What's really agricultural land?
By David Grant Long
Buy a few acres, stick a couple horses or cows on it, and enjoy a substantial tax break.
That’s the idea many people have when they purchase land in a rural area.
Agricultural land in the state of Colorado is taxed at a much lower rate than land classified as commercial, vacant or residential. But in an effort to end what he sees as sometimes a “tax dodge,” Assessor Mark Vanderpool and his staff have removed more than 1,000 parcels of land from agricultural classification in Montezuma County during the past three years.
In some cases that has quadrupled the owners’ property taxes.
Not surprisingly, many are unhappy. But Vanderpool believes the changes were necessary to spread the propertytax burden more equitably among all county residents.
“Fairness was the thing in my mind,” Vanderpools said recently. “We are not out to hurt farmers or ranchers,” he stressed, adding that they have nothing to fear so long as they are engaging in legitimate agricultural uses. To qualify as agricultural land, a
tract’s “primary purpose” must be to produce money through farming or ranching. And that doesn't include growing a few tomatoes for the farmers’ market or building a fancy house on five acres and playing host to a neighbor's cows or even grazing and boarding a few “pleasure horses” of your own.
He said possibly as much as 15 percent of the county's property could be misclassified and taxed too low.
"This is made up for by the other 85 percent,” he said, explaining that the challenge of rectifying this inequity was “a strong motivation” when he decided to run for a second four-year term this fall. Vanderpool is unopposed.
“I hope to get it to 100 percent [correct] by the end of my second term.”
Some of those reclassifications to residential and vacant land were, predictably, vigorously protested before the county commissioners, Vanderpool said, but most property owners accepted the reason for the change.
“Most of those [1,000] reclassified were pleasantly surprised and relieved” when they got their new tax bills, he said, because “taxes on residential property in Colorado are one of the best deals in the country.”
Still, some landowners were fighting mad over the change. Possibly 40 to 50 have taken their cases for restoring their ag classification to the county commissioners, who sit as the Board of Equalization on property-tax appeals. Most of those appeals have failed.
“There's been only one case where the county commissioners disagreed [with the assessor’s office],” Vanderpool said.
Carol Stepe of Dolores and her husband, Jack Akin, appealed their reclassification to the commissioners and lost, but are taking their case to the Board of Assessment Appeals in Denver.
“I have no doubt there are people who are taking advantage of the system and need to be reclassified, but that’s not us,” Stepe said.
The couple owns 230 acres on the Dolores River where they graze cattle and sheep. Five or six years ago, she said, they bought 80 acres southwest of Cortez so they could bring their cattle there in the winter. “Up river it’s cold and we have to feed a lot longer,” she said.
However, Akin became seriously ill with heart problems two years ago. They were forced to split three three-acre parcels off the tract and sell them to pay his medical expenses. Meanwhile, they left the land fallow, Stepe said; just five acres had been plowed before Akin fell ill.
The land became overrun with Russian knapweed, so they spent $7,000 and worked through the county weed program to have the infestation destroyed.
“You can’t put animals on there and you can’t grow anything while those chemicals are on there,” Stepe said.
But the assessor’s office said that, because the land was not being used for agriculture, it did not merit the designation, and reclassified it as vacant land.
Their taxes went from $376 to $2,143, she said, plus $563 for a 3-acre tract that hasn’t sold yet.
Although they dug a well to provide water for a stock pond and plowed the entire 71 acres under in 2006, the classification wasn’t changed, so they have protested.
Vanderpool, however, said aerial photos don’t indicate there is any ag use being made of the land, although it was indeed turned over. “Repeated field visits did not indicate any ag use, either,” he said. “There are no crops and no grazing.” Fencing is inadequate to contain animals, he added.
He said the head of the county’s weed program, Ron Lanier, told the assessor’s office there is “no weed program he’s aware of that would prevent people from using the land agriculturally.”
“There’s nobody in the county who only does agriculture and doesn’t have another job except Jack,” Stepe said. “He’s been in agriculture all his life but he can’t get an ag designation.”
A high standard
Stepe’s case isn’t typical. Usually such appeals involve smaller parcels used to graze a few head of livestock for a portion of the year that earn the owner an insignificant amount. For instance, two recent cases that came before the commission involved parcels of seven and nine acres. One couple had paid $239,000 for their property in 2005 and leased a pasture large enough for only one cow/calf unit for $1 a month to a neighbor.
Appealing to the county commissioners, the husband argued that the property had been advertised as ag/residential and that it came with five shares of Montezuma Valley Irrigation water. Before he purchased it, he said, the lease agreement for the cattle was merely verbal.
“I got a written agreement but he was reluctant to negotiate the price so we agreed at $1 per month till we could negotiate,” he argued.
He said the neighboring tracts were all agricultural and the land has the same livestock on it that it did before, when it was classified as agricultural. But representatives from the assessor’s office said the surrounding tracts had in fact been reclassified, and said irrigating a field didn’t necessarily qualify a parcel as agricultural. The county commissioners agreed.
The owners of the seven-acre parcel — worth $337,000 — had two horses grazing on it, for which they were paid $20 each for five months a year, for a total income of $400.
