Policy & RESEARCH

Capitol Ideas

CSG Knowledge Center

Research Services

MLC Policy Resolutions

Stateline Midwest

States Perform

policy

 

Tax relief, certainty for farmers are goals of Nebraska measure changing how ag land is assessed

by Carolyn Orr ~ March 2017 ~ Stateline Midwest »
The majority of Midwestern states determine farm property taxes through a system that assesses the land based on “use value” — how much income it can generate from agricultural production.
One of the few exceptions is Nebraska, where a percentage of the land’s actual market value (currently set at 75 percent in statute) is used to determine what a farmer or rancher will pay in taxes.
With the value of agricultural land rising rapidly in recent years (see table), Nebraska’s agricultural producers have faced big increases in their tax bills, and over the past two years alone, the state’s legislators have intervened by putting more than $400 million into a Property Tax Credit Relief Fund, which for 2016 will provide $89.57 per $100,000 of property valuation.
Beginning in tax year 2017, LB 958 provides $20 million in additional funding for property tax relief.
This legislative year, Sen. Lydia Brasch hopes she and other Nebraska legislators are able to find a more permanent solution.
LB 338 would overhaul agricultural tax valuation in Nebraska, incorporating “use value” into the system for the first time while also instituting new controls on how much the value of agricultural land (for property tax purposes) can increase from one year to the next.
“This is a sound, long-term, stable solution that will bring farming into the future,” Brasch believes.
According to Brasch, farmland valuations in her home state have been driven up artificially through recreational and speculative purchases of adjoining lands in scenic areas such as the Wildcat Hills. She adds that limited sales in some areas make it difficult to establish accurate assessments.
The goal of LB 338 is to provide Nebraska’s farmers and ranchers with more certainty on what they can expect to pay in property taxes every year.
Under the legislation’s proposed formula for calculating “agricultural use value,” federal price and yield data would be used to determine a farmland’s income potential; U.S. Department of Agriculture and University of Nebraska surveys would be used to calculate expenses. (A 10-year average would be used in determining the land’s use value.)
This alone does not prevent dramatic changes in taxes from one year to the next, as other states using the income-based model have found.
But LB 338 also calls for Nebraska’s property tax administrator to modify the capitalization rate (interest rate) to ensure that the agricultural-use value falls somewhere between 60 percent and 75 percent of the actual value.
In addition, the aggregate value of agricultural land throughout Nebraska could not increase annually by more than 3.5 percent.
Many leading agricultural groups in Nebraska are backing LB 338; opponents are concerned that the bill would impact school funding — in the Midwest, Nebraska is second only to Illinois in relying on local property taxes to fund its K-12 education system.
Agricultural land currently accounts for 29 percent of all property tax revenue collections in Nebraska, up from 24 percent in 2002.

Article written by Carolyn Orr, CSG Midwest staff liaison for the Midwestern Legislative Conference Agriculture & Natural Resources Committee.