Farmers’ taxes rising, but not because of higher land values

The skyrocketing value of Iowa farmland - up 93 percent since 2004 - has not translated into a property tax windfall for rural Iowa counties.

That's because farmland's valuation for tax purposes is determined through a productivity formula, rather than on its market value, as is the case with residential, commercial and industrial property.

Even so, productivity gains fueled by rising commodity prices will translate into another substantial property tax increase for Iowa farmers, according to Tim Johnson, a research analyst with the Iowa Farm Bureau Federation.

“In each of the past three years, property taxes on ag land and buildings have increased at least 5 percent, and we are likely to see a similar increase this year,” Johnson said.

After remaining rather static for many years, farmland taxable valuation, computed every-other year by the Department of Revenue, increased 16 percent in 2007, 48 percent in 2009 and will increase 25 percent this year, said Dale Hyman, a property tax administrator with the Iowa Department of Revenue.

An adjustment of the rollback rate - the percentage of taxable value that is actually taxed - will ensure that farmers' actual property tax increase will be substantially lower.

To cushion the impact of high inflation, the Legislature, more than 20 years ago, instituted the rollback, which limits the total statewide increase in taxable value of homes and farms to 4 percent per year.

While taxable valuation increases can't exceed 4 percent per year, tax increases can, according to the Farm Bureau's Johnson.

Farmers have gotten a “double whammy,” with increased taxable valuations and increased levy rates from rural school districts coping with reductions in state aid, Johnson said.

For agricultural land, there was no rollback in 2006, but the rate inched down in 2007 and 2008 and dropped markedly to 66 percent in 2009 and 69 percent in 2010 as ag productivity increased, according to Hyman.

It will drop again this year to compensate for the 25 percent increase in taxable valuation, Hyman said.

Of course, the tax levy set by local governments also will influence the amount of any actual property tax increase, Johnson said.

Johnson said most Farm Bureau members support the state formula for setting farmland assessments because it corresponds with their ability to pay.

“Their tax burden goes up when commodity prices are higher and down when they are lower,” he said.

Overall property taxes on Iowa farmland have increased from $484 million in fiscal 2000-01 to $621 million in 2010-11 - an increase of 28 percent.

During that same period, residential property taxes have increased from $1.23 billion to $2.20 billion - a gain of 79 percent - and from $682 million to $1.29 billion for commercial property - a gain of 89 percent.

“They are not making any more farmland, but they are still building houses and box stores. That's one good reason why farmers' share of property taxes has not gone up as much as other property classifications,” said Steve Ford of the Iowa Department of Management.

Agricultural property taxes had been based on the land's market value until the 1970s when rapidly rising land prices forced adoption of a formula using both market value and productivity. Since 1979, agricultural property taxes have been based solely on productivity in a formula using USDA county-by-county price data and Iowa State University farm expense data.

During each odd-numbered year, the Iowa Department of Revenue updates farmland values using data from the most recent available five-year period.

In the current update, the 2003 and 2004 crop years, in which average corn prices were $2.37 and $1.99 per bushel, respectively, will be replaced by 2008 and 2009 figures, in which corn prices averaged $4.10 and $3.59, respectively.