Farmland property taxes: Forecast is for drop in base rate

Farmland taxes increased 63 percent since 2007, more than any other class of property, and this at a time when farm crop income declined 30 percent in 2014 and 35 percent in 2015.

Last March, state lawmakers fixed the farmland tax formula by:

  • Matching the base value more closely with a farmer’s ability to pay by reducing the time lag in net income data used in the formula from four years to two years.
  • Putting the issue of soil productivity factors to rest by freezing them at the 2011 levels.
  • Including statutory capitalization rates (ranging from 6 percent to 8 percent) that are triggered by how much the farmland formula increases or decreases.

Larry DeBoer, a professor of agricultural economics at Purdue University, recently acquired 10-year farm data forecasts from the Food and Agricultural Policy Research Institute at the University of Missouri.

In his publication “Capital Comments,” DeBoer indicates that, “The forecasts settle at $4 per bushel for corn, $10 per bushel for beans, with trend increases in yields and costs. We projected the capitalization rate using the Congressional Budget Office’s long-term interest rate forecast, and came up with a gradual increase from the current 4.7 to 6.5 percent.”

His information goes on to say that when these numbers are applied, the preliminary base rate in 2018 would have been $2,820 under the old formula. However, after applying the 8 percent capitalization rate, the new figure becomes $1,770, noticeably lower than 2017’s $1,960 figure.

“That would be 10 percent drop in the base rate. Farmland tax bills would decrease in most places,” DeBoer writes. “In our projections, the final base rate bottoms out at $1,070 in 2021, then rises gradually to around $1,300 in the mid-2020s. Property taxes for farmland owners would fall a lot from what they are now.”

In 2017, INFB will work to ensure that this tax relief stays in place, while also addressing issues related to property tax appeals, personal property tax audits and sales tax audits, if those latter issues cannot be resolved administratively.

INFB is working with lawmakers to improve consistency and uniformity in audits and assessments. If members are subjected to a tax audit and have a bad experience, they are encouraged to contact their state legislators to make them aware of the situation.