Topic:
AGRICULTURE (GENERAL); MUNICIPALITIES; PROPERTY TAX; TAX EXEMPTIONS;
Location:
AGRICULTURE; TAX EXEMPTIONS;

OLR Research Report


February 14, 2005

 

2005-R-0165

QUALIFICATIONS FOR FARMER/AGRICULTURE PROPERTY TAX EXEMPTIONS

By: Judith Lohman, Chief Analyst

You asked (1) if the law requires any minimum profit or loss before a farmer becomes eligible for state-mandated or local-option property tax exemptions for farming and agriculture, (2) how any such requirements were derived, (3) whether there are any other requirements for farmers applying for these exemptions, and (4) whether municipalities could impose their own financial requirements for exemptions without express statutory authorization.

SUMMARY

State law requires towns to give 10 property tax exemptions related to farming or agriculture. Two of the exemptions impose specific financial eligibility requirements on farmers receiving the exemption. Of three local-option exemptions for farmers, two have financial eligibility criteria.

The financial criteria applicable to these exemptions require a farmer to get at least $15,000 in gross income from farming or to incur at least $15,000 in farming-related expenses in the tax year immediately preceding the assessment year to which the property tax exemption applies. This financial threshold applies to state-mandated exemptions for livestock, horses, ponies, and farm machinery and to local-option exemptions for farm buildings and farm machinery. Other state-mandated and local-option farming exemptions have no income or expense requirements but instead require that exempted equipment or animals be used exclusively in farming or that a farmer gaining the exemption must be “in the business” of farming.

The legislative history of the law setting the income and expense requirements does not provide any indication of how the $15,000 threshold was derived. Prior law had required that, to receive the applicable exemptions, farming be the farmer's principal livelihood. Proponents of the 1992 act wished to make more farmers eligible for the exemptions.

Municipalities do not have the authority to impose eligibility requirements for farmer property tax exemptions beyond those specified in state law.

QUALIFICATIONS FOR FARMER PROPERTY TAX EXEMPTIONS

State-Mandated Exemptions

Of 10 state-mandated property tax exemptions for agriculture and farming, two have a minimum income or expense threshold for qualifying. The 10 exemptions and their eligibility qualifications are shown in Table 1.

Table 1: State-Mandated Exemptions

Type of Property

Exemption Limit

Financial Eligibility Requirements

Other Eligibility Requirements

Agricultural or Horticultural Society Property

None

None

Property must belong to or be held in trust for a nonprofit society incorporated by Connecticut that promotes any branch of agriculture.

Property must be used in connection with the society's annual fair.

Fair must be a bona fide agricultural exhibition to promote agriculture by offering premiums or awards in two or more of the following: crops, livestock, dairy products, and homemaking.

Society must (1) pay a minimum of $200 in cash premiums at the fair; (2) by the December 30 following the fair, file a detailed, sworn report with the agriculture commissioner giving the exhibitors' names, the premium amounts, and the objects for which they were paid; and (3) file an exemption statement with the assessor in the town where the property is located every four years.

None of the society's officers, members or employees can receive any pecuniary profit from its operations other than reasonable compensation for their services in administering its affairs ( 12-81(10)).

Farming Tools

$500

None

Tools must be actually and exclusively used in farming on a farm (12-81(38)).

Farm Produce

None

None

Must be grown, growing, or produced while owned and held by (1) the producer or (2) a legally organized cooperative marketing corporation, when delivered to the cooperative by its producer (12-81 (39)).

Sheep, Goats, Swine, Dairy and Beef Cattle, Oxen, Asses, Mules, Poultry

None

None

Animals must be owned and kept in Connecticut (12-81 (40), (41), (42)).

Nursery Products, including forest, ornamental, and fruit trees

None

None

Must be growing in a nursery (12-81 (42).

Livestock, Horses, and Ponies

None for livestock other than horses or ponies; $1,000 for any pony or horse not exclusively used in farming.

Farmer or farming group must derive at least $15,000 in gross sales from farming or have at least $15,000 in expenses related to farming in the most recently completed tax year before the assessment year.

Animals must be owned and kept in Connecticut.

To be 100% exempt, horses and ponies must be actually and exclusively used in farming or be held in trust for a farmer or group of farmers operating as a unit, or by a partnership or corporation with a majority of stock held by members of a family actively engaged in farming.

Farmers must apply for the exemption annually, within 30 days after the town assessment date, on forms prescribed by the agriculture commissioner (12-81(68)).

Farm Machinery

$100,000

Farmer or farming group must derive at least $15,000 in gross sales from farming or have at least $15,000 in expenses related to farming in the most recently completed tax year before the assessment year.

