on local cropland seem to defy gravity: local levies go down, yet assessments on fields keep rising.

"I'd just like some clarification of how those two states of affairs can coexist," farmer Kelley O'Neill told Winona County Commissioners at a levy hearing late last month.

Winona County reduced the total property tax levy by 0.2 percent for 2014, and over the past five years, the county has cut its levy by over 10.5 percent. For nearly a decade prior to that, the county collected millions of dollars above what was needed each year, Winona Post investigations revealed. Despite recent cuts to the levy, O'Neill reported that taxes on his land are estimated to increase by as much 24 percent next year. Evaluations on the best cropland increased an unprecedented 44 percent this year.

While the county levy was dropping by double digits, Altura farmer Dan Kronebusch's taxes increase by a third, he said. Now, in a single year, his taxes are slated to increased by a third again. A third-generation farmer with over 1,000 acres, Kronebusch told commissioners, "You can't ask the landowner to have these types of property tax increases." He continued, "We need good township roads, we need good highways, but people that are landholders cannot carry this type of tax burden."

More increases next year?

More tax increases could be on the way for local farmers. Evaluations are unlikely to increase by more than 20 percent in 2014, but they will not be going down, either, Winona County Assessor Steve Hacken said. Sale prices this year "are certainly not spiking like they were" in 2012, he commented. The assessor does not expect major shifts in values for residential or commercial properties, so the share of the tax burden placed on farmers is not likely to get any lighter.

Still, it is too early to tell exactly how much evaluations for cropland may increase next year. This spring, Hacken will review farmland sales for 2013 and late 2012 and apply state-mandated formulas to determine next year's evaluations. The Truth in Taxation notices that O'Neill and Kronebusch received last month are based on the 2013 evaluations, which included last spring's 44 percent hike in assessed values for the best farmland.

The predicament explained

It is all based on the real estate market, Commissioner Marcia Ward said of the surge in farmland taxes. Some residential properties have decreased in value, but, "rural land owners, your land has gone up in value because of sales. Not that you're selling tomorrow or I'm selling tomorrow, but we're all paying for it because it is based on sales, so rural land is going to pay a bigger portion of that $15 million," she said of the county levy.

Ward explained that the county commissioners can set the total amount of property taxes paid to Winona County — $15.9 million for 2014 — but they cannot control how that $15.9 million tax burden is divided among agricultural, residential, and commercial properties.

Think of the county budget as a pie, suggested Commissioner Steve Jacob. "We're not changing the size of the pie, but your slice is a lot bigger and someone else's slice is smaller," he said.

Hacken noted that some township taxes may not be subject to the same phenomenon. If the township's tax base is almost entirely farmland, there is no appreciable shift in who pays taxes when farmland values go up, he explained.

Farmers are not the only ones who have been affected by taxes that rise and fall with the market, said Commissioner Jim Pomeroy. "In the run-up to the whole housing bubble, residential properties also went up disproportionately until they hit a brick wall," he pointed out. "Same thing with commercial businesses. So it all ebbs and flows. The interesting thing is that only once in your life are you going to sell it, but you end up paying these artificial fluctuations as they move along."

Is the problem sales or the system?

"We have to get people to quit paying $10,000 an acre for land," said Jacob. "That's the problem," Jacob said. Those prices, he said, do not just affect taxpayers. Rental prices for cropland have risen to $500 per acre in places, he said. "It's crazy, and that's what is driving your property tax," Jacob added.

Ward directed concerned farmers' attention to St. Paul. The next time "your state legislator comes knocking on your door or you see them marching down the street, you have to ask them about their system," she told citizens. The state tax system "is a very inadequate system and unfair, but it's the system that we have," she said, adding, "It is a state system." Some states have special systems for farmland that tie farmland taxes to crop prices and insulate farmers somewhat from the real estate market.

The Minnesota system is not without breaks for farmers, either, Hacken pointed out. Farms pay much less in taxes per dollar of property value, because the state tax system is weighted, he explained. Generally speaking, commercial businesses pay the most per dollar of property value, followed by residential properties. After tax credits, farmers pay roughly half as much per dollar of property value as residential properties do, according to Hacken.

In the agriculture business, where earning an income can require millions of dollars of investment in land and equipment, that may be a small conciliation. Ward encouraged farmers to make sure that they are enrolling all of their pasture, woods, and hillsides in tax break programs for that less productive land. "It doesn't add up to a lot, but it's about the only thing you can do," she said.

County Board Chairman Wayne Valentine commiserated with taxpayers, telling them, "We wish we could do more for you, really. We're trying our best."


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