The House Agriculture and Natural Resources Committee took executive action on Valentine’s Day and passed SHB 1437 out of committee. It was a tight vote, which indicates a tad bit of polarity and controversy. And I suppose it shows this is an issue worth bringing to the legislature for a public debate. There is a lot of hard work ahead. Please take a look at “things to do” for how you can assist in this effort.
First a Recap
So as not to get lost in the forest, the objective of this legislation is to allow small farms the same tax treatment as large farms under the current use property tax program. The proposal does not exclude any size of farm or any type of activity, but it does address “risk” through income requirements. The risk the proposal addresses is to make sure that the very small farms who are afforded this special treatment are engaged in highly productive agriculture. See the chart at the end of this post.
And remember, this is about farmland preservation and addressing the emerging trends regarding the viability of small farms.
Briefly, farms 20 acres and over are eligible to have all of the land on their farm, including the land under the farm residence assessed at “current use.” Under existing law this tax treatment is not available for farms under 20 acres. The proposal extends the tax treatment to all farms. The eligibility requirements use the existing acreage thresholds and provide that farms 5 acres and over are eligible for the same tax treatment as large farms; and farms under 5 acres must show an income of at least $10,000 per farm to be eligible for the tax treatment. The unique income requirement for very small farms is included to address any risks with hobby farms. This is described below in more detail.
Four Issues Under Debate
Let’s talk about the controversy. There are at least four things going on here. You need to make your own decision of course on this, and see if on balance you think the proposal warrants your support. Enacting legislation is about making choices. It is not about perfection; it is about accommodation. If you have suggestions for improvement or a differing viewpoint, please comment or contact us. This proposal is not a take it or leave it approach. We want it to work for small farmers and for the communities in which they live and work.
- Are small farms real farms? This is an interesting discussion and focuses on a couple of points. One, should a farm qualifying for the current use program be the sole source of income for the farmer? The answer is no. This is not a requirement under existing law for large or small farms and does not make sense in the farm economy or today’s economy. Second, can a small farm provide enough income to contribute to an individual’s or family’s economic well being? The answer is yes. Just like with large farms there are a variety of incomes and productivity levels on any one farm. The current use program requires the farmer be engaged in “commercial activity,” which requires sales of products for cash money. To be eligible for current use tax treatment for land under the residence requires the residence be used in manner integral to the classified lands.
- Hobby farms and how to reduce the risk of including them in the program. The current use program was put in place to preserve farmland and to maintain the farmland base. It is about farming for profit, not farming for fun. Hobby farms are not included in the program today; however no tax compliance program can be managed so tightly or with such extreme definitions that it does not have gray areas. One such gray area, and an area of concern to the public and the local governments is whether the current use program is available for farms that are really not engaged in farming as a commercial activity. The tax administration issue is balanced against the desire to preserve farmland. The question comes up of whether these small parcels are worth preserving. To address this issue, PSHB 1437 requires that any farm under 5 acres, in order to receive current use valuation on the land under the farm residence, must prove an income of at least $10,000. This is significant and substantial. It is a lot of carrots, many many dozens of eggs, row crops upon row crops. The belief is that $10,000 will identify those small farms that are intensely farming. Very small farms not able to establish this income will continue to have a one acre area around their farm residence valued at fair market value.
- The impact on local government budgets and taxpayers. The property tax system is different from the sales and excise tax system. Basically the county government backs into the amount of money raised through property taxes – which means that when property values change, then tax rates are modified to reflect the change in the mathematical equation. So under the current use program, when value is reduced in a taxing district, tax rates go up. This is referred to as a shift. It shifts to all of the taxpayers, including the farmer whose land is under current use valuation. Under this proposal some taxpayers in the state will have shifts of pennies, others dollars. It depends upon the property in the taxing district. And, some county budgets will actually lose money. This is because some districts will be at their rate limit. The public policy debate here is whether this loss of money and shift of taxes is a good investment in farmland preservation.
- Should we regulate agricultural activities, like aquaculture, through the current use program? The existing current use program is available to all types of agricultural activities, without exception. It has been suggested that this extended tax treatment for the land under the farm residence should not be available to small farms whose agricultural activity is aquaculture. We suggest this is the wrong approach and here is why. First and foremost, the current use tax program is not a tool to be used punitively or a tool for leverage on other issues, such as shoreline management or air pollution. It could be used this way, but there are other avenues to solve those problems, other tools, other forums. The current use statute does not require organic versus non organic production; there is no requirement for turkey confinement or free range; there is not a streamside vegetation buffer requirement for current use participants. The current use program is a straightforward – farm land should not be taxed at fair market value. It is a mistake, in our view, to tackle the shoreline issues through the property tax code. Farming is farming. Aquaculture activities have their pros and cons. So do dairies, poultry farms, orchards, and so forth. Lets tackle those issues directly through the statutory authority and regulatory framework designed to resolve those types of disputes. Second, large farms get the tax treatment for the land under their residence regardless of agriculture activity. This proposal is about fairness regarding tax treatment. It’s not the environment versus jobs versus farming with this proposal. It is a simple proposition – current use valuation for property that is used integral to a farm.
SHB 1437 Strikes the Right Balance
The current use program as it exists today manages risk through a three-tiered approach based on size. SHB 1437 continues that approach. The following chart lays out how this will work. We think it makes sense. It addresses the need for scrutiny and it acknowledges that the public’s need for accountability increases as the size of the farm decreases. Lets get on board and go forward with this proposal. This proposal makes land accessible and available to young farmers, existing farmers, new farmers, and old farmers. There is nothing wrong with that.
|Size of farm||Farms under 5 acres||Farms 5 acres to 20 acres||Farms 20 acres and over|
|Commercial Activity in the form of Cash Money||yes||yes||yes|
|Farm residence must be integral to the classified lands||yes||yes||yes|
|Income requirements for the underlying program||$1500 per farm||$200 per acre|
|Income requirements if seeking “integral” treatment||$10,000 per farm|