Machinery must be owned and kept in the state and be actually and exclusively used in farming or be held in trust for a farmer or group of farmers operating as a unit, or by a partnership or corporation with a majority of stock held by members of a family actively engaged in farming.

Farmer must apply for the exemption annually, within 30 days after the town assessment date, on forms prescribed by the agriculture commissioner.

Only one exemption is allowed for each farmer or group.

Farmers or groups receiving the machinery exemption are ineligible for the farming tools exemption (12-91(a), (d)).

Optional Exemptions

State law allows municipalities, by vote of their legislative bodies, to grant three additional exemptions to farm property, two of which impose the same farm income or expense requirements as two of the state-mandated exemptions. Local-option exemptions and their eligibility criteria are shown in Table 2.

Table 2: Local-Option Exemptions

Type of Property

Exemption Limit

Financial Eligibility Requirement

Other Eligibility Requirements

Certain Farms

Abatement for 50% of property tax owed

None

Property must be maintained as a business and must be a:

dairy farm;

fruit orchard, including vineyard for growing wine grapes;

vegetable farm;

nursery farm

farm employing nontraditional farming methods, including hydroponic farming; or

tobacco farm.

Farm Machinery

$100,000 to $200,000

Farmer or farming group must derive at least $15,000 in gross sales from farming or have at least $15,000 in expenses related to farming in the most recently completed tax year before the assessment year.

Machinery must be owned and kept in the state and be actually and exclusively used in farming or be held in trust for a farmer or group of farmers operating as a unit, or by a partnership or corporation with a majority of stock held by members of a family actively engaged in farming.

Farmer must apply for the exemption annually, within 30 days after the town assessment date, on forms prescribed by the agriculture commissioner.

Only one exemption is allowed for each farmer or group.

Farmers or groups receiving this exemption are ineligible for the exemption for farming tools ( 12-91(b), (d)).

Farm Buildings

$100,000

Farmer or farming group must derive at least $15,000 in gross sales from farming or have at least $15,000 in expenses related to farming in the most recently completed tax year before the assessment year.

The building must be actually and exclusively used in farming and cannot include the farmer's residence.

The farmer must apply for the exemption annually, within 30 days after the town assessment date, on forms prescribed by the agriculture commissioner ( 12-91(c), (d)).

DERIVATION OF FINANCIAL QUALIFICATIONS FOR EXEMPTIONS

As shown in the tables above, several farm property tax exemptions require that, to be eligible, a farmer must show he has derived least $15,000 in annual gross revenues from farming or has $15,000 in annual gross expenses related to farming. These financial eligibility thresholds were established in 1992 (PA 92-64). Before the 1992 law was passed, to receive the exemptions, a farmer had to show that farming was his “principal means of livelihood.”

Although transcripts of the public hearing and floor debate on the bill that became PA 92-64 show that proponents sought to make more farmers eligible for property tax exemptions, the record does not provide any indication of how the $15,000 financial threshold was derived. It appears from the public hearing discussion that an early version of the bill proposed to adopt the same income threshold for the various property tax exemptions as applies to farmer sales tax exemption for items used in agricultural production. That threshold is $2,500 in gross income from agricultural production as reported for federal tax purposes, either in the year before the exemption application or, on average, for the two years before ( 12-412(63)).

During the Finance, Revenue and Bonding Committee hearing, Representative Maddox expressed misgivings about applying the $2,500 income threshold to the property tax exemptions. He argued that the proposal would “open it up to every single weekend farmer we have in the state. And I think the potential for revenue losses here is millions of dollars” (Finance Committee public hearing, March 30, 1992). This may be why the threshold was increased to $15,000 in subsequent versions. There was virtually no floor debate in either house on the bill and it passed unanimously in both.

MUNICIPAL AUTHORITY TO IMPOSE OTHER FINANCIAL REQUIREMENTS

Municipalities are barred from imposing any requirements for property tax exemptions not expressly specified in state law. Because municipalities are simply subdivisions of the state and exist by virtue of the legislature's power, they may exercise only those powers expressly granted to them by the state. State courts have ruled that (1) municipalities, as creations of the state, have no inherent powers of their own (State ex rel. Brush v. Sixth Taxing District, 104 Conn., 192, 198-99); (2) their taxing powers can be exercised only in strict conformity with authorizing state statutes; and (3) any doubt about municipal taxing authority must be resolved against the municipality and for the taxpayer (Pepin v. Danbury, et. al., 171 Conn. 74, 83).

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