Production growth, changes in calculations mean agricultural land property taxes will rise
Landowners be warned: property taxes for agricultural land are likely to increase sharply next year, payable in 2013.
"We've been telling people when that certification comes out in December, we're looking at a 20 percent increase," said Noel Johnson, former Stutsman County chief operating officer.
The jump in taxes will occur both because of the way taxes are calculated using 10-year averages and because of the Legislature's determination of a number in the tax formula.
Individual landowners' taxes may also shift up or down based on a new inventory of soil types, which are used to determine land's productivity, which in turn determines taxation.
The new soils inventory will include information about how the past three years of flooding have affected the land, and may provide relief for landowners with fields underwater. However, people whose fields have not been affected by the high water may see an increase in property taxes due to the soils inventory.
A sharp increase
Agricultural land assessment is not based on how much money land would sell for, Johnson explained.
During the 1970s, when wheat prices and land values skyrocketed, landowners experienced massive spikes in property tax levels, Johnson said. To try to avert similar problems in the future, the Legislature instituted a property tax system based on trending.
A critical part of the tax formula is the calculation of average cropland returns. That number is determined by taking the average income of cropland acres for the past 10 years after dropping both the highest and lowest years.
By dropping the low and high years, and by using averages rather than simply taking the most recent number, the Legislature hoped to avoid abrupt increases or decreases in property taxes, Johnson explained.
The 2012 taxes will experience a sharp increase regardless. A year of low returns -- 2000, when returns were at $36.75 million -- was dropped, and a year with high returns -- 2010, with returns estimated at $70 million -- will be added to the 10-year averages.
Even dropping the two outlier years, 2001 and 2008, won't be enough to smooth out the jump.
The second factor causing the property-tax increase is the statutory cap rate, a number in the complex formula used to calculate property taxes, which is set by the Legislature.
The number is based on average interest rates -- the cost of borrowing money for farmers -- which have been falling.
In prior years, the Legislature set the number higher, which kept property taxes down. This year, lawmakers did not do that.
In 2010, that number was set at 7.70 percent, and it was set at 7.4 percent in 2011.
In 2012, that number will dip to 6.07 percent, which will cause an uptick in property taxes.
"Everything we're doing is by legislative mandate," Johnson said.
In Stutsman County, property taxes will also be affected by the county's soil mapping efforts. Some people's taxes will increase, if their land has remained productive and unaffected by recent flooding, and other people's taxes will decrease.
Soil scientists have already mapped the U.S., establishing common characteristics of the land. In the late 1980s, Stutsman County's information was digitized, so that every piece of land with the same soil type with the same use could be assessed identically.
"It's the most fair system there is. I've been working with this for 30 years," Johnson said.
Using field maps from the Farm Service Agency and the soil maps, the county can assess each sliver of each different type of soil with each type of use -- cropland, pasture, trees, etc. -- separately to determine the total taxes.
The process is lengthy and complex, and will probably take something like 4,000 employee hours, Johnson said. Many counties contracted the soils mapping process out, but Stutsman opted to do it all in-house to save money. Eventually, extra help may be hired. So far, it's somewhere between one-third and one-half done, and it must be complete by 2012.
Stutsman County has 64 townships, each of which has 36 sections, each of which is divided into 160-acre quarter-sections -- meaning there are at least 9,216 agricultural parcels to assess.
The soils mapping process will not affect the total amount of property taxes Stutsman County takes in. That target number is given to the county by the Legislature.
It will affect individuals, however.
"In the past, good stuff was valued a little low, and poor stuff was valued too high," Johnson said.
Farmers who have been hit hard by high water in the past five years may find some relief after the soil mapping is complete. Where the field maps show that land has been underwater and nonproductive for three years, the values of that land will be adjusted downward.
County officials will meet with township officials to explain the soil survey in-depth, and information will be sent to individual taxpayers as well, Johnson added.
"They need to be prepared. For budgeting purposes, they need to be aware of (upcoming tax increases)," said Toni Hible, director of tax equalization for Stutsman County.
Sun reporter Kari Lucin can be reached at 701-952-8453 or by email at email@example.com