Des Moines Register
05-06-07
Elbert: Assessors (all 99) wrestle farm tax ruling
DOWN TO BUSINESS
By DAVID ELBERT
REGISTER BUSINESS EDITOR
Shifting value of buildings leaves landowners burdened while confinements
benefit.
A new Iowa rule on farm assessments could inflame a long-simmering debate
over the taxable value of livestock confinements by shifting a large chunk of the
buildings' taxes onto farmland.
It won't happen this year, but by 2009 the taxable value of farm buildings
statewide could be lowered as much as 50 percent, according to one estimate.
Such a drop would force the assessed value of farmland to increase an average
of 7 percent statewide to compensate for the loss, said Dale Hyman, who
oversees property tax issues in the Iowa Department of Revenue.
Those are substantial numbers. There was a time when such a shift would have
been pretty much all in the family, because livestock producers were also
substantial landowners.
But agriculture, like a lot of businesses, has become increasingly specialized,
and the owners of large poultry and hog confinement operations are no longer
substantial owners of farmland in many cases.
"There will be some shifting of the tax burden ... this is friendly to big confinement
operators," but not to farmland owners, agreed Neil Harl, an Iowa State
University expert on farm economics and tax law.
Also, he noted, a lot of farmland owners are landlords, who lease their cropland
and have no interest at all in livestock operations. Those owners will see higher
taxes with no offsetting benefit.
The value shift is the result of an effort by state officials to obtain uniformity
among Iowa assessors in the way they assess farm buildings.
The official view of the state has always been, and still is, that livestock
confinements are a key piece of Iowa agriculture and entitled to the same break
that farmland receives when it comes to property tax assessments.
That break amounts to roughly a 50 percent reduction because farm property is
valued according to productivity, rather than market value, which is how
commercial and residential properties are valued.
An alternative view, held by activist groups such as Iowa Citizens for Community
Improvement, is that modern livestock confinement operations are factory farms
and should be taxed the same as other commercial property, at a much higher
rate than farmland.
Over the years, as more Iowans have moved off farms and into nearby cities or
rural acreages, there's been growing support for the tax-them-as-factories
concept, especially when confinements are run by bad operators who foul the air
and water.
The farms-as-factories position has never been recognized by Iowa law, although
the vague nature of property assessments has allowed assessors in some Iowa
counties to move in that direction without ever declaring they were doing so.
As one assessor told me: If Iowa has 99 county assessors, there are probably 99
different ways to assess a particular piece of property.
It's just human nature, the assessor said. Different people have different ways of
applying the same rules. It's not that any particular assessor is prejudiced against
any particular type of property, he said.
In any event, the Iowa Department of Revenue came to the conclusion last year
that Iowa's agricultural assessments were becoming too much of a hodgepodge.
The department reached that conclusion despite, or maybe because of, a 2002
Iowa Supreme Court case involving hog confinements in Davis County in
southeast Iowa.
Several hog confinement operations "moved in here in 1998 and started mass
construction, mass production of sites," said Davis County Assessor Sheila Fite.
The confinement owners challenged Fite's assessments in court, to no avail
The cases then were appealed to the Iowa Supreme Court.
Davis County prevailed at the Supreme Court in the bulk of the cases, but the
high court did side with the confinement owners on one issue that resulted in a
minor lowering of assessments.
The problem with the Davis County case, said ISU's Harl, was the Iowa Supreme
Court ruling "was not very clear."
In fact, the case did little to clear up inconsistencies in the way other assessors
handled similar properties.
So in February, Mark Schuling, director of the Iowa Department of Revenue,
asked the Iowa Administrative Rules Review Committee to amend a rule "to
require an assessor to apply the agricultural factor uniformly to all agricultural
buildings in the assessing jurisdictions."
Hyman, who works for Schuling, said the new rule came out too late to have
much impact on 2007 property assessments, which were mailed out last month.
The big impact, he said, will come in two years when county assessors complete
their next biennial reassessment.
Today, the total assessed value of all agricultural property in Iowa is about $25
billion based on the production formula used by the state, Hyman said. Of that
total, roughly $3 billion is buildings and $22 billion is farmland.
If Hyman is right and about half of that building value disappears in 2009, once
county assessors begin using the new rule, there would need to be an offsetting
increase of $1.5 billion in assessed values on farmland.
From what Hyman has seen, he said, it looks like most assessors will need to
make adjustments at that time and shift value from buildings to farmland in their
counties. Farm buildings count for as little as $10 million of assessed value in
some counties and as much as $100 million in others, he said.
There is no way of knowing for sure today which counties will be hit the hardest
on a values shift, Hyman said.
Still, it's a pretty safe bet that counties with a lot of livestock confinement
operations will see the biggest shifts.
Business Editor David Elbert can be reached at (515) 284-8533 or
delbert@dmreg.com