Bill would allow for smaller parcels to receive open space tax reduction

The Legislature is considering a bill that would extend tax reductions to small parcels that are part of a larger farming operation.

Photo by Dee Camp
The Legislature is considering a bill that would extend tax reductions to small parcels that are part of a larger farming operation.

— A proposed change to a law aimed at preserving farmland and open space could result in higher taxes for some Washington property owners.

House Bill 2306 would expand the tax classification on land actively used for agriculture, timber production and undeveloped open space. While property tax is generally assessed on the market value of a parcel, the state’s Open Space Taxation Act allows land to be taxed at a lower rate based on its current use, such as farming.

Under the current law, if a farming operation is 20 acres or more, the parcels must be contiguous in order to be eligible for the lower tax classification.

The bill proposes to take out the “contiguous” stipulation, opening up the tax classification to farms with multiple non-touching parcels totalling 20 acres or more.

“It’s the preservation of farmland... that is my ultimate goal,” Rep. Kristine Lytton, D-Anacortes, the bill’s primary sponsor, said at a Jan. 21 hearing before the House Finance Committee.

Allen Rozema, executive director of Skagitonians to Preserve Farmland, says the bill could help preserve farmland and open space not currently eligible for the lower tax rate.

“This is an innovative and unique approach to keeping agriculture viable,” he said. “This approach and similar approaches need to continue to be pursued by the Legislature. It helps to elevate the preservation of farming to the same level as our state’s other critical resources.”

Farming is an essential part of the state's economy.

The state Department of Agriculture valued agricultural production in 2012 at $9.89 billion, exceeding 2011 figures by 6 percent and setting a new record.

Statwide, the average farm size has decreased about 12.5 percent from 2003 to 2012, but the number of farms has increased about 7 percent in the same time period, the federal Department of Agriculture reported.

The number of small farms is still increasing, Rozema said.

It’s hard to know how much of a tax shift could result from allowing more parcels to qualify for the lower tax rate, as there’s no estimate of exactly how much land could be eligible, Yakima County Assessor Dave Cook said.

Some county assessors are concerned that extending the current-use tax rate to more land could mean higher tax bills for other property owners.

Each county collects a specific amount of property-tax revenue, with the total amount spread across all taxable properties. In addition, land owned by state and other governmental agencies is generally exempt from property taxes.

When properties are assessed at a lower rate or are exempt, other properties in a taxing district must make up the difference. That difference in property tax increases could be significant.

Cook says the legislation could result in a $70 million loss of assessed property value in Yakima County because more farmland would be assessed at its current use rather than market value. Property owners with a decrease in assessed value will likely pay less in taxes.

"The tax-shift implications are significant when you go on a statewide basis," Cook said.

Before the finance committee voted on a proposed substitute bill on Feb. 6, Rep. Terry Nealey, R-Dayton, suggested the Legislature study the impact and possible tax shift.

Additionally, some county assessors say eligibility for this current-use tax classification could be interpreted so broadly under the bill that it may encompass land not used for farming at all, such as packing facilities that are part of a larger farming operation.

The bill not only addresses the size of farming parcels, but also other scenarios common to farming operations.

In one particular case, for example, a farmer may grow grain to feed livestock that they sell. The land used to grow the feed is not directly generating income if the grain is not being sold. Therefore, under current law, that parcel of land used to grow the House Bill 2306 would change that.

A substitute bill, approved Feb. 6 by the House Finance Committee on a 10-3 vote, further clarifies specific language in the original bill. It states individual parcels that have been combined to qualify for this tax classification do not have to individually generate income as long as the whole farming operation does.

The substitute bill further outlines that if a parcel of at least 5 acres is leased to a farmer and that farmer has other land that qualifies for the lower tax rate, the leased land would also be eligible.

An application process would still be required for land to be considered for the current-use tax classification.


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