They said they’d bought the property four years ago with the intention of building a house on it and improving the pasture for grazing. They said the horses weren’t pleasure horses but were owned by a Navajo couple who use them in livestock roundups. That didn’t sway the commissioners. “It’s a very high standard to meet,” noted board Chair Dewayne Findley. “It’s hard to achieve with a seven-acre parcel.”
The wife, upon denial of the appeal, said the county was taking away incentives for people to care for their land. “It sounds like the county’s just trying to improve their revenues,” she said bitterly.
But it seems clear that neither of these examples would fit the definition of ag land included in a handout supplied by Vanderpool's office.
“While it is impossible to generalize a method for deciding classification questions,” it explains, “it is necessary that the land be part of a functioning farm or ranch used for the primary purpose of obtaining a monetary profit from agriculture.”
The document also states that “if the primary purpose of the owner is that the land be used as an operating farm or ranch, the owner will either personally work the land or will enter into a formal lease agreement with a third party to work the land.”
The Colorado Court of Appeals ruled in 1998 that keeping horses for one's own recreational riding — i.e., pleasure horses — does not constitute grounds for ag classification because the animals are not used for “food, breeding, draft or profit,” and therefore do not meet the legal definition of livestock.
Ranging from a few acres to 80 or so, the many misclassified parcels came to light, Vanderpool explained, when he sent appraisers throughout the county to look for “escaped improvements,” improvements such as residential additions and accessory buildings and even new residences that add value to a property. He said because the county does not require building permits, new buildings and improvements that increase the value of a property can be missed, especially since the state electrical inspector and Empire Electric will not share their records of new hookups. Appraisers go into the field armed with laptops that contain aerial photos of the county and are capable of zooming in on a property to look for unrecorded improvements and then update the property on the spot, he explained.
One unexpected result of this increased scrutiny was discovering a plethora of misclassified land. “Another thing we were missing was parcels of land classified agricultural that weren't being used for ag,” he said.
The great majority of the parcels that lost their ag classification were inspected in the summer when most agriculture occurs, he said.
Not the same as zoning
Vanderpool gave a hypothetical example of how losing ag classification on a 50-acre parcel could affect the owner's tax bill. Although there are several valuations used for different types of ag land — depending on the particular use and type of irrigation, if any—- he placed what's called the “actual value” of this ag tract at $250 per acre, making the actual value of the parcel $12,500. The assessed value at the rate of 29 percent would be $3,625, on which the owner would pay the current 55-mill tax, for a total of around $200.
If reclassified as commercial or vacant land with an actual value of $1,000 an acre (a low-end figure in the rapidly developing county) the assessed value at the 29-percent rate would jump to $14,500, and the tax bill would quadruple as well to around $800.
But if a parcel is classified as residential, the land is assessed at a much lower percentage of the actual value — for the past few years a 7.96 percent ratio. This is the result of the 1982 Gallagher Amendment to the state constitution, which limits how much of the state's total property taxes can come from residential property. Under the formula, the residential asssessment ratio has fallen from 30 percent in 1982 to the current 7.96 percent. The difference is so significant that Vanderpool sometimes suggests that property owners put a residence on vacant parcels to reduce their taxes, he said.
One point Vanderpool wanted to make is that classification of land by the assessor's office for tax purposes is entirely different than how it may be zoned so far as the county's zoning scheme — Landowner-Initiated Zoning. (In other words, qualifying for ag classification isn't a matter of getting your property zoned agricultural.)
“The assessor's classifications are based on use,” he explained, “and have nothing to do with how the land is zoned.”
For instance, a so-called “paper-only subdivision” — land approved for subdividing but which is devoid of development and still used for farming or ranching — would be classified as ag land until lots are actually sold and building begins.
“Each case is a judgment call and has to be looked at individually,” he said.
But owners of five-acre plots purchased for $60,000 to $70,000 who want ag classification need to demonstrate with leases and receipts that the land is actually used to produce a significant income .
"If they agree to graze a few cattle for a few dollars a year, you can't convince me the primary purpose is argiculture," Vanderpool said.
There is no minimum size in law to qualify for ag status, he said, but smaller parcels are less likely to meet the criteria.
One way to ameliorate the situation, he suggested, would be for the state legislature to create a “middle ground” classification for hobby farmers — “people with 10 acres and a horse.” Vanderpool said giving such landowners a tax break could help protect land from development.
“People who have lost their (agricultural) classification are motivated to use their land for its best financial use. It encourages subdivisions,” he said.
Legislation that established this property class was passed in the 1980s, but was soon declared unconstitutional. Vanderpool would like to see some new measures that would encourage agricultural uses.
Currently just the opposite is happening: The pace of residential development in the county is on a sharp rise. A seven-year count compiled by the assessor's office shows 109 new homes built in the unincorporated area during 1999, compared to a projected 220 or more this year.
“It's just accelerating,” Vanderpool said. “Montezuma County land was used historically for agriculture, but that is rapidly changing.”
Still, until the law is changed, the assessor’s office will work to ensure that land is classified appropriately, even if that means taking away some people’s tax breaks.
“Ag people applaud what we're doing,” he said. “I've talked to as many people who favor what we're doing as oppose it.”