Task force studies how to close ag tax loopholes

Colorado’s system of agricultural property-tax designations is flawed and losing money that could be used to help support struggling county and city governments, a recent state report suggests.

The Agricultural Classification Task Force met last summer and labored over what needs to be done to close some loopholes in state law that are allowing non-farmers and non-ranchers to obtain agricultural property-tax designations, which reduce their tax obligation dramatically.

The task force was created earlier this year by the passage of House Bill 10-1293, which called for an examination of property tax assessment and classification related to land used for both agricultural and residential purposes.

The task force – made up primarily of county assessors and county commissioners – found numerous examples of high-dollar property owners taxed at a low agricultural rate because a few head of livestock graze on the land for a short time each year.

Several egregious examples were cited in the report, including a San Miguel County mansion sitting on 35 acres that saw its taxable value drop from $1.7 million to $6,900 after allowing sheep on the grounds for a few days.

The task force found that state law regarding current ag classification has:

• No minimum acreage requirement;
• No duration requirement for livestock grazing;
• No minimum income for the land;
• No minimum income from the operator of the land;
• No primary purpose criteria;
• No hobby farm classification;
• No mixed-use residential/agricultural classification;
• No federal income tax filing requirements.

Because of these deficiencies, the report concluded that “assessors are having a difficult time applying the agricultural statutes equitably.”

“We need to define what should truly qualify (for the ag classification) and what shouldn’t,´ said Brad Hughes, Montrose County assessor and task force chair.

But whether anything will be done with the task force’s findings remains an open question. Hughes said the findings are available to any state legislator to use as the basis of a bill that could be carried in the next legislative session.

But so far, no one has expressed any interest, he said.

“We haven’t had anyone approach us,” Hughes said. “The goal is, if a legislator picks this up there are some recommendations on where to go.”

Hughes said the problem is most pronounced in mountain and resort counties, where the line between residential and agricultural can be easily blurred and where there is a stronger incentive to seek a lower tax value on land.

“In most of the eastern counties, it’s pretty clear what’s agricultural and what’s not and the market value is a lot less,” he said.

Hughes said ag classifications are watched closely by county assessors, who generally reject such requests from non-farmers and non-ranchers. But those decisions are being taken to boards of adjustment and appeals courts where rulings have often gone in favor of landowners because of a lack of clarity in the law.

“That’s why people are winning these cases at upper levels,” he said. “It’s unfortunate that people fight this all the way to the top.”

Understandable, though, because a legal battle could save them a lot on their property taxes.

But that’s ultimately not fair to the people who the lower tax values were originally created for, Hughes noted – the state’s actual farmers and ranchers.

“We need something to say that if the primary purpose is a residential site, then it would not qualify as ag,” he said.

Hughes said the task force did not attempt to estimate how much in potential tax revenue is being lost through the present system.

“We just didn’t go down that avenue, but it could be considerable,” he said.

According to the 2009 report to the governor from the Colorado Division of Property Taxation, there are about 52,000 agricultural residences in the state with more than 33 million acres listed as agricultural lands.

Hughes said farm groups have generally remained leery of embracing any big changes in the state’s current ag land classification system.

“They’re worried that any sort of legislation that may come down may hurt legitimate farming and ranching operations,” he said. “They kind of like the status quo because they have the low taxes right now.”

But Hughes said something needs to change.

“The purpose for why it was originally intended is not being followed,” he said. “Is it OK for the president of the local bank to be getting a tax break on his 20 acres?”

Steve Porter covers agribusiness and natural resources for the Northern Colorado Business Report. He can be reached at sporter@ncbr.com or at 970-232-3147.

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