Ag land tax could see big hike

By Sarah Pridgeon

Tax levels for agricultural lands are likely to increase significantly next spring, but taxpayers have an opportunity to control exactly how much, says County Assessor Lisa Fletcher. To finalize percentages, the Assessor’s Office is looking to gather information from producers and sellers across the county.

A study prepared by the state to determine agricultural tax levels each year shows a high estimate increase of 39 percent for irrigated land, 18 percent for dry crop land and 13 percent for range land, though the exact numbers for Crook County’s taxpayers will not be established until the Assessor’s Office has gathered local data.

The office is provided with a range based around the above percentages and can determine, according to local circumstances, exactly where on that scale Crook County should fall. But despite not yet having precise figures, the Assessor’s Office is making the public aware of the increase now to help producers plan their business activities for the year ahead.

“We can set the levels anywhere within that range. Last year, because of the drought, we went 15 percent higher than the lowest because the USGS office said that 85 percent of Crook County was in an emergency drought,” explains Theresa Curren, Assessor’s Office.

“But this year, even if we use the lowest we possibly can, it’s still going to be higher than it has ever been.”

Input from producers will be vital to setting the exact levels – sharing financial details can be more beneficial to taxpayers than it may at first seem. Local conditions will be the deciding factor in how much tax levels will increase in this county.

“I talk to producers to see what they’re paying for rent, what they are paying or selling hay for and so on. It’s going to go up because we didn’t have a drought, we had a really good year, but I can’t yet say by how much,” says Fletcher.

“It’s important for them to talk to me because that’s how I base my values. The more producers who are willing to talk to me and give me information, the more accurate the values I have.”

This is particularly important because conditions will differ across the county. Grazing pasture in the north could, for example, be renting for a higher value than in the south, or the soil in one area may produce hay that sells for higher prices.

If the Assessor’s Office is only aware of the figures at one end of this scale, the data will be skewed and the results inaccurate. This could cause taxes to increase more than they would with a full set of figures available.

“Some people are leery about talking to me because they think that’s what’s going to cause the values to go up, they don’t realize that it might help lower it or keep it level,” says Fletcher.

The 2014 Agricultural Land Valuation Study determines the taxable value of agricultural lands, valuing each of the three types according to ability to produce forage or crops. For irrigated crop land, the valuation is based on hay production because it is the most widely produced irrigated crop in the state.

Dry crop land is valued according to wheat production, again the most widely produced dry crop in Wyoming. Range land is meanwhile valued according to grazing fees: the amount of forage required to maintain a 1000 lb cow, with or without a calf, for a month.

The prices of each commodity are based on data from the USDA/National Agricultural Statistics Service, Wyoming Field Office. Every market year, the NASS estimates the average prices received by farmers and ranchers for hay and wheat and the average cost for grazing on privately owned range land; these prices are then converted to a five-year weighted average.

Commodity and five-year weighted average prices for hay, wheat and grazing fees have all risen this year, which is partly responsible for the tax increases.  The average commodity price of hay in particular has increased considerably, rising from a weighted average of $102.10 per ton in 2008 to $143.03 per ton in 2012.

“The price of hay went up so much last year because not that many people had hay and everybody needed it, so of course the prices are going to increase like crazy. Wheat is going up in cost too, which is also going to drive it up,” says Fletcher.

“It’s just inflation; people are paying a lot more per animal unit to lease property and a lot more people are breaking their parcels out, so people are losing their pasture. Plus newer people are moving in, so you have a lot of competition – it’s whoever is willing to pay top dollar when we’re short on grass.”

Though tax levels rise naturally due to inflation, the jump in hay prices is an anomaly that has caused a greater increase than seen for many years.

 Capitalization rate

The tax level increases have also been partly caused by a change in the capitalization rate, which is based on the five-year weighted average of the annual Farm Credit Services of Omaha long term loan portfolio interest rates.

The capitalization rate has changed “drastically” this year, says Fletcher, going down so much that it is driving agricultural values up. The rate is used to calculate taxes by adding an effective tax rate, multiplying the statewide average mill levy by the assessment level of 9.5 percent.

The result is, again, weighted. The landlord’s income is extracted from gross income and expenses such as fertilizer and water are deducted along with production losses caused by necessary management practices, such as summer fallow.

For example, if the five-year average hay price is $143.03 and the landlord of a piece of irrigated crop land receives 40 percent of its income, this sets the landlord’s share of the income at $57.21. If $28.60 is then deducted for expenses and $4.29 for seed year losses, the net income for a ton of hay would be set at $24.31.

Range land is valued in basically the same way as irrigated and dry crop land, although no tenant-landlord relationship is included and all rental income charged for grazing is treated as cash rent paid to the landlord.

The capitalization rate has been dropping over recent years, from a high of 6.2 percent in 2009 to a much lower 4.83 percent in 2013. The yield per acre and net income of hay or wheat per acre (or per animal unit month) is divided by this number to determine land value; the lower the rate, the higher the resulting figure.

For example, three tons of yield per acre would be multiplied by a $24.31 per ton income rate and the result then divided by the capitalization rate. If this rate were 5.275 percent, the assessed land value per acre would be determined as $1.383 per acre.

To calculate the actual tax bill, the County Assessor then multiplies the assessed land value by the appropriate tax district mill levy.

Taxpayers will find out how much their individual taxes have risen in April, when the year’s assessments are sent out using the exact values to be determined through the data collected from producers and sellers. The Assessor’s Office will provide updates to the public as they become available and, in the meantime, welcomes input from taxpayers and is available to answer questions.