Topic:
PROPERTY TAX; BUILDINGS (GENERAL); AGRICULTURE (GENERAL);
Location:
TAXES - PROPERTY; AGRICULTURE;

OLR Research Report


January 29, 2003

 

2003-R-0059

VERMONT'S CURRENT USE VALUE APPRAISAL FOR FARM BUILDINGS

By: Paul Frisman, Associate Analyst

You asked about a Vermont law that taxes farm buildings at less than fair market value and its legislative history.

SUMMARY

Vermont began taxing farm buildings at 30% of their fair market value in 1998 as part of a comprehensive law (Act 60) that revamped the way Vermont funded its schools. The law applies only to buildings, other than dwellings, actively used in the business of farming and on land enrolled in the state's use value appraisal program. Property owners must earn more than one-half of their income from farming to qualify for the tax reduction.

DEFINITIONS OF FARMER AND FARM BUILDINGS

Vermont law defines a farm building as all farm buildings or other farm improvements, excluding any dwellings, that are (1) actively used by a farmer as part of a farming operation, (2) owned by a farmer or leased to a farmer under a written lease for at least three years, and (3) situated on land enrolled in a use value appraisal program, or on two acres of land surrounding any dwelling that adjoins enrolled land (Vt. Stat. Ann. Title 32, Ch. 124, 3752(14)). The use value appraisal program allows farm buildings to be taxed at 30% of fair market value (Vt. Stat. Ann. Title 32, Ch. 124, 3752(12)).

A farmer is someone who earns at least one-half of his annual gross income from the business of farming, as defined in the U.S. Internal Revenue Code (Vt. Stat. Ann. Title 32, Ch. 124, 3752(7)).

VERMONT'S CURRENT USE VALUE APPRAISAL PROGRAM

To be eligible for the 30% use value appraisal, Vermont farm buildings must be on a farm enrolled in Vermont's use value appraisal program. This program taxes farm and forestland according to use value, instead of fair market value, to keep farms in production and to slow development. Enrolled property, which generally must be at least 25 acres, must remain in agriculture, forest or conservation use.

To enroll in the program, owners of eligible land must ask town officials to appraise the land at its use value. The Current Use Advisory Board of the Vermont Division of Property Valuation determines the use value each year based on the land's productivity. In return, the landowner must agree to maintain the property according to the agreement and to pay a land use change tax if the property is developed. The state reimburses the town for the lost tax revenue.

The use value program is designed to: encourage and help maintain Vermont's productive agricultural and forest land; encourage and assist in their conservation and preservation for future productive use and for the protection of natural ecological systems; prevent the accelerated conversion of these lands to more intensive use by the pressure of property taxation at values incompatible with the productive capacity of the land; achieve more equitable taxation for undeveloped lands; encourage and assist in the preservation and enhancement of Vermont's scenic natural resources; and enable Vermont citizens, despite increasing development pressures, to plan the state's orderly growth in the interests of the public health, safety and welfare (Vt. Stat. Ann. Title 32, Ch. 124 3751).

HISTORY OF THE LEGISLATION

Vermont first passed the use value appraisal in 1978 to relieve farm and forestland owners of the burden of paying property taxes on rapidly escalating land values. The program has been changed many times since. The current program has existed since 1997.

According to Bill Snow, current use program chief at the Vermont Tax Department, under a 1989 program called the Working Farm Tax Abatement Program participating farmers paid no taxes on farm buildings. Vermont repealed that law in 1996, offering farmers the choice of either leaving the program without penalty or enrolling in another program that would set farm buildings' value for tax purposes at 50% of fair market value. In 1997 the legislature amended that law, reducing the valuation from 50% to 30%, beginning in the 1998 tax year. (A proposal now before the Vermont legislature would exclude farm buildings from the Vermont school tax.)

We spoke with Arthur Menut, governmental affairs director of the Vermont Farm Bureau, Ed Larson, of the Vermont Use Value Appraisal Coalition, and Steve Jeffrey, executive director of the Vermont League of Cities and Towns, about the arguments made for and against appraising farmland and farm buildings at their use value.

Among the arguments made on behalf of the exemption are that: farm buildings should be discounted heavily because they are of value only to their current owner or another farmer; that giving farmers a tax break encourages agriculture and preserves farmland central to Vermont's heritage, values and rural character; and that active farmland puts fewer demands on municipal and state services.

Opponents questioned the wisdom of treating farm buildings differently than any other non-residential building meant to generate income. If a farmer made a business decision to build a $1.5 million farm building, for example, critics said he should not benefit by being taxed as if the building is actually worth only $450,000.

More information on the current use value appraisal program is available on line at http://www.state.vt.us/tax/PDF/PVR/Infopack-mapstandards.pdf

PF:ts