Nothing has changed in how farmland is assessed in Indiana since 2005. That's the message Andy Miller wants farmers to hear, read and understand. Miller is director of the Indiana State Department of Agriculture. Apparently many farmers are confused about the impact of the new bill on farmland assessment and possible property tax implications. Some are calling ISDA looking for answers.
"The governor (Mitch Daniels) made it clear early on in the legislative process leading up to property tax reform that changing how farmland is assessed was not on the table for debate," Miller says. That means it will still be assessed by use value, a recognized method of determining assessment. The other method is market value, used to determine value of homes and businesses. In the end, the legislature honored that request, and did not change the formula for how the value for average farmland is determined in Indiana for assessment purposes. Tax rates are applied to assessed value to determine the total property tax bill in any given district.
The confusion largely stems from the fact that allow the legislature did not touch the formula, land assessment values are going up. There are also those who aren't totally pleased that something wasn't done to adjust the formula to account for these increases.
The average farmland value was frozen for two years at $880 per acre. For taxes payable in '08, the value for average farmland was $1,140 per acre. That's because the $880 stipulation sunsetted, and the value was determined by a formula that includes several key factors, including price of crops, cash rent values and cost of inputs. The formula was developed with help from Purdue University and taxing agencies.
Currently, the formula is figured on six years, not just one season. It's the average across those six years that produces the numbers feeding into the assessed valuation for bare farmland. However, the last year currently included is 2005, so there's a lag between today's environment and the period covered by the formula. Each year, the oldest year rolls off and data from the next year rolls into the calculation.
Since the formula was again used to calculate property taxes payable in '08, assessed valuation of average bare farmland rose about 30%. However, Miller correctly points out that just because assessed valuation goes up 30%, it doesn't follow that the property tax bill goes up 30%. In fact, if other assessed valuation in the community goes up, the taxes due for farmland might not increase at all, or could in theory decrease. That's because tax rate is applied to assessed valuation to determine the actual amount of property tax due.
It's also important to note that your farmland may be appraised at a different value than $1,140 for taxes payable in '08, or $1,200 per acre for taxes payable in '09. That's because adjustments are made for both poor and above average farmland.
Miller's biggest hope is that farmers will take time to understand the formula, and how it works. "We really want to get the point across that the formula used to determine assessed valuation on bare farmland has not changed since 2005," he says. "The latest legislative session and the property tax reform bill that passed did not alter this formula in any way."