Why have farmland property taxes increased?
I wanted to share this column written by my colleague State Sen. Jean Leising (R-Oldenburg).
Farmland owners are paying much higher property taxes. This is not because of any action by your county government. In fact, the state formula used to calculate the assessed value of farmland has doubled farmland taxes from 2007 to 2014.
The value of farmland is based on the income it can generate from farming rather than the actual land value. This is a positive for farmers, but when the formula was developed, the change in grain prices and cash rents was not anticipated. There are three items used by the Department of Local Government Finance (DLGF) in determining the assessed value: 1) the base rate, 2) the soil productivity factor, and 3) the influence factor.
The base rate formula is determined using cash rents, corn yields, grain prices, production costs and interest rates. Six years of data is used, dropping the highest value year, and averaging the remaining five years. There is a four-year lag in the years used for the calculation. Your 2014 taxes were based on numbers from 2005 to 2010. This base rate has doubled in the past seven years, $880 in 2007 to $1,760 in 2014. Early calculations indicate that without a change in the formula, the base will increase to $2,430 by the 2016 tax year. This means the average farmland property tax will nearly triple over a 10-year period.
The second component is the soil productivity factor, which has not changed since it was developed in 1979. The DLGF has attempted to change this factor for the past three years. Their proposed change would increase farmland property taxes statewide by an additional 25 percent, costing owners statewide approximately $57 million. The Indiana General Assembly passed new laws (co-authored by Sen. Glick) in 2013 and 2014 that successfully delayed this change. However, further action will need to be taken before March 2015 in order to prevent this increase.
The third item used to determine the value of your farmland is the influence factor. This deals with the type of terrain, the risk of flooding, pasture, woodland, etc.
I want all farmland owners to prepare for these continued sharp increases in their property taxes. While grain prices are decreasing, the current formula has a four-year lag, so this year’s lower grain prices will not lower your property taxes next year. Unless the legislature provides relief by changing the formula, you will continue to experience much higher property taxes for the next several years.
Please do not blame your county government for your increasing farmland property taxes. This can only be corrected at the state level. Until the majority of the 150 legislators understand the challenge farmers are facing, as well as the negative impact on businesses in our rural counties, you will not see relief!