The policy of lowering property taxes on rural land helps protect farms and vital ecosystems, but reforms are needed to curb abuses, according to researchers at the Lincoln Institute of Land Policy. John E. Anderson and Richard W. England, authors of Use-Value Assessment of Rural Land in the United States, also suggest the policy be fined-tuned to take into account fairness and whether housing or other development might be appropriate on some parcels.
Across the nation, state and local governments have adopted a number of policies to regulate the conversion of rural land to developed uses. One of the most significant and least understood is preferential assessment of rural land under the real property tax, often called use-value assessmentor current-use assessment. Nearly all states across the country permit, and even require, local assessors to value some parcels of undeveloped land far below their fair market value for the purpose of levying local property taxes--in order to encourage their continued use to support agriculture, working landscapes, and valuable ecosystems.
Despite their stated purpose of preserving rural lands from urban development, use-value assessment programs can have unintended negative consequences. One is erosion of the legal and constitutional principle of uniformity of taxation; another is shifting the local tax burden to other property owners, arguably in a regressive manner.
Abuses are also a problem, as “fake farmers” enjoy low property tax bills, while using the land to sell firewood or Christmas trees to a few friends and neighbors. Others are clearly preparing land for development, taking advantage of the preferential assessment in the meantime.
The authors review several ways of tightening eligibility and reporting in use-value assessment programs, such as raising the amount of revenue gained by agricultural use of land, and requiring better documentation of same; disqualifying landowners who have pending applications for rezoning, install survey stakes, or put in utility services not required for agricultural use; and stiffening penalties that are either nonexistent or weak.
Use-Value Assessment of Rural Land in the United States explains the origins, key features, impacts, and flaws of use-value assessment programs across the United States as a fiscal tool for primarily farmland preservation. It describes in detail the process and characteristics of use-value assessment programs in 44 states, and recommends reforms that can serve as a road map for public officials, scholars, and journalists concerned with agricultural taxation and land use issues.
John E. Anderson is the Baird Family Professor of Economics at the University of Nebraska–Lincoln. Tax policy is the focus of his research; he has advised government agencies in the United States and around the world and served from 2005 to 2006 with the President’s Council of Economic Advisers in Washington, DC. Richard W. England is professor of economics at the University of New Hampshire– Durham. His research concerns property taxation, land development, conservation, and housing markets. Together with Richard F. Dye, he edited the Lincoln Institute book Land Value Taxation: Theory, Evidence, and Practice (2009). Anderson and England are both visiting fellows at the Lincoln Institute of Land Policy.